Summary Appraisal Report John Thomas Building
325 E. 3rd Avenue
Anchorage, Alaska 99501
FOR Report Date Municipality of Anchorage August 14, 2012 Real Estate Department
4700 Elmore Road Effective Date of Value Anchorage, Alaska 99507 July 31, 2012
FILE #12-070
BY
Ryan McGillivray, Appraiser
Brian Bethard, MAI
BLACK-SMITH, BETHARD & CARLSON, LLC 1199 E. Dimond Boulevard, Suite #200
Anchorage, Alaska 99515
Black-Smith, Bethard & Carlson, LLC 1
PART I - INTRODUCTION
Black-Smith, Bethard & Carlson, LLC 2
August 14, 2012
Client: Municipality of Anchorage
Real Estate Department
4700 Elmore Road
Anchorage, Alaska 99507
Attn: Allison Smith
Re: John Thomas Building
325 E. 3rd Avenue
Anchorage, Alaska 99501
Dear Ms. Smith:
We are submitting a Summary Appraisal Report estimating the market value of the fee simple and leased fee interest in the property identified above. Our opinions of the as-is
value, as of July 31, 2012 (the date of inspection), are as follows:
‘As-Is’ Fee Simple Market Value $1,650,000
‘As-Is’ Leased Fee Market Value $1,492,000
The value conclusion does not consider any enhancement from a possible 10 year tax
exemption and 5 year tax deferral on the property. The value opinion is stated in terms of
cash. The market exposure period (looking backward) and the marketing time (looking
forward) are both estimated at six months to one year.
The report is intended to comply with the reporting requirements set forth under Standards
Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary
Appraisal Report. As such, it presents only summary discussions of the data, reasoning,
and analyses that were used to develop the appraiser’s opinion of value. Supporting
documentation concerning the data, reasoning, and analyses is retained in the appraiser’s
file. The depth of discussion contained in this report is specific to the client's intended use.
The value opinions reported are qualified by certain definitions, assumptions, limiting
conditions, and certifications.
This narrative appraisal report conforms to and satisfies the requirements of USPAP and
Volume 12, Code of Federal Regulations, Part 34, Subpart C. A copy of the appraisal
instructions is contained in the Addenda.
Sincerely,
BLACK-SMITH, BETHARD & CARLSON, LLC
Brian Z. Bethard, MAI Ryan T, McGillivray, Appraiser
BLACK-SMITH, BETHARD & CARLSON, LLC
Appraisers 1199 E Dimond Blvd Ste #200
Anchorage, Alaska 99515
Phone: 907-274-4654
Fax: 907-274-0889
E-mail: [email protected]
Black-Smith, Bethard & Carlson, LLC 3
General Real Estate Appraiser (Cert. # 281)
Black-Smith, Bethard & Carlson, LLC 4
Table of Contents PART I - INTRODUCTION ......................................................................................................... 1 CERTIFICATION ....................................................................................................................... 5 EXECUTIVE SUMMARY ........................................................................................................... 6 SUBJECT PHOTOS................................................................................................................... 7 PART II – PREMISES OF THE APPRAISAL ............................................................................11 IDENTIFICATION OF THE PROPERTIES ................................................................................12 NATURE OF THE ASSIGNMENT .............................................................................................13 SCOPE OF WORK ...................................................................................................................14 EXTRAORDINARY ASSUMPTIONS AND HYPOTHETICAL CONDITIONS .............................15 PART III - PRESENTATION OF DATA .....................................................................................16 AREA OVERVIEW ....................................................................................................................17 NEIGHBORHOOD DESCRIPTION ...........................................................................................19 SITE DESCRIPTION.................................................................................................................21 IMPROVEMENT DESCRIPTION ..............................................................................................23 REAL ESTATE TAXES AND ASSESSMENTS .........................................................................29 PART IV – ANALYSIS OF DATA AND CONCLUSIONS ...........................................................30 MARKET ANALYSIS – SUMMARY REPORT ...........................................................................31 HIGHEST AND BEST USE .......................................................................................................34 COST APPROACH ...................................................................................................................36 SALES COMPARISON APPROACH ........................................................................................37 INCOME APPROACH ...............................................................................................................41 RECONCILIATION AND CONCLUSION ...................................................................................47
Addenda Engagement letter to Appraisers
Qualifications of Appraisers
Assumptions and Limiting Conditions
Black-Smith, Bethard & Carlson, LLC 5
Certification The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, 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. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. Brian Z. Bethard and Ryan T. McGillivray have made a personal inspection of the property that is the subject of this report. No one provided significant real property appraisal assistance to the persons signing this 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 I, Brian Bethard, MAI, have completed the continuing education program of the Appraisal Institute. Brian Z. Bethard, MAI is currently certified by the State of Alaska as a General Real Estate Appraiser (Certificate No. 281). Brian Z. Bethard and Ryan T. McGillivray have the appropriate knowledge and experience necessary to complete this appraisal assignment competently. We have performed services as an appraiser regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. See Scope of Work. Dated this 8
th day of August, 2012.
Brian Z. Bethard, MAI Ryan T. McGillivray, Appraiser
General Real Estate Appraiser (Cert. # 281)
Black-Smith, Bethard & Carlson, LLC 6
Executive Summary
Property Appraised
Lot 11A, Block 37B is improved with a 14,696 SF, 4-story, concrete block, office building
constructed in 1968 that is in average-condition. The street address is 325 E. 3rd Avenue,
Anchorage, Alaska, 99501.
Lots 9 and 10, Block 37B are vacant parking lots used as parking for the improvement on
Lot 11A. As an assemblage the site covers 28,000 SF.
Street
Address Legal
Description Tax ID #
Size
325 E. 3rd
Ave Lot 11A, Block 37B, East Addition Subdivision 002-083-30 14,000 SF
325 E. 3rd
Ave Lot 10, Block 37B, East Addition Subdivision 002-083-32 7,000 SF
225 Cordova St Lot 9, Block 37B, East Addition Subdivision 002-083-33 7,000 SF
Total Area 28,000 SF
Ownership of all properties reportedly vests with the Municipality of Anchorage; Real
Estate Services, per MOA records.
Property Rights Appraised: As-Is Market value of the Fee Simple and Leased Fee Interests
Date of Appraisal: August 14, 2012
Date of Valuation (date of inspection): July 31, 2012
Highest & Best Use: As Vacant: Owner-user development or hold for speculation As Improved: ‘As-Is’
Summary of Value Indicators
Cost Approach N/A Sales Approach $1,764,000 Income Approach $1,546,000
Final Value Conclusion
The final value conclusion is presented as follows:
Description Date Value
Fee Simple Market Value July 31, 2012 $1,650,000
Leased Fee Market Value July 31, 2012 $1,492,000
Black-Smith, Bethard & Carlson, LLC 7
Subject Photos
View of the subject from corner of Cordova
Street and E.3rd.
Looking easterly from the parking lot.
Looking northwest at the rear of the
subject.
Looking northwest at the rear of the
subject.
Street scene looking east on E. 3rd Avenue. Street scene looking west on E. 3rd
Avenue.
Black-Smith, Bethard & Carlson, LLC 8
Subject Photos
Looking south at the western portion of
the parking lot.
Looking southeast at the parking lot.
View of the entrance and minor deferred
maintenance (paint).
First floor lobby.
First floor lobby. First floor conference room.
Black-Smith, Bethard & Carlson, LLC 9
Subject Photos
First floor office space. First floor office space.
View of the elevator mechanical room. View of the second floor hallway.
Typical office space (second floor). Typical restroom (second floor).
Black-Smith, Bethard & Carlson, LLC 10
Subject Photos
Second floor conference room. Third floor hallway.
Typical office (third floor). Fourth floor hallway.
Typical office (fourth floor). Looking at the roof.
Black-Smith, Bethard & Carlson, LLC 11
PART II – PREMISES OF THE APPRAISAL
Black-Smith, Bethard & Carlson, LLC 12
Identification of the Properties
Properties Appraised
According to our on-site inspection, Lot 11A, Block 37B is improved with a 14,696 SF,
average-quality, concrete block, 4-story office building constructed in 1968. The street
address is 325 E. 3rd Avenue, Anchorage, Alaska, 99501.
Lots 9 and 10, Block 37B are vacant parking lots used for the improvement on Lot 11A.
Legal Description
Lot 9, Block 37B, East Addition Subdivision
Lot 10, Block 37B, East Addition Subdivision
Lot 11A, Block 37B, East Addition Subdivision
Ownership
Ownership of the properties reportedly vests with the Municipality of Anchorage; Real
Estate Services, per MOA records.
Property History
There have been no sales of the subject within the three years preceding the date of
valuation.
N
Lot 9
Lot 10 SUBJECT
Lot 11A
Black-Smith, Bethard & Carlson, LLC 13
Nature of the Assignment Client
Municipality of Anchorage
Real Estate Department
4700 Elmore Road
Anchorage, Alaska 99507
Attn: Allison Smith
Purpose of the Appraisal and Property Rights Appraised
The purpose of this appraisal is to estimate the as-is market value1 of the fee simple2 interest and leased fee estate3 as of July 31, 2012 (the date of inspection). Effective Date of Value
July 31, 2012, the date of inspection
Report Date
August 14, 2012
Intended Use of the Appraisal/Intended Users
The intended use is for asset evaluation in preparation for a potential sale of the property.
