EX-99 7 sir2_scto101305exh6bayberry.txt EXH 12.6 BAYBERRY APPRAISAL COMPLETE APPRAISAL OF REAL PROPERTY Bayberry Crossing Shopping Center 523-529 SE Melody Lane Lee's Summit, Jackson County, Missouri 64063 IN A RESTRICTED APPRAISAL REPORT As of 6/20/04 Prepared For: SPECS, Inc. 4200 Blue Ridge Boulevard, Suite LH-06 Kansas City, Missouri 64133 Prepared By: Cushman & Wakefield of Illinois, Inc. Valuation Services, Advisory Group 455 North Cityfront Plaza, Suite 2800 Chicago, IL 60611 C&W File 10: 04-248-03 Cushman & Wakefield of Illinois, Inc. 455 North Cityfront Plaza, Suite 2800 Chicago, IL 60611 312.470.1817 Tel 312.470.2317 Fax randal_dawson@cushwake.com April 30, 2004 Jim Hoyt General Partner SPECS, Inc. 4200 Blue Ridge Boulevard, Suite LH-06 Kansas City, Missouri 64133 Re: Complete Appraisal of Real Property In a Restricted Report Bayberry Crossing Shopping Center 523-529 SE Melody Lane Lee's Summit, Jackson County, Missouri 64063 C&W File 10: 04-248-03 Dear Mr. Hoyt: In fulfillment of our agreement as outlined in the Letter of Engagement, we are pleased to transmit our complete appraisal report on the property referenced above. The value opinion reported below is qualified by certain assumptions, limiting conditions, certifications, and definitions, which are set forth in the report. We particularly call your attention to the following extraordinary assumptions and hypothetical conditions: Extraordinary Assumptions: This appraisal employs no extraordinary assumptions. Hypothetical Conditions: This appraisal employs no hypothetical conditions. This report was prepared for SPECS, Inc. and is intended only for their specified use. It may not be distributed to or relied upon by any other persons or entities without the written permission of Cushman & Wakefield Illinois, Inc. This appraisal report has been prepared in accordance with our interpretation of your institutions guidelines, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and the Uniform Standards of Professional Appraisal Practice (USPAP), including the Competency Provision. The property was inspected by and the report was prepared by Randal D. Dawson, MAI. This appraisal employs only the Income Capitalization Approach. Based on our analysis and knowledge of the subject property type and relevant investor profiles, it is our opinion that this approach would be considered necessary and applicable for market participants. The client has requested that we provide them with a restricted use report. Therefore. we have not employed the Cost Approach or the Sales Comparison Approach to develop an opinion of market value. Jim Hoyt SPECS, Inc. April 30, 2004 Page 2 Based on our Complete Appraisal as defined by the Uniform Standards of Professional Appraisal Practice, we have developed an opinion that the market value of the leased fee estate of the referenced property, subject to the assumptions and limiting conditions, certifications, extraordinary and hypothetical conditions, if any, and definitions, "as-is" on June 20, 2004 is: THREE MILLION TWO HUNDRED THOUSAND DOLLARS $3,200,000 Based on recent market transactions, as well as discussions with market participants, a sale of the subject property at the above-stated opinion of market value would have required an exposure time of approximately twenty-four (24) months. Furthermore, a marketing period of approximately twenty-four (24) months is currently warranted for the subject property. This letter is invalid as an opinion of value if detached from the report, which contains the text, exhibits, and Addenda. Respectfully submitted, CUSHMAN & WAKEFIELD OF ILLINOIS, INC. /S/ Randal D. Dawson -------------------- Randal D. Dawson, MAI Associate Director Missouri Certified General Appraiser License No. RA-003304 randaLdawson@cushwake.com 312.470.1817 Office Direct 312.470.2317 Fax SUMMARY OF SALIENT FACTS Common Property Name: Bayberry Crossing Shopping Center Location: 523-529 SE Melody Lane Lee's Summit, Jackson County, Missouri 64063 The site is located east of Missouri Highway 291 approximately one mile North of US 50. Property Description: The property consists of a 1-story multi-tenant neighborhood shopping center containing 54,478 square feet of gross leasable area on a 4.81-acre parcel of land. Assessor's Parcel Number: 61-510-09-01-01-0-00-000 Interest Appraised: Leased Fee Estate Date of Value: June 20, 2004 Date of Inspection: April 20, 2004 Ownership: Secured Investment Resources II, LP Occupancy: The subject property is 92.7% occupied by 20 tenants. Current Property Taxes Total Assessment: $1,513,691 2003/2004 Property Taxes: $148,956 Highest and Best Use If Vacant: A retail center developed to the highest density possible As Improved: As it is currently developed Site & Improvements Zoning: CB; Controlled Business District Land Area: 4.81 acres 209,440 square feet Number of Stories: 1 Year Built: 1986 Type of Construction: Steel and masonry Gross Building Area: 57,500 square feet Gross Leasable Area: Component Owned Area Total In-line 54,478 SF Total Center GLA 54,478 SF 100% Total Owned GLA 54,478 SF 100%
Parking Type: Surface Number of Parking Spaces: 312 VALUE INDICATORS Income Capitalization Approach Discounted Cash Flow Projection Period: 11 years Holding Period: 10 years Terminal Capitalization Rate: 9.25% Internal Rate of Return: 10.50% Indicated Value: $3,200,000 Direct Capitalization Net Operating Income: $291,304 Capitalization Rate: 9.00% Indicated Value: $3,200,000 Reconciled Value: $3,200,000 Per Square Foot (GLA): $58.74 FINAL VALUE CONCLUSION Market Value As-Is Leased Fee: $3,200,000 Per Square Foot (GLA): $58.74 Implied Capitalization Rate: 9.10% Exposure Time: 24 months Marketing Time: 24 months INSURABLE VALUE Conclusion: $3,600,000 Extraordinary Assumptions and Hypothetical Conditions Extraordinary Assumptions An extraordinary assumption is defined by the Uniform Standards of Professional Appraisal Practice as "an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis: This appraisal employs no extraordinary assumptions. Hypothetical Conditions A hypothetical condition is defined by the Uniform Standards of Professional Appraisal Practice as "that which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal. or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis." This appraisal employs no hypothetical conditions. [GRAPHIC OMITTED] Exterior of Subject [GRAPHIC OMITTED] Exterior of Subject [GRAPHIC OMITTED] Street View Facing North [GRAPHIC OMITTED] Street View Facing South [GRAPHIC OMITTED] Rear of Subject [GRAPHIC OMITTED] Rear of Subject TABLE OF CONTENTS INTRODUCTION 1 REGIONAL MAP 5 REGIONAL ANALYSIS 6 LOCAL AREA MAP 13 LOCAL AREA ANALYSIS 14 RETAIL MARKET & TRADE AREA ANALYSIS 16 SITE DESCRIPTION 26 IMPROVEMENTS DESCRIPTION 27 REAL PROPERTY TAXES AND ASSESSMENTS 30 ZONING 31 HIGHEST AND BEST USE 32 VALUATION PROCESS 34 INCOME CAPITALIZATION APPROACH 36 RECONCILIATION AND FINAL VALUE OPINION 52 INSURABLE VALUE 53 ASSUMPTIONS AND LIMITING CONDITIONS 54 CERTIFICATION OF APPRAISAL 57 ADDENDA 58 INTRODUCTION Identification of Property Common Property Name: Bayberry Crossing Shopping Center Location: 523-529 SE Melody Lane Lee's Summit, Jackson County, Missouri 64063 The site is located east of Missouri Highway 291 approximately one mile North of US 50. Property Description: The property consists of a 1-story multi-tenant neighborhood shopping center containing 54,478 square feet of gross leasable area on a 4.81-acre parcel of land. Assessor's Parcel Number: 61-510-09-01-01-0-00-000 Property Ownership and Recent History Current Ownership: Secured Investment Resources 11, LP Sale History: To the best of our knowledge, the property has not transferred within the past three years Current Disposition: To the best of our knowledge, the property is not under contract of sale nor is it being marketed for sale. Intended Use and Users of the Appraisal This appraisal is intended to provide an opinion of the market value of the leased fee interest in the property for the exclusive use of SPECS, Inc. in evaluating potential financing. All other uses and users are unintended, unless specifically stated in the letter of transmittal. Dates of Inspection and Valuation The value conclusion reported herein is as 'of June 20, 2004. The property was inspected on April 20, 2004 by Randal D. Dawson, MAI. Property Rights Appraised Leased Fee interest. Scope of the Appraisal This is a complete appraisal presented in a Restricted report, intended to comply with the reporting requirements set forth under the Uniform Standards of Professional Appraisal Practice (USPAP) for a Restricted Appraisal Report. In addition, the report was also prepared to conform to the requirements of the Code of Professional Ethics of the Appraisal Institute and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Title XI Regulations. In preparation of this appraisal, we analyzed rental data, and considered the input of buyers, sellers, brokers, property developers and public officials. Additionally, we investigated the general regional economy as well as the specifics of the local area of the subject. The scope of this appraisal required collecting primary and secondary data relative to the subject property. The depth of the analysis is intended to be appropriate in relation to the significance of the appraisal issues as presented herein. The data have been analyzed and confirmed with sources believed to be reliable. whenever possible. leading to the value conclusions set forth in this report. In the context of completing this report. we have made a physical inspection of the subject property. The valuation process involved utilizing generally accepted market-derived methods and procedures considered appropriate to the assignment. This appraisal employs only the Income Capitalization Approach. Based on our analysis and knowledge of the subject property type and relevant investor profiles, it is our opinion that this approach would be considered necessary and applicable for market participants. The client has requested that we provide them with a restricted use report. Therefore. we have not employed the Cost Approach or the Sales Comparison Approach to develop an opinion of market value. Definitions of Value, Interest Appraised and Other Terms The following definitions of pertinent terms are taken from the Dictionary of Real Estate Appraisal, Fourth Edition (2002), published by the Appraisal Institute. as well as other sources. Market Value Market value is one of the central concepts of the appraisal practice. Market value is differentiated from other types of value in that it is created by the collective patterns of the market. A current economic definition agreed upon by agencies that regulate federal financial institutions in the United States of America follows, taken from the glossary of the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller. each acting prudently and knowledgeably. and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under. conditions whereby: 1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised, and acting in what they consider their own best interests; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in US 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. Fee Simple Estate Absolute ownership unencumbered by any other interest or estate, subject to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Leased Fee Estate An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. Leasehold Estate The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions. Market Rent The rental income that a property would most probably command on the open market, indicated by the current rents paid and asked for comparable space as of the date of appraisal. Cash Equivalent A price expressed in terms of cash, as distinguished from a price expressed totally or partly in terms of the face amounts of notes or other securities that cannot be sold at their face amounts. Market Value As Is on Appraisal Date The value of specific ownership rights of an identified parcel of real estate as of the effective date of the appraisal; related to what physically exists and excludes all assumptions concerning hypothetical conditions. Prospective Value Upon Completion of Construction The value of a property on the date that construction is completed, based on market conditions projected to exist as of that completion date. This value is not the market value as of a specified future date, but rather is a projected value based on assumptions that mayor may not occur. This value factors in all costs associated to lease-up the property to stabilized occupancy. Prospective Value Upon Stabilized Occupancy The value of a property at a point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long term occupancy. At such point, all capital outlays for tenant improvements, leasing commissions, marketing costs, and other carrying charges are assumed to have been incurred. Exposure Time and Marketing Time Exposure Time Under Paragraph 3 of the Definition of Market Value, the value opinion presumes that "A reasonable time is allowed for exposure in the open market". Exposure time is defined as the length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at the market value on the effective date of the appraisal. Exposure time is presumed to precede the effective date of the appraisal. The reasonable exposure period is a function of price, time and use. It is not an isolated opinion of time alone. Exposure time is different for various types of real estate and under various market conditions. As noted above, exposure time is always presumed to precede the effective date of appraisal. It is the length of time the property would have been offered prior to a hypothetical market value sale on the effective date of appraisal. It is a retrospective opinion based on an analysis of recent past events, assuming a competitive and open market. It assumes not only adequate, sufficient and reasonable time but adequate, sufficient and a reasonable marketing effort. Exposure time and conclusion of value are therefore interrelated. Based on our review of national investor surveys, discussions with market participants and information gathered during the sales verification process, a reasonable exposure time for the subject property at the value concluded within this report would have been approximately twenty-four (24) months. This assumes an active and professional marketing plan would have been employed by the current owner. Marketing Time Marketing time is an opinion of the time that might be required to sell a real property interest at the appraised value. Marketing time is presumed to start on the effective date of the appraisal and take place subsequent to the effective date of the appraisal. The opinion of marketing time uses some of the same data analyzed in the process of estimating reasonable exposure time and it is not intended