a narrative appraisal report of the regency garage ... garage - f… · phoenix, arizona 85004 date...

A NARRATIVE APPRAISAL REPORT

OF THE REGENCY GARAGE BUILDING LOCATED AT

109-151 EAST ADAMS STREET, PHOENIX, ARIZONA 85004

Date of Valuation: September 15, 2017

Prepared for: Mr. Steve Laney SR/WA

Review Appraiser City of Phoenix 251 W. Washington Street

Phoenix, AZ 85003 Prepared by:

Brekan Nava Allen Group 4450 South Rural Road, Suite E225 Tempe, Arizona 85282 BNG #17-08-09

October 20, 2017 Mr. Steve Laney SR/WA Review Appraiser City of Phoenix 251 W. Washington Street Phoenix, AZ 85003 RE: A narrative appraisal report of the Regency Garage building located at 109-151 E. Adams

Street, Phoenix, AZ 85004; (BNAG #17-08-09). Dear Mr. Laney: In accordance with your request, we have personally inspected the above referenced property for the purpose of estimating the “As Is” Market Value of the Leased Fee Interest in the subject property in accordance with the client’s appraisal guidelines. Market Value is defined as:

“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are 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 U.S. dollars or in terms of financial

arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by

special or creative financing or sales concessions granted by anyone associated with the sale.”

Source: Office of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C-Appraisals, 34.42 Definitions (f)

Mr. Steve Laney BNAG #17-08-09 October 20, 2017 Page 2 The subject of this valuation is the Regency Garage, a six-level, free-standing parking structure located on the block bounded by Adams Street on the north, 2nd Street on the east, a public alley on the south and 1st Street on the west. According to provided information, the subject property totals 506 spaces and 202,500 gross square feet situated on a 0.947 net acre parcel (41,250 SF). A portion of the building area (22,753 gross SF) is taken up by 4 retail spaces on the first floor of the 2nd and Adams Street sides. At the date of inspection, this retail portion was occupied by two tenants, the Advocates for Latino Arts and Culture (5,358 SF) and Steve’s Grill (2,956 SF). There are two other vacant spaces, a former restaurant (13,340 SF) and a former retail space (approximately 1,100 SF). Thus, approximately 179,747 gross square feet is contained within the garage and common areas. The subject is an event garage. As such, almost all of its revenue is derived from special event parking, most notably from Phoenix Suns and Arizona Diamondback games and the City of Phoenix Convention Center. The City also has an annual, existing agreement with the next-door Hyatt Regency Hotel for 237 spaces, ranging from overnight to monthly use. There are two other agreements for 90 spaces, for a total of 327 contracted spaces, 64.6% of the total. Based on the analysis presented in this report, it is our opinion the subject property had an “As Is” Market Value of the Leased Fee Interest, as of September 15, 2017, as follows: ELEVEN MILLION FOUR HUNDRED FIFTY THOUSAND DOLLARS $11,450,000 Extraordinary Assumption The “As Is” Market Value assumes that the subject site and improvement size, as reported in public records and utilized in this report is accurate. The improvement gross building area was taken from public records and information from the client and assumed to be correct. It should be noted that the use of this Extraordinary Assumption may affect the results and value conclusions of this appraisal assignment. It should be noted that this appraisal is of the Leased Fee Interest in the subject property, based upon the existing leases. An exposure period of 12 months or less is estimated to attain the market value conclusion indicated in this report, “As Is”. Your attention is directed to the accompanying Certification, Contingent and Limiting Conditions sections. Acceptance of and/or use of this appraisal report constitutes acceptance of these conditions. This valuation has been performed in accordance with the reporting requirements as set forth by the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) as provided by the Appraisal Foundation.

Mr. Steve Laney BNAG #17-08-09 October 20, 2017 Page 3 We appreciate this opportunity to have been of service and look forward to working with you again. Sincerely,

BREKAN NAVA ALLEN GROUP

Albert Nava, MAI, SGA President Arizona Certified General Real Estate Appraiser No 30806

T A B L E O F C O N T E N T S

Summary of Salient Facts and Value Conclusions ...........................................................1

Property Identification ......................................................................................................2

Brief Legal Description ....................................................................................................2

Valuation Dates .................................................................................................................2

Purpose, Intended Use and Intended User of the Appraisal .............................................2

Market Value Defined ......................................................................................................3

Value Definitions ..............................................................................................................3

Property Rights Appraised ................................................................................................3

Property Ownership and History ......................................................................................3

Scope of the Work ............................................................................................................4

The Appraisal Process ......................................................................................................5

Phoenix Mesa Scottsdale MSA Data ................................................................................8

Neighborhood Description and Analysis ........................................................................23

Site Analysis ...................................................................................................................35

Assessed Valuation and Real Estate Taxes .....................................................................43

Improvement Description and Analysis ........................................................................45

Subject Photos .................................................................................................................51

Garage Market Overview ................................................................................................63

Highest and Best Use ......................................................................................................68

Sales Comparison Approach-Land Value .......................................................................72

Cost Approach ................................................................................................................96

Sales Comparison Approach .........................................................................................102

Income Approach ..........................................................................................................114

Reconciliation and Final Value Estimate ......................................................................142

Marketing/Exposure Time ............................................................................................144

Certification ..................................................................................................................145

Contingent and Limiting Conditions ............................................................................147

Qualification of the Appraiser ......................................................................................149

ADDENDUM

Appraiser’s Certification .......................................................................................... Exhibit A

Brekan Nava Allen Group 17-08-09 1

SUMMARY OF SALIENT FACTS AND VALUE CONCLUSIONS

Identification Map/Page: 148-LV/164 Property Type: Existing parking garage with retail Address: 109-151 E. Adams St., Phoenix, Arizona 85004 Name: Regency Garage Ownership: City of Phoenix Property Data Site Size: 0.947 net acres; 41,250 net SF (refer to Extraordinary

Assumption) Zoning: DTC-Business Core, Downtown Code Flood Zone: Zone “X”. FEMA Map Nos. 04013C2205L dated October

16, 2013. No flood insurance is required in this flood hazard area.

Year Built: 1972

Building Improvements: Gross Building Area, GBA: 202,500 SF (per client) Parking Area: 162,000 SF Driveways/Common Area: 17,747 SF Retail Area: 22,753 SF No. of Parking Spaces: 506 Highest and Best Use If Vacant: Hold for future development in-line with zoning As Existing: Existing parking garage

Real Estate Taxes Assessor Parcel Nos.: 112-28-066, 071 2016 Taxes: None; Exempt Interest Appraised and Dates Property Interest Appraised: Leased Fee Date of Inspection: September 15, 2017 “As Is” Effective Date of Value: September 15, 2017


SUMMARY OF SALIENT FACTS AND CONCLUSIONS (continued)

“As Is” Value Indications: Cost Approach: $12,350,000 Sales Comparison Approach: $11,450,000 Income Approach: $11,450,000

Final Value Conclusion (As Is): $11,450,000

Marketing and Exposure Period: 12 months or less

Introduction


PROPERTY IDENTIFICATION

The subject of this valuation is the existing Regency Garage located at 109-151 East Adams Street,

Phoenix, Arizona. The subject property consists of a 506-space free-standing parking garage

situated on a site made up of 2 legal parcels bounded by Adams Street on the north, 2nd Street on the

east, a public alley on the south and 1st Street on the west. The site can also be identified by its

Maricopa County Assessor Parcel Numbers (APN) 112-28-066, 071

BRIEF LEGAL DESCRIPTION

A legal description for the subject site was not provided by the client. Thus, the following general

legal description was taken from public records:

Lot 1 and 4, Block 20, PHOENIX (MCR 251)

VALUATION DATE

The date of the “as is” valuation is September 15, 2017, the date of our formal inspection.

PURPOSE, INTENDED USE AND INTENDED USER OF THE APPRAISAL

The purpose of this appraisal is to provide an opinion of the “As Is” Market Value of the Leased Fee

Interest in the subject property. It is our understanding that the intended use of the appraisal is for

planning purposes. The client and intended user of this report is the City of Phoenix.

Introduction


MARKET VALUE DEFINED

"'Market Value' means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are 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 U.S. dollars or in terms of financial

arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by

special or creative financing or sales concessions granted by anyone associated with the sale."1

VALUE DEFINITIONS “As Is” Market Value – The estimate of the market value of real property in its current physical condition, use and zoning as of the appraisal’s effective date.2

PROPERTY RIGHTS APPRAISED

The real property interest being appraised for the subject property is the Leased Fee Estate, defined

as follows:

Leased Fee Interest – A freehold (ownership) interest where the possessory interest has been granted to another party by creation of a contractual landlord–tenant relationship (i.e. a lease).3

PROPERTY OWNERSHIP AND HISTORY

Ownership of the subject parcel is currently vested in the name of the City of Phoenix. The parcel

has been in the same ownership for over 15 years, according to public records. To the best of our

knowledge, there have not been any other transfers of the property in the preceding three years and

the property is not currently actively listed for sale.

SCOPE OF THE WORK

1Office of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C-Appraisals, 34.42 Definitions (f). 2 Interagency Appraisal and Evaluation Guidelines, OCC 2010-42, dated December 10, 2010, page 26.

Introduction


It is the intent of the appraisers to comply with the reporting requirements established under the

2016-2017 Uniform Standards of Professional Appraisal Practice (USPAP). As such, it presents

information sufficient enough to enable the client and other intended users, as identified, to

understand it properly. The depth of discussion contained within this report is specific to the needs

of the client and for the intended use stated above. The scope of this analysis included the

following:

Physical inspection of the subject property, neighborhood and submarket by Mr. Stephen L.

Mastorakos on September 15, 2017, accompanied by Celest Mims, Contracts Specialist II, with the City of Phoenix. Mr. Albert Nava MAI, SGA, inspected the property on a prior date, August 15, 2017. These inspections should be taken as intended, a physical observation of the property as the appraisers are not certified property inspectors;

The State of Arizona, Arizona Department of Transportation, The Arizona Department of

Economic Security (DES), the Center for Business Research at Arizona State University and Maricopa County were used as sources for background economic data and information such as demographic analyses and forecasts, current and projected employment, economic growth indicators, etc.;

Property-specific data was obtained from the offices of the Maricopa County Assessor and Treasurer and the City of Phoenix, which provided property assessment, real estate tax and zoning information, respectively. Utility companies, or the local municipality, furnished information concerning their services;

Investigated and analyzed any pertinent easements or restrictions, on the ownership of the subject property. It is the client’s responsibility to supply the appraisers with a title report. If a title report is not available, the appraisers will rely on a visual inspection and identify any readily apparent easements or restrictions;

Researched public records, CoStar, LoopNet, MLS and any other sources deemed reliable, for sales of comparable properties;

When possible, confirmed data with persons directly involved in the transactions including buyers, sellers and listing/selling brokers/agents;

Gathered information on appropriate listings of properties found through observation during appraiser’s data collection process;

Contacted developers, real estate brokers and listing and leasing agents with experience and specialties in the subject property type, public parking garages. This search was conducted on a nationwide basis.

3 The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute, 2010), p. 111.

Introduction


All three approaches to value--Cost, Sales Comparison, and Income Capitalization--were considered, and believed relevant in deriving a value indication for the subject property. Thus, all were utilized.

Prepared a narrative appraisal report consistent with the request of the client. The value opinions and judgment contained herein reflect the appraisers' opinions as disinterested

third parties. The reader is referred to the Certification section of the report wherein the conditions

are stated under which the report has been prepared. The Contingent and Limiting Conditions

section of the report presents pertinent caveats.

THE APPRAISAL PROCESS

The appraisal process is the orderly program wherein the data utilized in estimating the value of the

subject property are acquired, classified, analyzed, and presented. The first step in this process

involves defining the appraisal problem as to the identification of real estate, the effective date of the

value estimate, the identification of the property rights being appraised, and the type of value being

sought. Once this has been accomplished, the appraiser embarks upon a data collection and analysis

program of factors which affect the market value of the subject property, including area and

neighborhood analysis, site and improvement analysis, highest and best use analysis, and the

application of the available approaches utilized in estimating the property's value. Appraisers

generally utilize three approaches to value. These are the Cost Approach, the Sales Comparison

Approach, and the Income Approach.

The first approach available to the appraiser is the Cost Approach to Value. In this approach,

accrued depreciation is deducted from the new cost of the improvements and added to the land

value. The resulting figure indicates the value of the whole property via the Cost Approach, and

generally the land value is obtained via the Sales Comparison Approach previously discussed.

Replacement cost new is estimated on the basis of current prices for the component parts of the

building and depreciation analyzes the disadvantages of deficiencies of the existing building as

compared to a new building. The subject property is an existing 6-story, parking garage building

constructed in approximately 1972. The Cost Approach is given consideration in the market by

buyers of this property type if for no other reason than to confirm that the property can be purchased

at or below the cost of replacement. Therefore, it is considered a reliable and useful valuation

technique in combination with the other approaches.

Introduction


The Sales Comparison Approach is utilized to estimate either or both the land as if vacant and the

whole property as improved. The approach involves gathering data regarding sales of comparable

type properties and analyzing the nature and condition of each sale, then making logical adjustments

for dis-similar characteristics. Typically, a common denominator is found, and in land value this

usually involves either a price per square foot or price per acre. In improved properties, the common

denominator involves such units as price per square foot, price per unit, or the use of a gross rent

multiplier. The Sales Comparison Approach is based upon the principle of substitution and is a good

indicator of value of property being appraised when sales of highly similar properties are available.

In the case of the subject, there were limited sales located on a national basis, but the sales employed

were reasonably comparable and provided a basis for the analysis. However, due to the differences

in parking rates and other uses within the building, such as retail space within the subject that is not

typically found in parking garage properties, the Sales Comparison Approach is not a primary

valuation method for this type of property, and it was given secondary consideration as a check on

the other approaches.

The Income Approach is predicated on the assumption that there is a definite relationship between

the amount of income a property will earn and its value. A number of appraisal principles form the

basis of this approach, with the principle of anticipation being particularly applicable. This principle

affirms that "value is created by the expectation of benefits to be derived in the future." The Income

Approach is an appraisal technique in which the anticipated annual net income of the subject

property is processed in order to arrive at an indication of value. Net income in the appraisal process

is that income generated before payment of any debt service, and the process of converting it to

value is called capitalization. As this property type is typically investor owned and income based,

this approach is considered the most pertinent valuation method by the market and was given

primary emphasis in this report.

In the Reconciliation and Final Value Estimate section, the approaches employed are evaluated as to

their pertinence to the appraisal problem and their respective degrees of reliability. The appraisers,

after reviewing the approaches, arrive at a final value estimate.

Phoenix Mesa Scottsdale MSA Analysis


Subject



PHOENIX-MESA-SCOTTSDALE MSA

The metropolitan Phoenix area is one of the largest population and trade centers in the Southwest,

having experienced substantial growth over the past two decades. This growth has been the result of

Phoenix’s centralized location, favorable climate and advantageous business environment. The

Phoenix area is ideally situated to serve the domestic markets of Nevada, Utah, southern Colorado,

New Mexico and southern California, as well as the international markets of the Pacific Basin and

Mexico. Factors that have contributed to Arizona’s overall economic growth also contribute to

Phoenix’s exceptional growth. The Phoenix-Mesa-Glendale MSA (Metropolitan Statistical Area)

includes virtually all of central and eastern Maricopa County and a small portion of Pinal County.

Pinal County is sparsely populated except those areas adjacent to Maricopa County.

The City of Phoenix forms the nucleus of the metropolitan area, surrounded by 22 incorporated

cities and towns. The boundaries of Maricopa County encompass an area of over 9,200 square

miles, including about 100 square miles of water. The topography is generally characterized by

desert valleys and low mountain ranges. Approximately 26 percent of the land within Maricopa

County is privately held. Land under direct government control is divided between the federal

government (60 percent), the state government (10 percent), and local governments (4 percent).

Since 74 percent of the county’s land area is under direct control and nontaxable, development of

taxable commercial, industrial, and residential property is restricted to about one quarter of the

county’s total area.

Population

According to the 2000 U.S. Census, the population estimate for Maricopa County was 3,033,798

persons, up 43 percent from the 1990 census total of 2,122,101 persons and reflecting an average

annual compound growth rate of 3.6 percent. The U.S Census estimated county population at

3,758,168 as of April 1, 2010, an increase of 24 percent over 2000. The 2010 number reflected the

drop in county population over the preceding two years due to the economic downturn of the latter

part of the decade.



The City of Phoenix had an April 1, 2000 population census count of 1,321,045 persons, which was

a 33.5 percent increase over the 1990 census count of 989,301 persons. April 1, 2010 estimates

placed the City of Phoenix population at 1,445,632, a 9.4 percent increase over 2000. Various

Maricopa County municipalities’ populations are summarized in the following table. Note that the

source of data in the following table is the U.S. Census (2000 and 2010) and STDBonline, a national

demographic service (2016). Peoria and Queen Creek stretch into two counties and the figures

shown here include total city population.

2000 2010 2016Municipality Census Census Change % Estimate

Phoenix 1,321,045 1,445,632 124,587 9.4% 1,555,635Mesa 396,375 439,041 42,666 10.8% 475,274Glendale 218,812 226,771 7,959 3.6% 241,019Scottsdale 202,705 217,385 14,680 7.2% 231,829Chandler 176,581 236,123 59,542 33.7% 257,235Tempe 158,625 161,719 3,094 2.0% 176,381Gilbert 109,697 208,453 98,756 90.0% 246,336Peoria * 108,364 154,065 45,701 42.2% 172,002Avondale 35,883 76,238 40,355 112.5% 81,231Fountain Hills 20,235 22,489 2,254 11.1% 24,144Goodyear 18,911 65,275 46,364 245.2% 79,470Paradise Valley 13,664 12,820 (844) -6.2% 13,645Carefree 2,927 3,363 436 14.9% 3,522Cave Creek 3,728 5,015 1,287 34.5% 5,502El Mirage 7,609 31,797 24,188 317.9% 34,086Guadalupe 5,228 5,523 295 5.6% 5,650Litchfield Park 3,810 5,476 1,666 43.7% 6,901Queen Creek * 4,316 26,361 22,045 510.8% 34,499Surprise 30,848 117,517 86,669 281.0% 130,932Tolleson 4,974 6,545 1,571 31.6% 6,701Youngtown 3,010 6,156 3,146 104.5% 6,855Unincorp/Other 186,451 284,404 97,953 52.5% 378,638Total 3,033,798 3,758,168 724,370 23.9% 4,167,487

* City is within dual counties. Figures include gross population in both counties.Source: U.S. Census and STDBonline

2000-2010

HISTORICAL & ESTIMATED POPULATION FORMARICOPA COUNTY CITIES

Maricopa County grew roughly 43 percent between 1990 and 2000. As noted above, the County is

estimated to have grown another 24 percent between 2000 and 2010. Estimates for 2016 place the

County’s population at 4,167,487 persons. Of the total 2016 estimated population, about 37 percent



lives within the City of Phoenix. This is down from roughly 43 percent in 2000, reflecting the

growth of surrounding outlying communities.

According to demographic data from STDBonline, the estimated 2017 population of the Phoenix-

Mesa-Scottsdale MSA (includes Pinal County) is 4,732,910 persons and it is projected to increase to

5,168,956 persons by 2022, reflecting a 9.2 percent increase over the coming five years.

Employment Trends

The national recession of the early 2000s negatively affected the metro area as employment growth

dropped from over 67,000 jobs during 1998 and 1999 to about 38,000 to 40,000 jobs from 2002 to

2004. However, employment increased by about 84,700 jobs in 2006, surpassing levels of 1998 and

1999, then dropped annually and was negative in 2008. Year-end 2011 employment figures showed

a positive trend for the first time in three years which continued to improve through 2015. 2010 and

2011 figures were down in terms of total workforce and total employed and 2009 and 2010 reflected

the high unemployment rate of the recent recession. Pertinent employment statistics for the

preceding five years are summarized in the following table.

CHANGES IN AVERAGE ANNUAL EMPLOYMENT PHOENIX-MESA-GLENDALE MSA (2012 to 2017 Q2)

Year

Labor Force (000s) 1

Employment (000s) 1

Change (000s)

Unemploy Rate 1

2012 2013 2014 2015 2016

2017 1q 2017 2q

2,045.72,037.1 2,127.0 2,007.3 2,251.9

2,139.0 2,300.5

1,901.41,904.2 2,007.1 1,904.2 2,160.3

2,052.1 2,196.0

22.62.8

102.9 (102.9) 256.1

(108.2) 143.9

7.1% 6.5% 5.6% 5.1% 4.1% 4.1% 4.5%

1 Seasonally adjusted

Source: U.S. Department of Labor.

The average seasonally adjusted unemployment rate had historically been low, capping out at 5.6

percent in 2002 with the softening economy of that period. However, strong growth during the

middle of the decade helped drop unemployment below 4.0 percent through 2007. The poor

economy in the latter part of the decade hit the MSA hard as unemployment more than doubled from

2007 to 2009, remaining high at 9.2 percent in 2010. Unemployment has trended steadily downward

since 2010 and was at its lowest level in many years in 2016 and second quarter 2017.



Future expansion of the electronics industry is expected to further the growing reputation of Phoenix

as one of the country’s major electronics centers. Other important economic sectors include retail

and wholesale trade, tourism, insurance, banking and a wide range of high-tech service industries.

As outlined in the following table, the Phoenix area economy is currently led by the Wholesale &

Retail Trade and Professional & Business Services employment sectors.