The intended users include the client (MOA; Real Estate Department), and other municipal
agencies that may participate in the potential sale.
1 "The most probable price, which a property should bring in a competitive and open market under all conditions requisite to a fair
sale, the buyer and seller, each acting prudently, and knowledgeably, and assuming the price is not affected by undue stimulus.
Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under
conditions whereby:
1) Buyer and seller are typically motivated;
2) Both parties are well informed or well advised, and both acting in what they consider their own best
interest;
3) A reasonable time is allowed for exposure in the open market;
4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto;
and
5) The price represents the normal consideration for the property sold unaffected by special or creative financing or
sales concessions granted by anyone associated with the sale.
Office of the Comptroller of the Currency under 12 CFR,
Part 34, Subpart C-Appraisals, 34.43 Definitions [f].
2 Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers
of taxation, eminent domain, police power, and escheat. Appraisal Institute 1993; Dictionary of Real Estate Appraisal
3 “An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease” Appraisal Institute 1993; Dictionary of Real Estate Appraisal
Black-Smith, Bethard & Carlson, LLC 14
Scope of Work Property Data
Brian Bethard and Ryan McGillivray inspected the subject on July 31, 2012 with the
property contact David Grubbs. The building was also inspected and measured by Brian
Bethard and Ryan McGillivray for a prior appraisal assignment (BSBC #07-060). We
reconstructed the gross building area (GBA) based on the owners input, records/sketches
from the MOA assessor and our inspection. Plat/grid maps and zoning maps/regulations
were obtained from MOA. All requested information that was available was provided.
Prior Appraisal
Black-Smith, Bethard & Carlson previously appraised the subject for the Municipality of
Anchorage on November 5, 2009. The purpose of the appraisal was to estimate the as-is market value of the fee simple interest on October 27, 2009, the date of inspection (BSBC
#09-102). Prior to this, we appraised the subject on May 21, 2007 (BSBC #07-060) for the
same purpose. Area Data
In order to identify significant trends and indicators, we spoke with local property owners,
real estate agents and appraisers. We obtained a community profile from the State of
Alaska Department of Community and Regional Affairs. We also reviewed various
publications, reports, and surveys including Alaska Economic Trends, Alaska Business Monthly, and the Alaska Journal of Commerce.
Market Data
Alaska is a non-disclosure state. Comparable data was obtained by searching the local
multiple listing service records, surveying real estate agents/brokers, property managers,
and other appraisers. Market data was confirmed with the property owners, managers, or
agents.
Market Analyses
The Appraisal Institute recognizes two categories of market analysis: inferred and fundamental. Because the subject is a conventional property type in a stable market, a
lower level of analysis is appropriate. For the purposes of this appraisal, demand is
inferred from general market conditions and the available data. Valuation
All three approaches to value have been considered. The sales comparison and income
approaches are fully developed and are utilized to estimate the value of the subject
property. The subject improvement is over 40 years old and the cost approach does not
provide a meaningful indicator of value. Therefore, the cost approach is omitted. As
required by USPAP the omission is explained.
Value indicators by the sales comparison and income approaches are reconciled into a final
opinion of value for the improved site including the parking lot. This summary appraisal report is a brief recapitulation of the appraiser's data, analyses and conclusions.
Supporting documentation is retained in the appraiser's file.
Black-Smith, Bethard & Carlson, LLC 15
Extraordinary Assumptions and Hypothetical Conditions General assumptions and limiting conditions are contained in the addenda of the report.
Extraordinary assumptions4 and hypothetical conditions5 are summarized as follows:
We developed our appraisal according to the extraordinary assumption that all
electrical, plumbing and mechanical systems are in good working order, with an
exception of the elevator as mentioned above.
The Anchorage Assembly amended and approved a resolution conditionally granting
a 10-year real property tax exemption and a 5-year tax deferral consecutive to the
immediate neighborhood in which the subject is located [AR No. 2009-126(s)],
subject to a public site plan review. It is an extraordinary assumption of this report
that the property will be taxed as normal. If a site plan review is provided that
guarantees the subjects tax exemption status, we retain the right to amend this
report. The value increase would be the present value of the tax savings.
The subject was renovated in 1993/95 with CDBG funds that may require
reimbursement to HUD if the property is sold or the use is altered. We have not
considered any reimbursement in this appraisal. It is an extraordinary assumption
that the subject is unencumbered.
We developed our opinion of value according to the extraordinary assumption
that the sites and improvements are not affected by environmental issues.
4 "An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or
conclusions." Uniform Standards of Professional Practice.
5 "That which is contrary to what exists, but is supposed for the purpose of analysis." Uniform Standards of Professional Practice.
Black-Smith, Bethard & Carlson, LLC 16
PART III - PRESENTATION OF DATA
Black-Smith, Bethard & Carlson, LLC 17
Area Overview
ALASKA6
Alaska gained jobs for the second consecutive year in 2011 after ripple effects from the
national and global recession ended the state’s 21-year growth streak in 2009. (See Exhibits
1 and 2.) More growth is forecasted for Alaska in 2012 — a modest increase of 1.2 percent,
or 3,900 jobs — but neither the global nor U.S. economies are on clear recovery paths yet,
and that will dampen the Alaska outlook in the coming year.
Job growth in 2011 was widespread but not
particularly strong, with the exception of
health care. Only construction and financial
activities recorded losses, and in both cases,
they were small. A number of other sectors
merely sustained their job counts, including
professional and business services and state
and federal government.
With a few minor changes, the same pattern
is forecasted to continue through 2012: small
but important gains across most of the
economy as the state’s economic drivers
remain guardedly healthy.
6 Alaska Economic Trends January 2012
Black-Smith, Bethard & Carlson, LLC 18
ANCHORAGE
Anchorage is Alaska’s largest city. It is a
strategic hub for the state’s
transportation industry and the center of
commerce. Oil and gas industries,
finance and real estate, communications,
and government agencies are also
headquartered in Anchorage. The State
of Alaska Department of Labor reported
the 2010 population of Anchorage at
291,826. The total for the nearby
Matanuska-Susitna Borough (MSB; a/k/a
the Valley) was 88,995.
Like the rest of the state, the region is heavily dependent on the oil industry and
government spending. However; the Anchorage economy has become more diversified in
recent years. The Anchorage Economic Development Corporation 2011 mid-year forecast
predicted modest growth. "Alaska and Anchorage are still in a position of relative economic
strength," say the authors, despite weaker economic indicators for the nation as a whole.
January 2012 Outlook7
Employment in Anchorage dipped slightly in
2009, but quickly resumed growing in 2010.
By early 2011, the city had recouped all its
losses and employment reached record levels.
All signs point to another year of growth for
Anchorage — and right now, there are few
potentially course-altering economic events on
the horizon. The city’s economy is forecasted
to grow by 1,000 jobs in 2012, or 0.6 percent
— close to the 10-year annual average growth
rate of 1 percent. (See Exhibit 4.)
The forecasts for individual industries are
mixed, with construction employment
expected to decline for the sixth year in a row and health care likely to be the big winner
again. Record oil prices, generally high commodity prices, and a recovering visitor industry
are also anticipated in 2012. (See Exhibit 5.) Declining oil production and massive federal
cuts loom in the near future, however, and both are already hampering economic growth.
By 2013, planned federal budget cuts are likely to take center stage.
7 Alaska Economic Trends January 2012
Black-Smith, Bethard & Carlson, LLC 19
Neighborhood Description
GENERAL NEIGHBORHOOD – Central Business District (CBD)
Infrastructure: Good commuter linkages; public utilities including gas, electricity,
water/sewer. Land Use: Mixed, few residences, low-rise and multi-story offices, parking
garages, hotel, retail shopping malls and department stores typical
of commercial business districts. % Developed: 95%; many sites are underutilized with aged improvements that
have limited remaining economic lives. Redevelopment is evident.
Neighborhood Cycle: Stability / Renewal Externalities: No significant negative externalities noted. The CBD has been a
focal point for private and public investment over the past decade.
Suitability: The neighborhood is suitable for developers and investors.
SUBJECT
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IMMEDIATE NEIGBORHOOD – Cordova Street and E. 3rd Avenue
Location: The immediate neighborhood is located at the northeast
fringe of the downtown core.
Land Use: Parking, hotel, office, museum, government
% Developed: 95%
Neighborhood Cycle: Growth
Externalities: No significant negative externalities noted. The quality and
condition of development deteriorates east of the subject.
Suitability: Suitable for developers and investors
SUBJECT
SUBJECT
Black-Smith, Bethard & Carlson, LLC 21
Site Description Location
The subject property is located on the
northeast corner of Cordova Street and E. 3rd
Avenue. The subject street address is 325 E.
3rd Avenue Anchorage, Alaska 99501.
Site Area/Dimensions
According to Plat Map 72-129, dimensions for
lots 9 and 10 are each 50’×140’ while lot 11A
dimensions are 100’×140’ they are all
rectangular in shape.