to be a prediction of a date of sale. We believe, based on the assumptions employed in our analysis, as well as our selection of investment parameters for the subject, that our value conclusion represents a price achievable within twenty-four (24) months. Legal Description The subject site is identified by Jackson County as 61-510-09-01-01-0-00-000. The legal description is presented in the Addenda of the report. [GRAPHIC OMITTED] REGIONAL MAP REGIONAL ANALYSIS Introduction The short- and long-term value of real estate is innuenced by a variety of factors and forces that interact within a given region. Regional analysis serves to identify those forces that affect property value, and the role they play within the region. The four primary forces that influence real property value include environmental characteristics, governmental forces, social factors, and economic trends. These forces determine the supply and demand for real property, which, in turn, affect market value. The subject property is located in the City of Lee's Summit in southeastern portion of the Kansas City MSA. Economic & Demographic Profile The following profile of the Kansas City MSA was provided by Economy.com, a leading provider of economic, financial, and industry information. Economy.com's core assets of proprietary editorial and research content as well as economic and financial databases are a source of information on national and regional economies, industries, financial markets, and demographics. The company is staffed with economists, data specialists, programmers, and online producers who create a proprietary database. Economy.com's approach to the analysis of the U.S. economy consists of building a large-scale, simultaneous-equation econometric models, which they simulate and adjust with local market information, creating a model of the U.S. macro economy that is both top-down and bottom-up. As a result, those variables that are national in nature are modeled nationally while those that are regional in nature are modeled regionally. Thus, interest rates, prices, and business investment are modeled as national variables; key sectors such as labor markets (employment, labor force), demographics (population, households, and migration), and construction activity (housing starts and sales) are modeled regionally and then aggregated to national totals. This approach allows local information to influence the macroeconomic outlook. Therefore, changes in fiscal policy at the national level (changes in tax rates, for example) are translated into their corresponding effects on state economies. At the same time, the growth patterns of large states, such as California, New York, and Texas, playa major role in shaping the national outlook. In addition on a regional basis, the modeling system is explicitly linked to other states through migration flows and unemployment rates. Economy.com's model structure also takes into account migration between states. Kansas City Employment Growth Rank Best=1 Worst=325 2002-04 265 5th quintile 2002-07 222 4th quintile MSA Life Cycle Phase Growth/Mature Best=1 Worst=325 Vitality 21 1st quintile Cost of doing business U.S.=100% 95% Cost of Living U.S.=100% 97% --------------------------------------------------------------- Relative Employment Performance (1991=100) [GRAPHIC OMITTED-Line Graph (1990-2007)] --------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 Indicators 56.7 59.8 63.0 66.3 69.4 69.4 70.8 Gross Metro Product, C$B 4.9 5.3 5.3 5.3 4.6 0.0 2.1 % Change 881.4 916.5 944.2 965.3 981.6 967.2 949.8 Total Employment (000) 2.4 4.0 3.0 2.2 1.7 -1.5 -1.8 % Change 4.1 3.7 3.8 3.0 3.3 4.4 5.7 Unemployment Rate 5.2 5.9 7.9 5.3 7.7 3.4 1.8 Personal Income Growth 1,699.9 1,722.7 1,742.8 1,761.9 1,782.2 1,804.0 1,828.2 Population, (000) 9,695 9,396 10,118 11,231 9,237 9,714 10,746 Single-Fam1ily Permits 2,649 4,116 3,685 5,160 3,640 5,196 3,068 Multifamily, Permits 98.8 106.4 113.7 120.4 125.9 134.6 137.1 Existing Home Price ($Ths) 5,955 6,397 11,220 9,331 8,207 19,181 23,445 Mortgage Originations ($Mil) 12.1 12.0 8.8 7.9 8.4 9.7 11.6 Net Migration (000) 6,709 7,664 8,419 7,528 7,193 9,239 10,811 Personal Bankruptcies
Indicators 2003 2004 2005 2006 2007 Gross Metro Product, C$B 72.3 74.3 76.6 79.1 81.4 % Change 2.1 2.8 3.1 3.2 2.9 Total Employment (000) 936.6 942.6 962.0 980.4 994.4 % Change -1.4 0.6 2.1 1.9 1.4 Unemployment Rate 5.5 5.4 5.3 5.1 4.9 Personal Income Growth 2.2 3.9 4.3 4.4 4.7 Population, (000) 1,846.3 1,854.9 1,866.1 1,877.8 1,886.6 Single-Fam1ily Permits 11,813 10,981 9,631 9,399 9,197 Multifamily, Permits 2,723 4,563 4,104 4,366 4,563 Existing Home Price ($Ths) 145.6 154.3 160.2 164.6 172.2 Mortgage Originations ($Mil) 31,420 15,798 10,267 10,799 11,417 Net Migration (000) 5.3 -4.1 -1.7 -1.2 -4.2 Personal Bankruptcies 11,953 11,417 10,394 10,270 10,380
STRENTHS AND WEAKNESSES STRENGTHS - Favorable cost structure. - Well developed transportation and distribution network. - Very large presence of federal government jobs. WEAKNESSES - Overwhelming dependence on Sprint and telecom. - KAN suffers from suburban sprawl. ------------------------------------------------------------- [GRAPHIC OMITTED] CURRENT EMPLOYMENT TRENDS December 2003 Employment Growth % Change Year Ago Total -1.1 Construction -5.3 Manufacturing 4.1 Trade 0.0 Trans/Utilities 0.0 Information -4.5 Financial Activities 2.0 Prof & Business Svcs -1.9 Edu & Health Svcs -2.4 Leisure & Hospitality -4.7 Other Services -2.1 Government 0.1 ------------------------------------------------------------- FORECAST RISKS Short Term [Down Arrow] Long Term [Down Arrow] Risk-adjusted Return, '02-07: 0.35% UPSIDE - Development of biotech takes hold beyond current expectations, yielding significant new jobs and high incomes. DOWNSIDE - Sprint is bought out and its remaining labor force is shifted to other locations. - New growth industries fail to emerge in the wake of Sprint's downsizing. ------------------------------------------------------------- ANALYSIS Recent Performance. Kansas City's economy continues to weaken. While the state has enjoyed a modest turnaround over the last 12 months, KAN has skidded further into recession due to lingering weakness in the business services, healthcare, tourism and information industries. Manufacturing actually rose in the latter half of 2003 thanks in part to vehicle production, but that growth is not expected to continue. The pace of homebuilding has stabilized at a high level and is expected to decelerate over the next few quarters. Office and industrial markets remain bloated with excess inventory, although vacancy rates are no longer rising. Life sciences. Thanks to its several research institutions, KAN ranks among the top 50 metro areas for biotech research, according to the Brookings Institution. The Stowers Institute for Medical Research, home to around 100 scientists and a $1.6 billion endowment, is the most promising of KAN's facilities. The institute now plans to double its research space within five years. The Midwest Research Institute also carries out pharmaceutical and biotech research for government and industry. The faculty at the university of Kansas Medical Center carries out tens of millions of dollars in externally funded research annually. And Children's Mercy Hospital performs research in pediatric pharmacology. With the expansion of the Stowers Institute, funding inflows will accelerate over the next several years, helping KAN to attract skilled workers and venture capital. Income trends. Personal income growth in KAN is projected to lead the state and region, but lag the national average. However, on a per capita basis, income growth should beat the U.S. average, showing that what will really constrain income growth in KAN is a poor population trend. Kan and the U.S. had a nearly identical pace of population growth over the last decade, but in the coming ten years, KAN's growth is forecast to slow to just over half the U.S. rate, as migration flows, dominated by relocating baby boomers, shift to southern and western states favored by retirees. Boomers waiting longer to retire than had previous cohorts could postpone the migration wave or at least spread its impact over time. Still, the nation's demographic outlook places KAN's income growth at risk, which in turn will handicap the metro's income-driven sectors like the housing market, trade, and locally-oriented services. Economic diversity. One strong advantage for KAN's economy is its diverse industrial mix. According to Economy.com estimates, KAN ranks in the top 10% of metro areas in terms of industrial diversity. A broad industry array affords a measure of employment stability in downturns and also helps usher in recovery by exposing the local economy to the industries that turn around first. The one factor setting KAN apart is the area's large information industry. Telecom carriers alone account for upward of 20,000 local jobs or 2% of employment. And the information industry as a whole occupies twice the share of employment as it does nationally. Sprint's reorganization is ongoing, with the impact of its latest collaboration with IBM's Business Consulting Services likely to be zero to negative net job gains in KAN in the coming year. However, the information industry as a whole should advance by the second half, and its high wages will assure that gains in that industry are dispersed to other sectors of the economy like trade and housing. Kansas City's economy is floundering and its recover will come later and with less vigor than the nation's. Consolidation in telecom and manufacturing is a looming short-term risk. Longer term, KAN's diversity and its promising drivers, such as transportation, information and life sciences will keep the metro area growing on par with the U.S. average. David Givens February 2004 EMPLOYMENT & INDUSTRY TOP EMPLOYERS Sprint Corporation 21,000 Community Health Group 7,326 DST Systems, Inc. 6,232 Ford Motor Company 5,808 Hallmark Cards, Inc. 5,000 Saint Luke's Health System 4,123 General Motors Corporation 3,200 AT&T Corporation 3,154 SBC Communications, Inc. 3,000 Children's Mercy Hospital & Clinics 2,990 Turman Medical Center 2,801 University of Missouri-Kansas City 2,790 Honeywell, Inc. 2,789 KU Med 2,784 Cerner Corporation 2,626 Black & Veatch, LLP 2,552 UMB Financial Corporation 2,507 Applebee's International, Inc. 2,478 American Airlines 2,425 University of Kansas Medical Center 2,376 Source: The Business Journal, March 2003 Public Federal.......................................27,636 State.........................................12,011 Local.........................................97,038 2002 ----------------------------------------------------------------- INDUSTRY DIVERSITY Most Diverse (U.S.) 1.0 0.80 0.60 KAN 0.74 0.40 0.20 0.00 Least Diverse EMPLOYMENT VOLATILITY DUE TO U.S. FLUCTUATIONS 7% Not Due to U.S. 93% Due to U.S. Relative to U.S. US=100; KAN=148 ----------------------------------------------------------------
COMPARATIVE EMPLOYMENT AND INCOME % of Total Employment Average Annual Earnings Sector KAN MO US KAN MO US Construction 5.2% 5.0% 5.2% $44,724 $37,450 $39,845 Manufacturing 8.4% 12.0% 12.0% $49,004 $43,741 $48,756 Durable 57.0% 60.3% 62.0% nd $44,671 $50,404 Nondurable 43.0% 39.7% 38.0% nd $42,236 $45,969 Transport/Utilities4.9% 4.1% 3.6% $44,192 $39,474 $44,972 Wholesale Trade 5.0% 4.5% 4.4% $53,796 $47,434 $51,842 Retail Trade 11.3% 11.6% 11.7% $22,034 $20,067 $22,635 Information 5.5% 2.6% 2.6% $70,224 $74,881 $69,569 Financial Activities 7.4% 5.9% 6.0% $35,853 $29,676 $41,740 Prof. and Bus. Services 12.9% 11.3% 12.4% $42,515 $40,487 $43,053 Educ. and Health Services 11.1% 13.0% 12.5% $33,988 $31,414 $34,032 Leisure and Hosp. Services 9.3% 9.6% 9.0% $18,331 $17,014 $19,135 Other Services 4.6% 4.4% 3.9% $19,546 $17,992 $19,842 Government 14.4% 15.7% 16.2% $42,663 $37,342 $42,939 Source: Percent of total employment - Economy.com & BLS, 2002; Average annual earnings - BEA, 2001
HOUSE PRICES [GRAPHIC OMITTED-Line Graph (1987-2003)] CREDIT QUALITY Fitch N/A Moody's: County: Aa1 LEADING INDUSTRIES NAICS Industry Employees (000) GVF Federal Government 27.6 4521 Department Stores 17.2 5171 Wired Telecommunications Carriers 15.6 6216 Home Health Care Services 13.9 5241 Insurance Carriers 13.8 5413 Architectural. Engineering, & Related Services 13.6 5511 Management of Companies and Enterprises 12.9 4529 Other General Merchandise Stores 12.1 5242 Agencies, Brokerages, & Insurance Related Act. 10.6 3231 Printing and Related Support Activities 10.2 4841 General Freight Trucking 10.1 7139 Other Amusement and Recreation industries 9.9 5111 Newspaper, Periodical, Book, & Directory Pub. 9.5 5411 Legal Services 9.2 8121 Personal Care Services 8.3 High-tech employment 54.4 As % of total employment 5.7 Source: BLS, Economy.com, 2002 ---------------------------------------------------------
MIGRATION FLOWS Into Kansas City Number of Migrants Median Income Lawrence 1,940 24,630 St. Louis 1,492 29,015 Wichita 1,246 26,194 Chicago 1,159 45,833 St. Joseph 1,045 22,271 Topeka 982 26,131 Omaha 973 34,587 Dallas 840 57,084 Springfield 825 20,625 Denver 761 40,345 Total Inmigration 59,099 27,938 From Kansas City Lawrence 1,506 18,287 St. Louis 1,410 33,982 Wichita 1,033 33,148 Chicago 930 31,994 St. Joseph 856 39,506 Topeka 775 27,965 Omaha 724 35,498 Dallas 689 22,391 Springfield 682 20,447 Denver 653 43,280 Total Outmigration 53,170 28,093 Net Migration 5,929 -154 -------------------------------------
NET MIGRATION, KAN [GRAPHIC OMITTED-Bar Graph] Domestic Foreign Total 1998 4,531 4,235 8,766 1999 3,556 4,324 7,880 2000 2,144 6,297 8,441 2001 4,048 5,690 9,738 2002 5,950 5,664 11,614 Source: IRS (top), 2002; Census Bureau & Economy.com, 2002
