in accordance with your request, i submit my summary appraisal … · 2018. 8. 17. · manhattan,...

Client File No. KEYBOARD (If Applicable) OG File No. KEYBOARD

QQ Building QQ Street Road Boulevard Highway QQ

Block QQ, Lot QQ QQ City Town Borough

QQ County, New Jersey New York Pennsylvania

PREPARED FOR

Mr. Jonathan Steingraber Ridgewood Ave Partners LLC

52 Spring Valley Rd Morristown, New Jersey 07960

APPRAISAL REPORT

OG File No. 18040071 29 Unit Condominium Subdivision

(6 Townhouses; 19 Flats; 4 COAH Flats) 68-74 Ridgedale Avenue

Block 702, Lots 8, 9, 10, & 11 Town of Morristown

Morris County, New Jersey

O T T E A U G R O U P VALUATION | RESEARCH | CONSULTING | BROKERAGE

800-458-7161 www.otteau.com

New Jersey Office (Mail) 100 Matawan Road, Suite 320 Matawan, NJ 07747

New York Office 112 W. 34th Street, 18th Floor Manhattan, NY 10120

Pennsylvania Office 325-41 Chestnut Street, Suite 800 Philadelphia, PA 19106

June 6, 2018 Mr. Jonathan Steingraber Ridgewood Ave Partners LLC 52 Spring Valley Rd Morristown, New Jersey 07960 RE: OG File No. 18040071

29 Unit Condominium Subdivision (6 Townhouses; 19 Flats; 4 COAH Flats) 68-74 Ridgedale Avenue Block 702, Lots 8, 9, 10, & 11 Town of Morristown Morris County, New Jersey

Dear Mr. Jonathan Steingraber: In accordance with your request, we submit our appraisal report of the above referenced property. We have carefully inspected the property and have made a thorough study, investigation and analysis of all matters important to the estimation of its market value. This appraisal has been developed and the report has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) as adopted by the Appraisal Foundation, the 2010 Interagency Appraisal and Evaluation Guidelines and the requirements of the Title XI of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) and revisions. The purpose of the appraisal is to estimate the prospective market value of the subject property subject to completion as per plans and specifications in fee simple estate, as follows:

1) The As Is market value to a single purchaser, of a 0.87 acre tract, approved for 29 units (6 Townhouses; 19 Condo Flats; 4 Affordable Rate Flats).

2) The As Complete market value to a single purchaser, of a 0.87 acre tract,

approved for 29 units (6 Townhouses; 19 Condo Flats; 4 Affordable Rate Flats), assuming that all construction improvements have been completed, but prior to any closings.

3) The Gross Sellout revenue of 29 units.

This report includes the pertinent data secured in my investigation, any assumptions and limiting conditions, as well as the exhibits and the details of the processes used to arrive at my conclusions of value.


Property Description: The subject consists of a 0.87 vacant land parcel that is approved for the development of a 29 unit condominium building. The building will be comprised of 6 Market Rate Townhouses with an average unit size of 1,572-square feet, and 19 Market Rate Flats with an average unit size of 1,238-square feet. The building will also include 4 Affordable Rate Flats with an average unit size of 1,276-square feet. Our appraisal has developed the following value conclusions regarding the subject property:

AS IS

Value Type Market Value

Property Rights Appraised Fee Simple

Effective Date of Valuation April 25, 2018

Value Conclusion $4,225,000





AS COMPLETE

Revenue $13,400,000

GROSS SELLOUT

Value Type Revenue

Extraordinary Assumptions

An assumption, directly related to a specific assignment, as of the effective date of the

assignment results, which, if found to be false, could alter the appraiser’s opinions or

conclusions.

This appraisal is subject to the following Extraordinary Assumptions, which can have an effect

on the value conclusion of this report:

• That the subject property will be constructed according to plans and specification as

submitted to the appraisers.

• That the provided site costs are considered reasonable, as the appraiser is not a

licensed site engineer.

• AS COMPLETE - That the developer will complete construction on the entire project

prior to any sales occurring. This is not customary in subdivisions but is an assumption

in the report, as requested by the client.


Hypothetical Conditions

A condition, directly related to a specific assignment, which is contrary to what is known by the

appraiser to exist on the effective date of the assignment results, but is used for the purpose of

analysis.

This appraisal is not subject to any Hypothetical Conditions.

Respectfully submitted,

Christopher J. Otteau, MAI, AI-GRS Mario G. Carrico Principal Senior Appraiser New Jersey SCGREA #42RG00219400 New Jersey SCRREA #42RC00259200 New York SCGREA #46000049674 New York SCGREA #45000051312 Pennsylvania SCGREA #GA003794 CJO/MC/td

TABLE OF CONTENTS

PART I – INTRODUCTION ........................................................................................................ 1 Executive Summary .................................................................................................................... 1 Certification of the Appraisers .................................................................................................... 2

Subject Property Location Map .................................................................................................. 3 Subject Property Photos .............................................................................................................. 4 Date of Value Estimate ............................................................................................................... 9 Identification of Property ............................................................................................................ 9 Intended Users of the Appraisal .................................................................................................. 9

Intended Use of the Appraisal ..................................................................................................... 9

Real Property Interest Appraised .............................................................................................. 10 Definition of Market Value ....................................................................................................... 10

Scope of Work .......................................................................................................................... 11 Competency Provision .............................................................................................................. 13 Limiting Conditions, Assumptions and Hypothetical Conditions ............................................ 14

PART II – FACTUAL DESCRIPTIONS .....................................................................................18 Tax and Assessment Analysis ................................................................................................... 18 Ownership and History of Property .......................................................................................... 18 Area Analysis ............................................................................................................................ 19

Neighborhood Analysis ............................................................................................................ 25

Zoning & Land Use Regulations .............................................................................................. 28

Site Analysis ............................................................................................................................. 30 Proposed Improvement Analysis .............................................................................................. 36

Provided Plans .......................................................................................................................... 40 PART III – MARKET & VALUATION ANALYSIS .....................................................................47

Market Analysis ........................................................................................................................ 47 Highest and Best Use ................................................................................................................ 52

Scenario 1 - (As Is) ................................................................................................................... 54 Sales Comparison Approach ..................................................................................................... 54 Cost Approach .......................................................................................................................... 63

Income Approach ...................................................................................................................... 63

Scenario 2 – (As Complete) ...................................................................................................... 88

Sales Comparison Approach ..................................................................................................... 88 Cost Approach .......................................................................................................................... 88

Income Approach ...................................................................................................................... 89 Reconciliation of Scenario 2 (As Complete) ............................................................................ 91 Scenario 3 – (Gross Sellout Revenue) ...................................................................................... 92 Reasonable Marketing Time ..................................................................................................... 93 Reasonable Exposure Time....................................................................................................... 93

Final Value Summary ............................................................................................................... 94

PART IV – ADDENDUM ...........................................................................................................95 Professional Qualifications ....................................................................................................... 95 COAH Calculator.................................................................................................................... 102 Provided Construction Budget ................................................................................................ 103 Provided Approvals ................................................................................................................ 104 Subject Deed ........................................................................................................................... 117

Subject Tax Records ............................................................................................................... 124 Common Terminology ............................................................................................................ 128

1


PART I – INTRODUCTION Executive Summary

Property Description: The subject consists of a 0.87 vacant land parcel that is approved for the development of a 29 unit condominium building. The building will be comprised of 6 Market Rate Townhouses with an average unit size of 1,572-square feet, and 19 Market Rate Flats with an average unit size of 1,238-square feet. The building will also include 4 Affordable Rate Flats with an average unit size of 1,276-square feet. Location: 68-74 Ridgedale Avenue

Town of Morristown Morris County New Jersey

Block/Lot: Block 702, Lots 8, 9, 10, & 11 Property Use as of Valuation Date: Vacant Land Land Area: 0.87 acres / 37,990 square feet Utilities: Public Water, Public Sewer, Natural Gas Zoning: RG-R, Medium Density Residential Highest and Best Use – As Vacant: Multifamily Development

Highest and Best Use – As Improved: Not Applicable – Vacant Land

Marketing Time: Ten to Twelve Months Exposure Time: Ten to Twelve Months Value Indications:

AS IS









AS COMPLETE

Revenue $13,400,000

GROSS SELLOUT

Value Type Revenue

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Certification of the Appraisers

We certify that, to the best of our knowledge and belief:

The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, 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 as adopted by the Appraisal Foundation, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and revisions and the 2010 Interagency Appraisal and Evaluation Guidelines. 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 Standards of Professional Appraisal Practice of the Appraisal Institute.

Mario G. Carrico has made a personal inspection of the property that is the subject of this report. Christopher J. Otteau, MAI, AI-GRS conducted an exterior inspection of the subject.

We have performed services as appraisers regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment Ashley Stasio has provided research and report writing assistance to the person(s) signing this report with regard to legal description, taxes and assessments, history of property, zoning, comparable sales analysis, cost analysis and income analysis. As of the date of this report, Christopher J. Otteau, MAI, AI-GRS has completed the continuing education requirements for designated Members of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. We have completed the continuing education requirements of our active appraisal licenses indicated in the addendum of this report.

Christopher J. Otteau, MAI, AI-GRS Mario G. Carrico Principal Senior Appraiser New Jersey SCGREA #42RG00219400 New Jersey SCRREA #42RC00259200 New York SCGREA #46000049674 New York SCGREA #45000051312 Pennsylvania SCGREA #GA003794

3


Subject Property Location Map

4


Subject Property Photos

Front Views

5


Street Views

6


Front Views (As Complete)

7


Interior Views (As Complete)

8


Interior Views (As Complete)

9


Date of Value Estimate

The date of this report is June 6, 2018, which identifies when the appraisal valuation analysis

and report were prepared. The As Is effective valuation date of the subject property is based on

the date of physical inspection which occurred on April 25, 2018. The As Complete valuation

is based upon when all construction is anticipated to be completed on April 25, 2019.

Identification of Property

The subject property is commonly known as 68-74 Ridgedale Avenue, Town of Morristown,

Morris County, New Jersey. The subject property is located along Ridgedale Avenue, near the

intersection of Abbett Avenue. The current owner of record is Ridgewood Ave Partners LLC.

The subject will consist of 29 condominium units as summarized below:

Intended Users of the Appraisal

The intended user of the appraisal is the client, Mr. Jonathan Steingraber. Any reliance upon

this report by anyone other than the client is unintended.

Intended Use of the Appraisal

The intended use of the appraisal is to provide the client, Mr. Jonathan Steingraber, to

ascertain the As Is, and As Complete Market Value of the subject property for negotiating and

marketing purposes.

Unit

Square

Foot Bed / Bath Model Product Type Unit

Square

Foot Bed / Bath Model Product Type

101 1,585 2 BR / 3 BTH Type 1 Townhouse 302 1,200 2 BR / 2 BTH Type 7 Flat





106 1,585 2 BR / 3 BTH Type 1 Townhouse 307 1,110 2 BR / 2 BTH Type 5 Affordable Rate Flat

201 1,200 2 BR / 2 BTH Type 7 Flat 308 1,167 2 BR / 2 BTH Type 11 Flat





206 804 1 BR / 1 BTH Type 9 Affordable Rate Flat 402 1,200 2 BR / 2 BTH Type 7 Flat

207 1,110 2 BR / 2 BTH Type 5 Affordable Rate Flat 403 1,245 2 BR / 2 BTH Type 8 Flat

301 1,200 2 BR / 2 BTH Type 7 Flat 404 1,775 3 BR / 3 BTH Type 10 Affordable Rate Flat

405 1,392 2 BR / 2 BTH Type 3 Flat

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This report should not be relied upon for an unintended use or by any unintended users as it

may not contain sufficient information for adequate understanding by those unaccustomed to

reading appraisal reports, and thus, to rely upon this report may not serve the needs of other

intended uses not specifically listed.

Real Property Interest Appraised

The property rights appraised within this report consist of the fee simple estate within the

subject property.

The fee simple estate is defined as follows:

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.

Source: The Dictionary of Real Estate Appraisal, Fifth Edition, published by the Appraisal Institute, page 78 Definition of Market Value

Market Value is defined for purposes of the report as:

“The most probable price which a property should bring in a competitive 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:

▪ buyer and seller are typically motivated; ▪ both parties are well informed or well advised and each acting in what they

consider their best interests; ▪ a reasonable time is allowed for exposure in the open market; ▪ payment is made in terms of cash in U.S. dollars or in terms of financial

arrangements comparable thereto; and ▪ 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: 12 C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended at 57 Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994)

11


Scope of Work

Mr. Jonathan Steingraber authorized an appraisal of the subject property. This appraisal

report has been prepared in conformity with the current edition of the Uniform Standards of

Professional Appraisal Practice (USPAP). An appraisal is an estimate of value. An orderly

procedure is followed so as to arrive at this value estimate by which the appraisal problem is

defined; the work necessary to solve the problem is planned and the data involved is acquired,

classified, analyzed, interpreted and translated into an estimate of value. This entire procedure

is referred to as the appraisal process. In determining the value estimate of a parcel of real

estate, the appraiser may consider three (3) separate but interrelated approaches to value.

These are commonly known as the Sales Comparison Approach, Cost Approach and Income

Approach.

• The Sales Comparison Approach is based upon the proposition an informed purchaser

would pay no more for a property than the cost of acquiring an existing property with the

same utility. In applying this approach the appraiser extracts information from the

market for similar properties that have sold, which are then adjusted to the subject

property. A final interpretation is then made in order to arrive at a value estimate for the

subject property. Since this approach is based upon the reaction of typically informed

buyers and sellers, it is considered the most reliable methodology for most property

types.

• The Cost Approach is based upon the proposition that an informed purchaser would pay

no more for a property than the cost of producing a substitute property with the same

utility. This approach is particularly applicable when the property being appraised

involves relatively new improvements which represent the highest and best use of the

land or when relatively unique or specialized improvements are located on the site and

for which there exist no comparable properties that have either sold or are on the

market.

• The Income Approach is based on the understanding that discounted future income is

the logical basis of value. Specifically, net cash flow before recapture and debt service

provides the basis for capitalization. In this regard, the rate of discount will depend on

the perceived risk associated with an investment in the subject property. The

Subdivision Development Method is a "method of estimating land value when

subdivision and development are the highest and best use of the parcel of land being

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appraised. An appraiser deducts all direct and indirect costs and entrepreneurial profit

from an estimate of the anticipated gross sales price of the finished lots; the resultant net

sales proceeds are then discounted to present value at a market-derived rate over the

development and absorption period to indicate the value of the raw land" (The Dictionary

of Real Estate Appraisal, Fifth Edition, published by the American Institute of Real Estate

Appraisers).