Lot Size
002-083-33 Lot 9 Block 37B 7,000 SF
002-083-32 Lot 10 Block 37B 7,000 SF
002-083-30 Lot 11A Block 37B 14,000 SF
Total Area 28,000 SF
PLAT MAP NO. 72-129
Access
The subject fronts E. 3rd Avenue and Cordova Street with direct access from Cordova. To
the north, the subject has paved access on E. 2nd Court. East 2nd Court comes to a dead end
1 block east of the subject and has features more typical of an alleyway. Cordova Street is a
two-way, asphalt paved street traveling north-south in Anchorage. East 3rd Avenue is a
two-lane, asphalt paved, one-way street traveling westbound into Anchorage’s CBD. The
streets are typical of a downtown area with curbs, gutters, sidewalks and streetlights. The
site has roughly 200’ of frontage on East 3rd Avenue and 140’ of frontage on Cordova Street. Utilities
Public services include water, sewer, electricity, natural gas and telephone.
Topography, Soils and Flood Hazard
The subject is level and slightly above grade with Cordova on the northwest corner and the
alley way to the north. The subject is at grade with E. 3rd Avenue. It is located outside
designated wetlands8 and floodplains.9 As prepared, the soils are considered to be adequate
to support existing improvements. Seismic Information
According to the Harding-Lawson Associates 1979 "Geotechnical Hazard Assessment
Study" the subject is described as having “high to very high ground failure susceptibility”.
Much of downtown Anchorage is also located in highly seismic areas, but the market has
not demonstrated resistance or any discounting of prices. We are not qualified to ascertain
the structural stability of the soils. If the seismic classification of the site is a major
concern, we suggest that an analysis is obtained from an expert in this field. We have
assumed no negative impact on value.
8 2008 MOA Wetlands Map #9
9 FEMA Flood Insurance Rate Map Panel 235 of 625 Community-Panel Number 020005-0235, March 5, 1990
Black-Smith, Bethard & Carlson, LLC 22
MOA Grid Map SW 1231
Easements
We were not provided with a
title report. We are not aware
of any easements or private
restrictions that limit utility.
According to MOA Grid Map
SW1231 and Plat Map No. 72-
129 there is a 10’×80’ water
easement running along the
eastern edge of lot 11A.
Zoning
The subject is zoned R-O, This
district includes urban and
suburban residential and
professional office uses in
areas undergoing a transition,
or in areas where commercial uses might be damaging to established residential
neighborhoods. The R-O district also provides a mix of low- to medium-density residential
uses with certain specified business, personal and professional services that can function
efficiently without generating large volumes of traffic. This district is governed by
section 21.40.120 of the municipal code. Environmental Issues
We are not aware of any environmental issues affecting the properties. Our value opinion
is developed according to the extraordinary assumption that the parcel is environmentally
clean. Suitability
The site is well located and has adequate access and exposure for an office building. The
existing improvement represents a use that conforms to the public restrictions of zoning
and is compatible with the surrounding neighborhood.
Black-Smith, Bethard & Carlson, LLC 23
Improvement Description Lot 11A Block 37B, East Addition Subdivision
325 E. 3rd Avenue improved with an average-quality, 4-story, concrete block office building
constructed in 1968.
Below is a brief description and general summary of the building specifications.
KEY INDICATORS
Gross Building Area 14,696 SF* Floor GBA per floor Rentable Area
1 3,686 SF 3,298 SF 2 3,670 SF 3,282 SF 3 3,670 SF 3,282 SF 4 3,670 SF 3,282 SF
Total 14,696 SF 13,144 SF
Rentable Area (GBA –stairs & elevator shaft) 13,144 SF Efficiency- Rentable 89% Year Built 1968 Effective Age ±35 Yrs Remaining Life (economic) ±15-20 Yrs First Floor-Footprint 3,686 SF Site Area – Improved Site (excludes parking area) 14,000 SF Parking Area (Lot 9 &10) 14,000 SF Site Area – Building & Parking Area 28,000 SF Site Coverage (Footprint/Total Site) ±13% Site Coverage (Footprint/Improved Site ) ±26% Land to GBA Ratio (Entire Site) 1.91 : 1 Land to GBA Ratio (Excluding Parking Area ) 0.96 : 1 *Based on our on-site measurements and plans provided.
General construction specifications, based on our inspection and the data provided, are
summarized below: Foundation
The foundation is concrete. Exterior Walls
The exterior walls are concrete block with wood siding accents. The exterior walls have
yard lights mounted around the north and west parking areas and entrances to the
building. During the inspection we noticed paint pealing on the awning over the front
entrance. This is a slight cosmetic maintenance item and we have not made a specific
adjustment for deferred maintenance.
Roof
The roof is a flat, built-up/hot mopped roof. We were able to access the roof on our
inspection. We are aware that the roof was completely resurfaced in 2003. This was a
complete re-roof down to the decking with new vapor barrier. We are not aware of any
leaks or problems with the roof. The appraisal is developed according to the
extraordinary assumption that the roof is in good functional condition.
Black-Smith, Bethard & Carlson, LLC 24
Interior Finish/Layout
The subject is a typical Class C/B office building for the Anchorage market. It is older and
the interior finish is in average, but dated, condition.
The first level has a small entrance lobby with limited common areas for restrooms and
elevators. The primary entrance doors are located on the west side of the building. A
second entrance is located on the south side of the building. The north end of the first floor
has a conference room and full kitchen. The south side of the first floor is mainly office
space. A common elevator servicing all floors is in the approximate center of the building.
These floors are also accessible from two stairwells; one stairwell is adjacent to the elevator
and the other is on the south side of the building near the south entrance. On opposite
sides of elevator are the men’s and women’s restrooms. Both have two lavatories and sinks
while the men’s room has an additional urinal. The first floor layout is not ideal with
limited common area and extensive partitioning to the office areas.
Floors 2-4 are typical office areas that have common interior hallways providing access to
the various offices and rooms on each floor. There are handicap accessible men’s and
women’s 2-fixture restrooms on floors 2-4.
The second floor has a large conference room and kitchen area on the west side of the
building. The kitchen features a refrigerator, stove, sink and minimal cabinetry that
appear to be in average, functioning condition. The rest of the second floor is office space
that is in average but dated condition.
The third and fourth floors of the building are office space and they are in a condition
consistent with the rest of the building. The flooring is all commercial grade carpet in
average condition. The walls all have sheetrock and are painted in an average condition.
Doors and frames are metal while windows are wood framed. The ceiling is dropped tile
and the fluorescent lighting provided is adequate.
Copies of the building plans provided are presented on the following pages.
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First Floor Layout
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Second Floor Layout
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Third and Fourth Floor Layouts
Black-Smith, Bethard & Carlson, LLC 28
Mechanical, Plumbing & Electrical
The building is not air conditioned. In a past appraisal (BSB&C #07-060) the property
contact, Mike Fleagle, stated that the mechanical, plumbing and electrical systems are in
good operational condition. He was unaware of the ages of these systems. We developed
our appraisal according to the extraordinary assumption that all electrical, plumbing and
mechanical systems are in good working order and commensurate with the overall quality
of the building. There is a dated, but operational, passenger elevator in average condition.
Site Improvements and Parking
The entrance to the building is improved with two large concrete planters for landscaping.
The bordering edges of the parking lot are also landscaped with shrubs and hedges. The
rear of the building has an open lawn and a partially fenced area with a lawn. The parking
lot is paved and striped with concrete curbs and contains +/-50 parking spaces.
The MOA requires one parking space for every 300 SF of office space based on GBA. By
this formula the required parking is calculated as follows.
Level GBA (SF) MOA
Requirements # of Spaces
1st Floor 3,686 SF 1 per 300 SF 12.3 spaces
2nd
Floor 3,670 SF 1 per 300 SF 12.2 spaces
3rd
Floor 3,670 SF 1 per 300 SF 12.2 spaces
4th
Floor 3,670 SF 1 per 300 SF 12.2 spaces
Required Parking 49 spaces
Based on MOA requirements, the current use requires a total of 49 spaces. Parking
appears to be adequate.
Age, Quality, and Condition
The Marshall Valuation Service indicates that the life expectancy of an average quality
class “C” office building is 50 years. The actual age of the subject is 44 years. The condition
is average for its age. The effective age is estimated at ±35 years. Regular building
maintenance can extend the remaining economic life expectancy; the remaining economic
life expectancy is estimated at 15-20 years ±. Suitability of the Improvements
The subject is a multi-tenant office building that has average quality construction, appears
functionally adequate and is in overall average condition. The interior layout would not be
replicated today and it is noted that the first floor has limited entrance common areas with
extensive partitioning. Regardless, the layout has been adequate for several years and is
functional given the date of construction. The adjoining Lots 9 and 10 are used as a
parking lot for the improvement.
The existing use appears to be a conforming compatible use and it is suitable for continued
use as-is. The improvement is functional and well suited for use as an office building.