------------------------------------------------ PER CAPITA INCOME [GRAPHIC OMITTED] 32,693 KAN 28,221 MO 30,413 US Source: Bureau of Economic Analysis, 2001 KANSAS CITY Homebuilding Due for a Pullback [GRAPHIC Omitted-Line Graph] Homebuilding in KAN has surged ahead of the underlying demographic drivers of demand. Residential permits issued over the last three years were nearly double the number of households formed over the same period. The macroeconomic situation has stimulated strong purchasing for several years, but those forces will abate as interest rates rise over the next few quarters. Also contributing to the buildup in housing inventory will be slower KAN population growth. Growth this year will be less than half the pace of 2002, constraining new building and price growth. KAN Gets a Small Share of Defense Funds Reaching Missouri [GRAPHIC OMITTED-Bar Graph] Defense budget increases have been a boon to some areas, but KAN is a comparatively small recipient of federal defense outlays. St. Louis receives a far higher share of Missouri's federal defense dollars. Defense procurement contracts measure less than 1% of gross product in KAN, compared with 3% for Missouri and 5% for St. Louis. Defense wages and salaries in KAN as a share of total are half the national average share. As defense budget increases decelerate over the next few years, the lack of a deep defense agglomeration will be less of a distinguishing characteristic between metro economies. KAN Manufacturing Declines Often More Extreme than U.S. [GRAPHIC OMITTED-Bar Graph] Four of KAN's eight largest manufacturing industries suffered larger percentage declines from 1993 to 2003 than at the U.S. level. Only transportation equipment did not decline over the decade, owing to strong U.S. auto sales. One boon to the industry has been the fact that Ford's Claycomo plant in KAN produces the F-150 pickup, one of the most popular domestic vehicles. That plant recently announced plans to layoff 200, however, after over-hiring last fall for the launch of 2005 models. Region's Manufacturing Outlook Sluggishly Improving [GRAPHIC OMITTED-Line Graph] The Kansas City Fed's manufacturing survey of the tenth district shows a slow but steady improvement in manufacturers' sentiment. Demand expectations for six months hence, reflected in the new orders index, look better than at any time during 2003. Similar movements in the employment and capital expenditures indexes signal that KAN manufacturers themselves won't be the only ones to benefit from higher demand. Hiring will contribute positively to the overall labor market situation, and capital expenditures will filter through to other manufacturers, and to local trade and services vendors. REGIONAL ANALYSIS Critical Observations The following bullet points summarize some of our general observations relating to the subject's region. Social Influences . Approximately 1,854,900 million people live in the Kansas City metropolitan area. . The population has increased approximately 1.3% annually and is forecast to reach 1,866,600 by 2007. The areas of fastest population growth are located in the southeast, south and southwest portions of the MSA. . Kansas City has historically had strong migration to the area, although with the reorganization of the telecom industry, migration may turn negative. Forecasts for 2004 indicate the first larger out-migration in over a decade. Most new residents are from Lawrence, SI. Louis and Wichita, while residents migrating out of Kansas are going to Lawrence, SI. Louis and Phoenix. . The average per capita income in the MSA is $32,693, which is above the state ($28,221) and national ($30,413) average. The higher per capita may be attributed to a high percentage of skilled or educated workers, especially in the telecom and auto industry. Kansas City's percentage of the population over 25 with a bachelor's degree is higher than Chicago and St. Louis. . The MSA has a low cost of living and a low cost of doing business. Economic Influences . The largest employment sectors are Government (14.4%), Professional and Business Services (12.9%) and Retail Trade (11.3%). . The top employers are Sprint Corporation, Community Heallh Group (formerly named Health Midwest) and DST Systems, Inc. . As of January 2004, the unemployment rate for Kansas City was 5.7%, which is slightly above the state average of 5.4% and the national rate of 5.6%. . The only industries experiencing a growth in employment between December 2002 and December 2003 were Manufacturing (4.1%) and Financial Activities (2.0%). Construction had the largest decline of -5.3%. . Out of a total of 325 metropolitan statistical areas in the United States, Kansas City ranks 222 in terms of expected employment growth between 2002 and 2007. . Sprint, a major driver of Kansas City's economy, began a major reorganization that included several layoffs, and continues to restructure. The latest attempt for recovery was announced in February 2004 to partner with IBM Business Consulting Services. This latest reorganization is thought to have little effect on job gains in the coming year. Sprint also vacated over 1 million square feet of offICe space in the downtown area and built a campus in the suburbs, making the downtown office vacancy rate (23%) substantially above the national average (16%). . The life sciences and biotechnology industries are gaining momentum in the Kansas City area, which is valuable to help offset the area's over reliance on Sprint and the telecom industry. Kansas City ranks among the top 50 metro areas for biotech research. The Stowers Institute for medical Research is the leading company in this industry with over 100 scientists and $1.6 billion endowment. The company also has plans to double its research space within five years. Other promising companies include The Midwest Research Institute, The University of Kansas Medical Center and the Children's Mercy Hospital. Government Influences . The Kansas City MSA includes the state capital of Kansas and benefits from the presence of government jobs. . The government is supportive of business and is considered pro-growth. . The present economic weakness in the economy has had a negative effect on State and local treasuries, resulting in cuts in services and an increased risk of higher taxes. However, it is noted that this circumstance is common among all MSA's. Environmental Influences . The subject property is located in the Kansas City, Missouri Metropolitan Statistical Area, as defined by the United States Census Bureau. The Kansas City MSA includes 11 counties, 4 in Kansas (Johnson, Leavenworth, Miami, and Wyandotte), and 7 in Missouri (Cass, Clay, Clinton, Jackson, Lafayette, Platte, and Ray). The MSA includes more than 136 cities, the four largest of which are Kansas City, Missouri; Kansas City, Kansas; Overland Park, Kansas; and Independence, Missouri. . Kansas City is among the most centrally located urban markets in the country, providing for superior marketing and distribution capabilities. It is the only major city located within 250 miles of both the geographic and population centers of the nation. Positioned in the heart of the farm belt at the confluence of the Kansas and Missouri Rivers, the city and its suburbs lie within 1,900:t miles of nearly every point in the continental U.S., or half the distance from coast to coast. The MSA is approximately 793 miles from Atlanta, GA., 501 miles from Chicago, 489 miles from Dallas, 602 miles from Denver, and 435 miles from Minneapolis. . Kansas City's major Interstates include 1-35 and 1-29, which run north and south, and 1-70, which runs east and west. The MSA also has two loop Interstates, 1-635 and 1-435. Interstate 35 connects with MSA with Wichita and Oklahoma City to the south and Des Moines to the north. Interstate 29 connects with Omaha to the north and terminates in Kansas City. 1-70 connects with St. Louis to the east and Denver to the west. Conclusion In light of the social and economic attributes of the greater Kansas City area, it is clear that the region benefits by the following: . Favorable cost structure . A transportation network that is well developed, making the metro area well positioned to further develop as a distribution hub. . A large presence of government jobs, which adds stability to the local economy. Concurrently, there are inherent risks to the economic health of the metropolitan area, including the following: . Overwhelming dependency on Sprint and the telecommunications industry . Suburban sprawl In summary, the Precis report forecasts that the area's economic upswing will perform on average with the national average. The downtown office occupancy rate will continue to decrease due to the 10% vacancy left by Sprint and the ongoing decline in professional and business services. The strength of Kansas City before the recession was due to telecom, but because of Sprint's difficulties, that industry is no longer attracting labor to the area. With the poor outlook for Sprint and the lack of other growth drivers, Kansas City may experience the beginnings of a poor population trend. Kansas City needs to replace telecom with a new growth driver. If that is accomplished, the prospects for growth improve dramatically The transportation, information and the life science industries are all positioned to step forward as major growth drivers for the area. Overall, we are generally reserved as the future outlook of the greater Kansas City area due to its over reliance on an unstable growth driver. [GRAPHIC OMITTED] LOCAL AREA MAP LOCAL ARA ANALYSIS Location The property is located in Jackson County, within the greater Lee's Summit area. Generally, the boundaries of the immediate area are Ranson Road on the east, Colborn Road on the north, Douglas Road on the west and Interstate 50 on the south. Access Local area accessibility is generally good, relying on the following transportation arteries: Local: Lees Summit is accessible by Interstate 470 and 50 as well as State Highway 291 . M-291 generally provides access to the subject's neighborhood, which is the primary street artery bisecting the subject's neighborhood. Major roadways in the local area are asphalt paved, and are improved with concrete curbs and gutters, streetlights and sidewalks. Most are two lanes. There are no roadway improvements currently under construction or planned for the subject's neighborhood. On an overall basis, access to the subject's neighborhood is rated average. Regional: Interstate 470 is the primary thoroughfare within Jackson County. Interstate 470 is located a 1 mile north if the subject property. Interstate 50 is located 1 mile south of the subject property Nearby and Adjacent Uses The area is dominated by retail and commercial uses, with residential areas on the periphery of the commercial development. Nearby commercial uses in the area include community shopping centers, service stations/mini-marts, restaurants, fast food establishments, and small, professional offices. The subject is a freestanding property among many other similar detached commercial structures as well as row stores along M-291. The area is considered to be in a growing stage of its life cycle. Supply and demand appears well balanced with few vacancies noted. Overall the predominant land use is retail and the local area is defined as a destination shopping district. This location provides convenient visibility and access to the site, and is within a casual dining destination area. The area is a destination shopping district which also includes a number of casual dining restaurants. Overall, the subject benefits from its good local and regional access. Special Hazards or Adverse Influences No hazards were noted in the immediate local area. Land Use Changes None noted. Conclusion The subject is located along a moderately traveled commercial artery with good exposure and accessibility. Regional grocery stores have located to the immediate south and less than one block north, indicating the area is attractive to this class of retailers. The interstate system is within close proximity and provides good regional access to the neighboring communities. The local area has experienced moderate growth over the last five years and the community appears stable. For the near term (2004) the area is expected to continue to perform moderately well. RETAIL MARKET & TRADE AREA ANALYSIS Definition of Market/Trade Area Overview The subject is located in the South Kansas City Jackson County Submarket. A retail center's trade area contains people who are likely to patronize that particular center. These customers are drawn by a given class of goods and services from a particular tenant mix. A center's fundamental drawing power comes from the strength of the anchor tenants, as well as the regional and local tenants, which complement and support the anchors. A successful combination of these elements creates a destination for customers seeking a variety of goods and services while enjoying the comfort and convenience of an integrated shopping environment. The subject is best described as a neighborhood center. A neighborhood center provides for the sale of convenience goods (foods, drugs, and sundries) and personal services (laundry and dry cleaning, barbering, shoe repairing, etc.) for the day-to-day living needs of the immediate neighborhood. It is built around a supermarket as the principal tenant and typically contains a gross leasable area of about 60,000 square feet. In practice, it may range in size from 30,000 to 100,000 square feet. Retail space the Kansas City MSA, as in many locales nationwide, has flourished relative to other commercial real estate sectors during the lingering period of economic weakness. Still, the Kansas City retail market has not escaped from the general real estate malaise. According to Reis's preliminary analysis, first quarter 2004 vacancy in the community and neighborhood center sector was 7.0%, up 60 basis points from a quarter earlier and among the highest averages reported by this source for this market since the early 1990s. No improvement is anticipated for a number of years to come. Still while vacancy remains relatively high, demand has shown some recent improvement, keeping pace with the recent increase in construction. Thus, in 2003 the volume of space added and the net absorption volume were identical at 280,000 square feet. These sums follow two years of minimal activity. Indeed, the delivery of 2.1 million square feet of new community-neighborhood center construction over the four-year period concluding with 2000 were followed by only 44,000 square feet of new space arriving on line over the two years following. For 2004, construction completions and net absorption area projected at 402,000 and 224,000 square feet, respectively. Rents are flat. Reis's early first quarter 2004 data on this market include an average asking rent estimate of $13.14 per square foot, down four cents from year-end. For 2003 overall asking and effective prices rose 1.9% and 0.6%, respectively, on average. Indeed, the market might consider i1self fortunate to have avoided year-over-year rental losses in the recent period. For 2004 Reis anticipates improvement - increases of 2.4% and 1.5% for asking and effective rents . CTMT expects retail development to be led by "specialty stores and unique concepts such as Kansas City Life, and entertainment district proposed for downtown Kansas City that is to open in 2006. . H&R Block Inc. made "the blockbuster announcement that Kansas City's downtown boosters have awaited for more than a year," according to a recent report in the Journal. Late in 2003 the firm announced plans to move to a 500,OOO-square-foot headquarters building at Main and 13th streets. "The headquarters' first phase, valued at $120 million, will fuel plans for a $280 million entertainment district that city officials call essential to the Kansas City area's future." . Detail information on the Kansas City retail Metro area and Submarket data is located in the Addenda section of this report.