VALUATION METHODOLOGY OF THE APPRAISAL

Approach Applicability to Subject Use in Assignment

Sales Comparison Approach Applicable Yes Cost Approach Applicable Yes Income Capitalization Approach Applicable Yes

The scope of work in developing this appraisal included the following:

1. Identification of the Appraisal Problem: Identification of the property, type of value, and property rights appraised. The appraisal estimates market value of the fee simple interest of the property.

2. Inspection of the Property: A property inspection was conducted on April 25, 2018 by Mario G. Carrico. The appraiser was granted complete access to the property.

3. Research & Verification: Collection of relevant facts related to the subject property including but not limited to zoning, utilities, land areas, restrictions, economic factors, demographic factors, easements and other pertinent factors which are considered germane to the assignment. Ashley Stasio has provided research assistance to the person(s) signing this report.

4. Comparable Sales Data: Collection and verification of the comparable data with one or more of the parties who have knowledge of the transactions including but not limited to buyers, sellers, brokers, lawyers, lenders, appraisers and government transfer and property records.

5. Highest & Best Use: Consideration of the highest and best use of the subject and other factors affecting value.

6. Valuation Analysis: Consideration of the recognized and accepted approaches to value and other analytical techniques, and the explanation and application of those which are considered to be the most appropriate to utilize in estimating value as well as providing the rationale for not utilizing those considered the least appropriate. The subject property has been valued taking into consideration all forces influencing value.

7. Conclusion: Reconciliation of the value estimates resulting from the utilization of the various approaches into a final value conclusion.

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Effective January 1, 2014, the Appraisal Standards Board revised the Uniform Standards of

Professional Appraisal Practice to reflect two report options: Appraisal Report and Restricted

Appraisal Report. The essential difference among these options is the content and level of

information provided. The appropriate reporting option and the level of information necessary in

the report are dependent on the intended use and the intended users.

An Appraisal Report may have the client as the only intended user but may also have other

intended users; specified parts of the research and development must be summarized; must

summarize information analyzed and reasoning that supports analyses, opinions and

conclusion.

A Restricted Appraisal Report must have the client as the only intended user. Research and

development need only be stated. A restricted appraisal must include a prominent use

restriction that limits the use of the report to the client and warns that the rationale for how

opinions and conclusions set forth were arrived at may not be properly understood without

additional information.

This property valuation was prepared in accordance with the requirements of the Appraisal

Report option of USPAP Standards.

Competency Provision

We are aware of the competency provision of the Uniform Standards of Professional

Appraisal Practice (USPAP). The author(s) of this report meets those standards. It is our opinion

that we are fully competent to perform this appraisal, because:

• We have full knowledge and experience in the nature of this assignment.

• All necessary and appropriate steps have been taken in order to complete the

assignment competently; and

• We do not lack any knowledge or experience that would prohibit this assignment from

being completed in a professional and competent manner, or where a biased or

misleading opinion of value would be rendered.

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Limiting Conditions, Assumptions and Hypothetical Conditions

The legal description furnished to us is assumed to be correct. We assume no responsibility for

the matters legal in character nor do we render any opinion as to the title, which is assumed to

be held in fee simple. All existing liens and encumbrances have been disregarded and the

property is appraised as though free and clear under responsible ownership and competent

management.

Title is assumed to be held in fee simple, unless otherwise noted, and no liens or

encumbrances, except those noted, were considered.

Possession of this appraisal report, or a copy thereof, does not carry with it the right of

publication, nor may it be used for any purpose by any but the applicant and then only with

proper qualification. Neither all nor any part of the contents of this report (especially

conclusions as to value, identity of the appraisers or the firm) shall be used for any purposes by

anyone but the client specified in the report nor shall it, or any part, be disseminated to the

public through advertising media, public relations consent or approval of the appraisers.

Further, the appraisers, or the firm, assume no obligation, liability, or accountability to any third

party. If this report is placed in the hands of anyone but the client, the client shall make such

party aware of all of the assumptions and limiting conditions of the assignment.

The appraisers have made no survey and the sketches in the report are for illustrative purposes

only.

We believe to be reliable the information which was furnished to us by others, but we assume

no responsibility for its accuracy.

Unless otherwise noted herein, it is assumed that there are no encroachments, easements,

zoning violations, use restrictions, or other conditions not evident upon surface inspection of the

property. Description of the physical condition of the improvements is based on a visual

inspection only. No liability is assumed for the soundness of structural members since no

engineering tests were made by the appraisers.

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Testimony and court appearances in connection with this appraisal are limited to those

situations for which prior arrangements have been made.

We reserve the right to recall this appraisal and make any amendments, corrections, or changes

that we may deem necessary.

This valuation must not be used in conjunction with any other appraisal.

On January 26, 1992, federal legislation entitled, The Americans with Disabilities Act (ADA)

became effective. The appraisers have not been provided with a compliance survey nor has

any analysis been made to determine whether or not the subject is in conformity with the

requirements of the ADA. It is possible that compliance with the act will require expenditures for

barrier removal construction. Such expense, if required, could have a negative impact on the

value of the subject. This appraisal is expressly made under the assumption that the subject is

in compliance with ADA, or that there are no significant measurable required expenditures for

compliance with ADA that would have a negative impact on the value or marketability of the

subject.

The appraisers are not qualified to test for the presence of Hazardous substances. The

presence of such hazardous substances or environmental conditions may affect the value of the

property. The valuation contained in this appraisal assumed that the property is not polluted or

otherwise contaminated and does not reflect any diminution of value as a result of

environmental conditions. This valuation is subject to change depending on the availability of

information concerning the environmental condition of the property in question.

The Freshwater Wetlands Protection Act restricts the use and development of freshwater

wetlands. Effective July 1, 1988 the DEP was established as the reviewing and approving

authority for all development within or adjacent to freshwater wetlands. This legislation

established certain development criteria including, but not limited to, variable buffers around

authorized development adjacent to freshwater wetlands.

The identification and delineation of freshwater wetlands on the subject property, if any, has not

been brought to our attention nor did we become aware of any such delineations during our

inspection of the subject nor during our investigations for this report; however, the appraisers

16


are not qualified to render a professional opinion as to the presence or extent of freshwater

wetlands. The reader is advised to seek competent, professional advice in identifying any such

potential freshwater wetlands since identification and delineation of any freshwater wetlands

within the subject boundaries could have significant impact upon values thereby requiring

appraisal revision.

The subject site may have underground fuel storage tank(s). The underground tank(s) could be

a liability. Neither the composition not the condition of the tanks is known to the appraisers.

The typical life expectancy of an underground tank is 15 to 20 years, (federal guidelines suggest

a 10-year life span). Soil contamination could occur if a tank leaks and would be costly to clean

up. Without a detailed physical inspection of the tanks and the surrounding soil, it is impossible

to estimate potential clean-up costs. Therefore, this analysis does not cover such

contingencies.

The appraisers are not experts in such matters as soils, structural engineering, hazardous

waste, environmental assessment, etc., and no warranty is given as to these elements.

Similarly, the appraisers are not certified building inspectors or structural engineers and have

therefore assumed the electrical, mechanical, plumbing, roofing and HVAC systems to be

adequate and in normal operating order at the time of inspection. Further, the appraisers have

performed a surface inspection only and has not inspected any scuttle attic areas or crawl

basements as this exceeds the normal scope of work for appraisal purposes. Accordingly, this

appraisal has been developed based upon the assumption that problems do not exist in these

areas. The Intended User is advised to have qualified experts in these fields perform an

inspection of the subject property with the final estimate of value set forth herein being subject

to their findings.

Extraordinary Assumptions

An assumption, directly related to a specific assignment, as of the effective date of the

assignment results, which, if found to be false, could alter the appraiser’s opinions or

conclusions.

This appraisal is subject to the following Extraordinary Assumptions, which can have an effect

on the value conclusion of this report:

17


• That the subject property will be constructed according to plans and specification as

submitted to the appraisers.

• That the provided site costs are considered reasonable, as the appraiser is not a

licensed site engineer.

• AS COMPLETE - That the developer will complete construction on the entire project

prior to any sales occurring. This is not customary in subdivisions but is an assumption

in the report, as requested by the client.

Hypothetical Conditions

A condition, directly related to a specific assignment, which is contrary to what is known by the

appraiser to exist on the effective date of the assignment results but is used for the purpose of

analysis.

This appraisal is not subject to any Hypothetical Conditions.

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PART II – FACTUAL DESCRIPTIONS

Tax and Assessment Analysis

According to the official records of the Morris County Board of Taxation, the subject property is legally described as Block 702, Lots 8, 9, 10, & 11, Town of Morristown, Morris County, New Jersey. 2017 Assessments:

Based on the value estimate contained within this appraisal analysis, current assessments

appear low. The appraisers have projected the taxes on the land once fully assessed as

follows:

Ownership and History of Property

The current owner of record is Ridgewood Ave Partners LLC.

Previous Sales

Last Transfer of Title: October 14, 2016 Grantor: Ridgedale Commons at Morristown, LLC Grantee: Ridgewood Ave Partners LLC Consideration: $ 2,200,000.00 Recording Information:

Date: October 24, 2016 Book: 23011 Page: 1637

Address Block Lot

Land

Value

Improvement

Value

Total

Value

Tax

Rate

2017

Taxes

EQ

Ratio EQ Tax Value

74 Ridgedale Avenue 702 8 $160,200 $0 $160,200 $2.760 $4,421.52 72.42% $221,209.61




$636,200 $0 $636,200 $17,559.12 $878,486.61Total

Land Value $4,225,000

Equalization Ratio 72.42%

Equalized Value $3,059,745

Tax Rate 2.689%

Projected Taxes $82,277

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The subject property is not currently listed for sale in either the Garden State MLS, CoStar,

LoopNet or Zillow. Change in value since acquisition is attributed to partially completed site

improvements and improved market conditions. The appraisers discovered a Facebook page

(https://www.facebook.com/RidgedaleCommons/) that advertised flats starting at $435,000, and

townhouses starting at $525,000. The page further indicates all units are sold out as of

November 28, 2017. The appraisers contacted the client, Mr. Jonathan M. Steingraber,

regarding this page, who stated “Weichert falsely put out LOI's without legally being allowed to

do so since they were not registered with Department of Community Affairs and did not have

BYLAWS or MASTER DEED in place for HOA association. They got $1,000 refundable LOI's for

people to hold units at low prices and sold out in 2 weeks. None of those LOI's are currently in

place and are not a true reflection of the price on the condos.”

Our investigation of the property indicates no additional transfers of title, leases, options, listing

agreements or pending purchase contracts regarding the subject property within the past 5

years.

Area Analysis

The subject property is located within Morris

County, which is located just 35 miles west of

New York and 20 miles east of Pennsylvania.

Morris County, part of the Newark

Metropolitan Area, is one of the faster

growing counties in New Jersey. With a land

area of 469 square miles and an estimated

2018 population of 498,852, makes Morris

one of the northern region's less densely

populated counties. While the county has

become increasingly suburban with most residents living in the eastern portion, many parts

retain a rustic nature, enhanced by many lakes and wooded areas. Morris County has a

predominantly nonfarm economy, but some agriculture, such as dairy and livestock, fruit

orchards and field crops, is evident in the western portion of the county despite advancing

suburban development.

Major roadways in Morris County include I-287, I-80, Route 46, Route 206, Route 202 and

Route 24. New Jersey Transit serves thousands of county commuters while rail services are

https://www.facebook.com/RidgedaleCommons/

20


provided by the Norfolk Southern Railway, the Morristown & Erie Railroad and the New York,

Susquehanna and Western Railroad. Bus service is also available and the county hosts 2

airports.

The county’s skilled labor pool, extensive road network and available rail transportation all

contributed to its history of attracting employers. According to the Greater Raritan Workforce

Development Board, the largest employer in Morris County is Atlantic Health System, employing

approximately 7,900 people. Other major employers in the county with 2,000-5,000 employees

include Novartis, Bayer, and UPS. Also noteworthy, is that there are 2,650 state government

employees located in Morris County.

Population growth in Morris County has slowed down since 2010 to 1.34%, which is lower than

the state’s growth rate of 2.01%. The age of Morris County’s residents is higher than the state,

with a median age of 42.90 years compared to 40.13 statewide.

Population % %

2000 Estimate 470,297 8,414,361

2010 Census 492,276 8,791,894

2018 Census 498,852 8,968,348

Growth 2000 - 2010 4.67 4.49

Growth 2010 - 2018 1.34 2.01

2018 Est. Median Age 42.90 40.13

2018 Est. Average Age 41.30 40.10

POPULATION FACTS & TRENDS

Morris County New Jersey

Source: US Census Bureau; Environics Analytics; Otteau Group, Inc.

Household formation in Morris County is consistent with the state. With a 2.17% growth rate

over the past eight years, compared to the statewide increase of 2.15%. Also of importance is

that 64.43% of households in the county have no children under the age of 18 living at home,

which is consistent with statewide trends.

21


Households % %

2000 Estimate 169,741 3,064,642

2010 Census 180,534 3,214,360

2018 Census 184,452 3,283,467

Growth 2000 - 2010 6.36 4.88

Growth 2010 - 2018 2.17 2.15

Households with 1 or More People under Age 18: 65,613 35.57 1,147,467 34.95

Households with No People under Age 18: 118,839 64.43 2,136,000 65.05

2018 Est. Households by Number of Vehicles 270,283 3,283,467

No Vehicles 9,046 4.90 369,693 11.26

2018 Est. Households by Household Size 184,452 3,283,467

1-person 44,509 24.13 840,588 25.60

2-person 56,132 30.43 969,133 29.52

3-person 32,154 17.43 574,259 17.49

4-person 31,422 17.04 504,518 15.37

5-person 13,695 7.42 238,090 7.25

6-person 4,440 2.41 92,912 2.83

7-or-more-person 2,100 1.14 63,967 1.95

2018 Est. Average Household Size 2.66 2.67

HOUSEHOLD FACTS & TRENDS



In term of education attainment over half of county residents have a bachelor’s degree or

higher, which is much higher than statewide figures. On average residents in the county have a

33-minute commute, which is slightly less than the statewide average of 34 minutes.