Black-Smith, Bethard & Carlson, LLC 29
Real Estate Taxes and Assessments
Outstanding taxes or assessments are liens. Verification and reporting is a function of
preliminary title reports. We were not provided with a title report. We develop our value
opinion as if free and clear. The subject property has been deemed exempt from real estate
taxes because it is owned by the Municipality of Anchorage, therefore a 3 year tax history is
not applicable.
In 2006, the Anchorage Assembly approved Ordinance No. AO 2006-139(s), an ordinance of
the Anchorage Municipal Assembly designating certain real property under Chapter 12.35
and AS 29.45.050 as a deteriorated area located in East Addition Subdivision Block 37, Lots
1 of Acre Lt 2, 2 of Acre Lt 2, 3, 4 S16', 4 N2, 5, 6 S2 of Acre Lt 2, 7, 8, 9, 11, 12 N33', 12
S16', 13 of acre Lt 2, 14 of Acre Lt 2, 15 of Acre Lt 2, 16 of Acre Lt 2, 17, 18 of Acre Lt 2 and
19 and Block 37B, Lots TR A, 2A, 3A, 4A, 5A, 6B, 9, 10, 11A, 13A, 13B, 15A, 15B and 16.
This ordinance approved by the Anchorage Assembly designates these properties as being
deteriorated and available for a tax exempt status. Further assembly action would be
required to obtain a tax deferral on each property.
The properties affected in the immediate area are shown in the red box on the following
map. The subject sites are shown in the dashed box.
More recently, the Anchorage Assembly amended and approved a resolution conditionally
granting a 10-year real property tax exemption and a 5-year tax deferral consecutive to the
exemption for these properties [AR No. 2009-126(s)] subject to a public site plan review.
The impact on value is positive, as the ordinance encourages redevelopment and
investment in the area. A copy of the resolution is located in the addenda. Because a site
plan review is required to guarantee an exemption for this property, we have not attempted
to value the enhancement of the savings. (See Extraordinary Assumptions)
SUBJECT
Black-Smith, Bethard & Carlson, LLC 30
PART IV – ANALYSIS OF DATA AND CONCLUSIONS
Black-Smith, Bethard & Carlson, LLC 31
Market Analysis – Summary Report
The Appraisal Institute recognizes two categories of market analysis: inferred and
fundamental. In the following overview, demand is inferred from general market conditions
and the available data. This is a summary report and details are retained in the appraiser’s
files.
Commercial Land
Most of the activity is attributable to users. An expansion by regional and national chains
continues to generate demand for strategic sites, both pad sites and stand-alone locations.10
Numerous special purpose facilities have been completed, are currently under construction,
or proposed. The available data indicates that:
The market recognizes a price-per-square-foot unit of comparison;
Anchored out-lots command a premium over stand-alone sites; and,
Terms are typically cash and a market exposure period of one year is not
unreasonable.
Prices trended upward through 2007 but have stabilized.
Improved Property Overview In mid-decade, values were trending upward in response to sustained low interest rates,
declining income capitalization rates and increasing development costs. But cap-rate
appreciation stalled in 2008 and inflationary pressures on costs eased with the economic
downturn.
While general economic conditions cloud the outlook, real estate markets are local.
Occupancy levels for Anchorage retail, office and industrial markets generally exceed 90%.
Rental rates are stable and there is little evidence of a trend toward significant concessions.
Outside commercial districts anchored by regional and national chains, and a couple of
select submarkets, market rents will not support speculative additions to the inventory.
Nevertheless, many sub-markets are driven by users. Limited availability of improved
properties and high replacement costs favored existing conventional buildings with
functional designs.
Office-Market Sales
Demand is strong and the availability of office buildings for sale is limited; particularly
larger buildings suitable for multi-tenants. In addition, high construction costs and limited
available land contribute to stable demand for good quality existing office buildings.
In addition, high construction costs and limited available land contribute to stable demand
for existing office buildings. Alaska Statewide MLS activity for Anchorage office buildings
with a GBA of over 9,000 SF since 2006 is presented in the following table.
10 Big-box national retailers, convenience store chains, franchised restaurants, auto dealerships, specialty garages (mini-lubes, mufflers/brakes), and lodging facilities.
Black-Smith, Bethard & Carlson, LLC 32
Sales
Sale Date
Sale Price
Address
SF $/SF
GBA± (1)
Yr. Blt.
DOM
3-06 $6,312,000 3000 A 52,839 $119.50 1985 83
3-06 $33,450,000 3201/3301 C 208,448 $160.50 1974/1977 Not reported
5-06 $3,263,150 4200 Lake Otis 22,635 $144.00 1984 Not reported
6-06 $2,400,000 810 N 16,510 $145.50 1978 80
7-06 $3,100,000 670 W. Fireweed 35,499 $87.50 1976 22
2-07 $15,500,000 900 W. 5th 79,381 $195.50 1979 Not reported
10-07 $720,000 810 E. 9th 10,902 $66.00 1983 593
10-07 $1,400,000 1231 Gambell 16,818 $83.00 1985 226
2-08 $1,925,000 2605 Denali 12,656 $152.00 1982 441
3-08 $1,575,000 1709 S. Bragaw 12,376 $127.50 1982 65
4-08 $2,900,000 3812 Spenard 20,404 $142.00 1974 222
9-08 $1,200,000 921 W. 6th 9,227 $130.00 1968 55
4-09 $2,225,000 3003 Minnesota 14,077 $158.00 1983 131
2-10 $1,950,000 500 W. 6th 12,952 $150.50 1962 Not reported
5-10 $4,880,000 431 W. 7th 27,546 $177.00 1969 Not reported
3-11 $12,000,000 4300 Boniface 77,537 $155.00 1985 Not reported
(1) Including land
Listings
MLS# Address DOM* Price-List SF-Bldg $/SF
11-1331 1520 Post 540 $1,825,000 33,822 $53.96
11-7345 4241 B 378 $3,500,000 22,355 $156.56
11-9700 4510 Old International Airport 364 $2,400,000 28,773 $83.41
12-1065 4625 Old Seward 163 $4,250,000 32,213 $131.93
12-1107 670 Fireweed 162 $7,300,000 35,499 $205.64
12-2279 201 56th 135 $6,000,000 38,371 $156.37
12-4116 7033 Tudor 95 $3,500,000 20,076 $174.34
12-6470 608 4th 59 $1,795,000 21,456 $83.66
12-7513 3400 Spenard 41 $2,100,000 23,900 $87.87
Averages 215 $3,630,000 28,496 $125.97
*Days on the Market
Currently, there are 9 office buildings listed for sale between 20,000 and 50,000 SF for an
average price of nearly $126/SF.
Market Time
The overall concept of reasonable exposure encompasses not only adequate, sufficient and
reasonable time but also adequate, sufficient and reasonable marketing effort. Marketing
time is also a function of the amount and quality of the available inventory, asking prices
and investor requirements. Market exposure time may be defined as "the estimated length
of time the property interest being appraised would have been offered on the market prior
to the hypothetical consummation of a sale at market value on the effective date of the
Black-Smith, Bethard & Carlson, LLC 33
appraisal; a retrospective estimate based upon an analysis of past events assuming a
competitive and open market." 11
Market Exposure Period
Active listings and sold office properties indicate an exposure period of approximately 215
days.
For most property types, the data supports exposure period estimates of 6 months to one
year assuming the properties are professionally marketed and priced to reflect current
market conditions. OFFICE-MARKET LEASING Rental Rates and Occupancy Levels
Second Quarter 2012 statistics12 indicate Class B (Class C not reported) vacancy down
slightly to 4.84% and rents remaining steady at $1.90/SF full service. As anticipated, the
vacancy rate increased in 2012 as a large oil tenant pulled out of Anchorage and several
firms consolidated. Construction of the RE/MAX- Dynamic building on C Street is moving
forward with occupancy beginning in November. The remodel of the Union 76 building on
9th Avenue should also be completed in November with the tenant (NANA) moving in
around December.
The 2012 BOMA forecast is for stable rental rates with increasing vacancy.
Summary
2012 will see limited new demand but it will not be without limited new supply. The data
suggests the local office market is not over built but market rents and general economic
conditions do not support speculative additions to the inventory. The current market
conditions are relatively stable in terms of both vacancy and rents.
In summary, current conditions favor existing improved properties.
11 Source: Appraisal Standards Board Statement 6 and Advisory Opinion G-7. 12 Jeff Thon, CPM; Commercial Real Estate Newsletter, 2nd Quarter 2012.
Black-Smith, Bethard & Carlson, LLC 34
Highest and Best Use Highest and best use is defined as:
“the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that
results in the highest value.”13
HIGHEST AND BEST USE “AS VACANT”
Possible Uses
The site is located in the downtown area, contains 28,000 SF, is fairly level and is served by
all available public utilities. Access is adequate and the soils appear to have adequate
bearing qualities as evidenced by the existing improvements as well as the surrounding
developments. The site could be developed with a number of physically possible uses.
Permissible Use
Legal restrictions, as they apply to the subject sites, include typical easements, if any, and
the public restrictions of zoning, as included in Title 21 of the Anchorage Municipal Code
"Land Use Regulations" and private restrictions.