TRADE AREA DEMOGRAPHICS -------------------------------------------------------------------------------- 1.0-mile 3.0-mile 6.0-mile Radius Radius Radius Independence County Kansas Jackson City MSA --------------- POPULATION STATISTICS --------------- 2000 9,768 48,273 79,190 70,700 654,880 1,776,062 2003 9,821 51,204 84,659 75,361 655,201 1,821,109 2008 9,912 55,878 93,385 82,803 656,166 1,895,496 Compound Annual Change 2000 - 2003 0.18% 1.98% 2.25% 2.15% 0.02% 0.84% 2003 - 2008 0.18% 1.76% 1.98% 1.90% 0.03% 0.80% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- HOUSEHOLD STATISTICS ------------- ------------- 2000 3,908 18,712 29,610 26,417 266,294 694,468 2003 3,964 19,796 31,575 28,087 267,986 715,620 2008 4,055 21,521 34,717 30,770 271,032 751,154 Compound Annual Change 2000 - 2003 0.48% 1.89% 2.16% 2.06% 0.21% 1.01% 2003 -2008 0.45% 1.69% 1.92% 1.84% 0.23% 0.97% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- AVERAGE HOUSEHOLD INCOME ------------- ------------- 1990 $55,174 $61,388 $70,315 $72,089 $50,583 $50,920 2003 $64,304 $70,589 $81,188 $83,291 $56,825 $66,808 2008 $75,403 $83,541 $95,817 $98,590 $65,587 $77,664 Compound Annual Change 1990 -2003 1.18% 1.08% 1.11% 1.12% 0.90% 0.97% 2003 -2008 3.24% 3.43% 3.37% 3.43% 2.91% 3.06% ------------- ------------- RETAIL SALES ANALYSIS Total Retail Sales ($Mil) $ 132 $ 664 $ 1,063 $ 951 $ 8,764 $ 24,682 General Merchandise 3 $ 17 $ 27 $ 24 $ 214 $ 706 Apparel & Accessory $ 5 $ 26 $ 41 $ 37 $ 333 $ 768 Furniture & Home Furnish.** 6 $ 28 $ 45 $ 41 $ 362 $ 1,257 Other Sales*** 6 $ 28 $ 45 $ 40 $ 368 $ 1,037 Total GAFO Sales 20 $ 98 $ 158 $ 142 $ 1,277 $ 3,768 -------------- Total Expenditure Potential* 255 $1,397 $ 2,564 $ 2,339 $ 15,228 $ 47,809 GAFO % of Total Retail Sales 14.76 14.80% 4.82% 14.88% 14.58% 15.27% GAFO % of Total Expenditure Potential 7.67% 7.03% 6.14% 6.05% 8.39% 7.88% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SOURCE: Claritas, Inc. * Households x Total Household Income ** Includes Home Appliance, Radio, T.V. Stores *** "Other" Sales Estimated at 4.2% of Total Retail Sales --------------------------------------------------------------------------------
[GRAPHIC OMITTED] CURRENT POPULATION DISTRIBUTION MAP [GRAPHIC OMITTED] POPULATION GROWTH MAP [GRAPHIC OMITTED] MEDIAN HOUSEHOLD INCOME DISTRIBUTION MAP Market Conditions and Trends Retail activity continues to be vibrant in Kansas City. Although the pace of retail development slowed in 2002, it accelerated again in 2003. Furthermore, developments that are coming on line are experiencing success. Part of the success may be attributed to a shift in focus from big boxes and strip centers to lifestyle centers, "retailtainment" projects and New Urbanism. By combining shopping with entertainment venues, developments are establishing "retailtainment" centers, thereby increasing their ability to draw and hold shoppers. The best Kansas City example of this, and the biggest story in Kansas City retail, continues to be the development around the Kansas International Speedway in Wyandotte County. Nebraska Furniture Mart, Great Wolf Lodge and the T-Bones minor-league baseball franchise opened in 2003. They were preceded by Cabela's. From its opening in August of 2002 to the end of that year Cabela's drew 2.4 million visitors. That made it the top attraction in the State of Kansas in 2002. In metropolitan Kansas City the only attractions to draw more visitors than Cabela's were the area casinos. Meanwhile, plans for the adjacent The Legends shopping center were expanded to more than one million square feet and will include a multi-plex theater. Bass Pro Shops, a direct competitor of Cabela's, is another potential "retailtainment" attraction, and also a highly sought-after retailer. Bass Pro considered several sites in the metro area for a 160,000- square-foot store. At the end of 2003 it appeared that a site in eastern Jackson County, southwest of Interstate 70 and Highway 291, had landed this big fish. However, it was not certain that Bass Pro would proceed. With a store in St. Louis, and its headquarters location in Springfield, Missouri, it may decide that another location in Missouri is not justified. Other developments go beyond "retailtainment" to include residential and office elements. New Urbanism embodies the idea of mixed-use, pedestrian- friendly urban environments similar to the appealing market centers of the past. Kansas City's Country Club Plaza, which was established in 1923, is the epitome of what is now thought of as New Urbanism. Zona Rosa in the Northland and Park Place in Johnson County are two current developments that use the Country Club Plaza as a model while seeking to create aesthetically appealing mixed-use walkable areas. Zona Rosa is a 93-acre development northwest of Interstate 29 and Barry Road. It will have tree-lined sidewalks and a park-like town square for community activities. Phase I, which includes 400,000 square feet of retail space, is to open in April of 2004. Park Place is planned for 29 acres in Leawood, in southeastern Johnson County. It will be a 1.2-million-square-foot project on 29 acres and will include 230,000 square feet of retail space plus office space, a hotel and residential condominiums. In more typical big box and shopping center developments, the home improvement category continues to be a winner. Lowe's plans two new stores in the area. A 135,000-square-foot store is planned for Wyandotte County, at a site close to Kansas City Kansas Community College. In the City of Liberty, in the eastern part of the Northland market, a 160,000-square-foot store has received City approval and will start soon. Specialty retailing has produced a significant part of recent market growth. Ultimate Electronics, a new entrant to Kansas City, opened three stores in 2003. They are in Lenexa (Johnson County), at Hartman Heritage Center in Independence (Eastern Jackson County), and at 1-29 and Barry Road (Northland). Another Johnson County store is planned for 2004. A fifth store will be placed in Lee's Summit, in southeastern Jackson County. Each store is about 32,000 square feet. Pier 1 is another specialty retailer expanding in the area. It added two stores to the nine it already had in the metro area. Cold Stone Creamery, a superpremium ice cream franchise, started with one location in Johnson County early in 2003, but planned eight more throughout the Kansas City area. Borders Books & Music added a sixth store in the metro area. The newest one is a 19,000-square-foot store at The Shops at Boardwalk, in the Northland. Discount marketing seems to be on an endless development path as al-Mart and Target continue to expand. Wal-Mart opened two Wal-Mart Neighborhood Markets in Johnson County. At about 40,000 square feet, these stores offer most of the popular items from standard Wal-Marts, and they include drivethrough pharmacies and half-hour photo service. The Neighborhood Stores are designed for quick shopping and are expected to compete with grocery and convenience stores. Wal-Mart also opened a 200,000-square-foot store at 157th & Metcalf in southern Johnson County. Target opened a 125,000-square-foot store on 151st Street in southern Johnson County The next project to make news in Kansas City will be Kansas City Live, a Downtown project by developer The Cordish Company. The initial phase of the project will include up to 425,000 square feet of retail space, primarily restaurants and night clubs. The trigger for the project was the announcement by H&R Bloc & Company that it would build a 500,000-square-foot office headquarters in the southern part of the Downtown loop. This area has long been a target for redevelopment. Kansas City Live will be created in an area adjacent to Block's headquarters. The Kansas City project will be similar to projects Cordish has done in Baltimore, Houston, Louisville and elsewhere. Every part of the metropolitan area has projects that are under construction or planned. The variety of locations and the range of styles, from big boxes and neighborhood centers to "retailtainment" and New Urbanism, reflect the growth of Kansas City. While some major retailers continue to expand in Kansas City, much of the new development seems to favor specialty retailers and unique concepts. This is the trend to expect over the next few years.
Submarket Activity Johnson County Projects Completed in 2003 Development Location Anchors Wal-Mart 157th & Metcalf Wal-Mart Super Center. Target 51st & Antioch Super Target (the adjacent The Shoppes of 151st to be completed in 2004). Lionsgate Market Place 128,000 sf at 143rd & Dillon's Grocery, Bank of Metcalf Anthony. Shawnee Crossings Kansas Hwy 7 & Mixed Shawnee Mission retail and office. Parkway
Projects Planned or Under Construction Development Location Developer Anchors/Completion Park Place 230,000 sf at 117th Park Place Planned project, no & Nail Partners of anchors named. Kansas City Ironhorse Centre 110,000 sf at 151st Merrill Mixed retail and & Nail Development office. Planned Of Kansas City project, no anchors named. Olathe Terrace 450,000 sf at 119th Maefield Planned project, & Blackbob Development of no anchors named. Bloomington, Indiana Lifestyle center 135th & Metcalf Cormac Co. Planned project, no of Omaha anchors named. Crystal Springs 320,000 sf at Parkway Real Planned project, no Shopping Center 135th & Ptlumm Estate of anchors named. Kansas City Cornerstone of 350,000 sf at RED Development Ultimate Electronics Leawood 135th & Nail of Kansas City Possible completion end of 2004. Ridgeview Falls 240,000 sf at Clements & Drugstore anchor 119th & Ridgeview Linscott of Completion late Kansas City 2004. and Lincoln, Nebraska Hy-Vee shopping 119th & Ridgeview R.H. Johnson Co. Hy-Vee grocery. center of Kansas City Mission Farms 42,000 sf of retail Weltner et ai, Mixed retail, at 105th & Mission Rd Kansas City office and residential Planned project, no anchors named.
Wyandotte County Projects Completed in 2003 Development Location Anchors Village West Kansas International Nebraska Furniture Speedway Mart, 712,000 sf, Great Wolf Lodge, 270 rooms plus 38,000-sf water park, 4,500-seat stadium for T-Bones minor league baseball.
Projects Planned or Under Construction Development Location Developer Anchors/Completion The Legends 800,000 sf in RED Development Possible completion phase one at of Kansas City end of 2004. the Kansas Speedway Lowe's 135,000 sf at Lowe's Home 69th & State Avenue Improvement Warehouse.