% %

2018 Est. Pop Age 25+ by Edu. Attainment 348,400 6,198,293

Bachelor's Degree 104,085 29.88 1,435,321 23.16

Master's Degree 56,024 16.08 638,910 10.31

Professional School Degree 12,751 3.66 150,864 2.43

Doctorate Degree 7,284 2.09 92,496 1.49

2018 Est. Pop 16+ by Occupation Classification 263,894 4,366,606

White Collar 196,640 74.52 2,857,215 65.43

Blue Collar 32,696 12.39 769,006 17.61

Service and Farm 34,558 13.10 740,385 16.96

2018 Est. Workers Age 16+ by Transp. to Work 257,746 4,274,982

Drove Alone 203,989 79.14 3,071,466 71.85

Car Pooled 17,419 6.76 326,508 7.64

Public Transportation 13,689 5.31 488,241 11.42

Walked 5,036 1.95 135,928 3.18

Bicycle 422 0.16 13,930 0.33

Other Means 2,434 0.94 64,012 1.50

Worked at Home 14,757 5.72 174,897 4.09

2018 Est. Avg Travel Time to Work in Minutes 33.00 34.00

2018 Est. Average Number of Vehicles 1.90 1.70

EDUCATION & EMPLOYMENT



Household income in Morris County is greater than statewide figures, with an average

household income of $156,028 and median of $110,518.

22


% %

2018 Est. Households by HH Income 184,452 3,283,467

Income < $15,000 7,754 4.20 282,134 8.59

Income $15,000 - $24,999 8,678 4.71 247,013 7.52

Income $25,000 - $34,999 8,082 4.38 235,878 7.18

Income $35,000 - $49,999 13,664 7.41 334,600 10.19

Income $50,000 - $74,999 23,310 12.64 489,727 14.91

Income $75,000 - $99,999 22,106 11.98 394,820 12.02

Income $100,000 - $124,999 19,670 10.66 327,067 9.96

Income $125,000 - $149,999 16,142 8.75 247,394 7.54

Income $150,000 - $199,999 22,689 12.30 297,768 9.07

Income $200,000 - $249,999 12,326 6.68 145,948 4.45

Income $250,000 - $499,999 17,153 9.30 177,176 5.40

Income $500,000+ 12,878 6.98 103,942 3.17

2018 Est. Average Household Income $156,028 $112,273

2018 Est. Median Household Income $110,518 $78,026

2018 Est. Families by Poverty Status 131,498 2,268,374

2018 Families at or Above Poverty 127,506 96.96 2,084,580 91.90

2018 Families at or Above Poverty with Children 57,631 43.83 953,814 42.05

2018 Families Below Poverty 3,992 3.04 183,794 8.10

2018 Families Below Poverty with Children 2,716 2.06 139,468 6.15

INCOME



The median home price in Morris County is $444,133 which is 33% greater than the statewide

median of $333,253. Most of the homes in Morris County are single family detached (65.94%),

with an average age of 47 years.

% %

2018 Est. Occupied Housing Units by Tenure 184,452 3,283,467

Owner Occupied 137,517 74.55 2,132,497 64.95

Renter Occupied 46,935 25.45 1,150,970 35.05

2018 Owner Occ. HUs: Avg. Length of Residence 18 18

2018 Renter Occ. HUs: Avg. Length of Residence 7 7

2018 Est. Median All Owner-Occupied Housing Value $444,133 $333,253

2018 Est. Housing Units by Units in Structure 195,304 3,654,659

1 Unit Attached 15,769 8.07 340,301 9.31

1 Unit Detached 128,792 65.94 1,946,394 53.26

2018 Est. Median Year Structure Built 1971 1968

HOUSING



23


The subject property is located within the Town

of Morristown, which is situated at the south

eastern portion of Morris County. Morristown is

a town and county seat of Morris County, New

Jersey, United States. Morristown has been

called "the military capital of the American

Revolution" because of its strategic role in the

war for independence from Great Britain. Today

this history is visible in a variety of locations

throughout the town that collectively make up

Morristown National Historical Park.

According to the United States Census Bureau, Morristown had a total area of 3.026 square

miles, including 2.929 square miles of land and 0.097 square miles of water (3.22%).

Morristown is completely surrounded by Morris Township, making it part of 21 pairs of

"doughnut towns" in the state, where one municipality entirely surrounds another.

As of the 2010 United States Census, there were 18,411 people, 7,417 households, and 3,649

families residing in the town. The population density was 6,284.9 per square mile. There were

8,172 housing units at an average density of 2,789.6 per square mile.

There were 7,417 households out of which 22.7% had children under the age of 18 living with

them, 31.1% were married couples living together, 12.0% had a female householder with no

husband present, and 50.8% were non-families. 38.8% of all households were made up of

individuals, and 9.5% had someone living alone who was 65 years of age or older. The average

household size was 2.40 and the average family size was 3.13.

The median household income was $64,279 and the median family income was $66,070. The

per capita income for the borough was $37,573. About 10.2% of families and 9.5% of the

population were below the poverty line, including 16.1% of those under age 18 and 8.8% of

those age 65 or over.

The Morris School District is a regional public-school district that serves students in pre-

kindergarten through twelfth grade from the communities of Morristown and Morris Township,

24


and high school students (grades 9-12) from Morris Plains who attend the high school as part of

a sending/receiving relationship with the Morris Plains Schools. As of the 2014-15 school year,

the district and its 10 schools had an enrollment of 5,123 students and 426.7 classroom

teachers, for a student–teacher ratio of 12.0:1. Schools in the district are Lafayette Learning

Center (PreK), Hillcrest School (K-2), Alfred Vail School (K-2), Woodland School (K-2),

Alexander Hamilton School (3-5), Thomas Jefferson School (3-5), Sussex Avenue School (3-5),

Normandy Park School (K-5), Frelinghuysen Middle School (6-8) and Morristown High School

(9-12).

In addition to a public-school system, Morristown has several private schools. Primary and

elementary schools include The Red Oaks School, a Montessori school serving students from

pre-school through grade eight. Assumption Roman Catholic is a grade school (K-8) that

operates under the auspices of the Roman Catholic Diocese of Paterson and was one of 11

schools in the state recognized in 2014 by the United States Department of Education's

National Blue Ribbon Schools Program. The Peck School, a private day school which serves

students in kindergarten through grade eight, dates back to 1893. The Delbarton School is an

all-boys Roman Catholic school with students in grades seven through twelve. The Morristown-

Beard School, a private co-ed school formed from the merger of two previously existing

institutions, Morristown Preparatory School and Miss Beard's School, serves grades 6 through

12. In addition, Villa Walsh Academy, a private Catholic college preparatory school conducted

by the Religious Teachers Filippini, is located in Morristown.

NJ Transit local bus service is offered from the Morristown rail station, Morristown Medical

Center and Headquarters Plaza on the 871, 872, 873, 874, 875 and 880 bus routes, replacing

service that had been offered on the MCM1, MCM2, MCM3, MCM4, MCM8 and MCM10 routes

until 2010, when subsidies to the local provider were eliminated as part of budget cuts.

25


Neighborhood Analysis

The neighborhood is bound by Morris Plains to the north, Madison to the east, Mendham to the

west and Randolph to the west. The subject property’s neighborhood area is given over to

commercial retail and office use, light industrial uses, small income properties, apartment

buildings such as Park Plaza and Morristown Court, condominium developments and single

family uses. Located to the rear of the subject site is a JCP&L transmission which will be

slightly visible from some of the subject’s units. Neighborhood appeal is enhanced by close

proximity to Morristown train station, Interstate 287 and Route 24. Morristown train station

offers commuters access to New York City, Interstate 287 connects to New York State to the

north, and Route 24 connects to Interstate 78 and New York City to the east. The subject’s

neighborhood area has the following market trend and characteristics:

The subject property’s proposed use is considered well suited for its neighborhood location.

The properties in this neighborhood area are serviced by the availability of electricity,

telephones, municipal water, municipal sewerage and natural gas lines. The costs to property

owners for these utilities are competitive with those of surrounding communities.

26


The four stages of a neighborhood area’s life cycle when analyzing the growth rate are as

follows:

• Growth – period during which the market gains public favor and acceptance

• Stability – period of equilibrium without marked gains or losses

• Decline – period of diminishing demand

• Revitalization – period of renewal, redevelopment, modernization, and increasing demand

The subject property’s neighborhood is considered to be in the stability stage indicated by its

stable pricing.

Subject Neighborhood View

27




28


Zoning & Land Use Regulations

As depicted in the zoning map below the subject property is located within the RG-R, Medium

Density Residential zoning district of the subject municipality.

The following are principal permitted uses within this zoning district:

1. Garden Apartments 2. Multiple-family dwellings 3. All uses permitted in the RG District

a. Single-family detached dwelling, including the renting of not more than 1 room to not more than 1 paying guest, provided that no cooking is done in such room

b. One- and two-family detached or semi-detached dwelling having no common cooking or bathroom facilities, with no more than 2 dwelling units per floor

c. Residential use of a Carriage House

The following are the area and yard requirements for one and two family uses within this zoning

district:

Minimum Lot Size 21,780 square feet Minimum Lot Width 125 feet

Minimum Lot Depth 125 feet Minimum Front Yard 40 feet

Minimum Side Yard 20 feet each side Minimum Rear Yard 50 feet Maximum Lot Coverage 20% Maximum Bldg Coverage 30% Maximum Building Height 35 feet (3 Stories)

29


The following are the area and yard requirements for three and four family uses within this

zoning district:



Minimum Side Yard 18 feet each side Minimum Rear Yard 35 feet Maximum Lot Coverage 25% Maximum Bldg Coverage 35% Maximum Building Height 35 feet (3 Stories) The following are the area and yard requirements for garden apartments within this zoning

district:



Minimum Side Yard 30 feet each side Minimum Rear Yard 60 feet Maximum Lot Coverage 50% Maximum Bldg Coverage 75% Maximum Building Height 45 feet (4 Stories)

For a detailed description of the requirements for this zoning district, the reader is referred to the

Zoning Ordinance of the subject municipality. The subject property is considered a permitted

use on a conforming lot.

On July 9, 2014, the applicant, Ridgedale Commons at Morristown, LLC, received Variance

Relief and Preliminary / Final Site Plan Approval via Application #2307 for the subject property.

The approvals are for the construction of a three-story residential condominium building. The

building shall contain a total of 29 for-sale condo units: 21 2-bedroom apartments, a 3-bedroom

apartment and a 1-bedroom apartment. Four units, consisting of two 2-bedroom units, the 3-

bedroom unit and the 1-bedroom unit, will be set aside as affordable housing units which will be

sold at approximately one-half their fair market value. A copy of these approvals is located

within the addendum section of this report.

30


Site Analysis

The following site description is based on the physical inspection of the subject, tax map, flood

maps, survey and other public records.

General Data

MSA/Census Tract: MSA: 35084; Census Tract: 5640.0436.00 Block/Lot: Block 702, Lots 8, 9, 10, & 11

Physical Description

Site Area: 0.87 Acres / 37,990 Square Feet Frontage and Dimensions: 200.00’ along Ridgedale Avenue, 200’ x 176.62’ Shape: Irregular, Interior Parcels Topography: Level Vegetation: Minimal vegetation

Site Improvements

On Site Improvements: Proposed: Paved parking lot, curbing, sidewalks, irrigation system, signage, fencing, subject building

Off Site Improvements: Public paved roadway, curbing, sidewalks and street lighting. Utilities: Public Water, Public Sewer Parking: 49 Proposed Parking Spaces: 12 Tandem Spaces in Garage Area

of which 2 are assigned per Townhouse. 24 Surface Spaces will be assigned 1 per flat unit. 13 Garage Spaces will be unassigned and available for guest parking.

Parking Rating: Adequate for the subject’s proposed use

Flood Zone

Flood Zone Panel: Map #3403520002D, dated July 3, 1986 Flood Zone: C

Site Conditions

Easements: No Recorded Easements have been discovered Soils: Assumed adequate based on existing and surrounding

improvements. Environmental: An environmental assessment was not provided for review.

Therefore, this report assumes no environmental issues exist.

Site Ratings

Location: Average Access: Average Exposure: Average Site Improvements: Average

Comments

The site is considered well suited for its proposed use.

31


Subject Property Tax Map

32


Subject Property Site Plan

33


34


35


Subject Property Flood Map

36


Proposed Improvement Analysis

The following proposed improvement description is based on the physical inspection of the

subject, assessor records and information provided by the client.

General Data

Property Type 29 Unit Condominium Subdivision – Consisting of 6 Townhouses, 19 Flats, and 4 Affordable Rate Flats

Building Class: Class D Number of Stories: Townhouses: Two-Stories Per Unit / Flats: Single-Story Parking Spaces: 49 Proposed Parking Spaces: 12 Tandem Spaces in Garage Area

of which 2 are assigned per Townhouse. 24 Surface Spaces will be assigned 1 per flat unit. 13 Garage Spaces will be unassigned and available for guest parking.

Proposed Unit Break Down

Age

Year Built/Age Proposed Completion of 2019 / New

Exterior

Foundation: Concrete Slab Framing: Wood, Steel, Wood Frame over Concrete Garage Structure Exterior Walls: Assumed Mixed Brick, Vinyl, Clapboard Roofing: Assumed Flat Buildup Doors / Windows: Assumed Insulated Vinyl Windows, Metal Framed Doors

Product Type Bed / Bath Model Unit Count

Square

Foot

Townhouse 2 BR / 3 BTH Type 2 4 1,565

Townhouse 2 BR / 3 BTH Type 1 2 1,585

Flat 2 BR / 2 BTH Type 7 6 1,200


Flat 2 BR / 2 BTH Type 11 2 1,167

Flat 2 BR / 2 BTH Type 12 2 1,167





Affordable Rate Flat 3 BR / 3 BTH Type 10 1 1,775

Affordable Rate Flat 2 BR / 2 BTH Type 5 2 1,110

Affordable Rate Flat 1 BR / 1 BTH Type 9 1 804

37


Interior

Floors: Vinyl, Tile, Carpeting, Wood, Concrete Walls: Gypsum Ceiling: Gypsum Ceiling Height: Typical Basement: No Basement

Mechanical

Heating: Gas Fired Forced Warm Air Separate system for each unit

Cooling: Central Air Conditioning Separate system for each unit

Plumbing: Public Water & Sewer Fire Protection: Assumed Smoke Detectors / Wet Sprinkler System in Common

Areas Electrical: Standard Amp Service Per Unit– Separate system for each unit -

Service is considered adequate the subjects proposed use. Elevators: One

Improvement Ratings

Quality: Average Condition: New Functional Utility: Average

Furniture, Fixtures and Equipment (FF&E)

This appraisal excludes any valuation of FF&E and only provided an appraisal of the real estate only.