Avg. Avg. 2014 vs. Avg. 2015 vs.Category 2014 % 2015 % 2015 2016 % 2016

Manufacturing 116.5 6.1% 117.9 6.0% 1.2% 120.3 6.0% 2.0%Mining & Construction 94.1 4.9% 107.3 5.5% 14.0% 110.3 5.5% 2.8%Wholesale & Retail Trade 312.8 16.4% 317.1 16.1% 1.4% 327.7 16.3% 3.3%Transportation, Warehousing, Utilities 68.2 3.6% 73.3 3.7% 7.5% 73.2 3.6% -0.1%Information 34.6 1.8% 36.9 1.9% 6.6% 38.1 1.9% 3.3%Finance, Insurance and Real Estate 168.6 8.8% 171.8 8.7% 1.9% 176.2 8.8% 2.6%Professional & Business Services 323.8 16.9% 338.5 17.2% 4.5% 342.7 17.0% 1.2%Educational & Health Services 283.5 14.8% 287.1 14.6% 1.3% 301.5 15.0% 5.0%Leisure & Hospitality 201.5 10.5% 208.6 10.6% 3.5% 219.1 10.9% 5.0%Government 242.4 12.7% 241.0 12.2% -0.6% 240.0 11.9% -0.4%Other Services 66.5 3.5% 68.3 3.5% 2.7% 63.1 3.1% -7.6%NON-FARM EMPLOYMENT 1,912.5 100.0% 1,967.8 100.0% 2.9% 2,012.2 100.0% 2.3%

TOTAL CIVILIAN LABOR FORCE 2,127.0 2,007.3 -5.6% 2,251.9 12.2%TOTAL EMPLOYMENT 2,007.1 1,904.2 -5.1% 2,160.3 13.4%TOTAL UNEMPLOYMENT 119.9 103.0 -14.1% 91.6 -11.1%UNEMPLOYMENT RATE 5.6% 5.1% -9.0% 4.1% -20.7%

Note: Columns may not total due to rounding.Source: U.S. Department of Labor

PHOENIX-MESA-GLENDALE MSALABOR FORCE & UNEMPLOYMENT (000s)

The metro area’s population growth has historically been spurred by the employment opportunities

available to its residents. Most employment sectors took a hit from 2006 to 2010 with the most

significant drop in the Construction sector. In 2015, Wholesale & Retail Trade, along with

Professional & Business Services, accounted for the largest employment sectors with over 16 and 17

percent of total jobs, respectively. This continued into 2016 as these sectors dominated employment

at 16.3 and 17.0 percent of total jobs. Educational & Health Services and Leisure & Hospitality

showed the largest percentage increase from year to year of 5 percent.

According to an article appearing in the December 1, 2016 issue of Arizona’s Economy, a

publication of the Eller College of Management of The University of Arizona, “The Arizona

economy slowed during the summer, with job growth falling back to the national rate. Further, new

personal income estimates suggest slower growth early in the year. While Arizona continues to



expand at a solid pace, 2016 no longer appears to be the breakout year. Nonetheless, the odds still

favor continued growth in the U.S. and Arizona economies this year and next.

The outlook for Arizona calls for solid gains in jobs, income, and population. While growth rates

are expected to far exceed the nation, they are not headed back to historical averages. Job gains will

likely be concentrated in service-providing industries, like professional and business services;

education and health services; trade, transportation, and utilities; and leisure and hospitality.

Arizona’s two largest metropolitan areas have also experienced a lull, but are expected to rebound in

2017. As usual, the Phoenix MSA is forecast to expand at a rapid pace. The Tucson MSA is

expected to capitalize on recent announcements of new jobs in the aerospace sector to generate

improved gains during the forecast.

“The Arizona economy continued to add jobs during the summer, although the pace slowed. Over

the year, Arizona added 44,400 jobs for a 1.7% growth rate. That matched the national rate, but fell

short of the pace set in the second quarter of 2.1%.

“The Arizona outlook depends in part on the national economy. IHS Economics projects that U.S.

real GDP growth will hit just 1.4% in 2016, down from 2.6% last year. Gains accelerate next year to

2.2% and hold steady at that rate through 2019. Sluggish growth in 2016 reflects an inventory draw

down, slower consumption spending, weak nonresidential fixed investment (especially in the energy

sector), slower gains in residential investment (housing), and weak export performance. Slightly

stronger gains are expected in 2017, as rising oil prices spur renewed investment in the energy sector

and a gradually falling dollar spurs stronger export gains.”

The source of future employment growth will be tied to four factors: a recovery in high

technology/basic manufacturing, regional and/or national administrative headquarters,

retirement/tourism and the public sector. The following table summarizes the number of Arizona

employees for major Maricopa County employers.



MARICOPA COUNTY’S MAJOR EMPLOYERS (2016)

Employed Manufacturing Intel Corp. Honeywell Aerospace Freeport McMoran Inc. The Boeing Co.

11,000

9,000 7,430 3,839

Services Banner Health Dignity Health Honor Health United Healthcare

40,226 10,584 10,500

6,608 Retail Trade Wal-Mart Stores Fry’s Food Stores Target Basha’s

34,350 18,870

8,241 6,564

Government/InstitutionsState of Arizona University of Arizona City of Phoenix Arizona State University Maricopa County

42,687 14,521 14,421 12,488 10,187

Other Major EmployersWells Fargo & Co. JP Morgan Chase & Co. American Airlines Bank of America Mesa Public Schools

14,860 10,000 10,000

9,500 8,471

Source: The Phoenix Business Journal’s Book of Lists 2016-2017.

Beyond high-tech manufacturing facilities, Phoenix has been an attractive location for more basic,

cost sensitive manufacturing and distribution firms looking to relocate from southern California. An

additional source of growth in Phoenix has been its emergence as a regional hub. For many firms

with five or six regional headquarters in such cities as New York, Atlanta, Chicago, Dallas or

Seattle, Phoenix is a very strong candidate to be the site of their next regional location.

Despite the economic downturn, Phoenix is expected to continue to benefit from future growth in

tourism, seasonal migration and retirement residence. The local, state and federal government

entities represent a large source of employment within the Phoenix area. Long-term overall

economic growth is expected to continue to spur employment and population growth in metropolitan

Phoenix in the coming years. The metropolitan area rebounded strongly from an economic slump

experienced in the early 2000s. Strong economic growth through 2006 influenced most sectors of



the Phoenix economy, but was most pronounced in the real estate and financial sectors, particularly

related to development of single-family residential. From 2006 to 2010, the substantial downturn in

the residential market was felt in most segments of the economy as well, although more recent trends

are once again positive.

Income Trends

According to STDBonline, the 2017 estimated average household income is $77,596 for the MSA,

up about 24 percent from $58,886 in 2000, while the per capita income was estimated to be $28,544.

The following chart shows income trends for the MSA.

PHOENIX MSA INCOME

2000

CensusEstimated

2017Projected

2022

Median HH Income Average HH Income Per Capita Income

$44,770 $58,886 $21,907

$56,081 $77,596 $28,544

$61,705 $87,502 $32,013

Source: U.S. Census & STDBonline

TRANSPORTATION SYSTEMS

Phoenix Metropolitan Freeways

The metropolitan Phoenix area is serviced by a number of freeways, providing convenient truck

access to the Southern California market as well as the metropolitan areas within Colorado, Nevada,

New Mexico and Texas. The Phoenix metropolitan area map (depicted at the beginning of this

section) shows the elements of the existing system, as well as the planned transportation corridors

approved by taxpayers. Several segments of the system designed to serve central and north Phoenix

were completed in the middle part of the decade.

Light Rail

Valley Metro’s Central Phoenix/East Valley light rail transit project is one of the largest

infrastructure projects in Arizona history. The 20.3-mile light rail system stretches from 19th

Avenue and Bethany Home Road in central Phoenix, through uptown and downtown Phoenix, past

Sky Harbor Airport, across Tempe Town Lake, through downtown Tempe and end approximately

one mile into Mesa. Construction of the project began in mid-2003 and it was completed and

opened in December 2008. Extensions further north within the City of Phoenix and east into the

City of Mesa are now underway.



Phoenix’s Sky Harbor International Airport

Phoenix’s Sky Harbor International Airport is the 5th busiest airport in the nation in terms of the

number of take-offs and landings. It is also a major hub for Southwest Airlines and American

Airlines (formerly U.S. Airways). The airport’s direct impact includes adding $9.5 billion to the

metro area’s economy and it accounts for over 43,000 jobs with a $1.7 billion payroll. Airport

traffic records indicate consistent growth over the past several decades. After a couple of years of

decline, total passenger traffic was up in 2011 and continued through 2016. Historical

enplanements/deplanements for the past several years are shown in the following chart.

Year Total (000s) Change

2012 2013 2014 2015 2016 2017 1q

40,448.940,341.6 42,134.6 44,003.8 43,383.5 11,127.0

(0.4%)(0.2%) 4.4% 4.4%

(1.4%) --

Source: Sky Harbor International Airport

REAL ESTATE INVENTORIES

Residential/Commercial Land

The real estate market is currently in transition as land sales had slowed down and prices for land

had been declining. The credit crunch and meltdown of the financial markets in late 2008 further

exacerbated the problem. Demand for vacant land became almost non-existent except for investors

looking for long-term hold situations as all segments of the real estate market have felt the economic

decline. However, as the local economy continues its recovery, land sales are once again occurring.

After a number of years of record low prices with most land speculators expecting long-term holds,

the land market appears to be rebounding as user sales are occurring metro wide.

Single and Multifamily Residential

According to the Phoenix Metro Housing Study (PMHS), new residential building permits increased

steadily from 2000 to 2004 as the market responded to the area’s growing population. Additionally,

out-of-state investors purchased heavily in this market in 2004 and early 2005, driving up demand

and the median price of housing at an almost exponential rate. With the crash in the residential

market in 2006, the number of permits issued annually dropped significantly in subsequent years as

did single-family home sales and values. The PMHS is no longer published; thus, new statistics are



taken from an ASU Department of Real Estate study of the residential market and The Phoenix

Housing Market Letter published by R.L. Brown.

Year

Single-Family Permits

Change

New SFR Home Sales

Median New Home Price *

Change

2012 2013 2014 2015 2016

2017 1q 2017 2q

9,245 12,771 11,711 16,614 18,049

4,643 5,325

47.1%38.1% (8.3%) 41.9% 8.6%

-- --

9,38110,817

9,704 11,416 15,864

3,995 4,838

$251,463 $308,704 $350,410 $298,082 $315,157 -- --

13.4%22.8% 13.5%

-14.9% 5.7% -- --

*As of December in each year and into second quarter 2017.

Source: ASU Department of Real Estate (2012-2015) and R. L. Brown Reports (2016-2017)

According to an analysis by Ryan Konig published in the Arizona Republic in May 2016, most

valley zip codes showed an increase in the median sales price of single-family houses from 2014 to

2015, many substantially. The following chart shows median overall new and existing homes sales

data for 2015 compared to the same time period in 2014 for selected zip codes around the metro

area. More current data is not yet available from this source.

Median Change Median Change2015 2014-2015 2015 2014-2015

Avondale Peoria85323 $177,000 14.9% 85383 $316,420 0.6%85392 $198,000 13.1% Phoenix

Buckeye 85023 $209,250 -0.4%85396 $245,000 -2.0% 85024 $265,000 12.5%

Chandler 85041 $165,000 11.5%85249 $363,865 7.5% 85083 $291,500 -8.7%85286 $340,000 10.3% 85085 $348,000 6.2%

Gilbert Queen Creek85296 $255,000 -1.7% 85142 $280,631 14.4%85297 $266,000 -3.5% Sun City85298 $332,105 -0.8% 85373 $195,000 12.6%

Goodyear Surprise85338 $219,836 4.7% 85388 $223,000 11.6%85395 $324,696 8.2% 85379 $205,000 7.9%

Laveen 85387 $269,000 8.5%85339 $200,000 14.4% Tolleson

Mesa 85353 $181,000 13.1%85207 $262,810 -13.7% Waddell85212 $281,638 0.9% 85355 $227,490 -8.5%

Zip Code Zip Code

BY SELECTED ZIP CODES 2014 v. 2015

Source: The Information Market - 1st Qtr 2016. The Arizona Republic, May 2016.

MEDIAN HOME SALES PRICES



As the flood of investors opted for other markets in the latter half of 2005 placing substantial

inventory on the market, a substantial reduction in new building permits resulted with the drop in

demand. This drop in demand continued into 2007, 2008 and 2009 as year-end 2009 figures showed

only 6,355 building permits and 8,314 new sales for the year. Based on current figures, this trend is

reversing and new home building and sales are up from the previous few years. The Arizona

Republic article reports that a large percentage of the region’s zip codes saw home values climb

from 2014 to 2015 and many zip codes metro wide have posted jumps in median price of more than

10 percent over the past year. Housing prices have not yet returned to the boom-period highs, but it

is reported than in some areas, prices have recovered to levels not seen since 2003.

Real Data, Inc.’s Apartment Insights reports that after several years of moderate increases, rental

rates declined from 2007 to 2009. However, more recently trends have been positive as vacancy

continues to drop overall and rental rates are steadily increasing. In response to positive trends in

this real estate segment, several Class A projects are under construction Valley wide. The following

chart summarizes recent years’ apartment statistics for projects of 50+ units.

Year Inventory

(Units) Vacancy Avg. Rent

2012 2013 2014 2015 2016

2017 1q 2017 2q

260,454264,299 270,650 277,454 285,472 287,133 289,562

8.30%7.27% 6.12% 5.68% 5.96% 5.57% 5.84%

$769 $781 $813 $865 $924 $941 $968

Source: Real Data, Inc.’s Apartment Insights

Retail

CoStar reported that as of second quarter 2017, the metro Phoenix retail inventory totaled

approximately 224.9 million square feet. Vacancy was reported at 8.8 percent, down from 8.9

percent reported as of first quarter 2017. CoStar reported negative absorption numbers in 2009 and

2010, but absorption rebounded in 2011, 2012 and 2013, posting positive figures for the first time in

three years. 2012 and 2013 absorption was roughly four and five times that of 2011. Absorption

averaged about 2.0 million square feet from 2014 to 2016. Roughly 855,115 square feet was under

construction as of second quarter 2017. The following table summarizes retail market statistics

through second quarter 2017 from CoStar.



Year

Base SF

Vacant SF

Net Absorption

Vacancy

Avg. Rent/SF

2012 2013 2014 2015 2016

2017 1q 2017 2q

219,977,678 221,055,182 221,116,426 221,685,893 223,151,353 223,588,765 224,880,509

25,166,64623,478,442 21,655,635 20,474,481 19,671,151 19,912,225 19,729,881

2,695,0222,765,708 1,884,051 1,750,621 2,268,790 196,338 538,689

11.4% 10.6% 9.8% 9.2% 8.8% 8.9% 8.8%

$14.29 $13.85 $13.86 $14.27 $14.50 $14.69 $15.38

Source: CoStar

Office

CoStar reported that as of second quarter 2017, the metro area office market contained about 172.7

million square feet, with an overall vacancy rate of 15.0 percent. This is lower than the first quarter

2017 vacancy rate of 15.4 percent. After good absorption during 2007, absorption was negative the

following two years. Absorption has rebounded the past seven years, peaking in 2015 and 2016.

The following chart summarizes office market statistics provided by CoStar.

As of second quarter 2017, some 1,013,705 square feet of office space was under construction

throughout the valley. Most of this was in owner-occupied or pre-leased product as the new

speculative construction market is still weak. CoStar reports that the overall average rental rate

dropped over 23 percent from 2007 to 2012. The average rental rate has actually improved annually

since 2012 to its first quarter 2017 high.

Industrial

CoStar reported that as of second quarter 2017, the metro Phoenix industrial market had roughly

319.7 million square feet of industrial space. Of that total, about 29.3 million square feet was

available, indicating an overall vacancy rate of 9.2 percent, down from first quarter 2017. As with

other segments of the real estate market, rental rates declined in response to high vacancy from 2009

to 2010, but have trended upward annually since 2011 as vacancy has steadily dropped over the past

Year

Existing SF

Vacant SF

Net Absorption

Vacancy

Avg. Rent/SF

2012 2013 2014 2015 2016

2017 1q 2017 2q

165,303,179 165,222,319 165,954,328 169,005,878 171,367,678 172,367,678 172,707,655

31,818,69230,051,604 27,925,366 27,331,906 26,025,073 26,471,235 25,920,860

3,180,0731,686,228 2,858,247 3,645,010 3,627,063 595,408 590,275

19.2% 18.2% 16.8% 16.2% 15.2% 15.4% 15.0%

$19.77 $20.06 $20.95 $21.98 $23.37 $23.55 $23.86

Source: CoStar



few years. The following table summarizes industrial market statistics.

Year

Existing SF

Vacant SF

Net Absorption

Vacancy

Avg. Rent/SF

2012 2013 2014 2015 2016

2017 1q 2017 2q

295,978,670 301,583,559 308,417,684 312,755,088 316,658,791 318,899,546 319,740,700

34,661,86436,212,388 35,466,712 32,066,035 30,084,001 30,693,024 29,364,764

6,194,8434,054,365 7,579,801 7,737,259 5,886,559 1,631,732 1,117,870

11.7%12.0% 11.5% 10.3% 9.5% 9.6% 9.2%

$6.13 $6.38 $6.39 $6.68 $6.87 $6.93 $7.05

Source: CoStar

Positive absorption over the past seven years has resulted in a drop in vacancy of 6.7 percent since

2009 when vacancy was reported at 16.3 percent. Absorption almost doubled from 2013 to 2014 as

more than 4.3 million square feet was absorbed in the second quarter alone. Flex projects reported a

vacancy rate of 13.2 percent as of second quarter 2017 while warehouse projects reported a vacancy

rate of 8.7 percent. Net absorption, paced by the Southwest submarket, continued to do well.

Conclusions

The Phoenix metropolitan area has historically possessed a favorable climate and pro-business

environment, in response to which the area has experienced explosive growth since the mid-1980s,

with annual population gains of 4 to 5 percent and employment gains of 2 to 5 percent. Employment

and population growth slowed during the early part of the decade, as the national recession of 2001

and 2002 was felt in Phoenix as well. A recovery that started in March 2003 continued through

roughly mid-2006 as population growth remained strong and employment continued to grow.

However, consistent with the national economy, the local economy turned in the latter half of 2006

as the residential market crashed.

After several years of phenomenal growth, the residential market began its decline in the latter

months of 2006 as out-of-state investors, which drove the exponential growth of the market in 2004

and much of 2005, opted for other markets. This resulted in an extraordinary number of existing

homes being put on the market for sale. Permitting consistently declined from 2006 through 2010,

which led to a precipitous decline in the average price of housing as builders now work to sell

unsold inventory. After experiencing years of strong growth from 2003 to 2006, the multifamily,

office, retail and industrial markets also experienced increasing vacancy rates and dropping rental

rates in response to the economic downturn. However, more recent statistics show the local

economy in recovery since 2011 which continues into 2017.

Neighborhood Analysis


NEIGHBORHOOD MAP

Subject



NEIGHBORHOOD AERIAL

Subject

Phx. Downtown CBD

I-10

Chase Field

PBC AZ Center

AZ Convention Center



NEIGHBORHOOD DESCRIPTION AND ANALYSIS

A neighborhood is defined as:

A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises 4

A property is an integral part of its neighborhood and normally cannot be treated as an entity

separate and apart from its environment. The subject property is located in the eastern quadrant of

the Phoenix downtown area, just east of the central core more commonly known as the Downtown

Phoenix Business Improvement District (formerly Copper Square). The Downtown Phoenix

Business Improvement District is the metropolitan area's business address, government center,

cultural center, and sports destination. It is the center of economic activity with 26,000 employees

in government, banking, and finance, legal, service and non-profit organizations. Served by every

major freeway and only five minutes from Sky Harbor International Airport, this area is easily

accessible from all parts of the Valley. It is also serviced regularly by the local mass transit system

and will serve as the hub of the future light rail transit office.

The Central Phoenix Committee agency and the Planning Department of the City of Phoenix refer to

this area as Downtown Phoenix, as distinguished from Midtown Phoenix that generally extends

along the Central Avenue corridor north of McDowell Road and Uptown Phoenix north of Campbell

Avenue.

The preceding map depicts the Downtown Phoenix neighborhood area as bounded by 7th Street on

the east, 7th Avenue on the west, Interstate 10 on the north, and Lincoln Street on the south. It

covers an area of approximately 1.5 square miles, and contains the original town site of Phoenix that

has remained as the downtown core of the city. Central Avenue bisects this core, extending

north/south into the bordering mountains, as a significant corridor for development. This corridor

consists of three distinct neighborhoods. Valley Center, or downtown, forms the lower or southern

extreme for high-rise development. The Midtown neighborhood extends from McDowell Road north

to Campbell Avenue. The Uptown neighborhood begins at Campbell Avenue and extends north to

Glendale Avenue.

4 Dictionary of Real Estate Appraisal, Appraisal Institute, 5th ed., 2010, p. 133.



Downtown is distinctly defined by the

zoning ordinance that designates this

General Plan area as the Downtown

Code (DTC) district. In 2006, the

Downtown Urban Form was initiated

as an implementation step for

Downtown Phoenix: A Strategic

Vision and Blueprint for the Future,

adopted by the City Council in

December 2004. The Urban Form

Project includes an area of 1,500 acres

which is approximately one mile wide

and two miles long. As part of this

Urban Form, new character areas were

identified which are reflections of

existing downtown neighborhoods. In

some cases, due to distinctive features,

such as the ASU Campus, sub-areas

have been identified, but remain a part

of the larger character areas.

Character areas are further based on existing land use, zoning, circulation, parcel configuration,

building footprints, landscaping, site dimensions, and opportunity sites. As shown on the above

map, the subject is within the Phoenix Biomedical character area.

Phoenix Biomedical Character Area

According to the Phoenix Zoning Ordinance, “The Biomedical Character area which is home to the

biomedical campus should be a lively urban district with medical workers, researchers and students.

Restaurants and shops on Garfield Street, Roosevelt Row and Arizona Center are all located within

a short walk and development should be designed to reinforce pedestrian convenience to these areas

through a consistent pattern of shaded sidewalks.” As a result, the Phoenix Biomedical Campus,

PBC, is developing within this character area.

Subject



In May 2002, the International Genomics

Consortium announced that Phoenix is the

“first and preferred choice” for its

headquarters. Genomics is the study of how

genes affect disease. A groundbreaking

ceremony for the construction of the first

building in the new Phoenix Bioscience

Center at Copper Square was held on June 13, 2003 and the complex has since been completed and

is the home of the Translational Genomics Research Institute (TGen), the International Genomics

Consortium and other cutting edge projects. The City of Phoenix donated land at 7th Street and Van

Buren for the TGen/IGC facility, which is now a 6-story, 173,000-square foot building. The

building reportedly cost $46 million and employs approximately 250 people.

Another public project related to this area is the recently built, 2-story, 52,000 square foot building

for the Phoenix Union Bioscience High School, and remodeling of the Historic McKinley School

building. This project referred to as the “Phoenix Bioscience High School Campus” consists of a

total of 2+- acres at the southwest corner of Garfield and 6th Streets. It currently has an enrollment

of 289 students in grades 9-12, after opening for the 2006 school year.

Building upon this foundation, the Phoenix downtown is also the site of several collaborations

among Arizona’s three universities. The Arizona Biomedical Collaborative (ABC) between the

University of Arizona and Arizona State University will include three new bioscience and clinical

research buildings on city-owned property and the renovation of three historic Phoenix Union High

School buildings. The first building, with 4 stories and 85,000 square feet of gross building area has

been completed and provides world-class biomedical research facilities shared by both UA and

ASU.