The subject is zoned R-O, This district includes urban and suburban residential and
professional office uses in areas undergoing a transition, or in areas where commercial uses
might be damaging to established residential neighborhoods. The R-O district also provides
a mix of low- to medium-density residential uses with certain specified business, personal
and professional services that can function efficiently without generating large volumes of
traffic. Easements appear to be confined to the perimeter without impacting the highest
and best use. We are not aware of any private restrictions affecting the sites.
Feasible Use
The office market has seen a number of newly constructed owner/user and investor
buildings over the past several years. Due to the high costs of construction, Class “A” rents
with $20 to $45/rsf for tenant improvements are required for feasibility. Hotel and
residential condominium construction has also been evidenced, but new downtown projects
are unlikely at this time.
Maximally Productive Use
Based on the zoning, location characteristics and current market conditions, the subject’s
Highest and Best Use is for development with a conforming owner user office or to hold for
future speculative development.
HIGHEST AND BEST USE “AS IMPROVED”
The subject “as improved” is an average quality, 4-story, concrete block, Class “C+/B-” office
building. The improvements to Lot 2C Block 2 represent a substantial conforming use with
a significant remaining economic life expectancy. Value indicators by both approaches are
well above land value as vacant. We are not aware of any financially feasible use that
13 Appraisal Institute, The Appraisal of Real Estate, 12th Edition
Black-Smith, Bethard & Carlson, LLC 35
would justify demolition or conversion to an alternative use. The highest and best use as
improved is as-is.
Most Probable Buyer
Given the neighborhood attributes and the physical characteristics of the improvements,
the property is suitable for an investor or owner-user.
Black-Smith, Bethard & Carlson, LLC 36
Cost Approach
The existing improvement is 44 years old. The market would not give substantial weight to
a depreciated replacement cost estimate. In this case, the omission of the cost approach is
appropriate. In accordance with the Uniform Standards of Professional Appraisal Practice,
the omission is explained.
Black-Smith, Bethard & Carlson, LLC 37
Sales Comparison Approach
In the sales comparison approach, an opinion of market value is developed by analyzing
similar properties that have recently sold, are listed for sale, or are under contract and
comparing them with the subject property. A major premise of the sales comparison
approach is that the market value of a property is related to the prices of comparable,
competitive properties.14 The properties are typically evaluated in terms of a physical unit
of comparison (e.g., “price per square foot”, “price per unit”) and correlated by adjusting for
various inequalities.
For this property type, the market recognizes a price-per-square-foot of gross building area,
including the land.
The sales of several downtown Class “C”/”B” office properties were examined; recent sales of
generally similar properties are summarized in the following table and identified on the
map. Details are summarized along with a correlation in the table on the following page.
Summary of Comparable Sales
No. Address Date of
Sale Sale Price GBA
$/SF GBA
1 431 W. 7th
Ave. 5-10 $4,880,000 27,546 SF $177 2 610 E. 5
th Avenue 10-08 $800,000 6,000 SF $133
3 441 W. 5th
Ave. 6-10 $3,800,000 (1) 32,957 SF $115 4 1015 E. 6
th Avenue 7-10 $1,000,000 8,736 SF $114
5 717 K Street 4-11 $1,700,000 10,885 SF* $156 Subj. 325 E. 3
rd Avenue --- --- 14,696 SF ---
(1) $3,700,000 “as is” and $100,000 deferred maintenance for roof repair.*inc 1,555 SF bsmt
14 The Appraisal of Real Estate, 12th Edition, Appraisal Institute (2001) p. 417
Black-Smith, Bethard & Carlson, LLC 38
Description of the Comparables
The comparables are identified on the previous table and map. This is a summary report;
details are retained in our work file.
Correlation (explanation of the adjustments)
All of the comparables reflect arm’s length sales/acquisitions of the fee simple interest. No
undue stimulus was reported. Atypical motivations, if any, are recognized in the
reconciliation. The indicated unit values are already adjusted to a cash equivalent value (if
required) and for expenditures immediately after purchase (e.g. demolition or the cost-to-
cure known defects/deficiencies).
QUANTITATIVE ADJUSTMENTS Market Conditions
We recognize a slowdown in the real estate market and no definitive data to support
continued appreciation after January 2008. All of the sales occurred from April 2008 to
July 2011 and there is no definitive market data to support an adjustment for market
conditions.
Configuration
If the comparables include below grade basement or storage space in their gross building
area estimates, we developed an adjustment for configuration. Cost manual data and local
market rentals suggest that these areas contribute 20% to 30% of the office space. For the
purposes of our analysis, we calculate an effective GBA recognizing the contribution of the
garage/storage or basement space at 25%.
QUALITATIVE ADJUSTMENTS
A sufficient number of paired-sales are not available from which to extract reliable
adjustments for other inequalities. We correlated physical inequalities with qualitative
adjustments (superior, inferior, approximately equal).
Black-Smith, Bethard & Carlson, LLC 39
RELATIVE COMPARISON ANALYSIS Comp / Ref SUBJECT NO. 1 NO. 2 NO. 3 NO. 4 NO. 5
Photo / Location
325 E. 3rd Ave.
431 W. 7
th Ave.
610 E. 5
th Ave.
441 W. 5
th Ave.
1015 E. 6
th Ave.
717 K Street
Sale Price N/A $4,880,000 $800,000 $3,800,000 $1,000,000 $1,700,000
Purchaser --- Investor User Investor Investor User
Market Conditions October 2009 May 2010 (no adj.)
October 2008 (no adj.)
June 2010 (no adj.)
July 2010 (no adj.)
April 2011 (no adj.)
Other Conditions of the sale
--- None None None None None
Adj. CEV incl. land --- $4,880,000 $800,000 $3,800,000 $1,000,000 $1,700,000
Configuration 4-story 2-story walk-up Two-story walk-up 5-story office Two-story walk-up 2-story office
GBA 14,696 SF 27,546 SF 6,000 SF 32,957 SF 8,736 SF 10,885 SF
Less: Basement/Storage
None None None (1,636SF) None (1,555 SF)
Allocation of Office Space
14,696 SF 27,546 SF 6,000 SF 31,321 SF 8,736 SF 9,330 SF
Add:25% Basement/ Storage
0 0 0 409 SF 0 389 SF
Adj. Eff. GBA* 14,696 SF 27,546 SF 6,000 SF 31,730 SF 8,736 SF 9,719 SF
Adj. $/CEV/SF N/A $177/SF $133/SF $126/SF $114/SF $175/SF
Year Built 1968 1960/ 06-09 rem
(superior) 1976
(approx=) 1958-71
(approx=) 1983
(superior) 1971
(approx=)
Quality/Type Avg. Concrete Block Avg. cc & wood fr
(inferior) Avg. cc block
(approx=) Avg. cc & steel fr (slightly superior)
Avg. stucco/ wd frm. (inferior)
Avg.+ cc (slightly superior)
Condition Average Average+ (superior)
Average (approx. =)
Good (superior)
Average (approx. =)
Good (superior)
Location Downtown/;
NEC of Cordova & E. 3
rd
Downtown/CBD; 7
th Ave
(superior)
Downtown; SEC of E. 5
th &
Fairbanks (approx=)
Downtown; W. 5
th
(superior)
Downtown fringe; Corner of E. 6
th &
Karluck (approx=)
Downtown; K Street
(superior)
Access Adequate Adequate
(approx. =) Adequate
(approx. =) Adequate
(approx. =) Adequate
(approx. =) Adequate
(approx. =)
Zone R-O B-2B
(superior) B-2C
(superior) B-2A
(superior) B-3
(approx. =) B-2B
(superior)
Land to Bldg. (GBA) 1.91 : 1 1.02 : 1 1.25 : 1 .20 : 1 1.60 : 1 1.29 : 1
No. of Spaces (on-site)
± 50 spaces ± 40 spaces**
(superior)
±20 spaces**
(superior)
Limited
(slightly inferior)
±30 spaces
(slightly inferior)
Open / Adequate
(slightly superior)
Elevator Yes No
(inferior) No
(inferior) Yes
(approx. =) No
(inferior) Yes
(approx. =)
Building Amenities-HVAC/ Sprinkler
No/ No Yes/ No
(slightly superior) No/ No
(approx. =) Yes/ Yes
(slightly superior) No/ No
(approx. =) Yes/ No
(superior)
Other None None None None None None
Ind. $/SF (GBA) N/A <$177/SF <$133/SF <$126/SF >$114/SF <$175/SF
*Basement SF x 25% + Allocation of Office Space = Effective GBA **No on-site parking required for B-2B & B-2C zoned land (Comparable Nos. 1 & 2).
Black-Smith, Bethard & Carlson, LLC 40
RECONCILIATION AND CONCLUSION
Like the subject, all of the comparables are late ‘60’s to mid 80’s vintage, low to mid rise
office buildings. In the relative adjustment analysis an overall range of value is established
from $114 to $177/SF.
The subject’s relative market position is situated towards the low end of the range between
Comp. 4 ($114/SF) and Comp. 2 ($133/SF).
Giving most weight to the bracketing comparables, an indicated unit price for the subject is
estimated at $120/SF, or $1,764,000, rounded ($120 × 14,696 SF).