Construction Costs

Completed site development costs have provided by the developer at $400,996. Additionally, the developer has provided a cost of $268,427 which is to be completed long with the vertical construction due to the design of the building which will therefore be incorporated into the construction costs. The developer has provided construction costs for these dwellings totaling $5,198,173, which equals to $137.71 per square foot of living area and appears on the following page.

38


Based upon the appraisers’ knowledge and own cost estimation based upon Marshal and Swift, these provided costs appear reasonable. The appraisers have estimated the construction costs to be $5,536,979 which equates to $146.69 per square foot of livable area. The appraisers will therefore be reconciling at $5,284,44, or $140.00 per square foot of living area. These costs will be adjusted upwards slightly to including upgrades. See the appraiser Marshal and Swift Analysis below:

39


Marshall & Swift Section 12, Page 16 Marshall & Swift Section 12, Page 16

Building Class D - Good Building Class D - Low Cost (COAH)

Building Type Multiple Residences Building Type Multiple Residences

Base Cost 99.91 Base Cost 54.13

Sprinkler System 2.06 Sprinkler System 2.06

101.97 56.19

Building Perimeter Multiplier 1.00 Building Perimeter Multiplier 1.00

101.97 56.19

Story Height Multiplier 1.00 Story Height Multiplier 1.00

101.97 56.19

Regional Multiplier 1.08 Regional Multiplier 1.03

110.13 57.88

Local Multiplier 1.30 Local Multiplier 1.30

Total Base Cost 143.17 Total Base Cost 75.24

Major Components

Description Square Feet Unit Cost Lump Sum

Multiple Residences 32,947 143.17 4,717,022

Multiple Residences 4,799 75.24 361,077

Total Building 5,078,099

Structured Parking for 25 Vehicles 8,500 35.00 297,500

Elevator 161,380

Total Building 5,536,979

Price Per SF of Livable Area 37,746 146.69$

Cost Analysis

40


Provided Plans

41


42


43


44


45


46


47


PART III – MARKET & VALUATION ANALYSIS

Market Analysis

The national economy has been

creating jobs at a faster rate this year

and is on pace to gain 2+-Million jobs

for the 8th consecutive year. Year-to-

date (January-March), the US added

605,000 non-farm jobs. Should this

pace continue, 2.5-Million jobs will be

added by year-end, the strongest year

for job growth since 2015. As a result

of the continued growth, the U-3

unemployment rate stands at 4.1% for the sixth consecutive month, its lowest reading in 18

years. Further evidence of economic progress can be seen in the U-6 unemployment rate,

which includes workers who have accepted part-time jobs because they could not find a full-

time job, as well as those who have given up on finding employment, which has now fallen

below its pre-recession level.

After disappointing job growth in 2017,

which had fallen by 30% from the prior

year, statewide job creation has been

extraordinary year-to-date. In the first

quarter, New Jersey added 33,500

non-farm jobs. Should this pace

continue, 148,400 jobs will be added

by year-end, the strongest year for job

growth on record, dating back to

1990. Despite increased job creation,

the U-3 unemployment rate remained at 4.6% for the second consecutive month. While this is

higher than the 4.1% national rate, this represents significant improvement over the trend from

2011 – 2013 when the State’s unemployment situation was significantly worse.

48


After two consecutive

months of record-breaking

home sales in New

Jersey, the number of

purchase contracts

contracted by 6% in

March compared to the

prior year. As a result, the

number of year-to-date

purchase contracts

(January-March) in New

Jersey was down by 1%, or roughly 300 contracts. While misinformation about the newly

implemented tax reform is partially to blame, statewide housing inventory is under-supplied,

giving home-buyers fewer options.

While the number of year-

to-date home sales has

declined overall, that is

not the case for all price

ranges. Contract activity

for luxury priced homes

over $2.5-Million has

increased by 13% year-

on-year. This impressive

gain is somewhat

misleading, however,

given the smaller sample

size of sales within this price point. At the opposite end of the spectrum, contract activity for

homes priced under $400,000 saw the largest decline (-3%), which is largely due to the

shortage of supply within this range.

49


Shifting to the supply side

of the equation, inventory

remains restricted, which

is limiting choices for

home buyers. The

number of homes being

offered for sale today in

New Jersey has fallen to

its lowest point since

2005, having declined by

4,500 (-11%) over the

past year. This is also

about half the amount of homes (36,000 fewer) on the market compared to the cyclical high in

2011. Today’s unsold inventory equates to just 3.5 months of sales (non-seasonally adjusted),

which is lower than one year ago, when it was 3.7 months.

Currently, all of New Jersey’s 21 counties

have less than 8.0 months of supply, which

is a balance point for home prices. Essex

and Middlesex counties have the strongest

market conditions in the state with 2.5

months of supply, followed by Union,

Monmouth, Hudson, Morris, Somerset,

Bergen, Burlington, Passaic and Camden

Counties, which all have 3.5 months of

supply or less. The counties with the largest

amount of unsold inventory (5 months or

greater) are concentrated in the southern

portion of the state including Salem (5.7),

Cape May (5.8), Atlantic (5.9) and Salem

(6.7), however, these counties have shown vast improvement and are exhibiting strengthening

conditions.

50


Focusing next on housing market conditions in the Morris County submarket area, it had a 4-

month supply of unsold housing inventory in Q1 (non-seasonally adjusted), unchanged from 4

months one year earlier. This compares to 5 months of unsold inventory for the state overall

indicating that county market conditions slightly better than what’s occurring at the state level.

MORRIS COUNTY COMPOSITE 1st Quarter At-A-Glance

455

535

690637

726 737

606 591

529 535 525

375

1889

2044

2191

24092481 2454

2383 2359 2331

2108

1821

1604

0

500

1000

1500

2000

2500

3000

0

200

400

600

800

1000

1200

1400

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Un

so

ld I

nven

tory

Co

ntr

act

Sale

s

MORRIS COUNTY COMPOSITE2018

2017 Contract Sales 2018 Contract Sales 2017 Unsold Inventory 2018 Unsold Inventory

2014 2015 2016 2017 2018

Average # Of Offerings/Monthly 682.0 733.7 885.0 831.0 809.7

Average # Of Sales/Monthly 381.0 436.7 562.0 560.0 529.0

Supply & Demand Ratio 56% 60% 64% 67% 65%

Unsold Inventory 2339 2400 2721 2191 1906

Total Market 6 5 5 4 4

Less than $400k 6 5 4 3 2

$400k - $599,999 5 5 5 4 3

Less than $600k 6 5 4 3 3

$600k - $1 million 7 6 6 5 5

$1,000,001 - $2.5 mil. 9 10 10 10 9

Greater than $2.5 mil. 29 18 34 27 21Pro

ject

ed A

bso

rpti

on

(mon

ths)

51


At the local level, the Town of Morristown had a 3-month supply of unsold housing inventory at

the end of the 1st quarter, which was more from one year earlier when unsold inventory equated

to 2 months of supply and the lowest of the past 5 years. The pace of home sales in Morristown

during the 1st Quarter of 2018 also decreased compared to the pace of the prior year.

52


Highest and Best Use

Highest and best is defined on page 333 in The Appraisal of Real Estate, Fourteenth Edition, published by the Appraisal Institute, as:

The reasonably probable use that produces the most benefits and highest land value at any given time.

A property's highest and best use must be analyzed as vacant and as improved, for several

reasons. The highest and best use analysis, as vacant, allows for the property selection of land

comparables to derive a property's land value and also used to measure a building's value

contribution. The highest and best analysis, as improved, determines whether the existing

improvement should continue to be used, or demolished, as well as analyzing how the property

as improved should be used.

The highest and best use of both land as though vacant and property as improved must meet

four criteria. The highest and best use must be 1) physically possible, 2) legally permissible, 3)

financially feasible, and 4) maximally productive (The Appraisal of Real Estate, Fourteenth

Edition, published by the Appraisal Institute, page 335, hereafter referred to as The Appraisal of

Real Estate). Each of these four criteria will be defined and explained based upon information

found on pages 340-350 of The Appraisal of Real Estate.

Legally Permissible: Private restrictions, zoning, building codes, historic zoning controls, and environmental regulations must be investigated because they may preclude many potential highest and best uses. In addition, a long-term lease on a property may place limits on the property's use.

• As Vacant - The subject is located in the RG-R, Medium Density Residential Zone of the Town of Morristown, which specifically permits multifamily uses. Additionally, the subject has municipal approvals for development. The site appears to be legally permissible for development under existing zoning conditions.

• As Improved –Not applicable as subject property consists of unimproved land. Physically Possible: The size, shape, area, and terrain of a parcel of land affect the uses to which it can be developed. The utility of the parcel may depend on its frontage and depth, while certain parcels only attain their highest and best use as part of a land assemblage. In addition, the capacity and availability of public utilities is also vital to its physically possible use.

• As Vacant –Per the provided site engineering plans, which appear in this report, the subject property is physically possible to use for multifamily development purposes

• As Improved –Not applicable as subject property consists of unimproved land.

53


Financially Feasible: After determining which uses are physically possible and legally permissible, these uses are analyzed further to determine which are likely to produce an income, or return, equal to or greater than the amount needed to satisfy operating expenses, financial obligations, and capital amortization. In determining financial feasibility, estimates of future gross income, vacancy and collection losses, and operating expenses are estimated for each potential use, to obtain their likely net income. If the net revenue capable of being generated is enough to satisfy the required rate of return on an investment and provide a return to the land, the use is financially feasible within some price limit.

• As Vacant – The subject is located in a submarket with a healthy absorption and demand for multifamily use. Based upon the appraiser’s analysis of land plus construction costs, the subject site is considered financially feasible to develop for multifamily purposes.

• As Improved – Not applicable as subject property consists of unimproved land. Maximally Productive: Of the financially feasible uses, the use that produces the highest price, or value, consistent within the rate of return warranted by the market for that use is the highest and best use. In considering the property's highest and best use as improved, a comparison is made between the existing improvements and the ideal improvement to determine the contribution of the improvements to the overall value. The highest and best use analysis is applicable in estimating the property's market value, while in estimating its use value, the current use is deemed to be its highest and best use.

• As Vacant – An analysis of all potential uses for the subject property indicates that multifamily development yields the highest value and is most suitable to the surrounding neighborhood area and therefore maximally productive as if vacant.

• As Improved –Not applicable as subject property consists of unimproved land.

Highest & Best use Conclusion:

• As Vacant - The subject’s highest and best use as vacant is considered to be for multifamily development to the limits provided by the Town of Morristown based upon the tests of Physically Possible, legally Permissible, Financially Feasible and Maximally Productive.

• As Improved – Not applicable as subject property consists of unimproved land.

54


Scenario 1 - (As Is)

Sales Comparison Approach

The Sales Comparison Approach is based upon the proposition that an informed purchaser

would pay no more for a property than the cost of acquiring an existing property with the same

utility. This approach is applicable when an active market provides sufficient quantities of

reliable data that can be verified from authoritative sources.

Land Value: The following vacant land sales have been carefully considered and compared to

the subject property so as to provide an indication of its land value as if vacant and available to

be put to its "highest and best use":

55


Land Sale 1

Block / Lot

Sale Date

Deed Recording

Grantor

Grantee

Consideration

Financing

Rights Conveyed

Concessions

Site Area (Square Feet)

Site Area (Acres)

Units Approved

Unit Value Per Square Foot

Unit Value Per Acre

Unit Value Per Unit Approved

Verification Source


Site Area (Acres)

Utilities

Zoning

All Public Available

RA-5B, Residential-SFA, MF 2 Acres

Comments

This is the sale of 2 contiguous vacant land parcels totalling 1.59 acres, with approvals for 16 townhouses in place at the time of

sale. This sale is considered a good comparable to the subject property. There are no reported sales of this property within the

three years prior to this transfer. The broker confirmed the details of the sale including that of the 16 units approved, 3 were low-

income.

$1,261,743

$124,999

Costar, Realquest, Vital, NJACTB, BrokerSite

69,047

1.59

$29

26-Apr-16

Book 6118, Page 424 and Book 6118, Page 428

C W M & P, Inc.

Westfield Crossing LLC

$1,999,990

Not Available

Fee Simple

None Discovered

69,047

1.59

16

Block 4006, Lots 2 & 3

Land Comparable Sale

321 East Grove Street, Westfield Town

Union County, New Jersey

INSERT PHOTO

Transaction

56


Land Sale 2

Block / Lot

Sale Date

Deed Recording

Grantor

Grantee

Consideration

Financing

Rights Conveyed

Concessions


Site Area (Acres)

Units Approved


Unit Value Per Acre


Verification Source


Site Area (Acres)

Utilities

Zoning


R-10A, Single-Family Residential

Comments

This is the sale for a 5.89 acre vacant land parcel with approvals for 24 market rate townhouses in place at the time of sale. The

property is located in the R-10A, Single-Family Residential zoning district of Hanover Township. This sale is considered a good

comparable to the subject property. There are no reported sales of this property within the three years prior to this transfer.

$489,898

$120,232

Realquest, Vital, NJACTB, Internal Records, Contract of Sale, Buyer, Prior Appraisal Site

256,574

5.89

Fee Simple

None Discovered

256,574

5.89

24

$11

16-Aug-16

Book 22991, Page 908

Emmanuel Orthodox Presbyterian Church

Fleet Hanover, LLC

$2,885,560

Not Available


325 Whippany Road, Hanover Township

Morris County, New Jersey

INSERT PHOTO

Transaction

Block 4701, Lot 29

57


Land Sale 3

Block / Lot

Sale Date

Deed Recording

Grantor

Grantee

Consideration

Financing

Rights Conveyed

Concessions


Site Area (Acres)

Units Approved


Unit Value Per Acre


Verification Source


Site Area (Acres)

Utilities

Zoning


LR, Residential

Comments

This is the sale of a 2.30 acre vacant land parcel with approvals for 24 townhouses obtained by the buyer. The property is located in

the LR, Residential zoning district of Edison Township. This sale is considered a good comparable to the subject property. There are

no reported sales of this property within the three years prior to this transfer. This property was appraised by Otteau Group, Inc. for the

purchase and construction loan.