South Kansas City Projects Completed in 2003 Development Location Anchors State Line Station 350,000 sf at 135th & Super Target, Pier 1 State Line Imports, Cost Plus/World Market, Linens n Things.
Projects Planned or Under Construction Development Location Developer Anchors/Completion State Line 600,000 sf at Cormac Co. of Construction to Station Expansion 135th & State Omaha start spring 2004, Line no tenants announced.
Eastern Jackson County Projects Completed in 2003 Development Location Anchors Hartman Heritage 1-70 & Little Blue Parkway Pier 1 Imports, Ultimate Electronics, Linens n Things, World Market, Basset Furniture Direct. Crackerneck Plaza 40,000 sf at HWY 40 & Boutique retail center. Shopping Center Little Blue Parkway
Projects Planned or Under Construction Development Location Developer Anchors/Completion The Shops 190,000 sf at Alsation Land No tenants at Summit Pointe 1-470 & Hwy50 Company announced. / 350 Anchor spaces of up to 60,000 sf. Hy-Vee Grocery 73,000 sf at Redevelopment of Noland Rd & Hwy 40 former K-Mart, to be completed early 2004.
Northland Projects Completed in 2003 Development Location Anchors The Shops at Boardwalk 136,000 sf at 1-29 & Hwy 152 Borders Books & Music, Coldwater Creek, Yankee Candle, Red Star Tavern. Northglen Village Hwy 152 & North Brighton Dickinson's Northglen 14-screen theater.
Projects Planned or Under Construction Development Location Developer Anchors/Completion Zona Rosa Phase one 400,000 sf at Yaromir Steiner of Barnes & Noble 1-29 & Barry Road Columbus, Ohio & Dick's Sporting Goods to open Spring 2004. Lowe's 160,000 sf at 1-35 & Hwy 152 Lowe's Home Improvement Warehouse. Tuileries Plaza 225,000 sf of Prairieview Mixed-use retail at Hwy 45 Development LLC development & North Cosby with 40,000 sf of office and 88 condominiums. Grocery-anchored. Site preparation started. Parkville Commons 250,000 sf of Price Chopper retail/office at Grocery will be Hwy 45 & Hwy 9 completed Spring 2004. Renaissance in 180,000 sf of Stephen Block Planned project, the Northland retail in a no anchors named. mixed-use development at 80th & Prospect/Hwy1
SITE DESCRIPTION Location: 523-529 SE Melody lane Lee's Summit, Jackson County, Missouri 64063 The site is located east of Missouri Highway 291 approximately one mile North of US 50. The site is sandwiched between 5th Street Terrance and Bayberry lane on access road paralleling Missouri Highway 291. Shape: Irregular Topography: Level land Area: 4.81 acres 209,440 square feet Frontage, Access, Visibility: The subject has adequate frontage, access and visibility Soil Conditions: We did not receive nor review a soil report. However, we assume that the soil's load-bearing capacity is sufficient to support existing and/ or proposed structure(s). We did not observe any evidence to the contrary during our physical inspection of the property. Drainage appears to be adequate. Utilities: All utilities are available Site Improvements: The site improvements include asphalt paved parking areas, curbing, signage, landscaping, yard lighting and drainage. land Use Restrictions: We were not given a title report to review. We do not know of any easements, encroachments, or restrictions that would adversely affect the site's use. However, we recommend a title search to determine whether any adverse conditions exist. Flood Map: National Flood Insurance Rate Map Community Panel Number 290174-0009-C (August 3, 1989) Flood Zone: FEMA Zone C: Areas outside of a 100-year flood hazard. Wetlands: We were not given a Wetlands survey. If subsequent engineering data reveal the presence of regulated wetlands, it could materially affect property value. We recommend a wetlands survey by a competent engineering firm. Hazardous Substances: We observed no evidence of toxic or hazardous substances during our inspection of the site. However, we are not trained to perform technical environmental inspections and recommend the services of a professional engineer for this purpose. Overall Functionality: The subject site is functional for its current use. IMPROVEMENTS DESCRIPTION The following description of improvements is based upon our physical inspection of the improvements along with our discussions with the building manager. General Description Year Built: 1986 Number of Buildings: 1 Number of Stories: 1 Land To Building Ratio: 3.84 to 1 Building Class: B Gross Building Area: 57,500 square feet Gross Leasable Area: Component Owned Area % of Total In-Line 54,478 SF Total Center GLA 54,478 SF 100% Total Center GLA 54,478 SF 100%
Construction Detail Basic Construction: Steel and masonry Foundation: Poured concrete slab Framing: Structural steel with masonry and concrete encasement Floors: Concrete poured over metal deck. Exterior Walls: Brick. Roof Cover: Flat roofing system consisting of built-up assemblies with tar and gravel cover. Windows: The windows are thermal windows in aluminum frames. Pedestrian Doors: Glass in aluminum frames. Mechanical Detail Heating: The heating system is assumed to be adequate for existing use and in compliance with local law and building codes. Cooling: The cooling system is assumed to be adequate for existing use and in compliance with local law and building codes. Plumbing: The plumbing system is assumed to be adequate for existing use and in compliance with local law and building codes. Electrical Service: The electrical service system is assumed to be adequate for existing use and in compliance with local law and building codes. Elevator Service: None Fire Protection: The building is fully sprinklered. Interior Detail Layout: The subject property is a 1-building neighborhood shopping center. Loading is available at the rear of each building. Floor Covering: Ceramic tile, carpet or resilient tile. Walls: Painted or wallpapered sheetrock. Ceilings: The ceilings are 2' by 2' suspended acoustical tile. Lighting: A mixture of fluorescent and incandescent light fixtures. Restrooms: The building features adequate restrooms for men and women. Site Improvements Parking: 312 spaces (5.73:1,000 Sq Ft). Open surface parking. On site Landscaping: A variety of shrubbery and grass. Other: Concrete curbs and walkways. Personal Property: Personal property was excluded from our valuation. Capital Improvements: Other than normal routine property maintenance, there are no major capital improvement expenditures planned in the immediate future. Summary Condition: Average The building has been maintained in average condition and provides an average appearance relative to competing buildings within its market. We did not inspect the roof of the building or make a detailed inspection of the mechanical systems. The appraisers, however, are not qualified to render an opinion as to the adequacy or condition of these components. The client is urged to retain an expert in this field if detailed information is needed about the adequacy and condition of mechanical systems. Quality: Average. Design and Functionality: The building is a Class B neighborhood shopping center building that possesses average appeal to prospective tenants. Actual Age: 18 years Effective Age: 20 years Expected Economic Life: 50 years Remaining Economic Life: 30 years Americans With Disabilities Act The Americans With Disabilities Act (ADA) became effective January 26, 1992. We have not made, nor are we qualified to make a compliance survey of this property to determine whether or not it is in conformity with the requirements of the ADA It is possible that a compliance survey could 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 effect upon the value of the property. Since we have not been provided with the results of a survey, we did not analyze the results of possible non-compliance. Hazardous Substances We are not aware of any potentially hazardous materials (such as formaldehyde foam insulation, asbestos insulation, radon gas emitting materials, or other potentially hazardous materials) which may have been used in the construction of the improvements. However, we are not qualified to detect such materials and urge the client to employ an expert in the field to determine if such hazardous materials exist. REAL PROPERTY TAXES AND ASSESSMENTS Current Property Taxes The property is subject to the taxing jurisdiction of Jackson County. The assessors' parcel identification number is 61-510-09-01-01-0-00-000. According to the local assessor's office, taxes are current. The assessment and taxes for the property are presented below:
PROPERTY TAX DATA (2003/2004) 2003/2004 Assessed Value Total: $1,513,691 Effective Tax Rate 0.0984 Total Property Taxes $ 148,956 Building Area ( SF ) 54,478 Property Taxes per Square Foot $2.73
Total taxes for the property are $148,956, or $2.73 per square foot. It is our opinion that the subject's real estate taxes are reasonable. Based upon historical trends, we have assumed taxes will increase 3.00 percent per annum over the projection period. The property is zoned CP-2; Planned General Commercial District by the City of Lee's Summit. Permitted uses within this district include office, light industrial, retail and general commercial. Residential development is prohibited in this zoning district. We are not experts in the interpretation of complex zoning ordinances but the property appears to be a conforming use based on our review of public information. The determination of compliance is beyond the scope of a real estate appraisal. We know of no deed restrictions, private or public, that further limit the subject property's use. The research required to determine whether or not such restrictions exist, however, is beyond the scope of this appraisal assignment. Deed restrictions are a legal matter and only a title examination by an attorney or title company can usually uncover such restrictive covenants. Thus, we recommend a title search to determine if any such restrictions do exist. Definition Of Highest And Best Use According to The Dictionary of Real Estate Appraisal, Fourth Edition (2002), a publication of the Appraisal Institute, the highest and best use is defined as: 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 Criteria We have evaluated the site's highest and best use both as currently improved and as if vacant. In both cases, the property's highest and best use must meet four criteria. That use must be (1), legally permissible (2) physically possible, (3) financially feasible, and (4) maximally productive. Legally Permissible The first test concerns permitted uses. According to our understanding of the zoning ordinance, noted earlier in this report, the site may legally be improved with structures that accommodate office, light industrial, retail and general commercial uses. Aside from the site's zoning regulations, we are not aware of any legal restrictions that limit the potential uses of the subject. Physically Possible The second test is what is physically possible. As discussed in the "Site Description," section of the report, the site's size, soil, topography, etc. do not physically limit its use. The subject site is of adequate shape and size to accommodate almost all urban and suburban uses. Financial Feasibility and Maximal Productivity The third and fourth tests are what is financially feasible and what will produce the highest net return. After analyzing the physically possible and legally permissible uses of the property, the highest and best use must be considered in light of financial feasibility and maximum productivity. For a potential use to be seriously considered, it must have the potential to provide a sufficient return to attract investment capital over alternative forms of investment. A positive net income or acceptable rate of return would indicate that a use is financially feasible. Highest and Best Use of Site As Though Vacant Considering the subject site's physical characteristics and location, as well as the state of the local market, it is our opinion that the Highest and Best Use of the subject site as though vacant is A retail center developed to the highest density possible. Highest and Best Use of Property As Improved According to the Dictionary of Real Estate Appraisal, highest and best use of the property as improved is defined as: The use that should be made of a property as it exists. An existing property should be renovated or retained "as is" so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one. It is our opinion, the existing building adds value to the site as if vacant, therefore dictating a continuation of its current use. In conclusion, it is our opinion that the Highest and Best Use of the subject property as improved is as it is currently developed. VALUATION PROCESS Methodology There are three generally accepted approaches available in developing. an opinion of value: the Cost, Sales Comparison and Income Capitalization approaches. We have considered each in this appraisal to develop an opinion of the market value of the subject property. In appraisal practice, an approach to value is included or eliminated based on its applicability to the property type being valued and the quality of information available. The reliability of each approach is dependent upon the availability and comparability of the market data uncovered as well as the motivation and thinking of purchasers in the market for a property such as the subject. Each approach is discussed below, and applicability to the subject property is briefly addressed in the following summary. Land Value Developing an opinion of land value is typically accomplished via the Sales Comparison Approach by analyzing recent sales transactions of sites of comparable zoning and utility adjusted for differences which exist between the comparables and the subject. Valuation is typically accomplished using a unit of comparison such as price per square foot of land. Adjustments are applied to the unit of comparison from an analysis of comparable sales, and the adjusted unit of comparison is then used to derive a value for the subject site. Cost Approach The Cost Approach is based upon the proposition that an informed purchaser would pay no more for the subject than the cost to produce a substitute property with equivalent utility. This approach is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land; or when relatively unique or specialized improvements are located on the site, for which there exist few improved sales or leases of comparable properties. In the Cost Approach, the appraiser forms an opinion of the cost of all improvements, depreciating them to reflect any value loss from physical, functional and external causes. Land value, entrepreneurial profit and depreciated improvement costs are then added resulting in a value estimate for the subject property. Sales Comparison Approach The Sales Comparison Approach utilizes sales of comparable properties, adjusted for differences, to indicate a value for the subject property. Valuation is typically accomplished using a unit of comparison such as price per square foot of building area, effective gross income multiplier or net income multiplier. Adjustments are applied to the unit of comparison from an analysis of comparable sales, and the adjusted unit of comparison is then used to derive a value for the subject property. Income Capitalization Approach This approach first determines the income-producing capacity of a property by utilizing contract rents on leases in place and by estimating market rent from rental activity at competing properties for the vacant space. Deductions then are made for vacancy and collection loss and operating expenses. The resulting net operating income is divided by an overall capitalization rate to derive an opinion of value for the subject property. The capitalization rate represents the relationship between net operating income and value. This method is referred to as Direct Capitalization. Related to the Direct Capitalization Method is the Discounted Cash Flow Method. In this method, periodic cash flows (which consist of net operating income less capital costs) and a reversionary value are developed and discounted to a present value using an internal rate of return that is determined by analyzing current investor yield requirements for similar investments. Summary This appraisal employs only the Income Capitalization Approach. Based on our analysis and knowledge of the subject property type and relevant investor profiles, it is our opinion that this approach would be considered necessary and applicable for market participants. The client has requested that we provide them with a restricted use report. Therefore, we have not employed the Cost Approach or the Sales Comparison Approach to develop an opinion of market value. The valuation process is concluded by analyzing each approach to value used in the appraisal. When more than one approach is used, each approach is judged based on its applicability, reliability, and the quantity and quality of its data. A final value opinion is chosen that either corresponds to one of the approaches to value, or is a correlation of all the approaches used in the appraisal. INCOME CAPITALIZATION APPROACH Methodology The Income Capitalization Approach is a method of converting the anticipated economic benefits of owning property into a value through the capitalization process. The principle of "anticipation" underlies this approach in that investors recognize the relationship between an asset's income and its value. In order to value the anticipated economic benefits of a particular property, potential income and expenses must be projected, and the most appropriate capitalization method must be selected. The two most common methods of converting net income into value are Direct Capitalization and Discounted Cash Flow. In direct capitalization, net operating income is divided by an overall capitalization rate to indicate an opinion of market value. In the discounted cash flow method, anticipated future cash flows and a reversionary value are discounted to an opinion of net present value at a chosen yield rate (internal rate of return). Based upon the above, both methods are appropriate in this assignment. Occupancy Status The following chart summarizes the annualized attained base rent and occupancy level of the leases in place as of the appraisal date.