Subject

Font Key:

Existing Planned Under Construction



The metro area’s first full-fledged medical school, University of Arizona College of Public Health,

opened in 2012 in the Health Science Education Building within the PBC. It also houses Northern

Arizona University’s physician assistant, physical therapy and occupational therapy programs. It

has been estimated that in 2013, 9,355 jobs were created by the academic center, directly and

indirectly, with a $961 million impact on the economy. The impact is expected to reach $3.1 billion

by 2025. The overall impact of the PBC in 2013 was estimated at $1.3 billion.

The new Arizona Cancer Center, a 220,000 square foot facility recently opened at the northeast

corner of 7th and Fillmore Streets in the PBC. It is both an outpatient and research facility affiliated

with the UA College of Public Health and will support approximately 1,500 jobs at full operation.

In addition, the 8-story, 1,200-space PBC Garage parking structure was recently completed at the

southeast corner of 5th and Fillmore Streets. It is on a leased land parcel, and provides dedicated

spaces to all of the existing and planned buildings in the main section of the PBC, as well as the

Arizona Cancer Center.

Finally, the 10-story, 245,000 square foot Biosciences Partnership Building recently broke ground

on a ground-leased parcel of land just north of the Health Sciences Education Building in the PBC.

This research building is expected to create 500 construction jobs initially and another 360

permanent positions at full build-out. It is being funded by and will be owned by the University of

Arizona.

Arizona State University Campus

The downtown campus of ASU is located on the south side of Van Buren Street, across from the

PBC. It will be potentially larger in student population than Boston College, Notre Dame, or

Syracuse Universities, with an expected 15,000 student campus. The Walter Cronkite School of

Journalism facility opened in August 2008, and the College of Nursing moved there in 2006.

Fall 2014 enrollment at the Downtown ASU campus was reported to be 11,277 students. When fully

developed, 15,000 students, 1,800 faculty and staff, and 4,000 student housing beds are projected.

The academics will include the College of Public Programs, Cronkite School of Journalism and

Mass Communications, KAET, College of Nursing, and School Health Management and Policy.



The undergraduate experience will be at University College. ASU Phoenix is expected to create

7,700 jobs and generate more than $500 million a year is spending and $7 million a year in revenues

to the city.

Other Development

In the past 15 years, great strides have been made to revitalize the downtown core area with an

estimated $3 billion in private and public capital spent. It was once an area that was all but deserted

after the 9am-5pm traditional work hours. Recent redevelopment efforts have transcended this

region, adding diverse land uses to create a balance between commerce, cultural, governmental,

recreational, and even to a small extent residential land uses.

The $600 million expansion of the Phoenix Civic Plaza and Convention Center tripled the amount of

rentable space, positioning Phoenix as a top destination for 80 percent of all conventions and

elevating if from the 67th largest convention center in the United States into the top 20. Fairly

recently completed (December 2008), the Phoenix Convention Center provides a spacious, high-tech

and client-friendly facility with approximately 900,000 square feet of rentable space and more than 2

million square feet total.

Joining the redeveloped sites of the Phoenix Civic Plaza and the Hyatt Regency are numerous

premiere signature projects. Some of the more prominent facilities completed in the past eight to ten

years include the Arizona Museum of Science and Technology, and the Arizona Museum, included

near the existing Heritage Square. Other major additions to cultural activities in the downtown

Phoenix area include the Herberger Theater Center located south of Van Buren between 2nd and 3rd

Streets; a two-theater complex including 827-seat and 379-seat facilities; the 45,000-seat retractable

domed Chase Field (formerly Bank One Ballpark), the home of the Arizona Diamondbacks; the US

Airways Center (formerly America West Arena), a 22,500-seat multipurpose facility and home of

the NBA’s Phoenix Suns and the WNBA’s Phoenix Mercury.

Another large project completed in the last 10 years is the 1,000-room Sheraton Hotel located west

and across 3rd Street from the Arizona Center. This 31-story facility was completed in 2008, and is

the largest hotel in the state.

In October 2008, construction began on Cityscape, a multi-use development in the center of



downtown Phoenix. Bounded by 1st Avenue on the west, 1st Street on the east, Washington Street on

the north, and Jefferson Street on the south, this $500 million development contains approximately

1.2 million square feet of space in two towers, including 224 residential apartments, office space,

retail and hotel uses (250-room Kimpton Hotel Palomar).

Finally, construction for the new Arizona State University Center for Law and Society, a $129

million law school building for the Sandra Day O’Connor College of Law, was begun in November

2014. The six-story, 280,000 square foot building will also include 2 levels of underground parking.

It is expected to be complete by August 2016. The City of Phoenix donated the land and provided

$12,000,000 in construction bonds. This project was named by the Phoenix Business Journal as the

top construction project begun in 2014 in the Phoenix metro area in terms of total budget.

Housing Projects

A number of multifamily housing projects have been completed within the downtown area within

the past several years. Alta Phoenix Lofts, Park at Arizona Center and Roosevelt Square are three

Class A apartment projects. Both the Alta Phoenix Lofts and Roosevelt Square projects offer unique

loft-style units in an urban living setting with rental rents at the top of the market. In addition,

comparatively older multi-story office buildings (Class B) are converting to residential loft

developments.

In the area of the Phoenix Biomedical Campus, there are two newer projects. Roosevelt Point, a

326-unit, 7 story student housing project located at 888 N. 4th Street was built in 2013. Skyline

Lofts, a 332-unit, 8-story luxury apartment project at 600 N. 4th Street, was built in 2009.

Two major high-rise developments have also been completed in Downtown Phoenix within recent

years. The first, located at the corner of Monroe and 1st Avenue is 44 Monroe which is 34 stories (8

stories of parking) and contains 202 residences and the second, located at 4th Street and Jackson

Street is The Summit at Copper Square which is 23 stories and contains 167 units. 44 Monroe was

completed in the fall of 2008 while The Summit at Copper Square was completed in late 2007.

Population Characteristics

In order to analyze the character of the neighborhood population, we have employed a report by Site

To Do Business, STDB, for the defined neighborhood (see map at the beginning of this section,



approximately 1.33 square miles). The chart on the following page summarizes some of the key

statistics plus comparative figures for the Phoenix MSA.

NEIGHBORHOOD VERSUS

PHOENIX METRO AREA DEMOGRAPHICS

Neighborhood Phoenix-Scottsdale-Mesa MSA

2010 Census

2017 Estimate

2022 Projection

2010 Census

2017 Estimate

2022 Projection

Total Population Total Households Persons/HH

6,607 2,779

1.40

8,141 3,539

1.41

8,8714,051

1.41

4,192,887 1,537,173

2.68

4,732,910 1,718,173

2.70

5,168,9561,870,719

2.72

Median Age 27.0 28.0 29.5 34.7 35.4 36.1

Per Capita Income Average HH Income

NA NA

$28,289 $49,688

$32,823$58,899

NA NA

$28,544 $77,596

$32,013$87,502

Source: STDB Online: Site Reports

The population within the subject neighborhood showed moderate growth between 2010 and 2017 of

23.2%. This was above the metro growth rate of 12.9% for the same time frame. Looking ahead,

over the next five years, the subject neighborhood is expected to realize a growth of 9.0%, similar to

the 9.2% estimated metro wide. This is a result of significant planned in-fill development and

redevelopment of existing properties for high density residential property uses.

The subject neighborhood population has a much lower count of persons per household and a lower

median age to the metro area as a whole. This indicates a young, single demographic for the area as

a result of the high-amenity and high density residential character.

In terms of the average household income, the subject neighborhood currently has a per capita

income nearly the same as the metro area, but with a much lower household count, the average

household income is 36.0% below the metro area. These comparisons are expected to continue for

the next five years.

Employment

According to the Site-To-Do-Business, employment within the defined neighborhood totals 41,324

persons, well above the 7,236 persons who live in the area. This is a result of the dense employment



found in the mid to high-rise buildings typical of the downtown area. The largest employment group

is Government, with 23,897 employees, nearly twice as many as the next highest group, Services,

which includes Legal, Health and Education services, 12,165 employees. The next highest group is

Retail/Trade, which includes restaurants and food and apparel stores. The indication is that this

defined area, with 1.33 square miles approximately, has one of the highest employment densities in

the metro area, at 31,071 persons per square mile.

Transportation

Access to and through the defined neighborhood is good. Major east/west arterial streets include

Roosevelt, Van Buren, Washington and Jefferson Streets. Major north/south arterial streets include

7th and 3rd Streets and Central, 3rd and 7th Avenues. Arterial streets are asphalt paved, and most are

at least four lanes wide with adequate sidewalks for pedestrian traffic and storm drains for surface

water disposal.

Completed in December 2008, the Valley Metro Rail system runs down Central Avenue in the

neighborhood, between Camelback Road and Washington Street. From Camelback Road on the

north, the line extends west to 19th Avenue where it turns north again to Bethany Home Road. It is

currently under construction further north to Dunlap Avenue. From Washington Street, it extends

east through Tempe and into Mesa. The 57-mile Valley Metro Rail system has enabled much better

access to Downtown Phoenix, with linkage between ASU-Tempe, Sky Harbor International Airport

and the North Central Avenue Corridor.

Valley Metro also provides bus transportation into and out of the area with numerous routes and

regular time intervals. The neighborhood is also only two miles west of Sky Harbor International

Airport and lies between Interstates 10 and 17.

Neighborhood Services

The neighborhood is served with electricity from Arizona Public Service Company, gas from

Southwest Gas Company, and water/sewer and police/fire from the City of Phoenix.



Neighborhood Summary

The neighborhood includes the downtown central core of the City of Phoenix. Redevelopment

efforts of the downtown core district are successfully revitalizing the neighborhood. There are on-

going ventures and future plans to diversify the land uses in this area to provide an assortment of

choices to attract employers, residents, and visitors to congregate in this neighborhood. As a result,

the trend for the area is positive in terms of activity and land values.



PHOENIX DOWNTOWN CORE CHARACTER AREA MAP

Subject

Site Analysis


Subject Parcels

Site Analysis


MARICOPA COUNTY PLAT

Subject Parcel 066

Subject Parcel 071

Site Analysis


SITE ANALYSIS

The subject property is composed of 2 legal parcels The following site analysis is based on a

personal inspection of the property by the appraisers, information from public records and the City

of Phoenix, and is assumed to be correct.

Location/Address: The subject property is located between 1st and 2nd Streets, on the south side of Adams Street, in Phoenix, Arizona. The mailing address of the building is 109-151 E. Adams Street, Phoenix, Arizona 85004

Size: 41,250 square feet; 0.947 acres Access/Frontage: The subject site has frontage on 3 city streets, 1st, 2nd and Adams Streets, and

one public alley, thus having 2 corners. The site could have access from 3 streets and the alley, but in fact, the property is currently designed to have access only from 2nd Street.

The following briefly describes the fronting streets.

1st Street: Neighborhood street, two-way: 100+/- foot right-of way, 2 lanes, asphalt-paved, full infrastructure with concrete curbs, gutters and sidewalks and street lights, street parking, average condition; 2nd Street: Neighborhood street, two-way: 100+/- foot right-of way, 2 lanes, asphalt-paved, full infrastructure with concrete curbs, gutters and sidewalks and street lights, street parking, average condition; Adams Street: Neighborhood street, two-way: 80+/- foot right-of way, 2 lanes, asphalt-paved, full infrastructure with concrete curbs, gutters and sidewalks and street lights, street parking, average condition;

Topography/ Drainage: The subject parcel is level and at-grade with surrounding streets and

properties. Soil Conditions: No Geotechnical Evaluation was provided for the site. The appraisers are

unaware of any deleterious soil or sub-soil conditions impacting the site. Based upon the current successful use of the subject site, and current uses on surrounding sites, we have assumed that the subject soil conditions will support the construction of buildings utilizing typical foundations.

Easements/ Restrictions: No ALTA or recent title report was provided for the subject property. The

appraisers are unaware of any deleterious easements or encroachments affecting the subject property. We have therefore assumed that the utility of the site is not adversely affected by any adverse conditions.

Site Analysis


Environmental Observations: No Phase I Environmental Site Assessment was provided for the property.

Our inspection did not raise any notable environmental concerns; however, the site is currently improved with a parking garage building that has been utilized for parking automobiles for 27 years. As a result, there is a possibility that chemicals known to be hazardous to the environment that are used by cars have leaked in the building. We are not experts in this area and recommend that a Phase I Environmental Site Assessment be prepared for the subject property if the client has any concerns. For appraisal proposes we have fully assumed that there are no environmental problems and we reserve the right to adjust our analysis and valuation accordingly should future studies indicate otherwise.

Flood Plain: Zone “X-1”, according to FEMA Map No. 04013C2205L, Maricopa County,

Arizona, dated October 16, 2013. A Zone “X-1” is defined as:

“Areas of 500-year flood; areas of 100-year flood with average depths of less than 1 foot or with drainage areas less than 1 square mile; and areas protected by levees from 100-year flood.”

Zoning: The subject parcel is in the Business Core area, BC, of the Downtown

Phoenix Plan, or Code, DTC. The purpose of the DTC, according to the City of Phoenix zoning ordinance, “…is to implement the vision, goals and policies of the Downtown Phoenix Plan and provide the physical environment necessary to create a pedestrian-oriented, dynamic urban center with an authentic sense of place.” The DTC applies to all land uses, subdivisions and development within the boundary generally between McDowell Road on the north, 7th Street on the east, Buckeye Road on the south and 7th Avenue on the west. Each structure and land use shall be established, constructed, reconstructed, enlarged, altered, moved or replaced in compliance with the requirements of the Use Matrix for the Character Area in which the property is located.

The subject property is in the Business Core, BC, area, which should function

as a strong regional center for employment, entertainment, conventions, tourism, and cultural institutions, drawing visitors from around the country and attracting residents from throughout the region. The greatest development intensity within the region should be located within this Character Area. New development should be innovative and incorporate small public spaces that promote pedestrian movement and comfort. The Business Core should have vibrant pedestrian activity and be served frequently by multiple modes of high quality public transit. The Use Matrix for this character area allows for most uses available to the other character areas, with the exception that no single family attached or detached dwelling units, manufacturing of any kind, storage/warehousing, wholesale sales, motor vehicle service, drive-thru or outdoor storage are allowed. Multi-family residential uses are allowed. The subject parking garage use is not specified but appears to be an approved use based upon the subject’s long-

Site Analysis


term use and the number of other parking garages in the immediate subject area, within the BC area.

According to the City maps regarding height limitations, the subject is in a

zone allowing a 475-foot maximum height and a zone with no maximum density for dwelling units per acre. (See Height and Density maps following this section).

Utilities: All utilities and services necessary to facilitate development of the parcels for

a variety of uses are available as summarized below.

Domestic Water: City of Phoenix Sanitary Sewer: City of Phoenix Electricity: Arizona Public Service, APS Natural Gas: Southwest Gas Telephone: Century Link Communications Solid Waste: City of Phoenix Police: City of Phoenix Fire Protection: City of Phoenix

Surrounding Land Uses: North – Hyatt Regency Hotel

East – Phoenix Convention Center and Symphony Hall South - Historic retail/office building West - Historic retail/office building Improvements: 6-story, parking garage building with 202,500 square feet of gross building

area and 506 parking spaces; concrete sidewalks, landscaping. Conclusion: The subject site is composed of two legal lots and totals 0.947 acres. It is

level, at-grade, has all utilities and is conducive to many types of land uses, constrained only by size, zoning and the City of Phoenix Business Core Character Area. The following pages include property exhibits and current property photographs.

Site Analysis


PHOENIX ZONING MAP

Phoenix Convention Center

Phoenix CBD

Subject

Site Analysis


MAXIMUM HEIGHT ALLOWANCE MAP

Subject

Site Analysis


MAXIMUM DENSITY OF DEVELOPMENT MAP

Subject

Site Analysis


FLOOD ZONE MAP

Subject

Assessment and Tax Analysis


MARICOPA COUNTY ASSESSOR PLAT MAP

Subject, Parcel 066 Subject, Parcel 071

Assessment and Real Estate Taxes


ASSESSMENT AND REAL ESTATE TAXES

Assessed Value and Real Estate Taxes

In 2012, Arizona voters approved Proposition 117, an amendment to the state constitution that went

into effect in 2015 and provides the most significant change to Arizona’s property tax system in

decades.

First, prior January 1, 2015, Arizona had two values for taxation, Full Cash Value, FCV, and

Limited Property Value, LPV, and two tax rates, primary, which was applied to LPV and secondary,

which was applied to FCV for determining a property’s tax liability. For 2015 and after, property

taxes are being calculated only on the LPV. The FCV (i.e., market value) will continue to appear on

the notice of value cards mailed to taxpayers, but it is no longer used to calculate the amount of

property tax owed.

Second, Proposition 117 capped the growth of a property’s LPV at no more than 5% per year.

With Proposition 117 going into effect January 1, 2015 and the commercial real estate market in

Arizona still slowly recovering from its height in 2007, tax year 2015 presents a unique opportunity

for taxpayers. A reduction in the 2015 tax year value will limit increases in value for tax years 2016

and beyond as commercial property values begin to appreciate.

It is important to note that, while Proposition 117 imposes a 5 percent cap on the LPV, there are

exceptions. For example, Proposition 117 does not apply to properties that have new construction,

changes in use, significant tenant improvements, demolition, parcel splits or combinations.

Thus, in summary:

Beginning in 2015 tax year: A. The LPV of property for property taxation purposes is the LPV of the property in the preceding valuation year plus five percent of that value. B. The current LPV of a parcel of property shall not exceed its current FCV.

Assessment and Real Estate Taxes


Assessor's Parcel Number (APN)

The subject parcel is assessed as follows:

2016 2016 2016 2017 % LVAPN FCV LV RE Taxes LV Change

112-28-066 $4,772,500 $4,772,500 $0.00 $4,649,300 -2.6%112-28-071 $4,753,000 $4,753,000 $0.00 $4,630,500 -2.6%

It is in tax area 011301, but is exempt from property taxes, being owned by the City of Phoenix.

However, because this appraisal is of the Market Value of the Leased Fee Interest, we have

estimated the real estate taxes that would be assessed the subject property if it was owned by a

private entity, and not a tax-exempt organization like the City of Phoenix. The following table

summarizes the data on parking garage real estate taxes:

The data indicates real estate taxes per space for downtown parking garages ranging from $131 to

$230 per space, with the most comparable being No. 1, which has some first floor retail space like

the subject. Age does not appear to be a significant factor, with the most recently built, No. 4,

having the lowest tax per space. This location is within a larger project and likely has underlying

land assessed at a lower value than the other comparables and the subject. Therefore, it appears that

a likely annual real estate tax for the subject property would be $210 per space if the property was

fully taxed, or $106,260 per year. .

Improvement Description


IMPROVEMENT DESCRIPTION AND ANALYSIS

The following improvement description is based on a personal inspection of the property by the

appraisers, information provided by the client and public records. The information on building size

to follow was taken from public records and is assumed to be correct. The appraisers were not

provided with as-built plans, although they were requested.

The subject improvements consist of a 6-story, parking garage building with four retail spaces on the

ground level, 4 levels of parking and a roof-top level formerly used for 4 tennis courts and HVAC

systems. The site is a footprint site, with no landscaping or other site improvements.

The building has a reported 202,500 square feet of gross building area GBA (retail on Floor 1 and

Parking on Floors 2-5). The roof-top area of 40,500 square feet is not accessible by vehicle and thus

is unusable other than as a roof-top. Thus, the Net Rentable Area, NRA, is also 202,500 square feet,

as outlined in the following table:

SF No.

Level Suite GBA Spaces

1 Driveways/Common 14,991 None

2nd Street Suite 1,100

147 E. Adams St.* 8,114

139 E. Adams St. 2,955

131 E. Adams St. 13,340

2 40,500 Unknown

3 40,500 Unknown

4 40,500 Unknown

5 40,500 Unknown

6 Roof None

Total 202,500 506

* Combined retail and storage

There is a roof-top that was formerly used for 4 tennis courts, and that houses mechanical equipment

for the building. The tennis courts still exist but are reported to be in poor condition and have not

been used for an extended period. There is no auto ramp up to this level, and it cannot be used for

parking. Thus, it currently is only a roof structure and is accessible only via stairways and elevators.

This level is reported to have a total of 40,500 square feet but was not considered in the NRA.



The building is concrete frame construction with a flat roof set-up for tennis courts, as noted. There

are two electric passenger elevators serving the building. Enclosed stairways serve the upper floors

and rooftop at each building corner (4 total).

The building has a reported 506 parking spaces in total. There is an average of 127 per floor, with 4

floors of parking, but the exact count per floor is not known. The first floor has 4 retail spaces

totaling approximately 22,753 square feet of retail space and 2,756 square feet of storage space,

along with the main garage entrance and exit and some common area hallways. The spaces are

described as follows:

N. 2nd Street – Vacant retail suite with approximately 1,100 square feet of rentable area; former retail

space, mostly open and roughly vanilla shell condition, with exposed concrete floors, suspended

acoustic tile ceiling, recessed fluorescent lighting, a two-fixture restroom and small rear storage area.

This space is in average condition and will likely require some additional tenant improvement work

prior to leasing.

147 East Adams Street – Advocates for Latino Arts and Culture Consortium, ALAC: This space

could not fully be inspected but appeared to be generally retail space with some open area for art

exhibits. It has a reported 5,358 square feet of retail area which is finished with a suspended

acoustic tile ceiling, recessed fluorescent lighting, and mixed finish flooring. There are reported to

be two multi-fixture restrooms. Overall, the tenant improvements appear to be in above-average

condition. This tenant also has 2,756 square feet of rear, unfinished storage area.

139 E. Adams Street – Steve’s Grill: This space has a reported 2,955 square feet of rentable area,

finished as a restaurant. Flooring is exposed concrete, the ceiling is exposed framework and there is

a built-in bar in the dining room. The quality of finish is average, and the tenant improvements

appear to be older and in average condition. The space includes a small rear kitchen area with a

built-in fan/hood and walk-in refrigerator/freezer. This area includes a stainless-steel pot sink and

dishwasher that are considered personal property. There are two, two-fixture restrooms. The space

includes a reported 704 square foot, covered dining patio area at the front of the space that is not

heated or cooled.