$1,306,800

$125,000


100,000

2.30

Fee Simple

None discovered

100,000

2.30

24

$30

4-Jan-17

Book 6933, Page 800

LS Grant Properties Limited Partnership

MarKim Developers LLC and Mark Roshanski

$3,000,000

Loan of $5,428,100 with First Constitution Bank


32 Cinder Road, Edison Township

Middlesex County, New Jersey

INSERT PHOTO

Transaction

Block 643.DD, Lot 15.W

58


Land Sale 4

Block / Lot

Sale Date

Deed Recording

Grantor

Grantee

Consideration

Financing

Rights Conveyed

Concessions


Site Area (Acres)

Units Approved


Unit Value Per Acre


Verification Source


Site Area (Acres)

Utilities

Zoning


HB-2, Housing Business 2

Comments

This is the sale of a vacant land parcel with approvals for 7 townhouses in place at the time of sale. The property is located in

the HB-2, Housing Business 2 zoning district of Berkley Heights Township. This sale is considered a good comparable to the

subject property. There are no reported sales of this property within the three years prior to this transfer.

$1,915,301

$135,714

MLS, Realquest, Vital, NJACTB, Municipal Planning OfficeSite

21,606

0.50

Fee Simple

None Discovered

21,606

0.50

7

$44

16-Feb-17

Book 6173, Page 837

569 Springfield Avenue LLC

AKI LLC

$950,000

Not Available


569 Springfield Avenue, Berkley Heights Township

Union County, New Jersey

Transaction

Block 610 Lot 8

59


Land Sale 5

Block / Lot

Sale Date

Deed Recording

Grantor

Grantee

Consideration

Financing

Rights Conveyed

Concessions


Site Area (Acres)

Units Approved


Unit Value Per Acre


Verification Source


Site Area (Acres)

Utilities

Zoning

Block 403, Lot 2


99 Spring Valley Road, Montvale Borough

Bergen County, New Jersey

INSERT PHOTO

Transaction

$30

29-Mar-17

Book 2593, Page 23

Baldanza Constuction Co.

99 LLC

$1,400,000

None discovered

Fee Simple

None discovered

46,678

1.07

12


B-2, Business

Comments

This is the sale of a 1.07 acre vacant land parcel with approvals for 12 townhouses obtained by the buyer. There are 2

afforable housing units subject to municipal and state regulations in determining the sale price and will be governed by such

agencies. The property is located in the B-2, Business zoning district of Montvale Borough. This sale is considered a good

comparable to the subject property. There are no reported sales of this property within the three years prior to this transfer.

This property was appraised by Otteau Group, Inc. for the purchase and construction loan.

$1,306,480

$116,667


46,678

1.07

60


Comparable Land Sale Location Map

61


Item Subject

Address 68-74 Ridgedale Avenue 325 Whippany Road 32 Cinder Road 569 Springfield Avenue

City / Township / Borough Morristown Town

County Morris County, NJ

Block/Lot Block 702, Lots 8, 9, 10, & 11

Sales Price Not Applicable $1,999,990 $2,885,560 $3,000,000 $950,000 $1,400,000

# of Units 29 16 24 24 7 12

Financing Concessions Not Applicable None Discovered 0% None Discovered 0% None Discovered 0% None Discovered 0% None Discovered 0%

Conditions of Sale Not Applicable Arms Length 0% Arms Length 0% Arms Length 0% Arms Length 0% Arms Length 0%

Property Rights Conveyed Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0%

Sale Date / Time Adjustment 4/25/2018 4/26/2016 0% 8/16/2016 0% 1/4/2017 0% 2/16/2017 0% 3/29/2017 0%

Sale Price Per Unit Not Applicable $124,999 $120,232 $125,000 $135,714 $116,667

Locational Appeal Somewhat Walkable Somewhat Walkable Suburban 10% Suburban 10% Suburban 10% Suburban 10%

# of Units 29 16 -2% 24 0% 24 -1% 7 -4% 12 -3%

Site Improvements Partially Installed None Discovered 10% None Discovered 10% None Discovered 10% None Discovered 10% None Discovered 10%

Physical Attributes Level Level Level Level Level Level

Utilities All Public All Public All Public All Public All Public All Public

Zoning RG-R RA-5B R-10A LR HB-2 B-2

Approvals Approved Approved Approved Subject To Approved Subject To

Market Segment 4 Affordable Rate Units 3 Affordable Rate Units -1% All Market Rate -4% All Market Rate -4% All Market Rate -4% 2 Affordable Rate Units -2%

Net Adj. (Total) 7% 16% 15% 12% 15%

Indicated Unit Value $133,448 $139,469 $143,922 $152,281 $134,247

Comparable

3

Edison Township

Middlesex County, NJ

4701 / 29Block 4006, Lots 2 & 3 Block 4701, Lot 29 610 / 8 403 / 2

Pro

pert

y

Valu

eT

ran

sacti

on

Sit

e

Bergen County, NJUnion County, NJ

5

321 East Grove Street

Westfield Town Hanover Township Berkeley Heights Township

Land Sales Comparison AnalysisComparable Comparable Comparable Comparable

1

Montvale Borough

99 Spring Vallley Road

2

Union County, NJ Morris County, NJ

4

62


Explanation of Adjustments

Transaction

Conditions of Sale: There were no reported special conditions that would have affected the sale price of the comparable sales, therefore no adjustment was warranted. Financing Conditions: All of the comparable sales were reported to have transacted with market rate financing, therefore no adjustment was warranted. Property Rights: All of the comparable sales were reported to have sold in fee simple estate, which is typical for this use and submarket, therefore no adjustment was warranted.

Market Change: Due to stable economic conditions in this submarket, the comparable sales did not require adjustments for market change.

Site

Comparable Sales Selection: Due to the lack of sales within this submarket the appraiser has utilized sales older than 12 months and from other counties. This is considered typical for this submarket and does not affect and reliability of this approach. Locational Appeal: Adjustments were applied comparable sales 2, 3, 4, and 5, due to their inferior suburban location compared to the subject property. Comparable sale 1 is located within the subject’s general market area and considered comparable locations compared to the subject property therefore no adjustments were warranted. Site Improvements: Adjustments were applied all comparable sales due to the subject property’s partially complete site improvements. Project Size: A negative adjustment has been applied to comparable sales 1, 4, and 5, due to their smaller project size which typically yields a higher per unit sales price due to economy of scale. Comparable sales 2 and 3 was considered similar enough that an adjustment was not warranted.

Zoning: Based upon a review of the subject’s and comparable sale zoning no adjustment was warranted.

Market Segment: A negative adjustment to all sales was applied to reflect the comparable sales’ inferior number of affordable rate units compared to the subject property.

Land Sales Comparison Conclusion

Careful consideration has been given to the above land sales with respect to their physical and

locational components, permitted uses and market conditions at the time of their sale. An

analysis of this data yields the following value ranges:

63


Within this range, the appraiser has selected $140,000/Unit as the best indicator of value for the

subject property. In arriving at this conclusion, the appraiser placed equal weight upon all sales.

Therefore, the subject property’s land value can be expressed as follows:

Approved Units Unit Value Value

29 $140,000 $4,060,000

Land Sales Comparison Value Indication

Cost Approach

The Cost Approach has not been employed within Scenario 1 (AS IS) due to the subject

consists of land with no building improvements. The Cost Approach is applied later in this

report under scenario 2.

Income Approach

The Income Approach is based on the understanding that discounted future income is the

logical basis of value. Specifically, net cash flow before recapture and debt service provides the

basis for capitalization. In this regard, the rate of discount will depend on the perceived risk

associated with an investment in the subject property.

In applying the Income Approach, the appraiser will utilize the Subdivision Development

Technique for which the first step is to develop an estimate of Projected Net-Cash-Flow, on a

periodic and overall basis, to be derived from project development. This projection will be

based upon an analysis of projected income and expenses to be realized from project

development as follows:

▪ Sales Income – based upon analysis of competitive new construction project offerings in

the market area to develop projections of sales pace, base pricing and supplemental

revenues derived from options and location/view premiums.

▪ Site Development Cost – estimated cost to construct site infrastructure for the project to

Low High Average Median

Unadjusted $116,667 $135,714 $124,522 $124,999

Adjusted $133,448 $152,281 $140,889 $139,469

Land Comparison Value Indication Range

64


include clearing, grading, road construction and bringing utilities to the site.

▪ Construction Cost – estimated cost to construct the completed dwellings to be built on

the site including exterior and interior elements.

▪ Marketing Cost – estimated costs to market the project to include advertising, web site

creation, promotional events model fit-up and furnishing and real estate commissions.

▪ Administrative & Overhead Cost– estimated administrative costs for the developer’s

employee’s, set up costs for Homeowner’s Associations (where applicable), Mount

Laurel Contribution fees (where applicable), Real Estate Taxes, Insurance, Overhead,

and miscellaneous unbudgeted contingency expenses.

▪ Construction Management Cost– this relates to the charge for a General Contractor to

manage all facets of site development and construction and are therefore an expense

charge based upon site development and dwelling construction costs rather than a

charge against income. In situations where the developer will manage this responsibility

internally, this cost charge is still appropriate and reflects additional revenues earned by

the developer.

Each of these income and cost categories will next be discussed and developed in detail.

The next section of the report will analyze competing projects new construction developments

within the subject property's submarket area to develop projections of market price and sales

pace for the subject project. This analysis is based upon the Principle of Substitution which is

based upon the proposition that an informed home purchaser would pay no more for a property

than the cost of acquiring an alternative existing property offering the same utility.

In applying this approach, we have investigated and analyzed competing projects from within

the submarket area in order to develop an indication of market pricing and optimal mix for the

proposed subject project. These projects represent direct competition to the proposed subject

project but are not an all-inclusive comprehensive listing of competing projects. Rather they

reflect a subset of competing projects that are considered to be relevant to the projection of

market positioning for the subject project.

65


Competing Condominium Flat Development #1

Proximity to Subject

Proximity to Public Transportation

Walk Score

Developer

Developer Web Site

Market Segment

Year Built

Product Type

Total Units

Net Sales

Unsold Units

Average Lot Size

Average House Size (SF)

Average Base Price

Average Price/SF

Marketing Period

Project Life (Months)Sales Velocity (Project Life)

Resales (Past 90 Days)

Resales Velocity (Past 90 Days)

Number of Active Listings

Incentives

Sources of Buyers

Upgrades (average)

Parking Type

Parking Fee

Basement

Site Premiums

PRICING MATRIX

Property Address

110 South

Street, Unit

108

110 South

Street, Unit

303

110 South

Street, Unit

306

110 South

Street, Unit

105

Sale Date 6/8/2017 8/24/2017 9/19/2017 11/30/2017

House Size (sf) 1,730 2,507 1,730 1,730

Sale Price $920,000 $1,220,000 $955,000 $929,000

$ Price / SF $531.79 $486.64 $552.02 $536.99

Days on Market 43 21 35 12

Average sale price: $1,006,000

Average house size: 1,924

Average price per sf: $522.80

Average DOM 28

72

SOLD

0

0.00

0

Not applicable

Not available

Not applicable / All-in pricing

Structured garage parking

Included in sale price

None

Built into pricing

AMENITIES: Full service concierge, fitness center with aerobics studio, multimedia theater, game rooms, banquet hall

Common Areas - Condominium Ownership

1,924

$1,006,000

$522.80

February 2007 - February 2013

COMPETITIVE FOR-SALE PROJECT

THE RESIDENCES AT VAIL MANSION

Town of Morristown - Morris County0.6 miles

0.5 miles to Morristown Train Station; 0.4 miles to Pine St @ Morris St Bus Station

94 - Walker's Paradise

Roseland & Lennar Urban

Not available

All-Age / Market-Rate

0.50

2008

Low-Rise Flats

36

36

0

66





Walk Score

Developer

Developer Web Site

Market Segment

Year Built

Product Type

Total Units

Net Sales

Unsold Units

Average Lot Size


Average Base Price

Average Price/SF

Marketing Period





Incentives

Sources of Buyers

Upgrades (average)

Parking Type

Parking Fee

Basement

Site Premiums

PRICING MATRIX

Property Address

7 Prospect

Street, Unit

406

7 Prospect

Street, Unit

305

7 Prospect

Street, Unit

807

7 Prospect

Street, Unit

403

7 Prospect

Street, Unit

302

Sale Date 5/17/2017 9/14/2017 10/23/2017 11/27/2017 Active

House Size (sf) 1,069 836 672 789 786

Sale Price $435,000 $331,000 $350,000 $344,000 $345,000

$ Price / SF $406.92 $395.93 $520.83 $435.99 $438.93

Days on Market 86 82 20 14 40

Average sale price: $365,000

Average house size: 842


Average DOM 51

72

SOLD

0

0.00

1

Not available

Not available




None

Built into pricing

AMENITIES: Fitness center, lounge & storage area


842

$365,000

$433.75

March 2007 - February 2013


VAIL COMMONS


0.6 miles to Morristown Train Station; Adjacent to Speedwell Ave @ Cattano Ave Bus

Stop

78 - Very Walkable

Seven Prospect Street, LLC

None available


0.68

2008

Mid-Rise Flats

49

49

0

67





Walk Score

Developer

Developer Web Site

Year Built

Market Segment

Product Type

Total Units

Net Sales

Unsold Units

Average Lot Size


Average Base Price

Average Price/SF

Marketing Period

Project Life (Months)

Sales Velocity (Project Life)

Net Sales (Past 90 Days)

Sales Velocity (Past 90 Days)

Standing Inventory

Incentives

Sources of Buyers

Upgrades (average)