OCCUPANCY PROFILE Space Number of Occupied Total Average Vacant Total Percent Category Tenants Area Rent Rent/SF Space Area In line 20 50,521 SF $521,180 $10.32 3,957 SF 54,478 SF 100.0% Total/ Weighted Average 20 50,521 SF $521,180 $10.32 3,957 SF 54,478 SF 100.0% Percent 92.7% 7.3%
On the following page is an attained rent schedule for all tenants in place as of the appraisal date. Please refer to the Addenda of this report for a rent roll of the subject property. Lease Structure The majority of existing leases in the subject property are on a modified gross basis, whereby the tenants are responsible for a semi- or fixed portion of their pro-rata share of all expenses (real estate taxes and operating expenses) excluding management and structural repairs. Lease terms are generally between 3 and 5 years in length.
ATTAINED RENT SCHEDULE As of Apr-04 Tenant Name Suite # Start End Area Base Rent/SF Date Date (Sq Ft) Rent Per Year Inline The Tax Shoppe 507 12/1/2003 11/30/2004 1,170 $11,700 $ 10.00 Jazz, Kitchen 511 11/1/2003 10/31/2008 5,109 $52,367 $ 10.25 Wee Tot, Inc. 515 9/1/2002 10/30/2005 2,800 $29,400 $ 10.50 Pizza Street 527 1/15/2003 2/30/2014 4,930 $51,765 $ 10.50 Homebrew Pro Shoppe 531 9/1/2002 10/30/2005 930 $8,835 $ 9.50 Midwest Discount 533 10/1/2002 11/30/2007 1,587 $16,663 $ 10.50 Natures Market 535 5/1/2002 4/30/2005 2,633 $25,672 $ 9.75 Mar Jon Incorporated 537 10/1/1999 11/30/2004 2,633 $25,013 $ 9.50 SOS Staffing Services 539 5/1/2002 6/30/2005 1,235 $13,968 $ 11.31 X IU Yong Chen 541 9/1/2000 1/30/2006 2,200 $23,100 $ 10.50 El Maguey 545-549 7/26/2001 9/1/2006 3,938 $41,349 $ 10.50 Check into Cash 551 4/1/2004 5/30/2005 1,735 $21,000 $ 12.10 Ya's Ya's 553 7/1/2002 8/30/2005 1,222 $12,831 $ 10.50 Kim's Tailoering 557 1/1/2003 2/28/2006 2,587 $27,164 $ 10.50 Edward Jones & Co. 559 1/1/2001 10/31/2006 953 $10,616 $ 11.14 Rent-A-Center, Inc. 561 5/1/2000 6/30/2005 4,665 $48,000 $ 10.29 Karen Magee 565 4/1/2004 5/30/2005 1,270 $13,335 $ 10.50 JADS Investments, Inc. 569 2/1/2003 3/30/2005 4,648 $41,832 $ 9.00 Discount Smoke Shop 571 4/1/2004 5/30/2005 933 $9,797 $ 10.50 Berbiglia 579 7/1/2002 10/30/2007 3,343 $36,773 $ 11.00 20 tenant sub-total 50,521 $521,180 $ 10.32 GRAND-TOTALS 50,521 $521,180 $ 10.32
Recent Leasing At Subject Property The following chart summarizes recent leasing activity within the subject property.
RECENT LEASING ACTIVITY Tenant Name Suite # Start End Area Base Rent/SF Date Date (Sq Ft) Rent Per Year Inline The Tax Shoppe 507 12/1/2003 11/30/2004 1,170 $11,700 $ 10.00 Jazz, Kitchen 511 11/1/2003 10/31/2008 5,109 $52,367 $ 10.25 Pizza Street 527 1/15/2003 2/30/2014 4,930 $51,765 $ 10.50 Kim's Tailoering 557 1/1/2003 2/28/2006 2,587 $27,164 $ 10.50 JADS Investments, Inc. 569 2/1/2003 3/30/2005 4,648 $41,832 $ 9.00 Sub-Total 18,444 $184,828 $ 10.02 GRAND-TOTALS 18,444 $184,828 $ 10.02
Rent Comparables in Competing Centers The following tables summarize rental activity in competing centers for Inline tenant spaces.
INLINE RENT COMPARABLES No. Property Location Area Term Rent/ Rent Vacancy Center Tenant Name Available (years) SF Steps Rate Center Expense Age Recoveries ----- Center Size 1 806 SW 50 Highway Lee's Summit, MO 3,232 SF 5 $9.94 Flat 6.0% 1956 ------------------- ----------- ---------- West Blue Parkway Modified 53,861 SF Shopping Center Gross 2 601 NE Woods Chapel Rd. Lee's Summit 505 5 $11.35 Flat 3.6% 1987 ------------------ ----------- ---------- Chapel Lake Center Modified 14,038 SF Gross 3 111 SE State Route 291 Lee's Summit, MO 4,989 5 $10.26 Flat 4.1% 1977 ------------------ ----------- --------- Summit Springs Modified 32,380 SF Shopping Center Gross 4 332 SW Blue Parkway Lee's Summit, MO 3,510 5 $11.73 Flat 2.6% 1987 ------------------ ----------- --------- Pinetree Plaza Modified 135,000 SF Gross 5 800 SW Blue Parkway Lee's Summit, MO 0 5 $12.25 Flat 0.0% 1959 ------------------ ----------- --------- Southside Plaza Modified 50,000 SF Survey Low: 0 5 $9.94 2.10% Survey High: 4,989 5 $12.25 9.96% Survey Mean: 2,447 5 $11.11 6.45% No. Property Location Free Rent (Months) Tenant Name T1/fSF Comments 1 806 SW 50 Highway 2 $4.00 0.61 miles from subject Lee's Summit, MO Major tenants- Catter's and Video Place. ------------------- West Blue Parkway Shopping Center 2 601 NE Woods Chapel Rd. 2 $5.00 4.92 miles from subject. Lee's Summit, MO Major tenants- Circle K ------------------ Chapel Lake Center 3 111 SE State Route 291 2 $5.00 0.39 miles from subject. Lee's Summit, MO Major tenants-Bowling Alley, Hobby Lobby, ------------------ Westlake Hardware Summit Springs Shopping Center 4 332 SW Blue Parkway 2 $5.25 1.29 miles from subject. Lee's Summit, MO Major tenants-Baskin 31 Robbins, Pizza Hut, Price Chopper & Tunnee Town ------------------ Pinetree Plaza 5 800 SW Blue Parkway 0 $6.00 2.56 miles from subject. Lee's Summit, MO Major tenants-Chucks Boots, Chucks Food, Fergies, and Jumpin Catfish ------------------ Southside Plaza Survey Low: 2 $4.00 Survey High: 2 $6.00 Survey Mean: 2 $5.05
The rent range exhibited by the com parables is from $9.94 to $12.25 per square foot with an overall average of $11.11 per square foot. Recovery clauses for the comparable leases typically require the tenant to pay a pro-rata share of real estate taxes and operating expenses on a modified gross basis. Landlords are responsible for management and capital expenditures. The comparables have flat rental rates. Greatest reliance has been placed on Rent Comparables 2,and 4 due to their similarity to the subject with respect to location and utility. Based upon the recent leasing activity at the subject property, and our analysis of the comparables, we have concluded to a market rent for the subject's inline tenants of $11.00 per square foot. This assumes a modified gross lease with a 5-year lease term. [GRAPHIC OMITTED] RENTAL MAP Market Rent Synopsis The following chart summarizes our market rent conclusion for each tenant category within the subject property. MARKET RENT CONCLUSIONS In line Market Rent Per Square Foot $11.00 Contract Rent Increase Flat Lease Type Modified Gross Lease Term (years) 5
Miscellaneous Revenue Miscellaneous revenue is from rooftop antenna income. Based upon the subject's historical performance, we have estimated miscellaneous revenue at $4,000 in Year 1. Expense Reimbursements The existing tenants are responsible for their pro-rata share of real estate taxes and operating expenses on a modified gross basis. Future tenants are assumed to be responsible for their pro rata share of real estate taxes and operating expenses on a modified gross basis while the landlord is responsible for management and capital expenditures. Lease Expirations A lease expiration schedule is contained in the Addenda of this report. Assumptions Regarding Existing Leases We have modeled all leases in accordance with the lease terms provided by ownership. All month to month tenants were assumed to vacate after 12 months of the cash flow start date. Vacancy and Collection Loss Based upon the historical occupancy of the subject, the current vacancy in the market, and our perception of future market vacancy, we have projected a global stabilized vacancy rate of 3.00 percent. Based on the creditworthiness of the tenants in the subject building, we have also projected a collection loss of 2.00 percent. The total vacancy and credit loss is therefore 5.00 percent. Absorption of Vacant Space The subject property is presently 92.74 percent occupied. We have estimated the vacant space to be absorbed within 24 months. Operating Expenses We have developed an opinion of the property's annual operating expenses after reviewing its historical performance and reviewing the operating performance of similar buildings. We analyzed each item of expense and developed an opinion as to what a typical informed investor would consider normal. An historical operating history for the property, annualized year-to-date expenses, a budget for the current year, a comparison of the budget to our forecast, and our opinion of year one operating expenses are presented on the following page.