131 E. Adams Street – Vacant Former Restaurant: This is a large, former restaurant space that is

still finished out with the old restaurant improvements and has been vacant for approximately 5

years. The space is reported to total approximately 11,995 (not including adjoining former

Swenson’s ice cream parlor space) square feet of rentable area that includes a large bar and bar

seating area, meeting/banquet room, large dining room and kitchen and storage area. The previous

tenant had occupied the space for over 20 years, and it appears that the space had not been updated

during that time. Flooring is a mix of concrete, hardwood and brick, and there is significant

woodwork on the walls and ceilings in the dining areas. The kitchen is improved with a large

stainless steel exhaust vent/fan, and there are fixed stainless steel counters in-place. However, these

may not suit a future tenant and due to their extended age are considered to add little value to the

property. There are two multi-fixture customer restrooms, an office restroom with a shower stall,

and a two-fixture restroom for employees in the kitchen. As noted, these tenant improvements are

all dated and are in fair to poor condition overall. In the Income Approach, it will be noted there is

a pending deal for a new tenant to take all of this space, and completely remodel the space into a

different type of restaurant food-service use. This provides support for the appraisers’ opinion that

the current improvements are fully depreciated and add little if any value to this space.

It will be noted in the Income Approach that the pending lease will include approximately 820

square feet of patio area at the entrance to the space, that is covered and mostly now just open entry

area.

Finally, there is a former Swenson’s Ice Cream parlor space, reported to be 1,345 square feet,

located between the 131 and 139 E. Adams Street suites (Steve’s Grill and the vacant restaurant

space). It does not appear to have a separate address designation and has reportedly been vacant for

over 20 years. It is accessible from a door from the Steve’s Grill front patio, thus sharing this patio

area with Steve’s Grill. The interior is a mix of old, outdated Swenson’s finish, and vacant, vanilla

shell space. The proposed tenant for the former restaurant space, 131 E. Adams Street, will take this

space as well, with 292 square feet of the front patio.

Construction Features

Based on construction specifications taken from a Schematic Design Submittal prepared by Dick &

Fritsche Design Group, construction features are briefly discussed below.



Foundation/Floor: Reinforced poured concrete footings and slab foundation. Building Structure: Poured-in-place concrete. Floor-to-floor dimension of levels 2

to 6 is approximately 10 feet. Parking Stalls: Parking stalls are approximately 9 feet (width) x 18 feet

(length). Exterior Walls: Brick finish surfaces are 8” x 8” x 16” split-fact CMU block

over concrete or steel stud substrates as required. Stucco finish is over lath and metal stud framing and over concrete structure as required.

Interior Finish-Garage: Concrete block walls. Precast concrete wheel stops are used at

all parking stalls. Sprinkler System: None HVAC: Heating and cooling for the building are provided by a roof-

mounted, chilled water system that serves the 1st floor retail spaces only. Garage is not serviced. This was not inspected and assumed to be in average condition.

Electrical Service: Interior lighting throughout is a mix of fluorescent,

incandescent and LED. LED is generally within the parking areas. All electrical service is assumed to be installed in conformity with the national electrical code and local authorities.

Elevators: The two elevators are Thyssen-Krupp, five-stop with the sixth

floor served by stairs only. They are reportedly hydraulic with a maximum capacity of 14 persons.

Parking Operations: Revenue/Card System is on-line to central controller for data

collection and hard copy. System includes card readers, cashier terminals, ticket dispensers, and a small operations office.

Site Improvements:

As noted, the improvements make full use of the site. Other than limited landscaping along the

public sidewalks, there are no additional notable site improvements.



Year Built

Maricopa County records indicate a year-built of 1990 for the subject property. However, based

upon information from the City of Phoenix, and evidence of the occupancy of a former tenant in

1978, or earlier, it is the appraiser’s opinion the building was constructed much earlier than 1990,

and likely between 1970 and 1975. This was confirmed by building permit data provided by the

City of Phoenix that indicates a construction date in this range. For the analysis, the appraiser has

utilized a year-built date of 1972 as a reasonably accurate indication of the age of the subject

structure. Thus, at the date of value, the building was 45 years old.

Condition of Improvements:

The Marshall Valuation Service indicates that parking structures similar to the subject have a total

life of 45 years. The subject was found to be in average condition, receiving regular maintenance

and replacement of mechanical items. In fact, the City reported having spent a total of $45,755 in

capital improvements, such as new tenant A/C units and a new elevator in the 2015/16 fiscal year.

Therefore, the effective age was estimated at 25 years, suggesting a remaining economic life of 20

years.

Functional Design

It is our opinion that the subject building is functional for the current use, which is specialized and

was a build-to-suit for the current owner.

The improvements are considered good quality Class "B" construction, (reinforced concrete frame)

(per the Marshall Valuation Service, by Marshall and Swift). They are considered a Class “B”

quality from a marketing standpoint and are comparable in quality to other similar class parking

garages that have been built in Phoenix in recent years.

External Obsolescence

There do not appear to be any sources of External Obsolescence affecting the subject property, or the

surrounding project. The subject is located within the downtown Phoenix business core, across 2nd

Street from the Phoenix Convention Center and approximately two blocks from the Talking Stick

Resort Arena (home of the NBA Phoenix Suns) and Chase Field (home of the MLB Arizona

Diamondbacks). Thus, the appraisers have not considered any External Obsolescence for the subject

site.

Land-To-Building Ratio



With a GBA of 202,500 square feet (floors 1-5), and a total lot size of 41,250 square feet, the

existing land-to-building, LTB, ratio, is 0.204:1. This ratio is typical for multi-story freestanding

parking garage properties and thus this appears to be a functional situation.

Conclusion:

The improvements exhibit average to good quality construction and were found to be in average

overall physical condition. The retail spaces generally have older tenant improvements, and the 2nd

Street and 131 E. Adams Street spaces will require mostly new tenant improvements.

The project is well located within the Phoenix CBD adjoining the Phoenix Convention Center and

several hotels, and is well located in relation to surrounding public facilities. It is consistent with

other older downtown parking structures in quality and design, and appears to be functional and

adequate for its intended purpose.

Subject Photographs


SUBJECT PHOTOGRAPHS

Front at SEC on 2nd Street, garage entry

Main garage entry off of 2nd Street

Subject N and W sides from NWC at 1st Street

Subject N and E sides from NEC at Adams Street

Subject Photographs


SUBJECT PHOTOGRAPHS

Subject S side/rear at alley

Subject dumpster area at rear

First floor retail space entry on 2nd Street, vacant suite

2nd Street retail space, sales area

Subject Photographs


SUBJECT PHOTOGRAPHS

2nd Street retail space restroom

147 E. Adams St. space, ALAC retail space entry on Adams Street

147 E. Adams St. space, ALAC retail space entry on Adams Street

139 E. Adams St. space, Steve’s Grill front entry

Subject Photographs


SUBJECT PHOTOGRAPHS

139 E. Adams St. space, Steve’s Grill patio area at entry

139 E. Adams St. space, Steve’s Grill dining room

139 E. Adams St. space, Steve’s Grill bar

139 E. Adams St. space, Steve’s Grill men’s restroom

Subject Photographs


SUBJECT PHOTOGRAPHS

139 E. Adams St. space, Steve’s Grill kitchen

139 E. Adams St. space, Steve’s Grill food prep line

Former Swenson’s Restaurant space, serving counter

Former Swenson’s Restaurant space, rear room

Subject Photographs


SUBJECT PHOTOGRAPHS

131 E. Adams St., former restaurant space bar, proposed Phoenix

Commons LLC tenant

131 E. Adams St. former restaurant space, bar area

131 E. Adams St., former restaurant space, office

131 E. Adams St. space, office restroom

Subject Photographs


SUBJECT PHOTOGRAPHS

131 E. Adams St. space, employee restroom

131 E. Adams St. space, former kitchen

131 E. Adams St. space, walk-in cooler and freezer space

131 E. Adams St. space, fan/hood in kitchen

Subject Photographs


SUBJECT PHOTOGRAPHS

131 E. Adams St. space, former food prep area

131 E. Adams St. space, women’s customer restroom

131 E. Adams St. space, men’s customer restroom

131 E. Adams St. space, dining room

Subject Photographs


SUBJECT PHOTOGRAPHS

Parking garage, Level 2

Parking garage, Level 2, typical spaces

Parking garage, stairway entrance and elevator, Level 2

Parking garage, Level 5

Subject Photographs


SUBJECT PHOTOGRAPHS

Parking garage stairway entrance and elevator, Level 5

Parking garage emergency stairway

2nd Street frontage, view south, subject to right

2nd Street frontage, view north, subject to left

Subject Photographs


SUBJECT PHOTOGRAPHS

View W along Adams St. frontage, subject to left

View E along rear alley, subject to left

Hyatt Regency Hotel to N of subject

Retail/restaurant building to S of subject

Subject Photographs


SUBJECT PHOTOGRAPHS

Phoenix Convention Center to E of subject

Renaissance Hotel to NW of subject

Hanny’s retail business to W of subject

One Renaissance Center to SW of subject

Garage Market Overviews


GARAGE MARKET OVERVIEW

Information for this analysis was provided by the Downtown Phoenix Partnership and data gathered

during the appraisers’ personal inspection of the market.

The Downtown Phoenix Partnership recently completed a survey (2017) of the major garage

buildings providing parking in this market. Information taken from this survey and a drive-around

survey by the appraiser indicates that within an area bounded by Fillmore Street on the north, 7th

Street on the east, Buchanan Street on the south, and 7th Avenue on the west there are a total of

approximately 21,930 off-street spaces in 21 parking garages (excludes surface lots and metered

street parking). The map and data included on the following pages present a graphic representation

of the location and summary of these facilities.

This survey identifies 21 garages in this area, including the subject, many of which are attached to or

considered primary parking for office buildings in the area. However, most of these also allow

hourly, daily and/or event parking in off hours for added revenue. The data was collected from first

person interviews with the garage managers when available, from signs at the garages, and from

information from Parkopedia.com. The data was considered reasonably accurate at the date of the

interviews, but rates can change often. They are however a good indicator of the overall downtown

Phoenix parking garage market.



DOWNTOWN PARKING MAP



No. Name Address Operator No. Spaces Hrly Rate Daily Rate Mo. Rate Event Rate Comments1 Renaissance Hotel 50 E. Adams St. Hotel 300 $4.00 $30.00 None None Attached2 Collier Center Tower 201 E. Washington St. Ace 1,488 $3.00 $18.00 $87.00 $10.00 Below grade3 Wells Fargo 100 W. Washington ABM 579 $3.00 $12.00 NA $5.00-$20.00 In building4 Wells Fargo 2nd Ave. 303 N. 2nd Ave. ABM 803 $3.00 $12.00 $65.00 None Free-standing5 City Scape E & W. 1 W. Washington St. Ace 1,428 $3.00 $27.00 $65.00 $5.00-$12.00 Below grade6 Jefferson St. Garage 333 E. Jefferson St. SEC 1,450 NA $5.00-$12.00 $85.00 $5.00-$12.00 Free-standing7 Heritage Park Garage 123 N. 5th St. Ace 647 $3.00 $8.00 $65.00 $12.00 Free-standing8 Subject- Regency Garage 109/151 E. Adams St. Ace 506 $2.00 $12.00 $65.00 $12.00 Free-standing9 Civic Plaza East Garage 601 E. Washington St. Ace 2,716 $3.00 $12.00 $65.00 $12.00 Free-standing10 21 W Ban Buren 21 W. Van Buren St. Ameri Park 451 $3.00 $13.00 $60.00 None Attached11 US Bank Building 101 N. 1st Ave. NA 489 $3.00 $18.00 NA None In building12 Renaissance 2 40 N. Central Ave. Central 1,076 $3.75 $15.00 $75.00 $5.00-$10.00 Below grade13 City Hall Garage 305 W. Washington St. Ace 1,340 $4.00 $16.00 $65.00 $12.00 Free-standing14 Luhrs 181 S. 1st Ave. SP+ 476 $8.00 $18.00 $65.00 reserved Varies Free-standing15 Diocese & Pastoral Center 400 E. Monroe St. St. Mary's 250 N/A N/A N/A N/A Below grade16 One North Central 1 N. Central Ave. ABM 511 $3.00 $15.00 $80.00 $10.00 In building17 Chase Parking Garage 201 N. 1st St. SP+ 1,950 $4.00 $16.00 $65.00 $10.00 Free-standing18 Arizona Center 400 N. 5th St. Ace 2,000 $3.00 $18.00 $65.00 $12.00 Free-standing19 Talking Stick Resort Cntr 201 E. Jefferson St. Talking Stick 770 $2.00 $9.00 NA $5.00-$12.00 Adj. to building20 Chase Field 401 E. Jefferson SES 1,500 $2.00 $7.00 NA $5.00-$20.00 Free-standing21 Phx. Biomed Campus 555 E. Fillmore SP+ 1,200 $3.00 $15.00 $65.00 NA Free-standing

Total 21,930

SUMMARY OF GARAGE PARKING



Monthly Parking

Of the total 21,930 spaces included in the survey, most are available to monthly parkers with garages

attached or directly associated with an existing office building having a substantially higher

percentage of monthly parkers.

Event Parking

The subject, at 506 spaces, is one of the smallest garages in the downtown area. Based on the

Phoenix Downtown Partnership’s survey, the subject has an approximate 2.3% share of the surveyed

garage market. However, it is located in close proximity to the Phoenix Convention Center, and

across the street from the Hyatt Regency Hotel, both strong generators of parking. In addition,

downtown sporting events typically generate demand far exceeding the capacity of any single

facility and the two main sources of these events, Chase Field and the Talking Stick Resort Arena

are both within easy walking distance from the subject, roughly 2 to 4 blocks.

Realistically, the subject should capture more than its fair share of event parking because of its

proximity to the sports venues and the convention center. In fact, with the exception of the subject

and Nos. 7, 10, 20 and 21 (6,950 total spaces), all other facilities are mostly used on a daily basis by

tenants and visitors of adjacent attached office buildings. It should be noted that two other parking

garages attached to the Phoenix Convention Center, the North and West Garages, with 525 total

spaces, are not available for public parking but are dedicated to Convention Center use. These were

not included on the previous list.

Conclusions

The subject is an average-quality, free-standing parking garage that is well located within the

downtown area, in close proximity to the Phoenix Convention Center, the Hyatt Regency Hotel and

two major sports venues. It will be shown in the Income Approach that revenues from the garage

parking have been very consistent, and in-fact, parking contracts account for a majority of the

subject spaces on a monthly basis.

Due to the built-out nature of the subject’s immediate area, and the high cost of land in this area,

there is little likelihood of additional competition being added that would be directly competitive

with the subject.



Therefore, it is the opinion of the appraisers that the future use and revenues of this facility will be

consistent with past experience.

Highest and Best Use


HIGHEST AND BEST USE

Highest and best use is the basic premise of value--the foundation for market value estimates, and is

defined as:

1. The reasonable and probable use that supports the highest present value of vacant land or improved property, as defined, as of the date of the appraisal.

2. The reasonably probable and legal use of land or sites as though vacant found to

be physically possible, appropriately supported, financially feasible, and that results in the highest present land value.

3. The most profitable use implied in these definitions is that the determination of

highest and best use takes into account the contribution of a specific use to the community and community development goals, as well as the benefits of that use to individual property owners.

The definition immediately above applies specifically to the highest and best use of land. If it is to

be recognized in cases where a site is improved, the highest and best use may very well be

determined to be different from the existing use. The existing use will continue, however, unless

and until land value in this highest and best use exceeds the total value of the property in its existing

use.

In ascertaining the highest and best use of a site or a property, it is necessary to study four factors:

1. Is the existing or proposed use legally permissible or reasonably possible?

2. Is the existing or proposed use physically possible on the site?

3. Is the existing or proposed use economically and financially feasible under existing and projected market conditions?

4. Is the existing or proposed use estimated to be the most profitable among the alternatives that are legally permissible, physically possible and economically feasible?

The above four factors were investigated and are outlined herein.

Highest and Best Use - If Vacant

1. Is the proposed use legally permissible or reasonably possible.

The subject parcel is in the Business Core area, BC, of the Downtown Phoenix Plan, or Code, DTC.

The purpose of the DTC, according to the City of Phoenix zoning ordinance, “…is to implement the

vision, goals and policies of the Downtown Phoenix Plan and provide the physical environment



necessary to create a pedestrian-oriented, dynamic urban center with an authentic sense of place.”

The DTC applies to all land uses, subdivisions and development within the boundary generally

between McDowell Road on the north, 7th Street on the east, Buckeye Road on the south and 7th

Avenue on the west. Each structure and land use shall be established, constructed, reconstructed,

enlarged, altered, moved or replaced in compliance with the requirements of the Use Matrix for the

Character Area in which the property is located.

The subject property is in the Business Core, BC, area, which should function as a strong regional

center for employment, entertainment, conventions, tourism, and cultural institutions, drawing

visitors from around the country and attracting residents from throughout the region. The greatest

development intensity within the region should be located within this Character Area. New

development should be innovative and incorporate small public spaces that promote pedestrian

movement and comfort. The Business Core should have vibrant pedestrian activity and be served

frequently by multiple modes of high quality public transit. The Use Matrix for this character area

allows for most uses available to the other character areas, with the exception that no single family

attached or detached dwelling units, manufacturing of any kind, storage/warehousing, wholesale

sales, motor vehicle service, drive-thru or outdoor storage are allowed. Multi-family residential uses

are allowed. The subject parking garage use is not specified but appears to be an approved use based

upon the subject’s long-term use and the number of other parking garages in the immediate subject

area, within the BC area.

According to the City maps regarding height limitations, the subject is in a zone allowing a 475-foot

maximum height and a zone with no maximum density for dwelling units per acre. (See Height and

Density maps in the Site Description section).

Thus, it appears that the subject zoning would allow a large variety of commercial, office and high

density residential uses if the site was vacant.

2. Is the proposed use physically possible?

All forms of infrastructure necessary to sustain a variety of uses are to the site, including public

utilities and services. The site has an adequate shape, and has good neighborhood street frontage. It



is a fully improved site, level and at-grade with surrounding streets. Thus, any uses allowed by

zoning would appear to be physically possible on the site.

3. and 4. Is the proposed use economically feasible and maximally productive?

The subject parcel currently has a base zoning designation that allows for a variety of uses, including

high density multi-family residential, office and retail/commercial. The site is located in the

downtown core area of Phoenix and would thus reasonably have a variety of uses that could employ

the high-density zoning. It is unlikely that a parking garage would be constructed at this time on the

site, being an underutilization of the zoning, and most new development in the downtown area in the

past several years has been multi-family in character. While a multi-family residential market study

was not performed as part of this appraisal, it is generally recognized that the large number of

recently built, and currently planned, residential projects in the area would make a speculative

residential development of the subject unlikely at this time.

Highest and Best Use Conclusion - If Vacant

Based on the four factors discussed above, and considering the use restrictions within the BC, it is

our opinion that the Highest and Best Use of the subject site, if vacant, would be to hold it for future

commercial, office or multi-family residential development as demand dictates.

Highest and Best Use – As Improved

1. Is the use legally permissible on the site?

Under the existing zoning regulations for the City of Phoenix and the BC, the underlying zoning

classification allows the subject’s current parking garage with retail space. The project has been

occupied for this use since its construction in 1972 and has been successful in this use. Thus, the

subject’s current use apparently represents a legally permissible use.

2. Is the use physically possible?

The site's physical characteristics: size, shape, topography, and subsoil conditions permit the

continued use as exhibited by the existing improvements.

3. and 4. Is the use economically feasible and maximally productive

This form of feasibility deals with the existing use and its ability to satisfy both the requirements of

the financing source and the equity investments. As will be shown in the Income Approach to value,

the subject building provides an adequate overall return and thus an improved value well above that



of the site if vacant. Given the site's BC location and the large number of multi-family residential

projects occurring in and around the area, the most reasonable use of the improved site is the current

parking garage/retail use. Thus, the continued use is reasonably considered financially feasible and

maximally productive.

Highest and Best Use Conclusion – As Improved

Based on the preceding analysis, it is our opinion that the Highest and Best Use of the subject

property, as improved, is for its continued use as a multi-story, parking garage with a retail

component.

Sales Comparison Approach – Land Value


SALES COMPARISON APPROACH – LAND VALUE

The basic premise of the Sales Comparison Approach is the principle of substitution which holds

that the value of a property tends to be set by the price that would be paid to acquire a substitute

property of similar utility and desirability within a reasonable amount of time. Other relevant

appraisal principles are anticipation, balance, externalities, and supply and demand.

The subject Parcel is composed of 2 legal parcels of land with 41,250 total square feet of land area

(0.947 acres). It is within the Downtown Core and is zoned for a high-density, mixed-use, type of

development in line with uses allowed in the Business Core character area.

The underlying zoning for the subject parcel would allow development with a 475-foot height, with

unlimited residential density, depending on other site restrictions such as parking and set-backs.

However, as will be noted, parcels are rarely developed to their fullest allowed by zoning. Thus, it is

reasonable to utilize sales from other areas of the Downtown Phoenix Plan, from other Character

Areas that may have lower allowed building heights and densities.

Therefore, our search for comparable sales was for the recent sales of comparable sites that are

zoned for and/or intended for land uses similar to the subject, with variances in density and height

subject to adjustment.

Confirmation sources included the listing or sales agent (when available), Co-Star COMPS, public

records and an inspection by the appraisers. We have analyzed 6 closed sales of comparable

properties within the subject's general DTC market area. The sales are detailed on the following

pages, with a summary table and a sale map following the sales.



Land Sale No. 1 Identification Type: Commercial Land Location/Address: 1109 N. 2nd Street,

Phoenix Tax Parcel Nos.: 111-36-057, 058 Transaction Data Grantor: Cypress Partners

Second Street Props. LLC

Grantee: True North Holdings LLC

Contract Date: August 2017 Recorded Date: September 6, 2017 Instrument: Special Warranty Deed Instrument No.: 17-0659709 Sale Price: $2,189,025 Terms: Cash to seller Unit Price: $69.00/SF Physical Data Size: 31,725 SF Gross/Net: Net Zoning: DTC-Evans Churchill West Utilities: All available at the site Condition: Level, vacant site Parcel History No sale noted in previous 12 months Marketing Time 420 days Comments This sale parcel is composed of 2 legal parcels that have now been

combined into one. They form a rectangular-shaped parcel with good street frontage on a neighborhood street. The site is vacant, level and readily buildable.

The parcel is within the Evans Churchill West character area of the

Downtown Core area, (DTC). The allowed land uses include retail, office and high density multi-family residential, with a maximum building height of 250 feet and a maximum residential density of 218 units per acre.

Sale



Land Sale No. 1, contd.

Proposed Use Mixed use, MFR Confirmed By Co-Star COMPS; Public Records; Inspection (09/17 SM).