Basement

Parking Type

Parking Fee

Site Premiums

PRICING MATRIX

Model Names E Model J Model C Model D Model B Model H Model L Model

House Size (SF) 1,242 1,649 1,734 1,688 1,725 1,937 2,510

Base Price $539,900 $629,900 $649,900 $684,900 $699,900 $904,500 $1,249,900

$ Price / SF $434.70 $381.99 $374.80 $405.75 $405.74 $466.96 $497.97

Average Base Price: $765,557

Average House Size: 1,784

Average Price per SF: $429.23

20

2

0.67

6

None

Not available - none have sold

Not available - none have sold

None



None

AMENITIES: None

Common Area - Condominium Ownership

1,784

$765,557

$429.23

Since September 2016

COMPETING FOR-SALE PROJECT

25 MILL STREET

Bernardsville Borough - Somerset County7.66 miles

0.4 miles to Bernardsville Train Station; 0.4 miles to Rt. 202 N @

Across from Kings Bus Station

81 - Very Walkable

DCL Holdings LLC

www.25millstreet.com

New Construction

0.10


Low-Rise Flats

27

2

25

68


Competing Condominium Flat Development Location Map

69


Item

Project Name

Municipality

County

Total Units 4 4 27

Average Sale Price $1,006,000 $365,000 Avg. Base Price $765,557

Average Unit Size 1,924 842 1,784

Net Sales (90 Days) n/a n/a 2

Sales Velocity (90 Days) n/a n/a 0.67

Project Life (Months) n/a n/a 20

Net Sales (Project Life) n/a n/a 2

Sales Velocity (Project Life) Avg DOM of 4 sales 28 Avg DOM of 4 sales 51 0.10

Base Price Per Sq. Foot $522.87 $433.49 $429.12

Locational Appeal

Neighborhood Appeal -10% -10% -10%

Site Appeal

Construction Quality

Market Segment

Unit Design

Age of Dwellings (years) 5% 5%

Amenities

Parking

Car Storage Fee

Average Unit Size 6% -3% 4%

Net Adj. (Site) -10% -10% -10%

Net Adj. (Building) -9% -8% -1%

Net Adj. (Total) -19% -18% -11%

Adjusted Base Price $423.52 $355.46 $381.92

Valu

e

1,238 1,924 842 1,784

Structured Garage

Parking -5%

None Built into pricing Built into pricing Built into pricing

1 Assigned Surface

Parking

Structured Garage

Parking -5% -5%


Low-Rise Flats

New Construction

None

Pri

ce &

Pace

Sit

e

Bernardsville

Walkable Downtown

Average

Good

Walkable DowntownSomewhat Walkable Walkable Downtown

Average

Flat Project

Bu

ild

ing

Good Good Good

3

25 Mill Street

Bernardsville Borough

Somerset County, NJ

Structured Garage

Parking

Base Price Analysis

None

Full service

concierge, fitness

center, multi-media

theater, game rooms,

banquet hall

-15%Fitness center, lounge

& storage area-5%

All-Age / Market-Rate All-Age / Market-Rate All-Age / Market-Rate

New Construction 10 Years 10 Years

Mid-Rise Flats

1,238

Town of Morristown

Ridgedale Commons The Residences at Vail Mansion Vail Commons

Average Average

Morristown Morristown

19

2Subject Flat Project Flat Project

Town of Morristown

Morris County, NJMorris County, NJ

1

Low-Rise Flats Low-Rise Flats

Pro

pert

y

Morris County, NJ

Town of Morristown

Morristown

70


Competing Townhouse Development #1



Walk Score

Developer

Developer Web Site

Market Segment

Year Built

Product Type

Total Units

Net Sales

Unsold Units

Average Lot Size


Average Base Price

Average Price/SF

Marketing Period





Incentives

Sources of Buyers

Upgrades (average)

Parking Type

Parking Fee

Basement

Site Premiums

PRICING MATRIX

Property Address

44

Ridgedale

Ave. Unit 6

44

Ridgedale

Ave. Unit 27

44

Ridgedale

Ave. Unit 30

44

Ridgedale

Ave. Unit 19

44

Ridgedale

Ave. Unit 14

44

Ridgedale

Ave. Unit 4

Sale Date 6/26/2017 6/30/2017 12/8/2017 4/13/2018 4/30/2018 Active

House Size (sf) 1,166 1,232 1,232 1,166 1,100 1,166

Sale Price / Listing Price $345,000 $348,000 $348,000 $350,000 $390,000 $399,900

$ Price / SF $295.88 $282.47 $282.47 $300.17 $354.55 $342.97

Days on Market 15 13 54 28 29 9

Average sale price: $356,200



Average DOM 28

SOLD

Attached one-car garage


None

Built into pricing

AMENITIES: None


1,179

$356,200

$302.07

August 1994 - August 1995

13

3.69

2

0.67

1

Not applicable

Not available



MORRISTOWN COURT


0.22 miles to Morristown Train Station; 0.5 miles to Morris St @ E. Park Pl Bus Stop

81 - Very Walkable


1995

Townhouses

48

48

0

Baker Firestone Limited Partnership

None available

71





Walk Score

Developer

Developer Web Site

Market Segment

Year Built

Product Type

Total Units

Net Sales

Unsold Units

Average Lot Size


Average Base Price

Average Price/SF

Marketing Period






Incentives

Sources of Buyers

Upgrades (average)

Parking Type

Parking Fee

Basement

Site Premiums

PRICING MATRIX

Property Address

7 Maple Ave

Unit 2

7 Maple Ave

Unit 6

Sale Date Active Active

House Size (sf) 2,223 2,223

List Price $899,000 $749,000

$ Price / SF $404.41 $336.93

Days on Market 4 32

Average list price: $824,000



Average DOM 18

Attached two-car garage & private driveway


None

Built into pricing

AMENITIES: None


2,223

$824,000

$370.67

May 2012 - June 2013

14

1.29

0

0.00

2

Not applicable

Not available



MORRISTOWN SQUARE


0.5 miles to Morristown Train Station; 0.2 miles to Morris St @ E. Park Pl Bus Stop

95 - Walker's Paradise


2013

Townhouses

18

18

0

Pulte Homes

www.pulte.com

72





Walk Score

Developer

Developer Web Site

Year Built

Market Segment

Product Type

Total Units

Net Sales

Unsold Units

Average Lot Size


Average Sale Price

Average Price/SF

Marketing Period



Net Sales (Past 90 Days)

Sales Velocity (Past 90 Days)

Standing Inventory

Incentives

Sources of Buyers

Upgrades (average)

Basement

Parking Type

Parking Fee

Site Premiums

PRICING MATRIX

Model Names The Devon

House Size (SF) 2,477

Sale Price $799,000

$ Price / SF $342.75

Average Sale Price: $799,000

Average House Size: 2,477

Average Price per SF: $322.57

COMPETING FOR-SALE PROJECT

JAMES PLACE

Morris Township - Morris County2.00 miles

1.86 miles to Morristown Train Station; 1.79 miles to Morris St @ E. Park Place

Bus Stop

1 - Car-Department

Mark Built Homes

www.markbuilt.com

New Construction

2.04


Townhouses

92

92

0

Common Area - Condominium Ownership

2,477

$799,000

$322.57

September 2013 - June 2017

45

0

0.00

Not applicable - sold out 6/2017

Not applicable - sold out 6/2017

New York / Local

Not available

None

Attached two-car garage


Built into pricing

AMENITIES: None

73


Competing Townhouse Development Location Map

74


Item

Project Name

Municipality

County

Total Units 5 2 92

Average Sale Price $356,200 Avg. List Price $824,000 $799,000

Average Unit Size 1,179 2,223 2,477

Net Sales (90 Days) n/a n/a n/a

Sales Velocity (90 Days) n/a n/a n/a

Project Life (Months) n/a n/a 45

Net Sales (Project Life) n/a n/a 92

Sales Velocity (Project Life) Avg DOM of 5 sales 28 Avg DOM of 2 sales 18 Sold-out 6/2017 2.04

Base Price Per Sq. Foot $302.12 $370.67 $322.57

Locational Appeal

Neighborhood Appeal -10% 10%

Site Appeal

Construction Quality

Market Segment

Unit Design

Age of Dwellings (years) 20% 5%

Amenities

Parking

Car Storage Fee

Average Unit Size -4% 6% 9%

Net Adj. (Site) 0% -10% 10%

Net Adj. (Building) 15% 9% 7%

Net Adj. (Total) 15% -1% 17%

Adjusted Base Price $347.44 $366.96 $377.40

2,477

Valu

e

1,572 1,179 2,223

-2%

None Built into pricing Built into pricing Built into pricing

Private Attached Two-Car

Garage

2 Assigned Structured

Garage Spaces

Private Attached One-

Car Garage -1%

Private Attached Two-

Car Garage -2%

NoneNone None None

Townhouses

New Construction 23 Years 5 Years New Construction

Townhouses Townhouses

Good

All-Age / Market-Rate All-Age / Market-Rate All-Age / Market-Rate All-Age / Market-Rate

Bu

ild

ing

Good Good Good

Townhouses

Morris Township

Average Average Average

Somewhat Walkable

Average

Somewhat Walkable Walkable Downtown Suburban

Sit

e

Morristown Morristown Morristown

Morris County, NJ

Pri

ce &

Pace

6

James Place

Town of Morristown Town of Morristown Town of Morristown Morris Township

Morris County, NJ Morris County, NJ

1,572

1 2 3

Pro

pert

y

Ridgedale Commons Morristown Court Morristown Square

Morris County, NJ

Base Price Analysis Subject Townhouse Project Townhouse Project Townhouse Project

75


Explanation of Base Price Adjustments

Price & Pace

Market Change: No adjustment was warranted for market change was warranted as the projects are either being actively being marketing or sold within the last year.

Site

Location / Neighborhood: Negative adjustments were applied to the “flat” competing projects to reflect their superior location given their proximity to their downtown area which is closer to shopping and restaurants and associated with higher property values. A negative adjustment was applied to “townhouse” competing project 1 to reflect its superior location given its proximity to the downtown area which is closer to shopping and restaurants and associated with higher property values, and a positive adjustment to competing projects 3 and 4 given their inferior suburban location compared with the subject property. Competing “townhouse” project 1 was considered similar therefore no adjustment was warranted. Site Appeal: The completing projects are all similar concerning their site utility therefore, no adjustments were warranted.

Building

Condition: These categories address physical condition and quality of the competing projects compared to the subject property. Since superior condition and quality typically command higher pricing, this item of comparison can have a significant impact on value. In this case the competing projects were considered similar enough that an adjustment was not warranted. Market Segmentation: The subject property and all competing projects are targeting the same market segment therefore an adjustment was not warranted. Unit Design: This category addresses the physical design (use) and exterior appeal. In this case the competing projects were considered similar enough that an adjustment was not warranted. Age: An adjustment was applied to projects that are older to reflect the subject’s new construction age. Amenities: In this case “flat” competing projects 1 and 2 were adjusted for their superior amenities compared to the subject. The remainder of the competing projects were considered similar enough that an adjustment was not warranted. Parking: In this case the “flat” and “townhouse” competing projects were adjusted for their superior parking compared to the subject. Average Unit Size: The competing projects were adjusted for economy of scale based upon their average unit size compared to the subject.

76


Base Price Calculation

Based on the foregoing, the appraiser has selected $385 per square foot as the best value

indicator for the flat product type and $360 per square foot as the best value indicator for the

townhouse product type. The subject property also includes 4 income restricted flat styled

dwellings.

The Council on Affordable Housing (COAH), an agency of the state government within the

Department of Community Affairs (DCA) has historically been responsible for ensuring that all

565 New Jersey municipalities provide their fair share of low and moderate income housing.

The COAH was created by the New Jersey Legislature in response to the Fair Housing Act of

1985 and a series of New Jersey Supreme Court rulings known as the Mount Laurel decisions.

The council is made up of 12 members appointed by the Governor of New Jersey and approved

by the New Jersey Senate. COAH defines housing regions, estimates the needs for

low/moderate income housing, allocates fair share numbers by municipality and reviews plans

to fulfill these obligations.

A recent decision by the New Jersey Supreme Court in March of 2015 declared the state’s

affordable housing process ‘non-functioning’ and transferred jurisdiction over low-income and

moderate-income housing from the executive branch back to the courts. While the implications

from this decision are not yet fully understood, most development projects are continuing to

apply COAH guidelines in determining the allocation and rental rates for any affordable-rate

housing units that are set aside within a project.

Those COAH guidelines, where were designed to implement the New Jersey Fair Housing Act

(N.J.S.A. 52:27D-301 et seq.), were intended to assure that low- and moderate-income units

created under the Act were occupied by low- and moderate-income households for an

appropriate period of time. According to COAH guidelines, the inclusion of affordable rate for-

sale housing units in a project were required to adhere to the following requirements:

• Median income limits for qualifying households are determined by the New Jersey

Department of Community Affairs according to region. Morristown Town in Morris

County is located in DCA Region 2.

• In each affordable development, at least 50 percent of the restricted units within each

bedroom distribution shall be low-income units and the remainder may be moderate

income units.

77


• Affordable developments that are not age-restricted shall be structured in conjunction

with realistic market demands such that:

o The combined number of efficiency and one-bedroom units is no greater than 20

percent of the total low- and moderate-income units;

o At least 30 percent of all low- and moderate-income units are two bedroom units;

o At least 20 percent of all low- and moderate-income units are three bedroom

units;

o And the remainder, if any, may be allocated at the discretion of the developer.

• The maximum sales price of restricted ownership units within each affordable

development shall be affordable to households earning no more than 70 percent of

median income. Each affordable development must achieve an affordability average of

55 percent for restricted ownership units. In achieving this affordability average,

moderate-income ownership units must be available for at least three different prices for

each bedroom type, and low-income ownership units must be available for at least two

different prices for each bedroom type.

• In determining the initial rents and initial sales prices for compliance with the affordability

average requirements for restricted units other than assisted living facilities, the following

standards shall be used:

o A studio shall be affordable to a one person household;

o A one bedroom unit shall be affordable to a one and one-half person household;

o A two bedroom unit shall be affordable to a three person household;

o A three bedroom unit shall be affordable to a four and one-half person

household;

o And a four bedroom unit shall be affordable to a six person household.

• Each restricted ownership unit shall remain subject to the requirements of this

subchapter until the municipality in which the unit is located elects to release the unit

from such requirements pursuant to action taken in compliance with (g) below. Prior to

such a municipal election, a restricted ownership unit must remain subject to the

requirements of this subchapter for a period of at least 30 years. Based upon the above

guidelines, the developer has calculated the required mix of Affordable-Rate units and

allowable for sale pricing as follows:

78


It is important to note that in utilizing the state’s calculator, due to the subject low 4 unit COAH

count, the calculator does not allow for any 1 bedroom units. It is mandated that the unit mix

include a minimum of 2 two bedroom units and a minimum of 1 three bedroom unit.

Additionally, we projected the highest yield possible for the subject by eliminating any monthly

HOA liability for the four units and utilizing a modest annual figure of $500 for homes owner’s

insurance. Further due to the low 4 unit yield the state only allows for 1 moderate income with

the 3 remaining mandatory low income units. The COAH calculator is located in the addendum

of this report.

Dwelling Type Model Name Unit Mix

COAH Unit 2-BR-Low 2 2

COAH Unit 2-BR-Mod 1 1

COAH Unit 3-BR-Low 2 1

79


Summary: Based upon the above Base Price analysis and the previously discussed Market

Analysis, I have arrived at the following conclusions regarding the subject development:

The next step in our analysis is to develop a projection of sales pace for the subject project. To

accomplish this, we have begun by analyzing the historical sale pace for existing condominiums

over $400,000.00 within the Town of Morristown. Our analysis has indicated an average sale

pace in in the one-year period ending on May 1, 2018 of 2.9 home purchase contracts per

month and a current unsold inventory level of 11 homes. This performance indicates a monthly

absorption rate equivalent to 26.5% of available inventory. Applying this 26.5% monthly

absorption pace to the subject project’s 29 units, this indicates a sales-pace of 3.8 sales

monthly or 11.5 sales quarterly.