REVENUE AND EXPENSE ANALYSIS 2001 2002 2003 C& W Annualized Forecast (1) Total Per Total Per Total Per Total Per SF SF SF SF POTENTIAL GROSS REVENUE Base Rental $438,381 $8.05 $333,988 $6.13 $459,853 $8.44 $553,819 $10.17 Revenue Miscellaneous Revenue 1,477 0.03 2,362 0.04 3,654 0.07 4,000 0.07 Expense Reimbursement Revenue 65,223 1.20 56,398 1.04 78,680 1.44 73,706 1.54 TOTAL POTENTIAL GROSS REVENUE $505,081 $9.27 $392,748 $7.21 $542,187 $9.95 $641,525 $11.78 Vacancy and Collection Loss 0 0.00 0 0.00 0 0.00 (31,833) (0.58) EFFECTIVE GROSS REVENUE $242,516 $8.92 $276,760 $10.18 $265,371 $9.76 $215.555 $7.92 OPERATING EXPENSES Total Repair/ Main/Supply $9,119 $0.17 $21,456 $0.39 $6,784 $0.12 $10,000 $0.18 Total Services 2,550 0.05 1,200 0.02 375 0.01 500 0.01 Total Administration 23,445 0.43 23,754 0.44 24,968 0.46 25,000 0.46 Total Marketing 661 0.01 1,386 0.03 18 0.00 500 0.01 Total Common Area Maintenance 66,484 1.22 66,052 1.21 86,467 1.59 90,000 1.65 Total Utilities 4,566 0.08 12,034 0.22 4,175 0.08 5,000 0.09 Total Insurance 12,960 0.24 18,384 0.34 12,960 0.24 13,000 0.24 Management 25,255 0.46 19,537 0.36 25,698 0.47 24,388 0.45 Subtotal $145,040 $2.66 $163,803 $3.01 $161,445 $2.96 $168,388 $3.09 Real Estate Taxes 81,623 1.50 83,707 1.54 80,892 1.48 150,000 2.75 TOTAL EXPENSES $226,663 $4.16 $247,510 $4.54 $242,337 $4.45 $318,388 $5.84 NET OPERATING INCOME $278,418 $5.11 $145,238 $2.67 $299,850 $5.50 $291,304 $535 (1) Fiscal Year Beginning: 7/1/2004
Conclusion of Operating Expenses We analyzed each item of expense and developed an opinion of a level of expense we believe a typical investor in a property like this would consider reasonable. We made our projections on a fiscal year basis. Year 1 begins July 1, 2004. Please refer to the following chart for our Year 1 forecast of expenses. Expense C&W Forecast Per SF Analysis Total Repair/Main/Supply $10,000 $0.18 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Total Services $500 $0.01 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Total Administration $25,000 $0.46 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Total Marketing $500 $0.01 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Total Common Area Mainte $90,000 $1.65 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Total Utilities $5,000 $0.09 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Total lnsurance $13,000 $0.24 Our estimate is based on the historical and budgeted expenses, plus expense levels at competing properties. Management $24,388 $0.45 Management fees for this type of property typically range from 3 to 4 percent of effective gross income. We have utilized a management fee of 4.0 percent of effective gross income, which we consider to be market oriented. Real Estate Taxes $150,000 $2.75 A complete discussion of the taxes is included in the Real Property Taxes and Assessments section of this report.
Total operating expenses excluding real estate taxes are estimated at $168,388 equating to $3.09 per square foot. The following expense comparisons support our opinion of operating expenses for the subject.
OPERATING EXPENSE COMPARABLES Including Real Estate Taxes Average Operating Publication GLA Region Expenses/SF Dollars & Cents 54,206 Midwest $2.34 National Research Bureau 45,518 Kansas City $2.12 Source: Dollars & Cents of Shopping Centers - 2003, Strip Shopping Centers National Research Bureau 2003, Strip Centers
Income and Expense Pro Forma The following chart is our opinion of income and expenses for Year 1.
SUMMARY OF REVENUE AND EXPENSES 2004/2005 $/SF POTENTIAL GROSS REVENUE Base Rental Revenue $553,819 $10.17 Miscellaneous Revenue 4,000 $0.07 Expense Reimbursement Revenue 83,706 1.54 TOTAL POTENTIAL GROSS REVENUE $641,525 $11.78 Vacancy and Collection Loss (31,833) (0.58) EFFECTIVE GROSS REVENUE $609,692 $11.19 OPERATING EXPENSES Total Repair/Main/Supply $10,000 $0.18 Total Services 500 0.01 Total Administration 25,000 0.46 Total Marketing 500 0.01 Total Common Area Maintenance 90,000 1.65 Total Utilities 5,000 0.09 Total Insurance 13,000 0.24 Management 24,388 0.45 Subtotal $168,388 $3.09 Real Estate Taxes 150,000 2.75 TOTAL EXPENSES $318,388 $5.84 NET OPERATING INCOME $291,304 $5.35
Capitalization Rate Selection In addition, we have considered Investor Surveys published by Korpacz and Cushman & Wakefield, Inc. for competitive shopping center properties. Going-ln Going-In Survey Date Cap Rate Cap Rate Range Average Korpacz Fourth Quarter 2004 7.0-11.0% 8.84% C&W Real Estate Outlook Spring/Summer 2003 8.8%-9.5% 9.1% Korpacz - Refers to national strip shopping center market regardless of class or occupancy C&W - Refers to national Class B leased neighborhood/community center market
Our observations and analysis suggest that a going-in capitalization rate of 9.00 percent represents reasonable investor criteria under current market conditions. Direct Capitalization Method Conclusion In the Direct Capitalization Method, we developed an opinion of market value by dividing year 1 net operating income by a 9.00 percent overall capitalization rate. Our conclusion via the Direct Capitalization Method is as follows:
DIRECT CAPITALIZATION METHOD NET OPERATING INCOME $291,304 $5.35 Sensitivity Analysis (0.50% OAR Spread) Value $/SF NRA Based on Low-Range of 8.50% $3,427,106 $62.91 Based on Most Probable Range of 9.00% $3,236,711 $59.41 Based on High-Range of 9.50% $3,066,358 $56.29 Reconciled Value $3,236,711 $59.41 Rounded to nearest $100,000 $3,200,000 $58.74
Discounted Cash Flow Method In the Discounted Cash Flow Method, we employed Argus for Windows software to model the income characteristics of the property and to make a variety of cash flow assumptions. We attempted to reflect the most likely investment assumptions of typical buyers and sellers in this particular market segment. The following table illustrates the assumptions used in the discounted cash flow analysis. Discounted Cash Flow Assumptions DISCOUNTED CASH FLOW MODELING ASSUMPTIONS Holding Period: 10 Years Projection Period: 11 Years Start Date: 7/1/2004 RESERVES FOR REPLACEMENT (PSF) $0.15 VACANCY & COLLECTION LOSS Global Vacancy: 3.00% Collection Loss: 2.00% Total: 5.00% GROWTH RATES Market Rent: 3.00% Consumer Price Index (CPI): 3.00% Expenses: 3.00% Real Estate Taxes: 3.00% RATES OF RETURN Internal Rate of Return: 10.50% Terminal Capitalization Rate: 9.25% Reversionary Sales Cost: 2.00%
------------------------------------------------- LEASING ASSUMPTIONS Inline ------------------------------------------------- Market Rent Per Square Foot $11.00 Contract Rent Increase Flat Lease Type Modified Gross Lease Term (years) 5 Free Rent on New Leases (months) 0 Free Rent on Renewals (months) 0 Downtime Between New Leases 6 Renewal Probability 70.00% ------------------------------------------------ TENANT IMPROVEMENTS (PSF) Inline ------------------------------------------------ New Leases $5.00 Renewals $0.00
Leasing Commissions: 6.0 percent of total rent for new leases; 0.0 percent of total rent for renewal leases. Contract Rent Increases: Leases are assumed flat per annum. Expense Reimbursements: Future tenants are assumed to be responsible for their pro rata share of real estate taxes and operating expenses on a modified gross basis while the landlord is responsible for management and capital expenditures. Capital Expenditure: The building was in average condition at the time of our inspection. We do not foresee any major capital expenditures in the near future. Terminal Capitalization Rate Selection A terminal capitalization rate was used to develop an opinion of the market value of the property at the end of the assumed investment holding period. The rate is applied to the net operating income following year 10 before making deductions for leasing commissions, tenant improvement allowances and reserves for replacement. We have developed an opinion of an appropriate terminal capitalization rate based on indicated rates in current investor surveys. Terminal Terminal Survey Date Cap Rate Cap Rate Range Average Korpacz Fourth Quarter 2004 8.0%- 11.5% 9.33% C&W Real Estate Outlook Spring/Summer 2003 9.0%-9.8 9.4% Korpacz - Refers to national strip shopping center market regardless of class or occupancy C&W - Refers to national Class B leased neighborhood/community center market
As a result, we have applied a 9.25 percent terminal capitalization rate in our analysis. Discount Rate Selection We have developed an opinion of future cash flows, including property value at reversion, and discounted that income stream at an internal rate of return (yield rate) currently required by investors for similar-quality real property. The yield rate (internal rate of return or IRR) is the single rate that discounts all future equity benefits (cash flows and equity reversion) to an opinion of net present value. The Korpacz and Cushman & Wakefield investor surveys indicate the following internal rates of return for competitive shopping center properties: Survey Date IRR IRR Range Average Korpacz Fourth Quarter 2004 8.5%-12.0% 10.19% C&W Real Estate Outlook Spring/Summer 2003 10.0%-11.5% 10.8% Korpacz - Refers to national strip shopping center market regardless of class or occupancy C&W - Refers to national Class B leased neighborhood/community center market
The above table summarizes the investment parameters of some of the most prominent investors currently acquiring similar investment properties in the United States. We realize that this type of survey reflects target rather than transactional rates. Transactional rates are usually difficult to obtain in the verification process and are actually only target rates of the buyer at the time of sale. The property's performance will ultimately determine the actual yield at the time of sale after a specific holding period. We have discounted our cash flow and reversionary value projections at an internal rate of return of 10.50 percent. Discounted Cash Flow Method Conclusion Based on the discount rate selected, market value is estimated at $3,200,000, rounded. The reversion contributes 47.05 percent to this value estimate. Our cash flow projection and valuation matrix are presented at the end of this section.