Black-Smith, Bethard & Carlson, LLC 41
Income Approach
The basis for this approach is the property operating data (potential income less vacancy
and expenses). Using income capitalization methods, the income is then translated into an
estimate of value. Direct capitalization is an appropriate measure at stabilized occupancy.
For the purpose of our analysis, net operating income (NOI) is defined as:
“Income remaining after deduction of all property expenses including replacement reserves (if any) and before consideration of leasing commissions and tenant improvements." 15
Market Rent
The subject’s contract rates are shown in the table below. With the exception of
telecommunications, all utilities and maintenance are paid by the owner.
Area Tenant SF Monthly
Rent
1st Floor Mabel T. Caverly Senior Center 1,919 SF $480.00
2nd
Floor Intervention Helpline 3,660 SF $915.00
3rd
Floor Older Persons Action Group, Inc. 3,660 SF $915.50
4th Floor Nubian Sisterhood 794 SF $199.00
4th Floor NAACP 1,830 SF $457.50
Total $2,967.00
The subject office space is occupied by several non-profit groups at below market rental
rates ($0.25/SF). According to Jacque Tennis, Senior Office Associate, Real Estate Services,
the leases all commenced on January 1, 2012 and terminate on December 31, 2012. The
tenants have the option to extend their lease for two (2) one-year periods. Ms. Tennis
thought there was a high probability that each tenant would exercise the option to extend.
Either the tenant or landlord can terminate the lease with 90 days notice in an option term.
The leased fee value of the subject will be calculated at the end of the report.
Market rent is estimated based on comparable properties, utilizing the price per SF of
rentable area. The rental comparables are adjusted to reflect full service occupancies with
owner paying all operating expenses including 5-day per week janitorial. Office Rental Comparables
# Location Date/ Term
Size Rent/SF Expenses Adjusted $
1 243 E. 5th
#201 Active 1,063 SF $1.50 Janitorial +$0.10
$1.60
2 921 W. 6th
Avenue 2nd
Floor Active 3,943 SF $1.75 None $1.75
3 203 W. 15th Avenue 10/2011 600 SF $1.45
Janitorial +$0.10
$1.55
4 1231 Gambell Street 10/2011 5,000 SF $1.60 None $1.60
Sub. 325 E. 3rd
Ave --- 13,144 SF --- --- ---
15 Korpacz Real Estate Investor Survey.
Black-Smith, Bethard & Carlson, LLC 42
Description of the Comparables
The comparables are identified in the previous table and following map. This is a summary
report; details are retained in our work file.
Property ID Subject Comp #1 Comp #2 Comp #3 Comp #4
Address 325 E. 3
rd
Avenue 243 E. 5
th
Avenue 921 W. 6
th
Avenue 203 W. 15
th
Avenue 1231 Gambell
Street
Location
Downtown; NWC of
Cordova & E. 3
rd Avenue
Downtown; NWC of Cordova & E.
5th
Avenue (slightly superior)
Downtown; 6th
near K
(slightly superior)
Downtown; NWC of 15
th & C
(approx=)
Downtown; Corner 12
th &
Gambell (far inferior)
Parking Availability
On site Street
(inferior)
Street/ on-site negotiable (inferior)
On-site
(approx=)
On-site
(approx=)
Lease Date --- Active Active 10/2011 10/2011
Lease Term --- 3-5 year 3-5 year 3 year 5 year
Year Built 1968 1977
(approx=) 1974
(approx=) 1972
(approx=) 1985
(slightly superior)
Quality/ Condition
Average/ Dated
Average/Fair
(approx=)
Average/Fair
(approx=)
Average/ Dated
(approx=)
2007 remodel Average+
(slightly superior)
Size 13,144 SF 1,063 SF 3,943 SF 600 SF 5,000 SF
AC No No
(approx=) No
(approx=) No
(approx=) Yes
(superior)
Other Elevator No
(inferior)
No
(inferior)
No
(inferior)
Sprinkler system & elevator (superior)
Adjusted Rent/SF
--- >$1.60 +/-$1.75 >$1.55 >$1.60
Market Rent Reconciliation
The rent comparables indicate a range from $1.55/SF to $1.75/SF. The subject is superior
to the low-end indicator ($1.55/SF). The remaining comparables range from $1.60 to
$1.75/SF. The subject is in average but dated condition. It has elevator service to all floors,
N
Black-Smith, Bethard & Carlson, LLC 43
is well located on the north eastern fringe of the downtown business district and has ample
parking. Giving most weight to upper-end of the narrowed range, market rent is concluded
at $1.75/SF.
Vacancy and Collection Loss
Recent surveys of office market space have suggested that the overall vacancy rate for class
B office is just under 5% (See Market Analysis). The subject is in average condition, but it
is dated and reflects its age. We project the overall potential for vacancy and collection loss
at 5%.
Operating Costs
Operating costs were provided for the past three years. These expense categories are
summarized in the following table.
2009 $/SF
Janitorial $7,320 $0.50
Elevator $2,396 $0.16
Fire Systems $1,681 $0.11
Extinguishers $360 $0.02
Parking/Concrete $0 $0.00
Parking Sweeps $417 $0.03
Snow Removal $4,150 $0.28
Window Washing $0 $0.00
Labor/1634 $18,160 $1.24
Utilities $35,126 $2.39
Refuse $2,283 $0.16
2010 $/SF
Janitorial $6,660 $0.45
Elevator $2,414 $0.16
Fire Systems $1,407 $0.10
Extinguishers $32 $0.00
Parking/Concrete $0 $0.00
Parking Sweeps $1,559 $0.11
Snow Removal $6,446 $0.44
Window Washing $1,500 $0.10
Labor/1634 $9,496 $0.65
Utilities $31,374 $2.13
Refuse $2,283 $0.16
2011 $/SF
Janitorial $6,996 $0.48
Elevator $2,227 $0.15
Fire Systems $1,330 $0.09
Extinguishers $0 $0.00
Parking/Concrete $0 $0.00
Parking Sweeps $784 $0.05
Snow Removal $8,034 $0.55
Window Washing $0 $0.00
Labor/1634 $17,228 $1.17
Utilities $32,461 $2.21
Refuse $2,283 $0.16
Operating Costs Comparisons
Operating costs are also projected by comparing operating expenses based on our office
files.
Expense Comparisons Comparison Expenses*
Expense Category
Class “A” Office
74,000 SF
Class “A” Office
53,000 SF
Class “B” Office
19,244 SF
Class “A” Office
100,000 SF
Class “A-” Office
42,636 SF
Class “B” Office
77,537 SF
R. E. Taxes $2.11 $2.26 $2.40 $1.59 $2.15 $2.37
Insurance $0.14 $0.14 $0.48 $0.57 $0.36 $0.48
Utilities $2.41 $1.83 $3.24 $2.11 $4.13 $2.81
Janitorial $0.78 $1.06 $1.32 $1.02 $1.14 $1.15
Build./Grds. Maint. $2.04 $1.69 $3.12 $1.65 $2.81 $1.73
Total ($/SF per Year) * $7.48 $6.98 $10.56 $6.94 $10.59 $8.54
Real Estate Taxes
The subject is a city building that is not currently taxed. Therefore, we analyzed taxes on a
price-per-square-foot basis for four similar properties used in the sales comparison
approach. For this comparison we used the 2012 assessed value multiplied by the
applicable mil rate for the building.
No. Location 2012 Assessment Mil Rate 2012 Taxes GBA $/SF
1 750 W. 2nd
Avenue $1,626,600 15.57 $25,326 18,192 SF $1.39/SF
2 610 E. 5th
Avenue $734,500 15.57 $11,436 6,000 SF $1.91/SF
3 3003 Minnesota Drive $1,945,200 15.57 $30,287 14,077 SF $2.15/SF
4 1015 E. 6th
Avenue $811,500 15.57 $12,635 8,736 SF $1.45/SF
5 7033 E. Tudor Road $2,734,500* 15.57 $42,576 17,122 SF $2.49/SF
Subj. 325 E. 3rd
Avenue --- 14,696 SF --- *Tax exemption for being owned by a charitable institution. Tax assessment is for 2011 (last available).
Black-Smith, Bethard & Carlson, LLC 44
Four of the properties used in the sales comparison approach indicate a range from $1.39 to
$2.15/SF. State statutes require that real property be assessed at 100% of market value;
however, properties typically lag the market. The value established in the sales
comparison approach for the subject was $1,764,000. At this value, taxes for the subject
would be $1.86 and bracketed within the range established by the comparables. Giving
most weight to this value, as supported by the comparables, taxes are projected at $1.86/SF,
or $27,335.
Insurance
The expense comparables insurance premiums range from $0.14 to $0.57/SF/year. The
subject is a concrete block structure without a sprinkler system. Recognizing the upper-end
expense comparables are Class ‘B’ buildings similar to the subject, we project an annual
premium near the upper-end, $0.40/SF.
Management
The operating data provided does not report a line item for property management. Rates
for management fees range from 3% to 7%, depending on the size of the project and number
of tenants. The subject is configured for multiple tenants. We projected management at 5%
of the effective gross income to include legal and professional fees.