Dwelling Type Model Name

Projected Unit

MixLiving Area (square feet)

Living Area ( Median

Deviation)

Design

AdjustmentBase Sales Price

(per square foot)

Base Retail

Selling Price

Flat Type 7 6 1,200 3% 0% $391.00 $469,200

Flat Type 8 5 1,245 -1% 0% $384.00 $478,080

Flat Type 11 2 1,167 6% 0% $396.00 $462,132

Flat Type 12 2 1,167 6% 0% $396.00 $462,132

Flat Type 3-A 1 1,392 -12% 0% $361.00 $502,512

Flat Type 3-B 1 1,390 -12% 0% $361.00 $501,790

Flat Type 6 1 1,325 -7% 0% $371.00 $491,575

Flat Type 4 1 1,317 -6% 0% $373.00 $491,241

Townhouse Type 2 4 1,565 0% 0% $361.00 $564,965

Townhouse Type 1 2 1,585 -1% 0% $358.00 $567,430

COAH Flat 2 Bedroom-Low 2 2 1,110 11% 0% $120.58 $133,849

COAH Flat 2 Bedroom-Mod 1 1 1,110 11% 0% $170.94 $189,743

COAH Flat 3 Bedroom-Low 2 1 1,775 -32% 0% $87.65 $155,586

1,238

$475,855

$384.46

1,572

$565,787

$359.99

1,276

$153,257

$120.08

1,312

$449,965

$342.93

Average Base Price-Per-Square Foot (weighted)

TOTAL

Average House Size (weighted)


Average Base Selling Price (weighted)





Townhouse



ANALYSIS OF BASE RETAIL SELLING PRICES

Flat


COAH Flat


monthly quarterly

1-Year Period Ending

May 1, 201811 2.9 3.8 26.5% 29 2 3.8 11.5

ABSORPTION ANALYSISTown of Morristown - Condominiums (Over $400k)

Current

Unsold

Inventory

Avg. Monthly

Purchase

Contracts

Months

Supply

Monthly

Absorption # of Subject Units

# of Subject

Phases

Projected Sales Pace

80


Next, we will analyze the sales pace for competing projects in the local submarket area. As

shown in the table below, competing projects have experienced a historical sales pace over the

most recent 90-day period ranging from a low of 0.1 sales to a high of 2.0 sales per month with

an average of 1.05 sales per month for the new projects, and an average marketing time of 31

days for the resales in existing projects.

Given that the absorption rates indicated above are retrospective in nature, and considering the

continuing improvement in home purchase demand, forward looking projections of sales pace

will likely be greater than in the past. As evidenced below, home purchase demand in Morris

County has decreased by 6% in 2018 (YTD), this is largely due to a decrease by 13% in unsold

inventory.

Based on the preceding analysis of market conditions, the appraiser has reconciled at a Sales

Pace of 3 per sales per quarter for each of the market rate product types and 2 per quarter for

the COAH units. Given that the actual closing of sales will not occur until sometime after the

contract of sale, the appraiser projects a build-out for the 29-unit subject project of 8 Quarters.

COUNTY

Contract

Sales

Unsold

Inventory

Market

Swing

Total

Market <$400k$400k-

$599,999

$600k-

$1mil$1,000,001-

$2.5mil

>$2.5

mil

Morris -6% -13% 4% 3.1 2 3 4 7 12

Statewide -1% -11% 5% 3.5 3.1 3.3 4.3 7.8 19.9

MarketTRAC Monthly by OTTEAU.com

% change

2018 YTD

Months Supply

March

Item

Project Name

Municipality

County

Total Units 4 4 27 5 2 92

Average Sale Price 1,006,000 365,000 765,557 356,200 824,000 799,000

Average Unit Size 1,924 842 1,784 1,179 2,223 2,477

Net Sales (90 Days) n/a n/a 2 n/a n/a n/a

Sales Velocity (90 Days) n/a n/a 0.7 n/a n/a n/a

Project Life (Months) n/a n/a 20 n/a n/a 45

Net Sales (Project Life) n/a n/a 2 n/a n/a 92

Sales Velocity (Project Life) 28.0 51.0 0.1 28.0 18.0 2.0

Absorption AnalysisFlat Project

Avg DOM of 4 sales Avg DOM of 4 sales

Flat Project Townhouse Project1 2 3

Flat Project3

Morris Township

Pro

pert

y

The Residences at Vail Mansion Vail Commons 25 Mill Street

Morris County, NJ Somerset County, NJ Morris County, NJMorris County, NJ

James Place

Town of Morristown Town of Morristown Bernardsville Borough

Pri

ce &

Pace

Avg DOM of 5 sales Avg DOM of 2 sales

Townhouse Project Townhouse Project2

Morristown Square

Town of Morristown

Morris County, NJ

1

Morristown Court

Town of Morristown

Morris County, NJ

81


In addition to base retail selling prices, developers can achieve added income from a list of

available options, upgrades and site/location premiums. The total cost of options within this

submarket area typically range between 2% and 5% of the base house price. We project

options of 3% for the subject proposed subject project. There will be no options factored in for

the COAH units as these units are typically sold with base options. Therefore, overall retail

selling prices for the completed dwellings is projected as follows:

Site Development Cost Projection – as previously explained this cost is included in the over

construction costs as the site development and construction are typically completed

simultaneously in these types of projects.

Construction Cost Projection – the appraiser’s estimated cost of $140 per square foot for the

base house construction is considered reasonable, and will be adjusted to reflect the cost of

options and upgrades as follows:

Model Name Projected Unit MixLiving Area (square feet)

Base Price

(per s.f.)

Base Selling

Price Options @ 3%

Avg Site/Floor

Premium

Overall Selling

Price

Type 7 6 1,200 $391.00 $469,200 $14,076 $0 $483,276

Type 8 5 1,245 $384.00 $478,080 $14,342 $0 $492,422

Type 11 2 1,167 $396.00 $462,132 $13,864 $0 $475,996

Type 12 2 1,167 $396.00 $462,132 $13,864 $0 $475,996

Type 3-A 1 1,392 $361.00 $502,512 $15,075 $0 $517,587

Type 3-B 1 1,390 $361.00 $501,790 $15,054 $0 $516,844

Type 6 1 1,325 $371.00 $491,575 $14,747 $0 $506,322

Type 4 1 1,317 $373.00 $491,241 $14,737 $0 $505,978

Type 2 4 1,565 $361.00 $564,965 $16,949 $0 $581,914

Type 1 2 1,585 $358.00 $567,430 $17,023 $0 $584,453

2 Bedroom-Low 2 2 1,110 $120.58 $133,849 $0 $0 $133,849

2 Bedroom-Mod 1 1 1,110 $170.94 $189,743 $0 $0 $189,743

3 Bedroom-Low 2 1 1,775 $87.65 $155,586 $0 $0 $155,586

1,238

$490,131

$396

1,572

$582,760

$371

1,276

$153,257

$120

1,312

$462,830

$353

Average Overall Price-Per-Square Foot (weighted)


TOTAL


Average Overall Selling Price (weighted)


COAH Flat



ANALYSIS OF OVERALL RETAIL SELLING PRICES

Flat




Townhouse



82


Marketing Cost Projection – estimated at 5% of Gross Sales Income plus additional costs for

home sale closings and model fit-up and furnishing as detailed in the Cash Flow Analysis.

Gross Sales Income is based upon the projected selling prices for the completed dwellings

inclusive of the base house price and options, upgrades and site/location premiums.

Administrative & Overhead Cost Projection – Administrative costs are projected at 2.0%, and

Miscellaneous contingency costs at 1.5% of Gross Sales Income plus additional costs for real

estate taxes and insurance as detailed in the Cash Flow Analysis.

Model Name Recommended

Unit Mix

House Size (square feet)

Base Cost (per square

foot)

Base Cost Options Overall Cost

Type 7 6 1,200 $140.00 $168,000 $5,040 $173,040

Type 8 5 1,245 $140.00 $174,300 $5,229 $179,529

Type 11 2 1,167 $140.00 $163,380 $4,901 $168,281

Type 12 2 1,167 $140.00 $163,380 $4,901 $168,281

Type 3-A 1 1,392 $140.00 $194,880 $5,846 $200,726

Type 3-B 1 1,390 $140.00 $194,600 $5,838 $200,438

Type 6 1 1,325 $140.00 $185,500 $5,565 $191,065

Type 4 1 1,317 $140.00 $184,380 $5,531 $189,911

Type 2 4 1,565 $140.00 $219,100 $6,573 $225,673

Type 1 2 1,585 $140.00 $221,900 $6,657 $228,557

2 Bedroom-Low 2 2 1,110 $140.00 $155,400 $0 $155,400

2 Bedroom-Mod 1 1 1,110 $140.00 $155,400 $0 $155,400

3 Bedroom-Low 2 1 1,775 $140.00 $248,500 $0 $248,500

19

1,238

$178,481.65

$144.20

6

1,572

$226,634.33

$144.20

4

1,276

$178,675.00

$140.00

29

1,312

$188,470.94

$143.64

Total Units

Average Unit Size (weighted)

Average Per-Unit Construction Cost (weighted)

Average Per-SF Construction Cost (weighted)







Total Units




ANALYSIS OF DWELLING CONSTRUCTION COSTS

Flat

Townhouse

COAH Flat

TOTAL

Total Units

Total Units

83


Construction Management Cost Projection – These costs typically range between 8% - 10% of

actual site development and construction costs and are therefore an expense charge based

upon site development and dwelling construction costs rather than a charge against income. In

situations where the developer will manage this responsibility internally, this cost charge is still

appropriate and reflects additional revenues earned by the developer. The appraisers have

estimated a 9% charge for the subject project.

The next step in the Income Approach analysis is to estimate the market value of these cash

flows to a single purchaser. To accomplish this, the net-cash-flows must be discounted at an

appropriate capitalization rate to develop an estimate of market value. Market conditions in the

residential for-sale market are currently considered to be stable with healthy absorption rates,

and stable selling pricings. As previously detailed in the Neighborhood and Market Analysis

section of this report, these conditions combined with low financing costs have led to a

stabilized economy and recovery from the great recession.

There has been literature written and empirical evidence developed relating returns in the bond

market to real estate returns. The closest relationship with real estate has proven over time to

be long-term bonds.1 Returns being received in various segments of the capital markets are as

follows:

The return on investments vary due to factors like differing degrees of risk, term to maturity, and

the current level of interest rates. Current bond yields represent safe investments, and as such,

indicate the lower end of the range. Since funds for real estate investment are competing with

these alternative investments, real estate investors typically require a higher rate of return than

bond yields due to the higher risk and inferior liquidity of real estate investments. In some

1For a discussions and analysis of the correlation between these yields, see C.F. Sirmans and J.R. Webb, “Yields for Selected Types of Real Property vs. the Money and Capital Markets,” The Appraisal Journal, April 1982, p. 241.

Prior Year Prior Month Current Month

U.S. 5-Year Bonds – Taxable 1.82% 2.63% 2.70%



AVERAGE BOND YIELDS

April 2018

84


instances, rates of return desired by lenders can provide a benchmark for desired yields in the

real estate market. However, it must be remembered that lenders have a different risk position

than the equity investor.

The best source of current yield expectations of typical equity investors is based on surveys of

these investors. A survey published by RealtyRates provides analysis of real estate investment

and development returns on both a national and regional level. A summary of their 1st Quarter

2018 report appears below indicating that national average discount rate for investment property

acquisitions by investors ranges from a low of 9.36% to a high of 10.75%:

Because new construction projects require more intensive management and carry greater risk, it

is necessary to consider the yield expectations for equity investors who are active in developing

residential real estate projects in the current real estate market. The survey below, which is

based upon actual developer returns for Condominium development projects in the New York /

New Jersey submarket area, indicates an average return rate for Garden/Suburban Townhouse

ranging from a low of 11.51% to a high of 21.42%, with an average of 15.81%.

Retail Office Industrial Apartment

2018.Q1 2018.Q1 2018.Q1 2018.Q1

Investors Acquisitions 10.69% 10.28% 9.79% 9.36%

Investors New Development 12.43% 11.82% 11.66% 10.75%

National Discount Rates

85


In selecting an appropriate discount rate for the subject project, it is significant to note that the

recent improvement in the housing market as discussed previously serve to reduce risk and

improve liquidity for residential real estate development projects. Accordingly, it is the

appraiser’s considered opinion that a reasonable discount rate for the subject property is 15%.

Therefore, a discount rate of 15% will be applied to the projected development cash flows. The

final step in the Income Approach is to develop an estimate of Market Value for the previously

developed net-cash-flows using the discount rate developed above.

86


87


Reconciliation of Scenario 1 (As Is)

The appraiser has applied the Sales Comparison Approach and the Income Approach to the

valuation of the subject property AS IS. In reconciling and selecting a final value indication for

the subject property the appraiser has made the following final observation regarding the three

approaches to value.

Sales Comparison Approach: Based upon the analyses contained in this report the Sales

Comparison Approach has determined a value indication of $4,060,000 AS IS. The sales

comparison approach has estimated the value of the subject property by use of comparable

properties in this local submarket area. The sales were adjusted in a series of adjustments

determined by market data. The weakness of this approach is the quantity of adjustments

applied to the sales. The strength of this approach was the data utilized was local and relevant

to the valuation of the subject. Overall, the Sales Comparison is a good method of valuation for

land. Further this is a common method for brokers, buyers, investors and sellers to determine

value.

Income Approach: Based upon the analyses contained in this report the Income Approach has

determined a value indication of $4,380,000 AS IS. The income approach has determined the

subject’s Gross Sellout Revenue and deducted for construction, expenses and then applied a

discounted cash flow method to determine market value. The weakness of the approach is that

slight changes in selling prices, costs, and market perceived risk rates could have a significant

effect on the value indication. The strengths of this approach are the appraiser’s utilization of

relevant and local data along with market surveys. In conclusion the income approach is

considered a very reliable approach to the valuing the subject and commonly considered a

primary method for buyers in this submarket area.

Each of these approaches has yielded the following value indications:

Income Approach $4,380,000

Approach to Value AS IS

Sales Comparison $4,060,000

Cost Approach Not Applicable

88


The above value indication shows all applicable methods of valuation of the subject property.