Software : ARGUS Ver.11.0.02 Date:7/15/04 File : 04-248-03 Argus Independence Time: 4:10pm Property Type: Neighborhood Center Ref#: AMF Portfolio : Page: 1 Bayberry Crossing SC 523-529 SE Melody Lane Lee's Summit, MO 64063 SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year Beginning 4/1/2004 Year 1 Year 2 Year 3 Year 4 Year 5 For the Years Mar-2005 Mar-2006 Mar-2007 Mar-2008 Mar-2009 Ending POTENTIAL GROSS REVENUE Base Rental Revenue $554,736 $588,761 $596,569 $608,407 $617,659 Absorption & Turnover Vacancy (12,435) (48,882) (12,029) (12,350) (10,542) Scheduled Base Rental Revenue 542,301 539,879 584,540 596,057 607,117 Expense Reimbursement Revenue CAM 83,706 79,650 86,389 87,503 89,756 Total Reimbursement Revenue 83,706 79,650 86,389 87,503 89,756 Miscellaneous Revenue 4,000 4,120 4,244 4,371 4,502 TOTAL POTENTIAL GROSS REVENUE 630,007 623,649 675,173 687,931 701,375 General Vacancy (6,838) (8,587) (8,658) (10,816) Collection Loss (12,600) (12,473) (13,503) (13,759) (14,027) EFFECTIVE GROSS REVENUE 610,569 611,176 653,083 665,514 676,532 OPERATING EXPENSES CAM 90,000 92,700 95,481 98,345 101,296 Repair/ Main/ Supply 10,000 10,300 10,609 10,927 11,255 Services 500 515 530 546 563 Administration 25,000 25,750 26,523 27,318 28,138 Marketing 500 515 530 546 563 Utilities 5,000 5,150 5,305 5,464 5,628 Insurance 13,000 13,390 13,792 14,205 14,632 Real Estate Taxes 150,000 154,500 159,135 163,909 168,826 Management 24,423 24,447 26,123 26,621 27,061 TOTAL OPERATING EXPENSES 318,423 327,267 338,028 347,881 357,962 NET OPERATING INCOME 292,146 283,909 315,055 317,633 318,570 LEASING & CAPITAL COSTS Tenant Improvements 17,705 34,597 15,402 10,104 8,625 Leasing Commissions 11,685 22,834 10,165 6,669 5,693 Reserves 8,172 8,417 8,669 8,929 9,197 TOTAL LEASING & CAPITAL COSTS 37,562 65,848 34,236 25,702 23,515 CASH FLOW BEFORE DEBT SERVICE & TAXES $254,584 $218,061 $280,819 $291,931 $295,055 & TAXES Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Mar-2010 Mar-2011 Mar-2012 Mar-2013 Mar-2014 Mar-2014 POTENTIAL GROSS REVENUE Base Rental Revenue $628,453 $660,826 $687,508 $698,156 $709,713 $737,920 Absorption & Turnover Vacancy (13,183) (49,019) (21,821) (14,318) (12,221) (18,060) Scheduled Base Rental Revenue 615,270 611,807 665,687 683,838 697,492 719,860 Expense Reiembursement Revenue CAM 91,884 89,457 95,824 99,592 102,702 106,936 Total Reimbursement Revenue 91,884 89,457 95,824 99,592 102,702 106,936 Miscellaneous Revenue 4,637 4,776 4,919 5,067 5,219 5,376 TOTAL POTENTIAL GROSS REVENUE 711,791 706,040 766,430 788,497 805,413 832,172 General Vacancy (8,566) (1,827) (9,766) (12,308) (7,447) Collection Loss (14,236) (14,121) (15,329) (15,770) (16,108) (16,643) EFFECTIVE GROSS REVENUE 688,989 691,919 749,274 762,961 776,997 808,082 OPERAINTING EXPENSES CAM 104,335 107,465 110,689 114,009 117,430 120,952 Repair/Main/Supply11,593 11,941 12,299 12,668 13,048 13,439 Services 580 597 615 633 652 672 Administration 28,982 29,851 30,747 31,669 32,619 33,598 Marketing 580 597 615 633 652 672 Utilities 5,796 5,970 6,149 6,334 6,524 6,720 Insurance 15,071 15,523 15,988 16,468 16,962 17,471 Real Estate Taxes 173,891 179,108 184,481 190,016 195,716 201,587 Management 27,560 27,677 29,971 30,518 31,080 32,323 TOTAL OPERAING EXPENSES 368,388 378,729 391,554 402,948 414,683 427,434 NET OPERTING INCOME 320,601 313,190 357,720 360,013 362,314 380,648 LEASING & CAPITAL COSTS Tenant Improvements 4,173 46,921 17,855 8,699 13,105 14,776 Leasing Commissions 2,754 30,968 11,784 5,741 8,649 9,752 Reserves 9,473 9,757 10,050 10,352 10,662 10,982 TOTAL LEASING & CAPITAL COSTS 16,400 87,646 39,689 24,792 32,416 35,510 CASH FLOW BEFORE DEBT SERVICE & TAXES $304,201 $225,544 $318,031 $335,221 $329,898 $345,138
Software : ARGUS Ver.11.0.02 Date:7/15/04 File : 04-248-03 Argus Independence Time: 4:10pm Property Type: Neighborhood Center Ref#: AMF Portfolio : Page: 3 Bayberry Crossing SC 523-529 SE Melody Lane Lee's Summit, MO 6406 RESALE - CAP RATE MATRIX Cash Flow Before Debt Service plus Property Resale in Year 10, Mar-2014 Discounted Annually (Endpoint on Cash Flow & Resale) Net P.V. of P.V. of P.V. of P.V. of P.V. of For the Proceeds Property Property Property Property Property Cap Rates From Sale @ 10.00% @ 10.25% @ 10.50% @ 10.75% @ 11.00% 8.75% $4,263,258 $3,354,082 $3,297,997 $3,243,149 $3,189,505 $3,137,035 9.00% 4,144,835 3,308,424 3,253,365 3,199,516 3,146,847 3,095,328 9.25% 4,032,812 3,265,235 3,211,144 3,158,241 3,106,494 3,055,876 9.50% 3,926,685 3,224,318 3,171,146 3,119,139 3,068,266 3,018,500 9.75% 3,826,001 3,185,500 3,133,200 3,082,042 3,031,998 2,983,040
Reconciliation Within the Income Capitalization Approach SUMMARY OF INCOME CAPITALIZATION METHODS Value Per Sq. Ft. Value Indicated by the Discounted Cash Flow Method: $3,200,000 $58.74 Value Indicated by the Direct Capitalization Method: $3,200,000 $58.74 We have placed greater reliance on the discounted cash flow method because this mirrors the methodology used by purchasers of this property type. Therefore, our opinion of market value via the Income Capitalization Approach is as follows: Value Conclusion: $3,200,000 $58.74 RECONCILIATION AND FINAL VALUE OPINION Valuation Methodology Review and Reconciliation This appraisal employs only the Income Capitalization Approach. Based on our analysis and knowledge of the subject property type and relevant investor profiles, it is our opinion that this approach would be considered necessary and applicable for market participants. The client has requested that we provide them with a restricted use report. Therefore, we have not employed the Cost Approach or the Sales Comparison Approach to develop an opinion of market value. The approaches indicated the following: Income Calpitalization Approach: $3,200,000 We have given most weight to the Income Capitalization Approach because this mirrors the methodology used by purchasers of this property type. Based on our Complete Appraisal as defined by the Uniform Standards of Professional Appraisal Practice, we have developed an opinion that the "as-is" market value of the leased fee estate of the referenced property, subject to the assumptions, limiting conditions, certifications, and definitions, on June 20, 2004 was: THREE MILLION TWO HUNDRED THOUSAND DOLLARS $3,200,000 INSURABLE VALUE Insurable Value is directly related to the portion of the real estate which is covered under the asset's insurance policy. We have based this opinion on the building's replacement cost new (RCN) which has no direct correlation with its actual market value. The replacement cost new is the total construction cost of a new building built using modern technology, materials, standards and design, but built to the same specifications of and with the same utility as the building being appraised. For insurance purposes, replacement cost new includes all direct costs necessary to construct the building improvements. Items which are not considered include land value, site improvements, indirect costs, accrued depreciation and entrepreneurial profit. To develop an opinion of insurable value, exclusions for below-grade foundations and architectural fees must be deducted from replacement cost new. We developed an opinion of replacement cost new by using the Calculator Cost Method developed by Marshall Valuation Service, a nationally recognized cost estimating company which estimates construction costs for all types of improvements. Marshall Valuation Service revises its cost factors monthly and adjusts them to reflect regional and local cost variations. INSURABLE VALUE Replacement Cost New (RCN) GBA (SF)$/GBA Sub-Total Building Improvements Base Cost 57,500 $60.00 $3,450,000 HVAC 57,500 5.50 316,250 Sprinklers 57,500 2.50 143,750 Subtotal 57,500 $68.00 $3,910,000 Multipliers Current Cost 1.030 Local Area 1.150 Perimeter 0.865 Building Height 1.000 Product of Multipliers x 1.025 Adjusted Base Building Cost $4,006,157 Less: Insurance Exclusions Foundations Below Grade -5.00% Piping Below Grade (Negligible) 0.00% Architect Fees -6.00% Total Insurance Exclusion Adjustment -11.00% ($440,677) Insurable Value $3,565,479 Rounded to nearest $100,000 $3,600,000 Source: Marshall Valuation Service Section: 15 Quality: Average Page: 17 Class: B Date: 5/00 Type: Retail
"Report" means the appraisal or consulting report and conclusions stated therein, or a letter opinion, to which these Assumptions and Limiting Conditions are annexed. "Property" means the subject of the Report. "C&W" means Cushman & Wakefield, Inc. or its subsidiary that issued the Report. "Appraiser(s)" means the employee(s) of C&W who prepared and signed the Report. The Report has been made subject to the following assumptions and limiting conditions: 1. No opinion is intended to be expressed and no responsibility is assumed for the legal description or for any matters that are legal in nature or require legal expertise or specialized knowledge beyond that of a real estate appraiser. Title to the Property is assumed to be good and marketable and the Property is assumed to be free and clear of all liens unless otherwise stated. No survey of the Property was undertaken. 2. The information contained in the Report or upon which the Report is based has been gathered from sources the Appraiser assumes to be reliable and accurate. The owner of the Property may have provided some of such information. Neither the Appraiser nor C&W shall be responsible for the accuracy or completeness of such information, including the correctness of estimates, opinions, dimensions, sketches, exhibits and factual matters. Any authorized user of the Report is obligated to bring to the attention of C&W any inaccuracies or errors that it believes are contained in the Report. 3. The opinions are only as of the date stated in the Report. Changes since that date in external and market factors or in the Property itself can significantly affect the conclusions. 4. The Report is to be used in whole and not in part. No part of the Report shall be used in conjunction with any other analyses. Publication of the Report or any portion thereof without the prior written consent of C&W is prohibited. Reference to the Appraisal Institute or to the MAI designation is prohibited. Except as may be' otherwise stated in the letter of engagement, the Report may not be used by any person other than the party to whom it is addressed or for purposes other than that for which it was prepared. No part of the Report shall be conveyed to the public through advertising, or used in any sales or promotional or offering or SEC material without C&W's prior written consent. Any authorized user of this Report who provides a copy to, or permits reliance thereon by, any person or entity not authorized by C&W in writing to use or rely thereon, hereby agrees to indemnify and hold C&W, its affiliates and their respective shareholders, directors, officers and employees, harmless from and against all damages, expenses, claims and costs, including attorneys' fees, incurred in investigating and defending any claim arising from or in any way connected to the use of, or reliance upon, the Report by any such unauthorized person or entity. 5. Except as may be otherwise stated in the letter of engagement, the Appraiser shall not be required to give testimony in any court or administrative proceeding relating to the Property or the Appraisal. 6. The Report assumes (a) responsible ownership and competent management of the Property; (b) there are no hidden or unapparent conditions of the Property, subsoil or , structures that render the Property more or less valuable (no responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them); (c) full compliance with all applicable federal, state and local zoning and environmental regulations and laws, unless noncompliance is stated, defined and considered in the Report; and (d) all required licenses, certificates of occupancy and other governmental consents have been or can be obtained and renewed for any use on which the value estimate contained in the Report is based. 7. The physical condition of the improvements considered by the Report is based on visual inspection by the Appraiser or other person identified in the Report. C&W assumes no responsibility for the soundness of structural members nor for the condition of mechanical equipment, plumbing or electrical components. 8. The forecasted potential gross income referred to in the Report may be based on lease summaries provided by the owner or third parties. The Report assumes no responsibility for the authenticity or completeness of lease information provided by others. C&W recommends that legal advice be obtained regarding the interpretation of lease provisions and the contractual rights of parties. 9. The forecasts of income and expenses are not predictions of the future. Rather, they are the Appraiser's best estimates of current market thinking on future income and expenses. The Appraiser and C&W make no warranty or representation that these forecasts will materialize. The real estate market is constantly fluctuating and changing. It is not the Appraiser's task to predict or in any way warrant the conditions of a future real estate market; the Appraiser can only reflect what the investment community, as of the date of the Report, envisages for the future in terms of rental rates, expenses, and supply and demand. 10. Unless otherwise stated in the Report, the existence of potentially hazardous or toxic materials that may have been used in the construction or maintenance of the improvements or may be located at or about the Property was not considered in arriving at the opinion of value. These materials (such as formaldehyde foam insulation, asbestos insulation and other potentially hazardous materials) may adversely affect the value of the Property. The Appraisers are not qualified to detect such substances. C&W recommends that an environmental expert be employed to determine the impact of these matters on the opinion of value. 11. Unless otherwise stated in the' Report, compliance with the requirements of the Americans with Disabilities Act of 1990 (ADA) has not been considered in arriving at the opinion of value. Failure to comply with the requirements of the ADA may adversely affect the value of the Property. C&W recommends that an expert in this field be employed. 12. If the Report is submitted to a lender or investor with the prior approval of C&W, such party should consider this Report as only one factor together with its independent investment considerations and underwriting criteria, in its overall investment decision. Such lender or investor is specifically cautioned to understand all Extraordinary Assumptions and Hypothetical Conditions and the Assumptions and Limiting Conditions incorporated in this Report. 13. In the event of a claim against C&W or its affiliates or their respective officers or employees or the Appraisers in connection with or in any way relating to this Report or this engagement, the maximum damages recoverable shall be the amount of the monies actually collected by C&W or its affiliates for this Report and under no circumstances shall any claim for consequential damages be made. 14. If the Report is referred to or included in any offering material or prospectus, the Report shall be deemed referred to or included for informational purposes only and C&W, its employees and the Appraiser have no liability to such recipients. C&W disclaims any and all liability to any party other than the party which retained C&W to prepare the Report. 15. By use of this Report each party that uses this Report agrees to be bound by all of the Assumptions and Limiting Conditions stated herein. Extraordinary Assumptions An extraordinary assumption is defined as "an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal or economic characteristics of the subject property or about conditions external to the property, such as market conditions or trends, or the integrity of data used in an analysis" (USPAP). This appraisal employs no extraordinary assumptions. Hypothetical Conditions A hypothetical condition is defined as "that which is contrary to what exists, but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property or about conditions external to the property, such as market conditions or trends, or the integrity of data used in an analysis" (USPAP). This appraisal employs no hypothetical conditions. We certify that, to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions. and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. We have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved. 4. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 5. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. 8. Randal D. Dawson, MAI made a personal inspection of the property that is the subject of this report. 9. No one provided significant real property appraisal assistance to the persons signing this report. 10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 11. As of the date of this report, Appraisal Institute continuing education for Randal D. Dawson, MAI is current. /S/ RANDAL D. DAWSON ----------------------- Randal D. Dawson, MAI Associate Director Missouri Certified General Appraiser License No. RA-003304