Utilities
These expenses typically include gas, electric, water, sewer and refuse. The utility costs
provided for gas, electric, water, sewer and refuse total $34,744 or $2.36/SF and has
remained relatively the same for the past 3 years. The expense is within the bracketed
range of the cost comparables. Giving most weight to the subject data, while recognizing
the likelihood of increases in utilities, we project this expense at $2.40/SF. Grounds and General Building Maintenance
Grounds maintenance for the last year included parking/concrete, parking sweeps, snow
removal and window washing. The total for these services equals $8,018 or $0.60/SF.
Building maintenance includes elevator, fire systems, extinguishers, maintenance supplies
and labor. This expense totals $7,125 or $1.85/SF.
Maintenance is difficult to estimate with any degree of precision as this expense item varies
widely from property to property and year to year. This is attributable to differing
ownership/management philosophies and accounting methods. The combined cost of
ground and general building maintenance for the subject is $2.45. The expense
comparisons reflect a wide range from $1.69 to $3.12/SF. The higher cost of labor for the
subject is attributable to municipal employees providing maintenance to the building.
These costs are often higher for public agencies. Recognizing the current cost for ground
and building maintenance for the subject and the cost comparables, we project costs for this
expense slightly lower at $2.00/SF.
Janitorial
The comparables indicate a range from $0.78 to $1.32/SF and average $1.08/SF. The
subject data suggests $0.45 to $0.50/SF and has been consistent over the past 3 years. This
amount would be low for a contracted, 5-day per week service. Giving most weight to the
comparable data, while recognizing that labor costs are increasing, janitorial expenses are
projected at $1.00/SF.
Black-Smith, Bethard & Carlson, LLC 45
Reserves
The 2nd Quarter 2012 issue of Korpacz Real Estate Investor Survey indicates replacement
reserves for suburban office properties range from $0.15 to $0.50/SF with an average of
$0.28/SF. Replacement costs are higher in Anchorage than most other locales. Using the
average indicator for office use and adjusting it upward by a local cost multiplier; we project
replacement reserves at $0.35/SF ($0.28/SF x 1.26, rounded)16 of the GBA.
Projected Operating Statement Projected Rents Rent/SF RSF Monthly Inc. Annual Inc.
1st Floor Office Space $1.75 3,298 $5,772
2nd
Floor Office Space $1.75 3,282 $5,744
3rd
Floor Office Space $1.75 3,282 $5,744
4th
Floor Office Space $1.75 3,282 $5,744
Potential Gross Rental Income 13,144 $23,002 $276,024
Total Potential Gross Income $276,024
Less: Vacancy & Credit Loss 5% ($13,801)
Effective Gross Annual Income $262,223
GBA $/Yr.
Less: Operating Expenses 14,696
Real Estate Taxes $1.86 ($27,335)
Insurance $0.40 ($5,878)
Management 5% of EGI ($13,111)
Utilities $2.40 ($35,270)
Grounds & General Building Maint. $2.00 ($29,392)
Janitorial $1.00 ($14,696)
Reserves $0.35 ($5,144)
Total Operating Expenses % of EGI 50% ($130,826)
Net Operating Income $/GBA $8.94 $131,397
% of EGI 50%
Income Capitalization
The value of the subject at stabilized occupancy is derived by direct capitalization. With
this technique, the net operating income (NOI) is divided by a market-supported overall
capitalization rate (OAR) to indicate a value.
The 2nd Quarter 2012 issue of Korpacz Real Estate Investor Survey indicates the following
overall rates (OAR's) for the Suburban Office Market.
Period Suburban Office Market Average
2nd
Quarter 2009 9.55%
2nd
Quarter 2010 10.01%
2nd
Quarter 2011 9.14%
2nd
Quarter 2012 9.04%
National indicators have decreased over the past year. The stated range for institutional
properties is 6% to 11%, with an average of 8.17%. A sampling of the Anchorage office
16 The Marshall Valuation local cost multiplier for Anchorage, Jan. 2012.
Black-Smith, Bethard & Carlson, LLC 46
market shows signs of trending with the national markets. OARs extracted from local sales
generally support the national market.
Property Date Buyer Area OAR
1227 W. 9th Ave. 1-06 User/Investor Fringe CBD 8.4%
810 “N” St. 3-06 Investor Fringe CBD 8.8%
3000 ‘A’ St. 3-06 Investor Midtown 9.4%
3201/3301 ‘C’ St. 3-06 Investor Midtown 10.1%
360 W. Benson Blvd 3-06 Investor Midtown 8.8%
900 W. 5th
Ave. 2-07 Investor CBD 7.3%
1199 E. Dimond Blvd. 3-07 User/Investor South Anchorage 7.7%
2605 Denali St. 10-07 Investor Midtown 7.7%
1709 Bragaw St. 1-08 User/Investor East Anchorage 9.3%
3003 Minnesota By-pass 4-09 User/Investor Midtown 7.1%
2121 Abbott Rd. 6-09 Investor South Anchorage 9.0%
500 W. 6th
Ave. 2-10 Investor CBD 7.0%
431 W. 7th
Ave. 5-10 Investor CBD 10.0%
441 W. 5th
Ave. 6-10 Investor CBD 10.0%
4300 Boniface 3-11 User East Anchorage 8.2%
2601 Denali Street 9-11 Investor Midtown 7.8%
2600 Denali Street 12-11 Investor Midtown 7.4%
Local sales trend near the national indicators and recent transactions reflect a range from
7.0% to 10.0% with an average of +/-8.47%. Although the national financial crisis was a
concern, capitalization rates have trended back downwards and there was no evidence of
increased capitalization rates in the Anchorage market.
Description OAR Range OAR AVG
National Indicators 8.17 % to 9.71% 9.02%
Anchorage Offices 7.00% to 10.10 % 8.47%
The subject is an average quality office building suitable for multiple tenants or a single
user. It’s located on the eastern fringe of the downtown business district with adequate
onsite parking. The interior of the building is in dated but in average condition. The
supply of properties suitable for users and investors is limited. Giving weight to the local
indicators, a capitalization rate of 8.50% is reasonable for the subject. Market value by the
income approach is calculated as follows:
Projected NOI $131,397
OAR 8.5%
Indicated Value (rounded) $1,545,844
Indicated Value by the Income Approach (rounded): $1,546,000 (rounded)
Black-Smith, Bethard & Carlson, LLC 47
Reconciliation and Conclusion
The indicated values are summarized as follows:
COST APPROACH N/A SALES COMPARISON APPROACH $1,764,000 INCOME APPROACH $1,546,000
The value indicators establish an overall range from $1,460,000 to $1,764,000 for the
subject site and improvements.
The sales comparison approach established a narrow range of indicated values for similar
low-rise office buildings. Three of the comparable sales were purchased by either a user or
user-investor. The supply of suitable alternatives is limited and value is driven by users.
Users are more likely to evaluate function and utility in terms of a physical unit of
comparison. On this basis, the sales approach is considered a reasonable approach to value.
The income approach represents the low-end of the range. The supply of good-quality
offices suitable for users and/or user-investors is limited. In this sub-market, users are
pressuring prices above the levels supported by investors. Regardless, the income approach
is reasonable and is given weight in this analysis.
Giving weight to both the sales comparison and the income approaches, market value is
concluded at $1,650,000.
LEASED FEE ANALYSIS
The leased fee analysis takes into consideration the present value of the below market
rents. The low rents would be realized by either an investor or partial user.
In the income approach we determined market rent at $1.75/SF. The current leases for all
tenants are $0.25/SF per month. These leases expire 12/31/12 and tenants have the option
to extend the lease for 2 one-year options. The lease can be terminated by either the tenant
or landlord during either of the option periods by giving 90 days written notice to the other
party. Therefore, the below market rates are probable until March 31, 2013 (90 days into
the first renewal option).
The net rent disadvantage is calculated at $19,716/month (market rent [$1.75/SF] –
contract rent [$0.25/SF] × 13,144 = $19,716). Over 8 months the loss in rent amounts to
$157,728 ($19,715 × 8 months). Due to the short term nature of the rent loss, we have not
discounted the income stream. The rent loss essentially falls to the bottom line. Market
value of the leased fee interest is calculated as follows:
Estimated Fee Simple Market Value “As Is” $1,650,000 Less: Rent Disadvantage <$158,000> Estimated Leased Fee Market Value “As Is” $1,492,000
ADDENDA
Great. This is your notice to proceed.
We’ll expect to see the appraisal by August 13.
Please contact me if you need any other information. Thank you.
Alison L. Smith Land Manager MOA, Real Estate Dept. 343-7531
From: [email protected] [mailto:[email protected]]
Sent: Friday, July 13, 2012 10:18 AM To: Smith, Alison L.
Subject: RE: Request for schedule, cost
Thanks Alison, Our fee would be $4,500 and we are about 4 weeks out. Please call if you have questions. Have a good weekend! Brian Brian Bethard, MAI Black-Smith, Bethard & Carlson, LLC. 1199 E. Dimond Blvd., Ste. 200 Anchorage, AK 99515 (907) 274-4654 phone (907) 274-0889 fax
From: Smith, Alison L. [mailto:[email protected]] Sent: Friday, July 13, 2012 9:58 AM
To: '[email protected]'
Subject: RE: Request for schedule, cost
That part has already been finalized. All we need now is the current fair market value
of the property.