Land Sale No. 2

Identification Type: Commercial Land Location/Address: 722 N. 7th St., Phoenix Tax Parcel Nos.: 111-44-106

through113 Transaction Data Grantor: SRM Phoenix LLC Grantee: Arizona Board of

Regents Contract Date: June 2017 Recorded Date: July 20, 2017 Instrument: Special Warranty Deed Instrument No.: 17-0530634 Sale Price: $5,900,000 Terms: Cash Unit Price: $131.20/SF Physical Data Size: 44,968 SF Gross/Net: Net Zoning: DTC-Phoenix Biomed Campus Utilities: All available at the site Condition: Level, vacant site Parcel History No sale of entire site noted in previous 12 months Marketing Time 166 days Comments This sale parcel is composed of 8 legal parcels that will likely be combined

into one larger parcel for any future development. They form a rectangular-shaped parcel that has very good street frontage on one arterial, 7th Street, and 2 neighborhood streets. The site is level and buildable and there are no significant on-site improvements.

The parcel is within the Phoenix Biomedical Campus, PBC, character area

of the Downtown Core area, (DTC). The allowed land uses include retail, office and high density multi-family residential, with an emphasis on the medical character of the surrounding developments. There is a maximum building height of 400 feet and a maximum residential density of 218 units per acre.

Sale



Land Sale No. 2, contd. Proposed Use The site was purchased by the University of Arizona, UA, for future

development as part of its growth in the Phoenix Biomedical Campus. Currently, UA has two existing buildings that are part of its College of Medicine-Phoenix campus, just south of this sale. The exact plan for the sale property was not available. .

Confirmed By Co-Star COMPS; Public Records; Scott Baumgarten, Cushman &

Wakefield, listing agent; Inspection (09/17 SM)



Land Sale No. 3 Identification Type: Commercial Land Location/Address: 815 N. 3rd Avenue Tax Parcel Nos.: 111-44-094, 096, 098 Transaction Data Grantor: Pathfinder McKinley Court

Holdings, LLC Grantee: McKinley Land Development, LLC Contract Date: April 2017 Recorded Date: June 29, 2017 Instrument: Special Warranty Deed Instrument No.: 17-0475935 Sale Price: $3,300,000 Terms: Cash 100% Unit Price: $134.69/SF Physical Data Size: 24,500 SF; 0.562 ACS Gross/Net: Net Zoning: DTC/RE Utilities: All available at the site Condition: Improved with a 40 Unit Apartment Complex Parcel History No sale noted in previous 12 months Marketing Time Unknown Comments This sale is composed of 3 legal parcels and is improved with the 40 unit

McKinley Court Apartments. The parcels form a rectangular parcel with good street frontage on 3rd Avenue – a one-way northbound two lane roadway. The improvements on site will need to be demolished. According to the confirming party the estimated budget to demolish the improvements is $75,000.

The parcel is within the Roosevelt East character area of the Downtown

Core area, (DTC). The allowed land uses include retail, office and high-density multi-family residential, with a maximum building height of 65 feet and a maximum residential density of 43.5 dwelling units per gross acre (to the center line of surrounding streets).

Proposed Use The property is planned for a multi-family project of an undisclosed size. Confirmed By Co-Star COMPS; Chris Murdey with Haselden Construction (buyer);

Public Records; Inspection (08/17 RT)

MCKINLEY STREET

TH

IRD

AV

EN

UE

Sale



Land Sale No. 4 Identification Type: Commercial Land Location/Address: 707 N. 3rd St.,

Phoenix Tax Parcel Nos.: 111-44-033, 034,

035, 040, 041, 142 Transaction Data Grantor: Third and Pierce

Development, LLC Grantee: CA Residential

Phoenix Property Owner LLC

Contract Date: September 2016 Recorded Date: March 31, 2017 Instrument: Special Warranty

Deed Instrument No.: 17-0229865 Sale Price: $6,620,000 Terms: Cash to seller Unit Price: $113.41/SF Physical Data Size: 58,370 SF Gross/Net: Net Zoning: DTC-Evans Churchill West Utilities: All available at the site Condition: Level, partially improved site Parcel History No sale of entire site noted in previous 12 months, however, a 21,000 SF

portion was assembled with a $950,000 purchase in January 2016 ($45.24/SF).

Marketing Time 423 days Comments This sale parcel is composed of 6 legal parcels that have now been

combined into one larger parcel. They form an L-shaped parcel that has very good street frontage on 4 neighborhood streets. The site was partially improved with an older 4,902 square foot office building and paved parking lot at the date of sale, which will be removed prior to development. The confirming party did not know the cost to remove these improvements, but the appraisers have estimated $25,000 due to the small size of the improvements. The site is level and buildable.

Sale



Land Sale No. 4, contd. The parcel is within the Evans Churchill West character area of the

Downtown Core area, (DTC). The allowed land uses include retail, office and high density multi-family residential, with a maximum building height of 450 feet and a maximum residential density of 218 units per acre.

Proposed Use The site is planned for a 35-story, student housing project to serve the

nearby campuses of the University of Arizona and Arizona State University.

Confirmed By Co-Star COMPS; Public Records; John Cunningham, listing agent,

Jones, Lange, LaSalle; Inspection (09/17 SM).



Land Sale No. 5 Identification Type: Commercial Land Location/Address: 372-386 N. 1st Ave, Phx Tax Parcel Nos.: 111-42-077A, 079A, 081A,

083 and 085. Transaction Data Grantor: Pterodactyl Holdings

Phoenix LLC; Martha E. Bishop Trust

Grantee: Arizona Board of Regents Contract Date: January 2016 Recorded Date: April 12, 2016 Instrument: Special Warranty Deed Instrument No.: 16-0240287;0240288 Sale Price: $4,650,000* Terms: Cash 100% Unit Price: $133.63/SF Physical Data Size: 34,798 SF; 0.799 ACS Gross/Net: Net Zoning: DTC/BC Utilities: All available at the site Condition: Level, vacant site Parcel History A 27,971 SF portion of the property (APNs 111-42-081A, 083, 085),

sold in September 2012, for $1,250,000, or $44.69/SF, cash; No other sales noted in previous 12 months

Marketing Time Larger parcel (APNs 111-42-081A, 083, 085) were marketed for a

reported 14 days: smaller parcel, APN 111-42-077A, 079A, none, directly between parties

Comments This sale parcel is composed of 5, adjoining rectangular legal parcels, with

frontage on 2 collector streets, 1st Avenue and Fillmore Street. The overall site is rectangular with good frontage of approximately 250 lineal feet, but a narrow depth of 139 lineal feet. The south-bound Central Avenue leg of the Valley Metro Light Rail runs in front of this site, with a station approximately 700 feet south. At the date of sale, the site was improved with an old, single story brick building in poor condition, and totaling approximately 3,510 square feet, and some concrete and asphalt paving. These will be razed prior to development.

Sale



Land Sale No. 5 *The sale price is composed of the total of 2 separate transactions,

(allocation not known) to the same buyer from two separate sellers at the same sale date (detailed above). In addition, the estimated cost of removal of the existing improvements is $15,000.

The parcel is within the Business Core character area of the Downtown

Core area, (DTC). The allowed land uses include retail, office and multi-family residential, with a maximum building height of 525 feet, one of the highest allowed in the City and no maximum residential density.

Proposed Use The site was assembled for the purpose of constructing improvements to

serve Arizona State University in offices or classrooms to support other area ASU facilities. The buyer’s representative acknowledged that a premium was paid for the proximity of this site to other nearby ASU properties.

Confirmed By Co-Star COMPS; Mike Sutton, listing agent, Cushman & Wakefield;

Public Records; Inspection (06/16 SM)



Land Sale No. 6 Identification Type: Commercial Land Location/Address: 1011 N. 3rd St., Phx Tax Parcel Nos.: 111-38-001A, 003, 004, 005,

006, 007, 010, 011, 012, 013, 014.

Transaction Data Grantor: Southwest Investment Funds

of AZ LLC; Pappas Properties Grantee: CRP/AR 3rd Street &

Roosevelt Owner LLC Contract Date: September 2015 Recorded Date: November 12, 2015 Instrument: Special Warranty Deeds Instrument No.: 15-0810866; 0810868 Sale Price: $11,200,000* Terms: Cash 100% Unit Price: $72.37/SF Physical Data Size: 154,751 SF; 3.55 ACS Gross/Net: Net Zoning: DTC/ECE Utilities: All available at the site Condition: Level, partially improved site Parcel History APNs 111-38-001A and 004, sold in July 2014, for $2,625,000, or

$74.89/SF, with an old restaurant building, 8,567 SF; APN 111-38-005, 006 sold in July 2014 for $1,050,000, or $39.47/SF; APNs 111-38-011-014 sold in November 2012, for $525,000, or $7.89/SF; No other sales noted in previous 12 months

Marketing Time None, directly between parties Comments This sale parcel is an assemblage of 11 adjoining rectangular legal parcels,

with frontage on 2 collector streets, 3rd Street and Roosevelt Street, and a neighborhood street, Portland Street. *The sale price is composed of the total of 2 separate transactions, ($10,300,000 + $900,000) to the same buyer from two separate sellers on the same sale date (detailed above). In addition, the estimated cost of removal of the existing improvements was estimated to be approximately $60,000.

Sale



Land Sale No. 6 The parcel is within the Evans Churchill East character area of the

Downtown Core area, (DTC). The allowed land uses include retail, office and multi-family residential, with a maximum building height of 250 feet, and a maximum residential density of 218 units per gross acre (to centerline of fronting streets).

Proposed Use The site was assembled for the purpose of constructing a 4-story, 318-unit

apartment project, which is currently under construction. This is a density of approximately 63 units per gross acre (based upon an estimated gross site size of 221,106 square feet, or 5.08 gross acres; streets and abandoned alley). The density is 89.6 units per net acre. In addition, the project will have a reported 11,000 square feet of street level retail, which increases the density of use.

Confirmed By Co-Star COMPS; Steve Nicoluzakis, DTZ, listing agent, 602-224-4429;

Public Records; Inspection (06/16 SM)



LAND SALE SUMMARY

Sale Address/ Sale Contract COE Size/ Price/ Character Max MaxNo. Location Price Date Date SF SF Area Height Density Comments

1 1109 N. 2nd Street, Phoenix $2,189,025 Aug-17 9/6/17 31,725 $69.00 ECW 250 218Mid-block, neighborhood st. frontage, all off-sites, MFR mixed use planned

2 722 N. 7th St., Phoenix $5,900,000 Jun-17 7/20/17 44,968 $131.20 PBC 400 218 Corner, arterial frontage, level

3 815 N. 3rd Avenue, Phoenix $3,300,000 Apr-17 6/29/17 24,500 $134.69 RE 65 44Rectangular, interior street frontage, planned MFR

4 707 N. 3rd St., Phoenix $6,620,000 Sep-16 3/31/17 58,370 $113.41 ECW 450 218Block-long, collector street frontage, assemblage for mid-rise MFR project

5 372-86 N. 1st Ave., Phx * $4,650,000 Jan-16 4/12/16 34,798 $133.63 BC 525 NoneOff-corner, arterial frontage, planned uses for ASU downtown campus

6 1011 N. 3rd St., Phoenix * $11,200,000 Sep-15 11/12/15 154,751 $72.37 ECE 250 2183 Corners, minor arterial/collector corner, mid-rise MFR U/C

Sub

131-147 E. Adams St., Phoenix NA NA NA 41,250 NA BC 475 None 2 Corners, interior streets, level

*Combined sale price



LAND SALES MAP

Subject

Sale 4

Sale 6

Sale 1

Sale 3

Sale 2

Sale 5



SALES BY PHOENIX DOWNTOWN CORE CHARACTER AREA MAP

Subject

Sale 1

Sale 6

Sale 5

Sale 3

Sale 4 Sale 2



Analysis of Comparable Sales

The appraisers located and utilized 6 closed sales of vacant land parcels zoned for and/or intended for

multi-family or commercial/mixed-use development, similar to the subject highest and best use and

zoning. These are all located in the subject’s Downtown Phoenix, DTC, market area, in one of the

noted character areas. The sales bracket the subject in size, ranging from 24,500 to 154,751 square

feet, with the subject having 41,250 square feet. They range in sale date from August 2017 to

September 2015, a period of 23 months.

Unadjusted unit prices for the DTC sales range from $69.00 to $134.69 per square foot, with the

mean for all sales at $109.05 per square foot. The following analysis considers these sales:

Price Per Square Foot Method

This method compares the comparables to the subject based on a price per square foot unit of

comparison, typical for mixed-use parcels of land. Sales are compared to the subject and first

adjusted for such factors as Property Rights Conveyed (i.e., fee simple, leased fee, leasehold, etc.),

Financing (cash equivalency), Conditions of Sale, Expenditures After The Sale and Market

Conditions/Time. Then the sales are adjusted for various physical considerations such as

Location/Neighborhood, Zoning/Entitlements, Size and On and Off-Site Conditions.

The reliability of this technique depends upon a) the degree of comparability of the property

appraised with each sale, b) the length of time since the sale occurred, c) the accuracy of the data

provided and d) the absence of unusual conditions affecting the sale. This method is most reliable

when comparing properties assuming similar projected Highest and Best Uses. In the case of the

subject, all of the sales are generally similar in utility and zoning, with 3 of the six sales for

immediate development, and 3 to be held for near-term future development. All are planned for

residential or commercial development, similar to the subject Highest and Best Use.

The sales are all within the same immediate market area, the Downtown Core, DTC, and thus have

the same market conditions and generally similar density and height limitations. Therefore, these

sales are comparable to the subject and provide a reasonable basis for comparison.



Property Rights Conveyed

The interest transferred in all of the sales was the Fee Simple Estate. This is the valuation interest

for the subject; thus, no adjustments were made.

Financing

Standard definitions of market value include payment in "cash or its equivalent." The equivalent

includes financing terms generally available in the market. All of the close sales were reported to be

cash to the seller, therefore, no adjustments were necessary for cash equivalency.

Conditions of Sale

Adjustments for condition of sale are required when sales occur which may not be arm's length or a

special condition affected the negotiated sales price. None of the sales were considered to have any

unusual sale conditions and no adjustments were made for this factor.

Sale No. 4 was from two different sellers to the same buyer for an assemblage. However, the

confirming parties reported that the deals were negotiated separately and were considered market

value purchases. Thus, no adjustment was required.

Expenditures After The Sale

This factor considers any unusual expenditures required by the buyer after the sale that may have

influenced the price paid for the property. In the case of 3 of the sales, no unusual expenditures were

reported by the confirming parties, therefore, no adjustment for this factor was necessary. However,

Sale Nos. 3, 4, 5 and 6 had some improvements on-site at the date of sale that would require removal

prior to development.

These sales have adjustments made based upon the estimated cost to remove the improvements on a

per-square foot of size basis, as summarized in the table on the following page.



Sale Estd. Cost SiteNo. of Removal Size SF Adjustment1 $0 31,725 $0.002 $0 44,968 $0.003 $75,000 24,500 $3.064 $25,000 58,370 $0.435 $15,000 34,798 $0.436 $60,000 154,751 $0.39

Market Conditions (Time)

This adjustment is caused by changes in market conditions between the time of sale of a comparable

and the date of the appraisal of the subject. Changes in market conditions may be caused by inflation,

deflation, fluctuations in supply and demand, or other factors.

The following table shows the sales arrayed by sale date and adjusted sale price per square foot of site

area to this point:

Sale Sale SiteNo. Date Price/SF1 Aug-17 $69.002 Jun-17 $131.203 Apr-17 $137.764 Sep-16 $113.845 Jan-16 $134.066 Sep-15 $72.76

The closed sales occurred in a 23-month time period, with the most recent sale occurring 1 month

prior to the date of value of this report. Thus, the oldest sale occurred 24 months prior to the date of

value.

The data did not appear to show a consistent value trend, but this is reasonable considering the

varying specific locations, sizes and allowed densities.

In discussions with real estate professionals in the market and the listing or buyer’s agents for the

sales it was noted that there has been a consistent and strong demand for land parcels in the Phoenix



Downtown Core in the past 18 to 24 months, and that values have shown some value increases during

the period of the sales. However, it should be noted that according to Steve Nicoluzakis, DTZ, listing

agent for Sale No. 6, John Cunningham, listing agent for Sale No. 4 and Scott Baumgarten, listing

agent for Sale No. 1, the strong growth in multifamily residential units in the DTC area in the past

several years, has caused some concern for developers and softened the demand for land in this

market in the past 12 months or so.

Therefore, in consideration of this data, no time adjustment is considered necessary for the data in

this report, and none was applied.

Location/Neighborhood Environment

The subject property is located in the Business Core area of the Downtown Core area, DTC. All of

the sales are within the DTC, but in various other character areas. The sales are all generally within

character areas having similar surrounding uses and allowed uses. The subject has the added amenity

of its location in the core of this area, closest to the intersection considered the center of the

downtown central business district of Phoenix, Central Avenue and Washington Street. This provides

the eventual user of the site to more easily market the end product. In addition, for both residential

and offices uses (the Highest and Best Use of the site) there would be significant amenities of

restaurants and entertainment within a short walk or a brief ride on the light rail. This includes

significant employment and entertainment such as the Phoenix Convention Center, Chase Field

(home of the Arizona Diamondbacks MLB team) and Talking Stick Resort Arena (home of the NBA

Phoenix Suns).

None of the sales have this central locational benefit for which upward adjustments were considered,

based upon discussions with area commercial real estate professionals who acknowledge the subject

site is in a premier location in the submarket. However, Sale No. 2 is located within the Phoenix

Biomedical Campus and has synergy for future medical-related uses with the other properties in this

character area. This sale had the third highest unit sale price. Sale No. 5 is along the light-rail line,

and is within the Central Avenue Corridor, the center of the downtown area. It had the second

highest unit sale price. Sale No. 3, with the highest unit sale price, is located within a short walk to

light rail, and is just outside of the Central Avenue Corridor. It is also the smallest sale, which has



not been considered at this point. Thus, these sales have off-setting locational characteristics and no

adjustments were made for location.

Sale Nos. 1 and 6, with the lowest unit sale prices, have the most inferior locations, being in the

northern portion of the DTC, further from existing development and light-rail transportation. These

sales were adjusted upward 20% for this factor.

Frontage/Access

The subject has interior street access on three sides, being a half city block. Thus, it has very good

accessibility and good visibility.

Sale No. 2 fronts to a major arterial, while the other sales front to collector or interior streets. Arterial

frontage generally provides superior visibility and identity to a project, whether residential or

commercial, and thus can be a superior factor.

For this reason, Sale No. 2 was adjusted downward 5% but the other sales were not adjusted.

Zoning/Allowed Density/Allowed Height

The subject parcel is located with the Business Core, BC, Character area within the Downtown Core

area, with a mixed-use underlying zoning, a 475-foot maximum height allowance and no maximum

density for residential development. This is the most dense residential zoning category in the City of

Phoenix, and a higher height allowance than all but 1 sale, No. 5. The sales range overall from 65 to

525 feet in allowed height.

It has been typical in the recent past for new projects to be built well below the maximum allowed

heights and densities. For example, Sale No. 6 was purchased for assemblage for the development of

a 4-story luxury apartment project with 318 units. The overall density will be 89.6 units per net acre

(approximately 63 units per gross acre) well below the maximum allowed of 218 units per gross acre.

The 4-story (approximately 40-foot) height planned is also well below the 250-foot allowance.

According to the buyer’s agent, the buyer/developer did not believe that a more-dense project was in

demand, or therefore feasible, despite the allowances in the Evans Churchill East character area.



Sale No. 1, with the highest adjusted sale price per unit to this point, also has the lowest allowed

density and height of all of the sales.

Sale No. 4 is planned for a 35-story, student housing and retail project. The overall density is not

known, but the planned height of 35 stories is below the allowed maximums by zoning, 450 feet.

In past discussions with Steve Nicoluzakis, DTZ, listing agent for Sale No. 6, John Cunningham,

listing agent for Sale No. 4, Michael Lieb, broker/investor and Ben Hendersen, the City of Phoenix

Economic Development Office, it was noted that there have been no recent projects in these areas

built to the maximum allowed heights and densities, and that given the large number of projects

planned for the area, it is unlikely that a developer would consider such a high-density use. Thus, no

adjustment for this factor is considered necessary.

Size

Size can be a determining factor in the sale price of vacant properties. Properties of larger size can

sell for a lower price per square foot due to the principle of economies of scale and greater capital

requirements. The primary reason for this is that the purchase of larger properties usually entails a

larger capital outlay, a factor, which restricts the number of possible buyers, as compared to the

relatively larger market for smaller properties.

However, there is also a flexibility of use that larger parcels have that is an advantage over smaller

parcels. The sales indicate a size range of between 24,500 and 154,751 square feet, with the subject

in the lower middle of the range at 41,250 square feet. After previous adjustments the data does not

indicate that size is a significant factor within the size range of the comparables. Sale No. 6, the

largest, has the second lowest adjusted sale price, but Sale No. 1, the second smallest, has the lowest

adjusted sale price.

Thus, the indication is that within the size range of the comparables there is no adjustment required,

with the normal market trends of small sales having higher unit sale prices being offset by the

increased utility of larger sites.



In the final analysis, the subject is well within the range of the sales and would not require a higher

capital investment. For this reason, we have not adjusted the sales for size.

Off-Site Infrastructure/Utilities

The subject is fully improved and has all off-site infrastructure in-place, including concrete curbs,

gutters and sidewalks on all sides. Water and sewer lines are reportedly in surrounding streets. The

sales are all generally the same, thus no adjustment was required for this factor.

Topo/On-Site Improvements

The subject is level and at-grade with surrounding streets and properties. The site is fully built-out

with a commercial parking garage. However, for the purpose of the appraisal, the site is assumed to

be developable.

The sales are all generally level and buildable after the removal of some old improvements on some

of the sales (adjustments made in Expenditures After The Sale). No adverse factors were considered

for the subject or the sales and no adjustments made.

Shape/Utility

A final consideration is the shape of the subject, which is rectangular and has good utility. As noted

in the Site Analysis, 2nd Street and Adams Street, are designated as Pedestrian Streets by the City of

Phoenix, adding additional requirements for development, related to pedestrian amenities that will

add to the cost of a project. However, all of the north-south streets in the DTC, and Roosevelt and

Portland Streets, east-west, have this same designation. Thus, it would appear that this requirement

will affect all of the sales relatively equally and no adjustment was considered necessary, or made for

this factor.

The sales are all fully or nearly rectangular and have adequate frontage to allow for reasonable

access. Thus, this is not considered a factor requiring adjustment and none were made to the sales.

Our adjustment process is summarized in the grid on the following page:

Sales Comparison Approach-Land Value


Conclusion

After adjustment, the sales reflect a range from $82.80 to $137.75 per square foot, with a mean value

of $113.40 per square foot. Discounting Sale Nos. 1 and 6, with the most inferior locations, being

north of Roosevelt Street, the mean adjusted sale price is $127.58 per square foot.

A final thought comes from information provided by the property listing and selling agents

interviewed for this and other recent land appraisal reports in this area. These included Michael

Lieb, Michael A. Lieb Ltd. John Cunningham, Jones, Lange, LaSalle and Steve Nicoluzakis and

Scott Baumgarten, Cushman & Wakefield. They are all active in the market area and generally

knowledgeable about demand and property value ranges in the subject DTC location. The general

Sales Comparison Approach-Land Value


consensus offered was a price range for well-located properties here of $100.00 to $135.00 per

square foot, depending on specific location, size and shape.

Therefore, considering the sales analysis and broker comments, it is our opinion the subject parcel

had an indicated value at the date of value in the upper-middle of the adjusted sales range, or

$120.00 per square foot, or a total value as follows.

41,250 SF X $120.00/SF = $4,950,000

Cost Approach To Value


COST APPROACH TO VALUE

The Cost Approach involves estimating the cost to replace or reproduce proposed or existing

improvements, depreciating the improvements, if necessary, based on condition, location, etc., and

finally, adding the land value to the depreciated amount of the improvements. The replacement cost

new has been used in my analysis. The resulting figure is an indicated value based on the Cost

Approach.

The basic principle involved in the Cost Approach is the “principle of substitution,” which affirms

that no buyer will pay more for a property if he can obtain a substitute for less money by selecting a

site and constructing a building in a similar location, of similar utility, and of equal desirability, in a

reasonable amount of time.

The following steps are the methodology followed in the Cost Approach:

1. The estimate of the value of the site as if vacant (previous section);

2. The estimate of the current cost of reproducing or replacing the existing or cost of construction of proposed improvements (including direct and indirect costs);

3. The estimate and deduction of depreciation from all causes (if appropriate) as of

the valuation date;

4. The addition of the estimated value of the site and the depreciated reproduction or replacement cost of the improvements.

Our development of a Value Indication by the Cost Approach follows.

Replacement Cost Estimate

The subject improvements are made up of two major components, the parking garage and a retail

area (1st Floor). The appraisers have primarily relied on the basic costs for the component building

structure included in the Marshall Valuation Service, MVS, cost manual. The Class of Construction

is the basic subdivision in the MVS, dividing all buildings into five basic cost groups by type of

framing (supporting columns and beams), walls, floors, roof structures, and fireproofing.



From the standpoint of construction, the subject has the characteristics of an Average Class "B,"

Parking Structure (Section 14, Page 34, February 2016), with a base cost of $51.75 per square foot

of GBA. Class "B" structures are characterized by the following construction details.

Average Quality

Exterior Walls: Partial walls, brick, block, concrete, plain finish

Interior Finish: Unfinished, small office and service area

Lighting & Plumbing: Low-level lighting, drains, minimum restroom for office

Heat: None

The base hard cost for this property type was $51.75 per square foot. In addition, a separate cost

estimate was included for the first floor Retail Area utilizing estimated costs of basic retail space and

restaurant finish from the appraisers’ files and MVS.

The subject’s retail space totals approximately 25,509 square feet, of which approximately 9,214

square feet (36%) is retail and storage space and 16,295 square feet (64%) is restaurant space.

Basic retail finish can range from $20.00 per square foot to $40.00 per square foot, and considering

that the subject space is fairly basic, and includes 2,756 square feet of storage area behind the retail,

a cost of $30.00 per square foot was estimated for this space.

Restaurant space can be much more costly to finish, ranging from $25.00 per square foot for very

basic space to over $75.00 per square foot for higher end finish. The subject restaurant spaces are

also mostly basic, especially the 2,955 square feet of Steve’s Grill space with minimum dining room

finish. The appraisers have estimated a cost to finish the subject restaurant spaces of $45.00 per

square foot.



The blended cost is thus estimated to be $39.60 per square foot (($30.00/SF X .36) + ($45.00 X

.64)). This results in added cost of $1,010,156 (25,509 SF X $39.60/SF), or $4.99 per square foot of

the entire building, ($1,010,156 / 202,500 SF). For this reason, we have added $5.00 per square

foot, rounded, to the base cost of the building.

The following exhibit summarizes the estimated cost of the subject building, parking lot and on-site

improvements.

Price/SF

Base Cost/SF - Average. Class B, Parking Structure $51.75

+ Retail Space Adjustment 5.00

+ Sprinklers 0.00

Adjusted Base Cost $56.75

x Floor Area/Perimeter Multiplier 0.875

x No. of Stories Multiplier 1.000

x Story Height Multiplier 1.000

Adjusted Base Cost/SF $49.66

x Current Cost Multiplier, Septmber 2017

Section 99, page 3, Western Class B, Section 14 1.03

x Local Cost Multiplier, July 2017

Section 99, page 8, Class B, Phoenix 0.94Total Cost/SF $48.08x Building Area (NRA) 202,500Total Building Cost $9,736,200 Site Improvements, Section 66, 12/16 Parking Equipment 75,000 Miscellaneous, Landscaping 25,000Subtotal Site Improvements $100,000x Current Cost Multiplier, Septmber 2017 Section 99, page 1, Section 66 1.05x Local Cost Multiplier, July 2017 Section 99, page 8, Phoenix 0.94Total Site Costs $98,700

Total Building Costs $9,736,200Total Site Improvement Costs 98,700

$9,834,900

Calculation of Replacement Hard Costs



The preceding exhibit outlines the appraisers’ estimates of the direct costs necessary to construct the

subject improvements as of the valuation date. The estimate is based upon data from the Marshall

Valuation Service, Calculator Cost section, adjusted to local conditions. Direct costs include an

allowance for some indirect costs such as architect’s and engineer’s fees; material and labor costs

include appropriate local, state and federal sales taxes; normal site preparation for the structure only;

utilities from structure to lot line; and contractor’s overhead and profit. Indirect costs, not included

in the MVS base costs include items such as loan fees, interest carry, real estate taxes during

construction, independent consultant fees (appraisal/legal/accounting, etc.), marketing costs or

leasing commissions to create first occupancy, and developer’s profit, and must be added.

The following is a recap of these indirect costs.

Hard Costs $9,834,900

Indirect Costs

Permanent Financing

(construction interest) 0.5% $49,175

Construction Loan Fees/Points 0.5% $49,175

Real Estate Taxes (construction period) $0

Concept/Planning/Legal/Accounting @ 1.0% $98,349

Contigencies @ 1.0% $98,349

Entreprenuerial Profit 10.0% $983,490

Total Soft Costs $1,278,537

Percent of Direct Costs 13.0%

Total Replacement Cost New (RCN) $11,113,437

The estimated total cost new of all improvements on the subject site, by the appraisers, is

$11,113,437. From this cost must be deducted accrued depreciation from all causes.

Accrued Depreciation Estimate

1. Physical Deterioration This is the actual wear and tear on the physical components of the property and is evidenced by such things as cracks, leaks, dry rot, wearing out of mechanical equipment, and deferred maintenance. This may be curable or incurable or both.



2. Functional Obsolescence This is loss in value caused by factors inherent within the property itself, which will lessen its functional utility. It is evidenced by improper or outdated design and layout, inadequacy, and, at times, overcapacity of modern features, equipment, and material. This also may be either curable or incurable.

3. External Obsolescence

This is loss in value caused by factors from outside the property. It is evidenced by such things as obnoxious odors, infiltration of inharmonious uses, noise, and lack of public facilities. This normally is incurable.

Physical

The improvements were estimated to be completed in 1972 making the structure 45 years old. The

MVS indicates that parking structures similar to the subject have a total life of 45 years. The subject

was found to be in average condition receiving regular maintenance. Therefore, the effective age

was estimated at 25 years, suggesting a remaining economic life of 20 years. Utilizing the MVS

Depreciation Guidelines (Section 97, Page 24), this results in depreciation of 33% (not straight-line).

The appraisers have estimated general deferred maintenance of $50,000, which will be deducted

from the estimated replacement cost new of the main improvements, prior to other Physical

Depreciation.

The site improvements have a slightly higher effective age, lower remaining life and were estimated

to have 50% accrued physical depreciation.

Functional

Functional obsolescence can be either an inadequacy as to the improvements or an overcapacity. As

a parking garage building with retail, the subject appears to be generally functional for its intended

and continued use. Therefore, no Functional Obsolescence was noted or charged.

External

There were no noted external obsolescence factors in the immediate area of the subject property.

Economic and social factors impacting the subject property also impact all other properties in the

area and therefore these elements generally affect the overall real estate market. However, this can

be estimated as a function of land value, which is estimated herein, and improvement cost factors,



which are continuously adjusted and updated to current and local construction costs. Therefore, no

External Obsolescence was considered to affect the subject property.

Conclusion and Value Indication

In the foregoing Cost Approach analysis, we have considered the replacement cost new of the

improvements by a calculator method based on actual costs provided by the owner. The total cost

new was estimated at $11,113,437. We have also considered depreciation from all appropriate

sources, including physical, functional, and external. The table on the following page summarizes

the final value indication by the Cost Approach.

Replacement Cost New $ 11,113,437 Less: Accrued Depreciation

Curable items ($ 50,000) Physical, Short-Lived, Site* ($ 55,766) Physical, Long-Lived. Bldg (less Curable) ** ($ 3,614,129) Functional obsolescence ($ 0) External obsolescence ($ 0)

Total Depreciation ($ 3,719,894)

Replacement Cost Value $ 7,393,543 Plus: Land Value $ 4,950,000 Final Value via Cost Approach $ 12,343,543 Rounded $ 12,350,000

*($111,531 X 0.50)

** ($11,113,437 - $111,531 - $50,000) * 0.33)

Sales Comparison Approach To Value


SALES COMPARISON APPROACH

The basic premise of the Sales Comparison Approach is the principle of substitution, which holds

that the value of a property tends to be set by the price that would be paid to acquire a substitute

property of similar utility and desirability within a reasonable amount of time. Other relevant

appraisal principles are anticipation, balance, externalities, and supply and demand.

The principle of substitution implies that the reliability of the Sales Comparison Approach is

diminished if substitute properties are not available. When sufficient sales exist to indicate value

patterns in the market, the Sales Comparison Approach is the most direct way to estimate value. The

strength of this approach is that it reflects the actions of buyers and sellers. Perhaps its major

weakness is that it relies on the past to predict the future. The implicit assumption is that the market

will continue to behave in the future as it has in the past, however, when economic conditions are

changing rapidly the validity of this assumption is diminished.

Because of the lack of local parking garage sales within the past several years, it was necessary to

expand our search to a nationwide basis. We have identified 3 sales of properties which are detailed

on the following pages. Data regarding each sale was confirmed with a third party familiar with the

property when possible (Broker, Appraiser or Government Employee), and all sales were confirmed

by Co-Star Group, Inc. The appraisers did not make personal inspections of the comparable

properties.

While these are not the only sales of parking garages that have occurred in the recent past, these

were sales of free-standing garages not affiliated with an adjoining office building or commercial

project, and thus available for daily, event or monthly rental, like the subject.

Detailed sale sheets summarizing information regarding these improved sales are provided, along

with a summary table on the following pages.



Parking Garage Sale No. 1

Identification

Name: 115 E. Congress Street Garage Address: 115 E. Congress St., Savannah, GA Location: SEC Congress and Drayton Streets Tax Parcel No.: 2-0004-39-011

Transaction Data

Date of Sale: February 2017 Date Recorded: May 22, 2017 Grantor: Manger Building Grantee: Congress Investors LLC Instrument No: 1084-0195 Interest: Fee Simple Sale Price: $20,100,000 Financing: Cash to seller Price/SF: $134.15 Price/Space: $50,250

Physical Data

Zoning: BC-1 Year Built: 1974 No. Stories: 7 Construction Type: Concrete/brick Gross Building Area: 149,828 SF No. Spaces: 400 Land Area: 21,693 SF Land-to-Building Ratio: 0.14:1



Parking Garage Sale No. 1 (continued) Economic Data

Total Per Space Effective Gross Income: N/A N/A Less Expenses: N/A N/A Net Operating Income: $1,246,662 $3,117

Ratio Analysis

Expense Ratio: N/A EGIM: N/A Overall Cap Rate: 6.20%

Marketing Period

N/A Sale History

Unknown Comments

This garage is located in downtown Savannah, Georgia, to the south of the Savannah River. Reportedly, an additional $250,000 was to be spent on deferred maintenance after the sale by the buyer. It is a free-standing building with no other affiliation. There is no retail or office space in this building. Full financial information was not available, but the buyer reported the actual overall capitalization rate of 6.2%, which relates to an NOI of $1,246,662. The listing agent reported that the price was high due to the location being strong, a historical area that is fully built-out and has a high barrier to entry. Thus, competition is limited and the buyer paid a strong price, as noted by the low overall capitalization rate. He reported a total of approximately 400 spaces that was utilized for the analysis.

Confirmation

Co-Star COMPS; Public Records; Todd Casper, CBRE, listing agent; (09/17 SM)




Identification

Name: Heritage Garage Address: 321 Race Street, Cincinnati, OH Location: NEC 3rd & Race Streets. Tax Parcel No.: 145-0001-0232

Transaction Data

Date of Sale: June 2016 Date Recorded: July 7, 2016 Grantor: Race Street Partners, LLC Grantee: MVP Cincinnati Race Street Garage LLC Instrument No: 16-063515 Interest: Fee Simple Sale Price: $4,500,000 Financing: Cash to seller Price/SF: $42.60 Price/Space: $14,063

Physical Data

Zoning: DD Year Built: 1929 No. Stories: 4 Construction Type: Concrete/brick Gross Building Area: 105,628 SF No. Spaces: 320 Land Area: 27,443 SF Land-to-Building Ratio: 0.26:1




Total Per Space Effective Gross Income: N/A N/A Less Expenses: N/A N/A Net Operating Income: N/A N/A

Ratio Analysis

Expense Ratio: N/A EGIM: N/A Overall Cap Rate: N/A

Marketing Period

N/A Sale History

Unknown Comments

This garage is located in downtown Cincinnati, Ohio, to the north of the Ohio River. It is a free-standing building with no other affiliation. Financial information was not available, but public information indicated daily parking rates of $12, and monthly non-reserved rates of $150. There is no retail or office space in this building.

Confirmation

Co-Star COMPS; Public Records; (09/17 SM)




Identification

Name: Seven Corners Ramp Garage Address: 1504 Washington Ave. S, Minneapolis, MN Location: SEC Washington Ave. & 15th Street Tax Parcel No.: NA

Transaction Data

Date of Sale: September 2015 Date Recorded: October 27, 2015 Grantor: Grandma’s Associates LLC Grantee: 7 West Apartments LLC Instrument No: NA Interest: Fee Simple Sale Price: $9,500,000* (Portion of $54,500,000 sale) Financing: Cash to seller Price/SF: $42.79 Price/Space: $28,788

Physical Data

Zoning: C3A, PO Year Built: 1984 No. Stories: 5 Construction Type: Concrete/brick Gross Building Area: 222,000 SF No. Spaces: 330 Land Area: 39,374 SF Land-to-Building Ratio: 0.18:1




Total Per Space Effective Gross Income: N/A N/A Less Expenses: N/A N/A Net Operating Income: $735,000 $2,227

Ratio Analysis

Expense Ratio: N/A EGIM: N/A Overall Cap Rate: 7.75%

Marketing Period

N/A Sale History

Unknown Comments

This garage is located in downtown Minneapolis, to the west of the Mississippi River. * This was a portion of a larger sale of a 218-unit mid-rise apartment project, utilizing the estimated NOI from the parking garage, $735,000 and a 7.75% cap rate. This is less than the rate applied to the apartment project NOI, 5.35%. Full financial information was not available but public information indicated daily parking rates of $17, and monthly non-reserved rates of $145. There is no retail or office space in this building. The project is located in the downtown Minneapolis area, near a light rail station, freeway access and a college.

Confirmation Co-Star COMPS; Public Records; Keith Collins, CBRE, listing agent; (09/17 SM)

Sales Comparison Approach


IMPROVED SALES SUMMARY

Sale Sale Sale Size in SP No. SP Year No. Address/Location Date Price SF-NRA Per SF Spaces Per Space Built LTB:1 OAR Comments

1115 E. Congress St., Savannah, GA Feb-17 $20,100,000 149,828 $134.15 400 $50,250 1974 0.14 6.20%

Freestanding, avg. cond., def mntnce, strong location

2 321 Race St., Cincinnati, OH Jun-16 $4,500,000 105,628 $42.60 320 $14,063 1929 0.26 NA Freestanding, avg cond,

31504 Washington Ave. S., Minneapolis, MN Sep-15 $9,500,000 222,000 $42.79 330 $28,788 1984 0.18 7.75% Freestanding, avg cond,

Sub 125-149 E. Adams St, Phx NA NA 202,500 NA 506 NA 1972 0.20 NA Freestanding, avg condition



IMPROVED SALES MAP

Subject

Sale No. 1

Sale No. 2

Sale No. 3



Analysis of Comparable Sales

The sale properties are all freestanding parking garage buildings similar to the subject in utility and

its specialized use. None of the sales appear to have any retail or office space, as does the subject,

but all appear to be generally similar to the subject in quality and utility. They are all located outside

of the Phoenix market, as noted, but all are within the downtown core areas of major metropolitan

areas, similar to the subject, and will have similar parking use, daily, monthly and event.

The unit of comparison that is typically most indicative of differences between comparable sales is

the price per square foot of building area and the price per parking space. The unadjusted sale prices

range from $42.60 to $134.15 per square foot while the price per space ranged from $14,063 to

$50,250. The comparables represent a broad age range insofar as the oldest sale was built in 1929

and the newest was completed in 1984. However, with on-going maintenance, the overall condition

of the sales is reasonably similar.

Because the sales represent a cross section of garage sales from throughout the country, a direct

comparison is difficult, at best. Economics and other variables of the various locales can be

dramatically different making a direct comparison less reliable. Therefore, this approach has been

used as a test of reasonableness for the Income Approach.

The sales were first adjusted for such factors as the Property Rights Conveyed (i.e., fee simple,

leased fee, leasehold, etc.), Conditions of Sale, Financing/Cash Equivalency, Expenditures After The

Sale and Time/Market Conditions. Then a physical price per space analysis was considered based

upon factors such as location, size and age/condition.

Property Rights Conveyed

The interest being valued for the subject property is the Leased Fee Interest due to the subject retail

tenants. All of the comparables were transfers of the Fee Simple Interest, but this was not

considered a factor requiring adjustment due to the significantly greater income from daily or

monthly parking for the subject and comparables.



Conditions of Sale

Adjustments for condition of sale are required when sales occur which may not be arm’s length or a

special condition affected the negotiated sales price. All of the sales appeared to be under no

unusual circumstances requiring adjustment for this factor, thus none were made.

Financing/Cash Equivalency

Standard definitions of market value include payment in cash or its equivalent. Cash equivalent

sales include financing terms generally available in the market. All sales were reported to be cash

to seller or cash equivalent transactions. Thus, no adjustments were necessary.

Expenditures After The Sale

This adjustment considers any needed significant expenditures after the sale date to make the

property functional. Sale No. 1 required a reported $250,000 in deferred maintenance expenditures

are the sale, or $625 per space. Thus, an upward adjustment was made to this sale for this factor to

$50,875 per space. None of the other sales were reported to require any additional expenditures by

the buyer to be functional, thus, no adjustments were made for this factor to Sales 2 and 3.

Market Conditions (Time)

The sales occurred within a 17-month period, with the most recent occurring 2 months prior to the

date of value. Thus, the total time frame is 19 months prior to the date of value. In discussions with

the confirming brokers for these sales, it was noted that the market for this property type has been

relatively steady during the period of the sales due to the general stability in interest rates and rates

of return over this period. Therefore, no adjustment for time was made.

Physical Adjustments

The final adjustments considered were for location, size, age/condition and quality. The sales are all

multi-story parking garages in downtown central core areas of major cities, like the subject, and

while occupancies and parking rates may vary somewhat, the locational factors were generally

similar, with the exception that none of the sales had nearby influences such as the Phoenix

Convention Center, Hyatt Hotel and sports venues as does the subject. However, two of the sales

reported daily rates at or above the subject and both reported monthly rates above the subject.



Therefore, these were considered an offsetting factor and the sale locations were considered similar

enough to the subject that no adjustments were made for this factor.

The high sale, No.1, reportedly is in an historic area with a high barrier to entry, and limited

competition that the buyer considered in the sale price. Sale No. 2, the low end, was an older

building with significant area competition and no retail or office space for lease. Sale No. 3, in the

middle of the range, is a garage with an affiliated apartment project, as well as good area parking

draws such as a neighboring hotel and nearby office for daily and event uses. This sale appeared to

be most comparable to the subject in terms of location, age and quality, but it is smaller at only 330

spaces. The appraisers emphasized this sale.

Value Conclusion

The sales are all smaller than the subject and generally older, but the size of the facility does not

seem to be a factor in determining price as the largest garage had the highest price per space.

In the following Income Approach section, we have estimated that the subject will generate net

operating income of $925,916, or $1,830 per space. This is lower than Sale Nos. 1 and 3 which were

$3,117 and $2,227 per space, respectively. These sales had adjusted selling prices from $50,875 to

$28,788 per space, respectively. Thus, the subject would reasonably be below this range.

Thus, it appears that a reasonable value for the subject would fall within a range from $23,000 to

$25,000 per space. Thus, our value range for the subject by the Sales Comparison Approach is as

follows:

506 spaces @ $23,000/space = $11,650,000 (rounded)

506 spaces @ $25,000/space = $12,650,000 (rounded)

Giving equal emphasis to the two indications, it is our opinion the indicated Market Value of the

subject property by the Sales Comparison Approach is $12,150,000. However, after deduction the

lost income and cost of lease up (Income Approach), the “As Is” Market Value indication is

$11,450,000, rounded ($12,150,000 – $720,000)

Income Approach


INCOME APPROACH

The Income Approach to value is predicated on the premise that there is a relationship between the

income a property can earn and the property’s value. The future net income the property is capable

of earning is the main benefit to the owner. Thus, the value of the property to a hypothetical buyer is

based largely upon its earning capacity. The Income Approach to value translates the estimated

future income into a present value by capitalization techniques.