If you’re interested, the percentages are 21% to MOA, 79% to CDBG payback.
Alison L. Smith Land Manager MOA, Real Estate Dept. 343-7531
From: Smith, Alison L. [mailto:[email protected]] Sent: Friday, July 13, 2012 9:01 AM
To: '[email protected]'
Subject: Request for schedule, cost
Hello Brian-
The Real Estate Department is planning to offer the John Thomas Building for sale via
competitive bid. In 2009 you provided us with a Summary Appraisal Report for the
property. We would like you to complete a standard commercial property appraisal.
The purpose of the appraisal is to set the current fair market value to 1) determine the
amount owed to the CDBG program, and 2) establish a minimum bid for the
competitive auction. We’ve been working with HUD to determine the percentage of
the sale price that goes back to the program and we believe that we’ve come to an
agreement with HUD on that percentage.
This project is currently CONFIDENTIAL until we issue a public notice.
Please review the original proposal you provided under the term contract, including
the costs you committed to for specific deliverables.
Please provide your schedule and cost to me via e-mail by 5pm, Monday, July 23,
2012.
Let me know if you have questions. Thanks much, Alison
Alison L. Smith Land Manager MOA, Real Estate Dept. 343-7531
GENERAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions:
1. No responsibility is assumed for the legal description provided or for matters
pertaining to legal or title considerations. Title to the property is assumed to be good and
marketable unless otherwise stated.
2. The property is appraised free and clear of any or all liens or encumbrances unless
otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable, but no warranty is
given for its accuracy.
5. All engineering studies (if any) are assumed to be correct. The plot plans and
illustrative material in this report are included only to help the reader visualize the
property.
6. It is assumed that there are no hidden or unapparent conditions of the property,
subsoil, or structures that render it more or less valuable. No responsibility is assumed
for such conditions or for obtaining the engineering studies that may be required to
discover them.
7. It is assumed that the property is in full compliance with all applicable federal, state,
and local environmental regulations and laws unless the lack of compliance is stated,
described, and considered in the appraisal report.
8. It is assumed that the property conforms to all applicable zoning and use regulations
and restrictions unless a nonconformity has been identified, described, and considered in
the appraisal report.
9. It is assumed that all required licenses, certificates of occupancy, consents, and other
legislative or administrative authority from any local, state, or national government or
private entity or organization have been or can be obtained or renewed for any use on
which the opinion of value contained in this report is based.
10. It is assumed that the use of the land and improvements is confined within the
boundaries or property lines of the property described and that there is no encroachment
or trespass unless noted in the report.
11. Unless otherwise stated in this report, the existence of hazardous materials, which
may or may not be present on the property, was not observed by the appraiser. The
appraiser has no knowledge of the existence of such materials on or in the property. The
appraiser, however, is not qualified to detect such substances. The presence of
substances such as asbestos, urea-formaldehyde foam insulation and other potentially
hazardous materials may affect the value of the property. The value estimated is
predicated on the assumption that there is no such material on or in the property that
would cause a loss in value. No responsibility is assumed for such conditions or for any
expertise or engineering knowledge required to discover them. The intended user is
urged to retain an expert in this field, if desired. This appraisal report has been made with the following general limiting conditions:
1. Any allocation of the total value estimated in this report between the land and the
improvements applies only under the stated program of utilization. The separate values
allocated to the land and buildings must not be used in conjunction with any other
appraisal and are invalid if so used.
2. Possession of this report, or a copy thereof, does not carry with it the right of
publication.
3. The appraiser, by reason of this appraisal, is not required to give further consultation
or testimony or to be in attendance in court with reference to the property in question
unless arrangements have been previously made.
4. Neither all nor any part of the contents of this report (especially any conclusions as to
value, the identity of the appraiser, or the firm with which the appraiser is connected)
shall be disseminated to the public through advertising, public relations, news, sales, or
other media without the prior written consent and approval of the appraiser. Additional Assumptions and Limiting Conditions:
1. Any opinions of value provided in the report apply to the entire property, and any
proration or division of the total into fractional interests will invalidate the opinion of
value, unless such proration or division of interests has been set forth in the report.
2. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The
appraiser has not made a specific compliance surveyor analysis of the property to
determine whether or not it is in conformity with the various detailed requirements of
ADA. It is possible that a compliance survey of the property and a detailed analysis of
the requirements of the ADA would reveal that the property is not in compliance with
one or more of the requirements of the act. If so, this fact could have a negative impact
upon the value of the property. Since the appraiser has no direct evidence relating to this
issue, possible noncompliance with the requirements of ADA was not considered in
estimating the value of the property.
Qualifications Of Brian Z. Bethard, MAI Brian Z. Bethard, MAI
State Certification No. 281
General Education Service High School, Anchorage, Alaska - Graduate 1989 The Colorado College, Colorado Springs, CO - Bachelor of Arts, Economics 1993 University of Alaska, Anchorage, Anchorage, AK - MBA 1996
Employment History Black-Smith, Bethard & Carlson, LLC - Managing Member – 2005 + Black-Smith and Richards, Inc. - Fee Appraiser -1995 to 2005 Randall, Hayes, and Henderson, Inc. - Fee Appraiser -1993 to 1995
Appraisal Courses/Seminars Taken Residential Case Study - University of Alaska Anchorage - 1994 Uniform Residential Appraisal Report - Appraisal Institute - 1993 Standards of Professional Practice, Part A & B - Appraisal Institute - 1996 Advanced Sales Comparison & Cost Approaches - Appraisal Institute - 1997 Appraisal Principles & Procedures - Appraisal Institute - 1998 Highest and Best Use Market Analysis - Appraisal Institute - 1998 Advanced Applications and Market Analysis - Appraisal Institute - 1998 Report Writing and Valuation Analysis - Appraisal Institute, 1998 Advanced Income Capitalization, Course 510 - Appraisal Institute - 2000 Intro to Statistics & Supporting Adjustments - Appraisal Institute - 2002 Market Studies for Affordable Housing - NH&RA - 2002 Standards of Professional Practice - Appraisal Institute – 2002/03/04/05/07/09 Subdivision Analysis - Appraisal Institute – 2004 Rates & Ratios – Appraisal Institute – 2005 Principles of Real Estate Law – IRWA – 2005 Skills of Expert Testimony – IRWA – 2006 Analyzing Distressed Real Estate – AI – 2006 Condemnation Appraising – AI – 2007 Appraisal Challenges in Declining Markets – AI, 2009 Forcasting Revenue – AI, 2009 USPAP Update – AI, 2011 Yellow Book – AI, 2011 Certifications Alaska State Certification: General Real Estate Appraiser #281
Affiliations Member Appraisal Institute (Member No. 11857) President: Alaska Chapter Appraisal Institute – 2005 & 2006 Vice Pres: Alaska Chapter Appraisal Institute - 2004
Typical Clients Appraisal Assignments Cook Inlet Housing Authority Various Multifamily, Land and Special Purpose Northrim Bank Attwood Building Rent Study, Anch., AK Alaska Housing Finance Corp. Kenai Senior Housing Market Study, Kenai, AK HDR Engineering Highlands Luxury Apartments, Anch., AK The Municipality of Anchorage The Veco Building, Anch., AK The City of Valdez City of Valdez Assessment, Valdez, AK Alaska Industrial Development & Export Authority Charter North Hospital, Anch., AK Wells Fargo Bank McKay Building, Anch., AK Key Bank Alaska DOT Building, Juneau, AK State of Alaska Department of Natural Resources Alyeska Pipeline Appraisal, Prudhoe - Valdez First National Bank Alaska 15
th Avenue Extension ROW Project, Anch., AK
Alaska First Bank Saint Paul Health Clinic, St. Paul, AK Denali Alaska Credit Union Residential Mortgage Building, Anch., AK Department of Justice Sprucewood Housing; 300 Units Eielson AFB
QUALITIFICATIONS OF APPRAISER
Ryan T. McGillivray Appraiser
General Education
University of Alaska Anchorage, Bachelor of Arts, Journalism Public Communications,
Minor Business, 2004
Service High School, Anchorage, Alaska – Graduate 1998
Appraisal Courses Taken
Appraisal Institute- Basic Appraisal Principles; 1/2008
Appraisal Institute- General Appraiser Income Approach Part 1; 4/2008
Appraisal Institute- Uniform Standards of Professional Appraisal Practices; 11/2008
Appraisal Institute- Basic Appraisal Procedures; 3/2009
Appraisal Institute- General Appraiser Market Analysis and Highest & Best Use; 3/2010
Appraisal Institute- General Appraiser Sales Comparison Approach; 6/2010
Appraisal Institute- General Appraiser Site Valuation and Cost Approach; 6/2010
Appraisal Institute- General Appraiser Report Writing and Case Studies; 10/2010
Appraisal Institute- Real Estate Finance, Statistics and Valuation; 5/2011
Business Experience
Black-Smith, Bethard and Carlson, LLC, Appraiser, October 2006 +
Licensed Real Estate Agent, Alaska, December 2005