The first step in the Income Approach is to estimate the potential gross income by a survey and

analysis of the market rental rates of competitive properties in the area. (The potential gross income

is the total income attributable to the property before any vacancy and operating expense

deductions.) Normal vacancy and operating expenses are then estimated and subtracted from the

potential gross income resulting in an estimate of the annual net operating income. The net

operating income estimated is considered to be the typical annual stabilized income, which the

property will generate after achieving its stabilized occupancy level. This net operating income is

the income before depreciation deductions and debt service.

Operating expenses to be deducted from the income are the periodic expenditures necessary to

maintain the real property and to continue the production of the effective gross income (which is the

potential gross income less vacancies and rent losses). These expenses should not include expenses

attributable to a corporate operation or any expenditure for capital improvements that do not recur

annually.

In order to obtain the data needed for this approach, it is necessary to research the market for

properties similar to the subject. Income and expense information on those properties is extracted,

adjustments made, if necessary, and a typical income stream can be projected for the subject. An

overall rate of return, which is desired by investors, is then used to capitalize the net operating

income, and thus arrive at a value indication for the subject.

Income capitalization methods can be divided into two categories: direct capitalization and yield

capitalization. With direct capitalization, a property value indication is derived by dividing a single

year’s net operating income by an overall capitalization rate. With yield capitalization, future cash

flows are converted to value by discounting each cash flow--including the net sale proceeds from the

Income Approach


sale of the property at the end of the holding period (the reversion)--at an appropriate yield rate to a

lump-sum present value. Alternatively, yield capitalization can be used to develop an overall

capitalization rate that reflects the property’s anticipated income pattern, value change, and yield

over time. To derive market value indications by either method, the appraiser must use rates that

reflect typical market expectations.

Because of the age of the subject, we have been provided a good history of revenue and expenses

and have applied the Direct Capitalization analysis method to derive a value indication by the

Income Approach. Our income and expense analysis follows.

Current Leasing Status

The subject is leased on an hourly, daily (and events) and monthly basis. Therefore, occupancy is

tied closely to special events occurring at the Phoenix Convention Center, Talking Stick Resort

Arena (Phoenix Suns games) and Chase Field (Arizona Diamondbacks games). Even though the

Phoenix Convention Center has its own underground garage, the subject benefits from convention

activities as well.

The parking rates are set by the City, and the current charge is reported to be $3 per hour, up to $15

per day, $65 per month (un-reserved), $180 per month (reserved) and event rates are $12. These

are the same rates as for 3 other City of Phoenix downtown garages, Heritage Park, 1213 N. 5th

Street, Civic Plaza East, 601 E. Washington Street and the City Hall Garage, 305 W. Washington

Street. All of these properties are operated by Ace Parking Management.

There are also three parking agreements in place for a total of 327 spaces (65% of total spaces) with

adjacent users, as follows:

The Hyatt Regency Hotel has an annual agreement that began on July 1, 2006, and will expire on

June 30, 2021, for 237 parking spaces for the Hyatt Regency Hotel across Adams Street to the north

of the subject property. This agreement allows for 150 overnight spaces to be valet parked, 50 self-

parking spaces overnight, 25 short-term valet spaces and 12 monthly reserved spaces. Short term

spaces are all of those except overnight, monthly, event and validation-stamp parking, and overnight

parking means parking that begins before midnight and ends after 6:00 AM the following day.

Income Approach


The rates are set by agreement, and the current charge appears to be $15 per day, in-line with daily

rates.

Three E One North, (office building south of the subject on 1st Street) has an annual agreement that

began on March 1, 2016, and will expire on December 31, 2021, for 85 parking spaces at the subject

property. This agreement allows for 37 reserved (24/7) spaces at prevailing monthly rates, 10

regular reserved spaces (M-F, 7 AM to 7PM), at prevailing monthly rates, and 38 unreserved spaces

(M-F, 7 AM to 7PM), at prevailing monthly rates. There is an option for 1, 5-year extension at the

same terms.

Enterprise Leasing has an annual agreement that began on July 15, 2016, and will expire on

February 14, 2018, for 5 parking spaces at the subject property. This agreement allows for 5

reserved (24/7) spaces at $180 per month per space (current rate for this type of space). There is an

option for 3, 1-year extensions at the same terms.

Retail Space

As noted, revenue is also generated from the four retail spaces located in the subject property, two

being standard retail and two being restaurants. These are summarized as follows:

2nd Street: This suite is vacant and has been for an extended time according to Celeste Mims, with

the City of Phoenix. It is reported to be approximately 1,100 square feet in size, and at the date of

inspection was built out for a former retail (gift shop) tenant, with a large open sales areas, rear

storage and a single, 2-fixture employee restroom. The finish is older and in fair condition overall.

Reportedly the City of Phoenix will be utilizing the space for administration offices for the Burton

Barr Library, which was damaged in a monsoon storm in July 2017. Thus, this space will not be

available for lease.

147 E. Adams Street – Advocates for Latino Arts & Culture Consortium, Inc, ALAC: This suite has

a reported 5,358 square feet of retail space that was not fully inspected, but appears to be mostly

open for sales and art exhibition. There is a suspended acoustic ceiling fluorescent and LED lighting

and it appeared to be in average to good condition. It reportedly has two, 2-fixture restrooms. In

addition, the lease provides 2,756 square feet of storage space in a common area of the first floor

behind the retail spaces. This is unfinished dry storage.

Income Approach


The lease began in August 2009, and was for 3 years, with 2, 3-year options (9 years total). The

lease expires on August 11, 2018 and there are no additional option periods. The rent is reportedly

$10 total per year, modified gross, with the tenant paying utilities and interior maintenance, and the

landlord paying structural and mechanical maintenance and property insurance. There are no

property taxes on this property. Parking is provided to the space in the form of 3 non-reserved

spaces at prevailing market rates.

139 E. Adams Street – Greenhouse Inc., dba Steve’s Grill: This space reportedly has 2,955 square

feet of rentable area, and 704 square feet of front covered patio space. The restaurant space is

finished moderately, with concrete floors, open framework ceilings and a combination of lighting.

There is a plain wood frame bar in the dining area. The kitchen, dishwasher area and food prep

areas are small, older finish, and include a small dual walk-in refrigerator and freezer. The front

patio is covered, but open sided to the north (Adams Street) and not heated or cooled.

The lease began on June 15, 1981, and has been extended over the years, currently through

December 2017. There is reportedly 1 additional 3-year option period beyond that date. The

current rent is reported to be $4,083.70 per month, or $16.58 per square foot per year, on a modified

gross basis. Again, the tenant pays for utilities and interior maintenance and the landlord pays for all

other maintenance. This space is also provided 7 parking spaces, at prevailing rates.

125-131 E. Adams Street – Vacant: This space includes 11,995 square feet of a former restaurant

space, The Matador Restaurant, and 1,345 square feet of a former Swenson’s Ice Cream parlor, for a

total of 13,340 square feet of rentable area, according to information provided by the owner. All of

this space has been vacant for an extended period, over 5 years, and is in fair to poor overall

condition. The tenant improvements have little value at this point, with most equipment and FF&E

having been removed. It should be noted that the smaller space, the former Swenson’s Ice Cream,

is accessed through the Steve’s Grill patio, and currently there are dining tables in front of the entry

door.

These spaces have been marketed together, with no formal asking rent, and currently there is a

prospective tenant, Phoenix Commons LLC, that is in advanced negotiations for the space. The

current proposal is for the entire 13,340 square foot space to be leased on a 10-year term, with 2, 3-

Income Approach


year option periods. This space will include an 820 square foot covered patio area at the front

entrance to the large space, and a 292 square foot, covered patio at the entrance to the smaller space.

This will encompass some of the current Steve’s Grill patio area, which reportedly has been greater

than the lease allows.

The lease will begin January 25, 2018, or sooner, and the tenant will fully renovate the rental space

into a new food-related operation, reportedly spending $2,500,000 of their own money, although

nothing in writing indicating this was provided to the appraiser. In addition, a $529,000 tenant

improvement allowance is being provided by the landlord in the form of free rent. As a result, there

will be no rent paid for the first 3 years, with $60,990 paid annually ($4.57/SF) in Years 4 and 5,

increasing to $5.06 per square foot in Year 6, $5.55 per square foot in Year 7, $10.42 per square foot

in Year 8, $11.39 per square foot in Year 9 and $12.18 per square foot in Year 10. The average rent

per square foot during the 10-year term of the lease is approximately $5.37 per square foot. This

arrangement was planned to allow the tenant to amortize the reported cost of the tenant

improvements to be spent by the tenant, $187.41 per square foot, ($18.74/SF/Yr.), and the tenant

improvement allowance, reported to be $529,000, $39.66 per square foot, over the first 7 years of the

lease. In essence, the tenant will be spending an average of $24.11 per square foot per year when

including rent and amortized tenant improvements, with a $39.66 tenant improvement allowance.

This lease will also be modified gross, with the tenant paying all utilities and interior maintenance,

and the landlord paying all structural maintenance.

Again, this lease is being negotiated, and while reported to be close to signing, a signed copy was

not provided to the appraiser.

A summary of actual or contract lease terms is presented in the following chart. The second

following page summarizes those projects felt to be the most competitive of those garages surveyed.

Income Approach


PARKING CONTRACTS

RENT ROLL

Size Start End Rem. Ann. Base Monthly Annual Exp Tenant Suite SF Date Date Mos. Rent Rent Rent/SF Bassis

Vacant- N. 2nd St. 1,100 NA NA NA NA NA NA NAALAC 147 E. Adams St. 8,114 08/12/09 08/11/18 11 $10 $0.83 $0.00 MGThe Greenhouse Inc. 139 E. Adams St. 2,955 06/15/81 12/31/17 3 $49,004 $4,083.67 $16.58 MGVacant- 125-131 E. AdamsSt 13,340 NA NA NA NA NA NA MG

Totals 25,509 $49,014 $4,085 $1.92 NA

Income Approach


No. Name Address No.

Spaces Hourly

Rate Daily Rate Mo. Rate

Event Rate

Comments

1 City Scape E & W 1 W. Washington St. 1,428 $3.00 $27.00 $65.00 $5.00-$12.00

Below grade

2 Jefferson St. Garage 133 E. Jefferson St. 1,450 NA $5.00-$12.00

$85.00 $5.00-$12.00

Free-standing

3 Civic Plaza East Garage 601 E. Washington St. 2,716 $3.00 $12.00 $65.00 $12.00 Free-standing

4 City Hall Garage 305 W. Washington St. 1,340 $4.00 $16.00 $65.00 $12.00 Free-standing

5 Chase Parking Garage 201 N. 1st St. 1,950 $4.00 $16.00 $65.00 $10.00 Free-standing

6 Arizona Center 400 N. 5th St. 2,000 $3.00 $18.00 $65.00 $12.00 Part of mixed use project

7 Talking Stick Resort Arena

201 E. Jefferson St. 770 $2.00 $9.00 NA $5.00-$12.00

Adj. to building

8 Chase Field 401 E. Jefferson 1,500 $2.00 $7.00 NA $5.00-$20.00

Free-standing

Subj Regency Garage 125-147 E Adams St. 506 $2.00 $12.00 $65.00 $12.00 Free-standing

Income Approach


RENTAL COMPARABLE MAP

Rent 2

Rent 1

Subject

Rent 3

Rent 4

Rent 5

Rent 6

Rent 7 Rent 8

Income Approach


PARKING GARAGE RENTAL COMPARABLE PHOTOGRAPHS

Rental 1

Rental 2

Rental 3

Rental 4

Income Approach


PARKING GARAGE RENTAL COMPARABLE PHOTOGRAPHS, Contd.

Rental 5

Rental 6

Rental 7

Rental 8

Income Approach


The subject’s parking rates are well in line with the market as rates are fairly consistent from project

to project. Event rates fall within a small window, although they will vary with the importance of

the event. In other words, playoff and weekend games for the Suns and Diamondbacks will tend to

generate more event income per space than regular season mid-week games. The other factor that is

key to event rates is a project’s distance from a given venue. Those projects in proximity to the

ballparks can charge more per space than those requiring a longer walk. Based on the facts

presented, it appears that current subject rates are well supported by the marketplace.

The subject Parking Revenue was reported for the past four fiscal years and projected for the next

two as follows:

TotalAnnual Parking Revenue2013-2014 Actual $1,318,5642014-2015 Actual\ $1,153,7872015-2016 Actual $1,340,1282016-2017 Actual $1,371,6222017-2018 Projected $1,403,4132018-2019 Projected $1,435,171

Actual Average $1,296,025

The data indicates a fairly consistent revenue stream over this period, with an average of $1,296,025

for the four full years. The projections for the next two years reflect revenues over $1,400,000, but

this is well above the average. For the 2012-2013 FY, the revenue was only $1,023,158, but the

Phoenix economy was still in recovery from the recession.

Due to the consistency of the revenue streams of the last 4 fiscal years, and the fact the subject’s

current parking rates are considered to be market, the appraisers have utilized an annual revenue

from parking of $1,350,000 for the analysis. This emphasizes the past 2 years, and gives some

consideration to future projected revenues.

Income Approach


Retail Spaces

The subject property has four retail/restaurant spaces, two of which are occupied and two vacant and

available for lease. One of the existing tenants, ALAC, pays only $10.00 per year in rent. For the

purpose of this analysis, in order to estimate the Market Rent for these spaces, the appraisers

surveyed similar ground floor retail and restaurant space asking and actual rentals in the downtown

market. We have utilized the subject Steve’s Grill space, the 139 E. Adams Street suite, 2,955

square feet, as a base for adjustment.

Seven retail space comparables were located and are summarized in the following table:

Income Approach


RETAIL RENTAL PHOTOGRAPHS

Rental 1

Rental 2

Rental 3

Rentals 4 & 5

Income Approach


Analysis of Market Rent

We have researched actual and asking rents for other storefront retail spaces in the subject’s

downtown Phoenix, DTC, market area. The 5 rentals chosen are considered comparable to the

subject with respect to location, age and condition, and would all be considered competitive with the

subject for tenants. They are summarized as follows:

Rental Nos 1 and 2: These are spaces in the 15 East Monroe Building, an historic mid-rise office

building recently renovated and now mostly occupied by a 170-room, Hilton Garden Inn Hotel. This

building is approximately 1 block northwest of the subject along Monroe Street. The leasing agent,

Chris Osborn, Western Retail Advisors, reported that current asking rents are $34.00 per square foot,

modified gross, in which the tenant only pays for their own utilities and interior maintenance in

addition to the rent. This is the same as the subject space. It is being leased with good tenant

improvement allowances, $30.00 to $40.00 per square foot, and with limited free rent, 2-3 months on

a 5-year deal. Terms are generally 3 to 5 years.

This space is very comparable to the subject space in general, but both of the suites are smaller than

the subject’s space, ranging from 1,481 to 2,005 square feet. In addition, this building fronts to

Central Avenue, and has nearby light rail access. The building has a 170-room Hilton Garden Inn

Hotel, thus providing the retail space with a significant customer base. In addition, it is across the

street from the 40-story, Chase Tower office building, the tallest building in Arizona. However, the

location does not have the benefit of nearby sports venues and the Phoenix Convention Center.

Overall, this space would be considered slightly superior to the subject. In addition, assuming a

$35.00 per square foot tenant improvement allowance versus the subject’s estimated $5.00 per square

foot allowance ($30/SF difference), a 5-year lease ($6.00/SF TI/Yr amortization), a 20% downward

adjustment was made to this rental in addition to location.

Rental No. 3 This is the asking rent for a ground floor space in the Heard Building, a mid-rise older

office building in the center of the DTC area, approximately 1 block west of the subject along Central

Avenue. The leasing agent, Courtney Author, Phoenix Commercial Advisors, reported that the

current asking rent is $28.00 to $30..00 per square foot, triple net, for an approximate 3,700-square

foot, former restaurant space (now shell). This asking rent is triple net, with a $6.50 per square foot

Income Approach


triple net charge per year. Thus, the resulting effective modified gross rental is $34.50 per square

foot ($28.00/SF + $6.50/SF). This space offers good tenant improvement allowances, $30.00 to

$40.00 per square foot dependent on lease term, being shell space, and limited free rent, 3-5 months

on a 5-year deal. Terms are generally 5 to 10 years.

This space is generally comparable to the subject space, and slightly larger than the subject’s base

suite. In addition, this building fronts to Central Avenue, and has light rail access. The Heard

Building is 7 stories with approximately 70,000 square feet of office space. While, the location does

not have the benefit of nearby sports venues and the Phoenix Convention Center, it is close to several

high-rise office projects, such as the Renaissance Square project, and overall, would be considered

somewhat superior to the subject. As with Rental Nos. 1 and 2, a downward 20% adjustment was

also made for a superior tenant improvement allowance.

Rental No. 4 & 5 These are asking rents for ground floor space in a parking garage in the central

portion of the DTC, approximately 3 blocks west of the subject. The leasing agent, Trent Goulette,

Southwest Retail Group, reported that the actual rent was around the asking rent of $24.00 per square

foot, triple net, (estimated at $22.00/SF) for a 7,521 square foot, former restaurant space, and the

current asking is $24.00 per square foot for a 5,130 square foot former restaurant. Adding in the

reported triple net charges of $5.00 per square foot, indicates an effective modified gross actual and

asking rental range of $27.00 to $29.00 per square foot. This space offers minimal tenant

improvement allowances, $5.00 to $10.00 per square foot, having been previously occupied, and

limited free rent, 5 months on a 5-year deal. Terms are generally 3 to 5 years.

This space is generally comparable to the subject space, being part of a parking garage, and the

location near several high-rise office projects and the Maricopa County courts off-sets the subject’s

strong nearby influences. These suites are more similar to the subject’s larger spaces and are good

indicators of the Market Rent potential.

The table on the following page summarizes adjustments made to the asking rentals, utilizing the

subject Steve’s Grill space, the 139 E. Adams Street suite, as a base for adjustment. This suite is

Income Approach


2,955 square feet, and is the most typical size space in the market. Therefore, it provides the most

reasonable basis for comparison, and the other subject spaces will be adjusted to this Market Rental.

The adjusted range of the rentals is from $23.80 to $27.00 per square foot per year, modified gross.

The one recent actual rental noted for these properties was the high end, $27.00 per square foot.

Again, the actual subject lease for the Steve’s Grill space is currently $16.48 per square foot, which is

below the range. However, this lease has been in-place for an extended period and thus is not

considered a Market Rent.

A final consideration was the opinion of the leasing agents interviewed for this report, including Scott

Baumgartent, Cushman & Wakefield, Courtney Auther, Phoenix Commercial Advisors and Dennis

Kolodin, Metro Realty. They all indicated increasing retail demand in the market area as the number

of rental housing units has increased and with the growth of the Arizona State University campus in

downtown. They all noted that a Market Rent in the lower end of the range would be reasonable for

the subject because of its location in a parking garage, partially offset by a strong central location

near the Phoenix Convention Center, the Hyatt Regency Hotel, and nearby sports venues.

Therefore, it is our opinion that the most reasonable Market Rent for the subject’s 139 E. Adams

Street retail space would be $24.00 per square foot, modified gross. This would be for second

generation space with a minimal tenant improvement allowance, $5.00 per square foot or less over

existing build-out.

Income Approach


The other subject spaces vary in size and condition, with the largest, 131 E. Adams Street, 13,340

square feet being most comparable to Rental Nos. 4 and 5, at the high end of the adjusted range.

However, due to the poor condition of this subject space, an additional downward adjustment was

necessary to an estimated Market Rent of $16.00 per square foot.

The breakdown by space, considering size, shape and visibility is as follows:

The estimated Market Rent is on a modified gross basis, with the tenants paying all of their own

utilities, but the landlord paying for all structural and mechanical maintenance, property insurance,

management and miscellaneous expenses. As noted, no real estate taxes are charged to the property

due to the City of Phoenix municipal ownership.

It should be noted that the contract rent being negotiated for the subject 115-131 E. Adams Street

suite, the large space, will be an average of $24.11 per square foot per year (including the amortized

cost of tenant improvements paid by the tenant) over the course of the lease. This is with a nearly

$40.00 per square foot tenant improvement allowance, $39.66 per square foot. When amortized over

a 10-year lease, this is $3.97 per square foot per year, reducing the rent to $20.14 per square foot per

year. The projected Market Rent of $16.00 per square foot, with a $10.00 per square foot tenant

improvement for a 5-year deal ($2.00/SF/Yr.) indicates Market Rent of $14.00 per square foot.

Thus, it appears that this deal would be above the estimated Market Rent. However, as noted, this is

not a signed lease, and the appraisers have not been given written confirmation of the estimated

tenant expenditure of $2,500,000. In addition, it should be noted that this space was not offered for

lease by commercial leasing professionals, and was being handled internally by the City of Phoenix.

Income Approach


Potential Gross Rental Income

The table on the following page summarizes the subject’s Potential Gross Rental Income, or Revenue,

based upon Market Rents for the retail space.

Tenant Improvements-TIs

The asking rents for the comparables reflect tenant improvements, TIs, of between $5.00 and $10.00

per square foot for these previously leased or vanilla shell spaces. At the estimated Market Rents,

the subject TIs are estimated at $5.00 per square foot in consideration of the existing improvements to

the smaller subject spaces, but $10.00 per square foot for the large restaurant space, 131 E. Adams

Street.

Rental Escalations

Typical of the market, new leases generally include regular rental increases, with $0.50 to $1.00 per

square foot per year, being most typical, or 3% to 5% of the base rent. The subject 139 E. Adams

Street lease has annual CPI increases and the proposed lease for the 131 E Adams Street space has set

increases for the base term, with 3% annual increases for option periods. For the analysis, it is

assumed new leases will have annual 3% increases.

Free Rent

It is typical of the market to have some free rent period at the beginning of the lease for permitting

and tenant improvement construction. This is the case with the proposed subject lease for the 131 E.

Adams Street space, with 3 years of free rent, and 4 years of partial rent to help the tenant amortize

the cost of their tenant improvements.

Income Approach


According to market participants, the most typical for the market appears to be 3-5 months free for a

5-year deal, which was reported by area leasing agents. Thus, all new tenants for the subject property

will be given 3 months free rent, up front, for a 5-year lease.

Vacancy and Collection Loss

Vacancy and collection loss for parking garages is directly tied to two main factors: the health of the

office market and, in the case of event garages like the subject, the health of the local sports teams.

Many downtown parking garages are built into the structure of an office building or hotel and daily

and monthly parking receipts are directly affected by the occupancy of the project. Other garage

structures may not serve a building specifically, but are located in proximity to many projects and

serve the general population. This is the case with the subject and several other City of Phoenix

garages, such as the Jefferson Street Garage, Civic Plaza East Garage, which are facilities serving

surrounding sports and meeting venues, including the Phoenix Convention Center.

The following chart presents a summary of actual operations (revenues and expenses) for the subject

from fiscal year, FY, 2013/14 through FY 2016/17. In addition, the projected operations for FY

2017/18 are shown.

Income Approach


The parking revenue streams have been fairly consistent with the exception of FY 2014/15, and

reflect the constant influence of the Phoenix Convention Center, across 2nd Street to the east, the

Hyatt Regency Hotel, across Adams Street to the north, and the nearby Talking Stick Arena and

Chase Field venues, with their annual sports seasons. This reflects on the strength of the subject

location as one of the better located parking garages in the DTC area.

The subject expenses have also been relatively consistent, ranging from $1,071 to $1,313 per space

for actual years, 2013/14 through 2016/17, with a 4-year average of $1,167 per space. They are

projected to be $1,447 for 2017-18, with significant increases in Miscellaneous Contracts and

Maintenance Work Orders (Repairs/Maintenance).

For the subject’s retail spaces, two are currently vacant, representing approximately 63.5% of the

total retail space in the subject property. Both are being planned for occupancy, with the smallest

Income Approach


space, 2nd Street, being planned for City of Phoenix, owner use, and the largest space, 125-131 E.

Adams Street being planned for a food service tenant use. In the past, these spaces were leased, with

the largest space having been occupied by the same restaurant for over 25 years up to 2012. This

lease will be 10 years, with the tenant planning to spend $529,600 in tenant improvements. Thus, it is

likely they will stay for the entire lease term, assuming the success of the business.

One of the other subject tenants, Steve’s Grill, has occupied their space since 1981, and has

reportedly planned to continue beyond the current lease expiration of December 31, 2017, exercising

the next 3year option.

For additional consideration, the appraisers reviewed the Co-Star Group, Downtown Phoenix Retail

Overview, 3rd Quarter 2017, which indicated an overall 12.6% vacancy rate. This was the same as a

year prior, but after an increase and then decrease in recent quarters. Co-Star projects a continued

drop into 2018, with a slight increases into 2019.

Finally, the retail leasing agents interviewed for this report all noted strong demand for well located

spaces, with restaurants being the primary users.

Therefore, the appraisers have estimated a long-term vacancy rate for the retail/restaurant portion of

the subject revenue of 15%. This allows for some downtime for the two retail spaces, both of which

currently provide no rental income to the property. As noted, ALAC, the tenant in the 147 E. Adams

Street suite, pays only $10 per year in rent.

Operating Expenses

Subject actual operating expenses have fluctuated between $541,827 and $664,324, or $1,071 and

$1,313 per space for the four actual years of data. The four- year average is $590,061, or $1,167 per

space. The biggest difference has been maintenance expenses. For the coming FY 2017/18 they are

projected at $731,958, or $1,447 per space, up from the four-year average with significant increases

in Miscellaneous Contracts and Maintenance Work Orders (Repairs/Maintenance).

Income Approach


It should be noted that according to April Truncellito, with the City of Phoenix, the expense category

Miscellaneous Contracts/Commodities includes items such as Property Insurance that are under a

master-policy for the City and assessed each property according to the City’s breakdown. Thus,

insurance will not be separately shown as an expense item.

It appears that subject expenses are in-line with the market, however, it should be pointed out that the

comparables can vary significantly based upon age, condition, and whether the buildings include

retail space, like the subject, that increases insurance and maintenance charges. Given this analysis

and the amount of historical data available for the subject it is reasonable to expect expenses to

continue along the same trend, and we have estimated the subject annual expenses at $1,450 per

space to reflect projected maintenance by the City, or $733,700 total.

In addition, because this appraisal is of the Market Value of the Leased Fee Interest, we have

estimated the real estate taxes for the subject at $210 per space, or $106,260, or the analysis.

Income Approach


Therefore, our estimate of the subject’s “stabilized” Net Operating Income< NOI, is as follows:

Direct Capitalization

Direct Capitalization

In direct capitalization, the rate or factor can be derived directly from market facts if they are

available. Direct capitalization does not specify a distinction between return on and return of capital,

nor does it explain value in terms of specific assumptions made by some lenders. Various techniques,

dependent upon the quantity and quality of data, are available. These include:

1. Derivation from comparable sales, asking prices 2. Band of investment - mortgage and equity components 3. Band of investment - land and building components 4. Debt coverage formula 5. Market surveys

Income Approach


Derivation from Sales

The preferred method of estimating an overall capitalization rate, OAR, is directly from the market

(i.e., comparable sales), simply because the rate selected to derive the value estimate must be market-

oriented. As noted, two of the improved sales in the Sales Comparison Approach provided overall

capitalization rates, as follows:

The range of OARs were from 6.20% to 7.75%. The most recent sale, No. 1, had the lowest rate,

6.20%. In the rate survey to follow, it will be noted that the overall capitalization rates for the

National Warehouse Market have declined by 34 basis points from the same quarter in 2015, about

the time of Sale No. 3. Thus, the range of the rates would be a little tighter, between 6.20% and

7.41%, adjusted. The listing agent for Sale No. 1, Todd Casper, CBRE, acknowledged that the sale

price was high due to the unique, protected location for the sale, with limited potential for

competition. Thus, a cap rate closer to the adjusted cap rate of No. 3 would be a more reasonable

conclusion. .

Band of Investment

A survey of mortgage lenders in Phoenix metro market reveals that commercial interest rates have

been relatively stable in the recent past. The loan-to-value ratio typically ranged from 65% to 70%,

and the interest rate range at the date of value would have been approximately 5.00% to 6.00%, and

the typical amortization period was 25 to 30 years with a 10-year call.

Equity rates can be estimated from alternative investments. For example, according to The Valuation

magazine published by the Appraisal Institute, August 2017, 3-month Treasury Bills had a yield of

1.08%, up from 1 year prior (0.30%), while 6-month Treasury Bills had a rate of 1.12%. These were

also up from 1 year prior, 0.39%. A 10-year US Bond averaged 2.27% and U.S. 30-year bonds had

an average return of 2.84%, both slight increases from the previous year. These are all relatively safe

investments and differ only in length of investment. By comparison, AAA Corporate Bonds had

Income Approach


average yields of 3.70%, and BAA Corporate Bonds, less secure, had average yields reported of

4.39%. A real estate investment is considered a risky investment by comparison, even more than a

BAA Corporate Bond. Given these indicators, and considering the subject’s strong location and mix

of uses, an equity rate above the upper end of the range is justified. We project an applicable equity

dividend rate of 8.0% for the subject.

Using the loan parameters previously described (5.50% interest, 30-year amortization, 65% LTV

ratio); the overall capitalization rate can be estimated as follows:

Mortgage Component Equity Component

65% 35%

x x

0.0681 0.0800

= =

0.0443 0.0280

Overall Rate Rounded

0.0723 7.23%

Surveys According to the PwC Real Estate Investor Survey, 2nd Quarter 2017, the overall capitalization rate

range for the National Warehouse Market (most similar in quality of construction and cost) was from

4.0% to 6.0% percent, averaging 5.22%. The average represented a decrease of 5 basis points from

the previous quarter, 1 basis point from one year ago and 34 basis points from 2 years ago. It should

be noted that these rates are for investor quality properties, which is considered slightly superior to

the subject in building quality. The Pacific Region Warehouse Market, which is more pertinent to the

subject location, had an average overall capitalization rate of 4.83% in the 2nd Quarter, 32 basis

points below one year prior.

Professional Opinions

As a final consideration, the opinions of the real estate professionals interviewed for this appraisal

report, including Todd Casper, CBRE, listing agent for Sale No. 1, and Keith Collins, CBRE, listing

agent for Sale No. 3, were sought. The general consensus was that the most typical range of overall

capitalization rates for average to good quality parking garages in good central business district

locations such as the subject, is from 6.50% to 7.50%, depending on the property and location, with a

probable rate for the subject around 7.00%.

Income Approach


Because the subject is a moderate size parking garage property with additional revenue from ground

floor retail space, estimated at Market Rents, we expect an appropriate stabilized overall cap rate to

be in the middle of the range shown by all of these sources, or 7.00%. This would be typical of

properties leased at perceived market rental rates, similar to the subject.

Therefore, considering all of this information, the indicated Prospective Market Value of the subject

property, as stabilized at market rents, by the Income Approach, is as follows:

Subject NOI $850,016 Divided by Ro 7.00% Estimated Market Value $12,143,086 Rounded $12,150,000

“As Is” Market Value

From the Prospective Market Value must be deducted the lost income for the lease up period to

stabilization. This includes the 2nd Street space, 1,100 square feet, the large restaurant space, 125-

131 E. Adams Street, 13,340 square feet, and the ALAC space, 147 E. Adams Street, 5,358 square

feet.

The lease for The Greenhouse Inc., dba Steve’s Grill, 139 E. Adams Street, 2,955 square feet, expires

on December 31, 2017. However, this tenant has been in the building for over 25 years, and thus

would reasonably be expected to renew their lease at the option rate through December 31, 2020. As

noted, the contract rent for this space is below the Market Rent by $7.42 per square foot per year.

Thus, over the remaining 3 years and 3 months of the lease, the loss in revenue is estimated at

$71,260 ($7.42/SF X 2,955 SF X 3.25 Yrs.). This will be deducted at the end of the analysis.

For the analysis, the appraisers have estimated a 2-year period to lease up the two vacant, and one

occupied but non-revenue, spaces at market rates. This is based upon our research and discussions

with retail leasing agents in the subject DTC area, and considers the subject’s strong location across

2nd Street from the Phoenix Convention Center and across Adams Street from the Hyatt Regency

Hotel.

Income Approach


The analysis assumes a 15% stabilized vacancy rate for this retail space, and with 22,753 square feet

of retail space total, the occupied space will be 19,340 square feet. Of this, 2,955 square feet is

already occupied by Steve’s Grill, leaving 16,385 square feet to lease.

For the analysis, the blended Market Rent for the remaining vacant subject space, $18.12 per square

foot, is utilized and an average absorption of 3,277 square feet per quarter is utilized, (5 quarters of

lease up with 1 quarter of free rent allowed at the beginning of each lease). The blended rent and

average absorption consider the fact the fact that the appraisers cannot estimate which space will

lease first, but assumed that over the 6 quarter period, all of the space will be leased, and 1 quarter of

free rent allowed. The analysis also assumes leasing commissions of 5% of the base 5-year lease,

and tenant improvements, TIs, of $5.00 per square foot for the smaller suites and $10.00 per square

foot for the larger space. This blends to $8.40 per square foot overall. The analysis is as follows:

This totals approximately $650,000 in lost income and other expenses to reach a “stabilized”

occupancy. In addition, the lost rent for The Greenhouse Inc. is estimated at $71,260. Thus, the

total lost revenue estimated for the subject is $720,000, rounded ($650,000 + $71,260).

Income Approach


This is deducted from the estimated Prospective Market Value to arrive at an “As Is” Market Value of

$11,450,000, rounded ($12,150,000 - $720,000).

Reconciliation and Final Value Analysis


RECONCILIATION AND FINAL VALUE ESTIMATE

Final reconciliation is defined as "the application of the process of evaluating alternative conclusions

and selecting from the indications of value derived from each approach utilized in the appraisal

problem to arrive at a final estimate of value. The appraiser weighs the relative significance,

applicability and defensibility of the indication of value derived from each approach and places the

most weight and reliance on the one, which, in their professional judgment, best approximates the

value defined. The appraiser reconciles the facts, trends, and observations developed in the analysis

and review the conclusions and the probable validity and reliability of those conclusions."5

The following summarizes the Market Values “as is” by the individual approaches in the previous

sections of the report.

Market Value “As Is”

Value Indication by the Cost Approach: $12,350,000

Value Indication by Sales Comparison Approach: $11,450,000

Value Indication by the Income Approach: $11,450,000

In most instances, depending upon the type of property appraised or the purpose of the appraisal, one

of the approaches may carry more weight or be more reliable for a final value estimate of the subject

property than the others. As noted, all three approaches have been applied in this appraisal report,

however, the market emphasizes an economic-based analysis, such as that in the Income Approach..

The Cost Approach is not given significant consideration by the market other than to confirm that

the replacement cost of a property is more than the purchase price. Therefore, the Cost Approach

was not emphasized in this analysis. In fact, the value indication by the Cost Approach is only 7.9%

above the indications by the other two approaches, being a reasonable variance.

The Sales Comparison Approach utilized the price per parking space method for the “As Is” Market

Value indication. The premise of the Sales Comparison Approach is based upon the comparability

of the sales found and utilized. In the case of the subject property, there were only 3 comparable

sales located in the past 2 years that were reasonably similar in property type, being free-standing,

5Boyce, op. cit., p. 103.

Reconciliation and Final Value Analysis


non-affiliated parking garages similar to the subject in quality and utility and located in major city

core areas. In addition, obtaining full revenue and expense information on sales is very difficult,

thus requiring a physical comparison analysis. Thus, this approach was also given less emphasis and

utilized as a check on the Income Approach indication.

The Income Approach is a method wherein the future anticipated income is capitalized into a present

worth value estimate. The premise underlying this approach is the principle of anticipation. The

value under this approach clearly defines future benefits and identifies typical investor requirements.

We have used only Direct Capitalization in developing this approach. Direct Capitalization is used to

convert an estimate of a single year's income expectancy into an indication of value in one direct step.

Direct capitalization is typically utilized for "stabilized" scenarios because of the use of the single

year's income expectancy.

The subject is a free-standing parking garage building with some ground-floor retail space, and this

property type is typically considered an investment property. Therefore, the estimated value by this

method was given primary emphasis for the “As Is” Market Value analysis.

Thus, it is our opinion the Market Value, “As Is”, of the Leased Fee Interest in the subject property,

as of the date of value, was as follows:

ELEVEN MILLION FOUR HUNDRED FIFTY THOUSAND DOLLARS

$11,450,000

Marketing/Exposure Time


MARKETING/EXPOSURE TIME

None of the improved sales within the Sales Comparison Approach provided formal marketing

times, but market participants interviewed for this assignment agree that well located parking garage

properties should be able to sell in less than 12 months at a market asking price. In conclusion, the

exposure time applicable to this valuation is estimated to be less than 12 months at the Market Value

indication herein. It should be recognized that the exposure period does not include the due

diligence and financing periods (typically from 30 to 90 days) associated with commercial sales.

Certification


CERTIFICATION We certify that, to the best of our knowledge and belief that, except as otherwise noted in this

appraisal report of the following property:

THE REGENCY GARAGE BUILDING LOCATED AT

109-151 EAST ADAMS STREET, PHOENIX, ARIZONA 85004

We certify that, to the best of our knowledge and belief:

-- the statements of fact contained in this report are true and correct. -- the reported analyses, opinions, and conclusions are limited only by the reported assumptions

and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions.

-- 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. -- we have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. -- our engagement in this assignment was not contingent upon developing or reporting

predetermined results. -- 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.

-- the appraisal assignment was not based on a requested minimum valuation, a specific valuation,

or the approval of a loan. -- our analyses, opinions, and conclusions were developed, and this report has been prepared, in

conformity with the Uniform Standards of Professional Appraisal Practice. -- the undersigned has made a personal inspection of the property that is the subject of this report. -- Stephen L. Mastorakos provided significant real property appraisal assistance to the person

signing this certification in the form of research, comparable confirmation and report preparation.

-- to the best of our knowledge and belief, the reported analyses, opinions and conclusions were

developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

Certification


-- the use of this report is subject to the requirements of the Appraisal Institute relating to review

by its duly authorized representatives. -- as of the date of this report Albert Nava MAI SGA has completed the requirements of the

continuing education program for Designated Members of the Appraisal Institute. -- Albert Nava, MAI SGA has the knowledge and experience to competently appraise the property

that is the subject of this report. -- we have performed no services, as appraisers or in any other capacity, regarding the property

that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

An exposure period of 12 months or less is estimated to attain the market value conclusions

indicated in this report.

Respectfully submitted, BREKAN NAVA ALLEN GROUP

Albert Nava, MAI, SGA President Arizona Certified General Real Estate Appraiser No 30806

Contingent and Limiting Conditions


CONTINGENT AND LIMITING CONDITIONS This appraisal is subject to the following limiting conditions: The legal description furnished our firm is assumed to be correct. We assume no responsibility for matters legal in character nor render any opinion as to the title, which is assumed to be good. The property has been appraised as if under responsible ownership and competent management. We have made no survey and assume no responsibility in connection with such matters. The firm believes that the information contained in this report is reliable but assumes no responsibility for its accuracy. The construction and condition of the improvements mentioned in the body of this report are based on observation, and no engineering study has been made which would discover any latent defects. No certification as to any of the physical aspects could be given unless a property engineering study was made. Neither all nor any part of the contents of this report will be conveyed to the public through advertising, public relations, news, sales, or other media without the written consent and approval of the author, particularly as to valuation conclusions, the identity of the appraiser or firm with which he is connected or any reference to the Appraisal Institute or the MAI designation. The valuation estimates contained herein apply as of the date of this appraisal only. The distribution of the total valuation between land and improvements in this report applies only under the existing program of utilization. The separate valuations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. The fee is in no way contingent upon the completion or consummation of any project or matter beyond the control of the appraiser. The contract for appraisal, consultation or analytical services, are fulfilled and the total fee payable upon completion of the report. The appraiser(s) or those assisting in preparation of the report will not be asked or required to give testimony in court or hearing because of having made the appraisal, in full or in part, nor engage in post appraisal consultation with client or third parties except under separate and special arrangement and at additional fee. The acceptance of said constitutes the acceptance of this contingency unless otherwise arranged for. The appraiser has inspected the subject property with the due diligence expected of a professional real estate appraiser. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. The appraiser's descriptions and resulting comments are the result of the routine observations made during the appraisal process.

Contingent and Limiting Conditions


The terms of our engagement are such that we have no obligation to revise this report or the estimated operating results to reflect conditions, which occur subsequent to completion of our assignment. However, we are available to discuss the necessity for revision in view of changes in market and economic factors. As in studies of this type, we assume no significant change in market or economic conditions, legal, or regulatory issues applicable to this project. Further, we have not been engaged to evaluate the effectiveness of management, and are not responsible for future marketing efforts and other management actions upon which actual results will depend. Possession of the report does not carry with it the right of publication without the previous written consent of the appraisers. Additionally, neither the identification of the appraisers nor any of the material contained in this Report may be included in any prospectus, newspaper publicity or advertising or as a part of any printed material, or used in offerings or representations in connection with the sale of securities of participating interest to the public. Neither all nor any part of the contents of this report shall be used for any purpose by anyone but the addressee without the previous written consent of the appraisers nor shall it be conveyed by anyone, including the addressee to the public through advertising, public relations, news, sales or other media without the express written consent and approval of the authors, particularly as to valuation conclusions, the identity of the appraisers or any reference to any professional society or institute or any initialed designations conferred upon the appraisers. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraisers have not made a specific compliance survey and analysis of the subject property to determine whether it is in conformity with the various detailed requirements of ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of ADA 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 the appraisers have no direct evidence relating to this issue, possible non-compliance with the requirements of ADA was not considered in estimating the value of the property. Extraordinary Assumption The “As Is” Market Value assumes that the subject site and improvement size, as reported in public records and utilized in this report is accurate. The improvement gross building area was taken from public records and information from the client and assumed to be correct. It should be noted that the use of this Extraordinary Assumption may affect the results and value conclusions of this appraisal assignment.

Qualifications


QUALIFICATIONS OF ALBERT NAVA, MAI, SGA

Arizona Certified General Real Estate Appraiser No. 30806

Nevada Certified General Real Estate Appraiser No. A.0206866-CG California Certified General Real Estate Appraiser No. 3004725

EXPERIENCE Brekan Nava Allen Group, formerly Ralph J. Brekan & Co., Inc. (1995 to present) Partner & President

Bach Thoreen McDermott Incorporated (November 1992 - February 1995) Senior Consultant

Robert B. Jones & Company (1981 - November 1992) (1989-November 1992) Vice President and Valuation Department Head. Managed the daily activities of Robert B. Jones & Co., including both valuation and administrative departments answering directly to company president. (1986-1989) Valuation Department Head. Managed the daily activities of the valuation department including the scheduling of work in-progress, supervision of staff appraisers, and review of company work product. (1982-1986) Senior Associate. (1981-1982) Staff Associate. Appraisal responsibilities included appraisal of high-rise and suburban office buildings, shopping centers, industrial properties, apartments, hotels, recreational and special purpose properties, vacant land, subdivisions, market and feasibility studies, highest and best use studies.

State National Bank of El Paso (1977 - 1981)

Corporate Officer - Staff Appraiser; Real Estate and Construction Lending Division

PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Phoenix Chapter (2006 President) Appraisal Institute, Experience Subcommittee Appraisal Institute, Admissions Committee Appraisal Institute, Ethics and Review Committee Society of Golf Appraisers (SGA) Certification: Currently certified in the Appraisal Institute's program of continuing education for its

designated members (MAIs who meet minimum standards of this program are awarded periodic educational certification)

Certified General Real Property Appraiser in the State of Arizona Certified General Real Property Appraiser in the State of Nevada

EDUCATION University of Texas at El Paso, 1977; B.B.A. with emphasis on accounting INSTRUCTOR Various seminars for local taxing authorities and internal seminars for the Appraisal Institute.

Qualifications


SCOPE OF WORK Sample of appraisal and consulting assignments completed: Land: All types of residential, multifamily, commercial, industrial, including mixed-use

developments, SFR subdivisions. Residential: Multifamily apartments and condominiums, congregate care facilities, Section 42

(LIHTC) affordable housing, Section 8 housing, public housing Commercial: Retail centers (strip, neighborhood, community, regional), low-rise to high-rise office

(50+stories), restaurants, hotels Industrial: Various warehouse, distribution, manufacturing, flex, mini-storage, R&D facilities Special Purpose: Golf courses and country clubs, marinas, health care facilities (including skilled nursing),

underground bomb shelter, steel fabrication plant, religious facilities CONTINUING EDUCATION Numerous seminars, courses, and classes regularly taken to maintain continuing

education credits for all state certifications and AI certification.

A D D E N D A

EXHIBIT A APPRAISER CERTIFICATION

a narrative appraisal report of the regency garage ... garage - f… · phoenix, arizona 85004 date...

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