Based on the individual strengths and weaknesses of each method previously discussed, all

weight was placed on the Income Approach. Therefore, based upon the appraisers above

comments a final value can be expressed as follows:

AS IS





Scenario 2 – (As Complete)

This scenario will develop an estimate of market value for the subject property as complete,

prior to any sales have taken place.

Sales Comparison Approach

This approach calls for a comparison of condominium buildings that have been recently sold

which have comparability to the subject site. This valuation approach is not applicable to the

subject property in this Scenario due to the lack of Comparable Sales data for completed

condominium projects which no sales have occurred. Accordingly, this valuation approach will

be excluded.

Cost Approach

The Cost Approach is based upon the proposition that an informed purchaser would pay no

more for a property than the cost of producing a substitute property with the same utility. This

approach is particularly applicable when the property being appraised involves relatively new

improvements which represent the highest and best use of the land or when relatively unique or

specialized improvements are located on the site and for which there exist no comparable

properties that have either sold or are on the market.

89


The Cost Approach, when applicable, is developed to provide a value indication for the subject

property consistent with the Intended Use previously identified in this report. Reliance upon this

approach or portions thereof for any other use, such as determining “insurable value” is not

anticipated by the appraiser, is not an intended use, and may be misleading.

In this approach, the value of the subject development will be estimated by adding the cost of

the proposed construction costs to the value of the approved subdivision previously developed

in Scenario I. The resulting indication will then be adjusted upward for to reflect charges for

construction management and entrepreneurial profit to yield an overall value indication for the

site ‘as if’ all construction has been completed:

Income Approach

In valuing the subject property’s development as approved and complete, I have applied the

same methodologies as used in the Subdivision Development Analysis in Scenario I. However,

there are three major differences:

1. Construction Costs have been eliminated as an expense,

2. The projected closings will occur quicker as the developer does not have to wait

for construction to be completed,

3. The expense items for Overhead and Misc. have been reduced and;

4. The discount rate attributable to entrepreneurial profit has been reduced from

15% to 10% to reflect the decrease in overall risk once all construction has been

completed.

In this manner, the value of the subject development as approved and as if all construction has

been completed have been completed can be estimated. In the following analysis we have

eliminated the 1st four quarters from the analysis therefore the AS IMPROVED value is as of

April 25, 2019.

$4,225,000.00

$5,465,082.85

$9,690,082.85

Construction Management @ 9% $491,857.46

Entreprenurial Profit @ 14% $765,111.60

$10,947,000.00

$377,000.00Indicated Value Per Unit

Cost Approach - As Complete

Scenario I Value Conclusion

Construction Costs

Pre-Profit Indication

Indicated Value by Cost Approach

90


5 6 7

# Units Contracted 12 3 4 0 19

12 3 4 19

Quarterly Price Change 0.0% 0.0% 0.0%

490,131 490,131 490,131

5,881,568 1,470,392 1,960,523 9,312,483


6 0 0 6


582,760 582,760 582,760

3,496,562 0 0 3,496,562


4 0 0 4


154,000 154,000 154,000

616,000 0 0 616,000

0 0 0

0 0 0

0 0 0 0

0 0 0 0

1,312 1,312 1,312


143.64 143.64 143.64

0 0 0 0

Closing Costs @ $2,000 44,000 6,000 8,000

0 0 0

Marketing Costs @ 5.0% 499,707 73,520 98,026

543,707 79,520 106,026 729,252

0 0 0

0 0 0

Real Estate Taxes $82,277 20,569 4,965 2,837

2,733 2,733 2,733

Overhead @ 1.0% 44,750 44,750 44,750

Miscellaneous @ 1.0% 44,750 44,750 44,750

112,802 97,198 95,070 305,070

656,508 176,717 201,096 1,034,322

Construction Management 9% 0 0 0 0

Total Cash Use (incl. Constr Mgmt) 656,508 176,717 201,096 1,034,322

9,337,622 1,293,675 1,759,427 11,774,723

Present Value @ 10% 9,109,875 1,231,338 1,633,803 $11,980,000

0.98 0.95 0.93

# Units Closed

Average Overall Retail Selling Price

Total Sales Income

Description Under Contract TOTAL

SUBDIVISION DEVELOPMENT ANALYSIS - AS IS as of April 25, 2019

Average Construction Cost ($/SF)

Total Construction Costs

Fla

t

SA

LE

S I

NC

OM

E

Tow

nhouse

SA

LE

S I

NC

OM

E

# Units Closed


Total Sales Income

CO

AH

Fla

t

SA

LE

S I

NC

OM

E

# Units Closed


Total Sales Income

Insurance

Total Administration Costs

SIT

E

DE

VE

LO

PM

EN

T

Recreational Amenities

Site Costs (including water & sewer)

Total Site Development Costs

CO

NS

TR

UC

TIO

N

# Units Built

Average Unit Size

VA

LU

AT

ION

Total Direct Cash Use

Net Cash Flow

Present Value Factor

MA

RK

ET

ING

Model Fitup & Furnishing

Total Marketing Costs

AD

MIN

IST

RA

TIO

N

HOA Set Up

Mount Laurel Contribution

91


Reconciliation of Scenario 2 (As Complete)

The appraiser has applied the Cost Approach and the Income Approach to the valuation of the

subject property AS COMPLETE. In reconciling and selecting a final value indication for the

subject property the appraiser has made the following final observation regarding the three

approaches to value.

Cost Approach: Based upon the analyses contained in this report the Cost Approach has

determined a value indication of $10,947,000 AS COMPLETE. The cost approach has utilized

the developed site value and added for site and construction costs, construction management

and entrepreneurial profit. The strengths of this approach are the site value was determined

utilized relevant and local data. Overall, the cost approach is an adequate method of value as

the market value of the site and estimated site costs analyses are considered reliable. Buyers

generally focus less on this method and put more weight on the discount cash flow method.

Income Approach: Based upon the analyses contained in this report the Income Approach has

determined a value indication of $11,980,000 AS COMPLETE. The income approach has

determined the subject’s Gross Sellout Revenue and deducted for construction, expenses and

then applied a discounted cash flow method to determine market value. In this analysis the

construction costs and four quarters were eliminated. The weakness of the approach is that

slight changes in selling prices, costs, and market perceived risk rates could have a significant

effect on the value indication. The strengths of this approach are the appraiser’s utilization of

relevant and local data along with market surveys. In conclusion the income approach is

considered a very reliable approach to the valuing the subject and commonly considered a

primary method for buyers in this submarket area

Each of these approaches has yielded the following value indications:

Cost Approach $10,947,000

Income Approach $11,980,000

Approach to Value AS COMPLETE

Sales Comparison Not Applicable

The above value indication shows all applicable methods of valuation of the subject property.

Based on the individual strengths and weaknesses of each method previously discussed, most

92


weight was placed on both the Income Approach. Therefore, based upon the appraisers above

comments a final value can be expressed as follows:



AS COMPLETE



Scenario 3 – (Gross Sellout Revenue)

This value is representative of the gross non-discounted selling price for the 29 completed

dwelling units, which will comprise the subject development. The value will be based upon the

information contained in the Highest and Best Use and "As Is" Value Analysis section of this

report. This value is based upon the gross selling price of the individual dwellings without any

appreciation being calculated.

Model Name Projected Unit MixLiving Area (square feet)

Overall

Selling

Price Gross Sellout

Type 7 6 1,200 $483,276 $2,899,656

Type 8 5 1,245 $492,422 $2,462,112

Type 11 2 1,167 $475,996 $951,992

Type 12 2 1,167 $475,996 $951,992

Type 3-A 1 1,392 $517,587 $517,587

Type 3-B 1 1,390 $516,844 $516,844

Type 6 1 1,325 $506,322 $506,322

Type 4 1 1,317 $505,978 $505,978

Type 2 4 1,565 $581,914 $2,327,656

Type 1 2 1,585 $584,453 $1,168,906

2 Bedroom-Low 2 2 1,110 $133,849 $267,698

2 Bedroom-Mod 1 1 1,110 $189,743 $189,743

3 Bedroom-Low 2 1 1,775 $155,586 $155,586

19

$9,312,483

6

$3,496,562

4

$613,027

29

$13,400,000 Gross Sellout Revenue (Rounded)TOTAL

GROSS SELLOUT REVENUE

FlatTotal Units

Gross Sellout Revenue

TownhouseTotal Units


Total Units

COAH FlatTotal Units


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Reasonable Marketing Time

Marketing Time is defined as an opinion of the amount of time it might take to sell a real or

personal property interest at the concluded market value level during the period immediately

after the effective date of an appraisal. This definition has been quoted from the 2014 Uniform

Standards of Professional Appraisal Practice (USPAP).

Based upon my entire analysis, it is my considered opinion that a reasonable marketing time

estimate for the subject property is between ten to twelve months.

Reasonable Exposure Time

Reasonable exposure time is one of a series of conditions in most market value definitions.

Exposure time is always presumed to precede the effective date of the appraisal.

Exposure time is 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 appraisal; a retrospective opinion based on an analysis

of past events assuming a competitive and open market.” This definition has been quoted from

the 2014 Uniform Standards of Professional Appraisal Practice (USPAP).

Exposure time is different for various types of property and under various market conditions. It

is noted that the overall concept of reasonable exposure encompasses not only adequate,

sufficient, and reasonable time but also adequate, sufficient, and reasonable effort. The

estimate of exposure time focuses on time component.

Based upon my entire analysis, it is my considered opinion that a reasonable exposure time

estimate for the subject property is between ten to twelve months.

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Final Value Summary

AS IS









AS COMPLETE

Revenue $13,400,000

GROSS SELLOUT

Value Type Revenue

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PART IV – ADDENDUM Professional Qualifications

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101


102


COAH Calculator

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Provided Construction Budget

104


Provided Approvals

105


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107


108


109


110


111


112


113


114


115


116


117


Subject Deed

118


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Subject Tax Records

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Common Terminology

Please find the common appraisal terminology and their definitions as per The Dictionary of Real Estate Appraisals 6th Edition.

Absolute Net Lease A lease in which the tenant pays all expenses including structural maintenance, building reserves, and management; often a long-term lease to a credit tenant. (p. 1) Absorption

1. Broadly, the process whereby vacant space in a property, a group of properties, or a market becomes occupied, either by leasing or by sales to owner-users.

2. In subdivision analysis, the process whereby lots or units in a subdivision are sold off. 3. In market analysis, short-term capture. (p. 1)

Absorption Period The actual or expected period required from the time a property, group of properties, or commodity is initially offered for lease, purchase, or use by its eventual users until all portions have been sold or stabilized occupancy has been achieved. (p. 1) Adjustments

1. Mathematical changes made to market data to facilitate comparison or understanding. When dollar adjustments are used, individual differences between comparable properties and the subject property are expressed in terms of plus or minus dollar amounts. With percentage adjustments, individual differences are reflected in plus or minus percentage differentials.

2. Items that should be prorated or apportioned between the purchaser and the seller in a real property transaction, e.g., taxes, rents. (p. 4)

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 date. (p. 13) Band of Investment A technique in which the capitalization rates attributable to components of an investment are weighted and combined to derive a weighted-average rate attributable to the total investment (i.e., debt and equity, land and improvements). (p. 19) Capitalization Rate A ratio of one year’s net operating income provided by an asset to the value of the asset; used to convert income into value in the application of the income capitalization. (p. 31) Certification A part of an appraisal report in which the appraiser certifies that work was complete according to applicable professional and ethical standards. (p. 36) Common Area

1. The total area within a property that is not designed for sale or rental but is available for common use by all owners, tenants, or their invitees, e.g., parking and its appurtenances, malls, sidewalks, landscaped areas, recreation areas, public toilets, truck and service facilities.

2. In a shopping center, the walkways and areas onto which the stores face and which conduct the flow of customer traffic. (p. 41)

Common Area Maintenance (CAM)

1. The expense of operating and maintaining common areas; may or may not include management charges and usually does not include capital expenditures on tenant improvements or other improvements to the property.

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2. The amount of money charged to tenants for their shares of maintaining a shopping center’s common area. The charge that a tenant pays for shared services and facilities such as electricity, security, and maintenance of parking lots. Items charged to common area maintenance may include cleaning services, parking lot sweeping and maintenance, snow removal, security and upkeep. (p. 41)

Concession

1. A financial payment, special benefit, or non-realty item included in a sale contract or rental agreement as an incentive to the sale or lease. Concessions occur when the seller or lessor agrees to pay an inducement or to give some special credit or property to a buyer or lessee, who agrees to pay a higher price than the seller or lessor would normally pay in return for the inducement or credit. Concessions usually result in artificially inflated sale prices or lease rates. Often concessions allow financing that would otherwise not be possible. Concessions may be disclosed as part of the sale or lease, but often they are not.

2. An inducement for a tenant to lease space, sometimes, but not always, observed in overbuilt markets, which can include above-standard tenant improvements, free rent, moving cost reimbursement or credit, and buyout of the tenant’s existing lease. Concessions are an integral part of the definition of market rent.

3. A franchise for the right to conduct a business, granted by a governmental body or other authority.

4. A lease that allows a tenant to conduct a business on the property of another. (p. 45) Condemnation The act or process of enforcing the right of eminent domain. (p. 45) Conditions of Sale An element of comparison in the sales comparison approach; comparable properties can by adjusted for differences in the motivations of either the buyer or a seller in a transaction. (p. 46) Condominium A multiunit structure, or a unit within such a structure, with a condominium form of ownership. (p. 46) Conservation Easement An interest in real property restricting future land use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a rural nature as well as some types of conservation-oriented development to continue, subject to the easement. (p. 47) Consumer Price Index (CPI) A measurement of the cost of living determined by the US Bureau of Labor Statistics; the principal cost of living index and measure of inflation. (p. 48) Contributory Value

1. A type of value that reflects the amount a property or component of a property contributes to the value of another asset or to the property as a whole.

2. The change in the value of a property as a whole, whether positive or negative, resulting from the addition or deletion of a property component. Also called deprival value in some countries. (p. 50)

Curable Depreciation Items of physical deterioration or functional obsolescence that are economically feasible to cure. Curing an item of depreciation is economically feasible if the cost to cure is equal to or less than the anticipated increase in the value of the property that would result after curing the depreciation. (p. 57) Curable Functional Obsolescence An element of depreciation; a curable defect caused by a flaw in the structure, materials, or design, which can be practically and economically corrected. (p. 57)

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Curable Physical Deterioration A form of physical deterioration that can be practically and economically corrected as of the date of appraisal; excludes vandalism and damage, which are curable conditions but are not accounted for in an estimate of replacement cost or reproduction cost. (p. 57) Current Value

1. Value as of the current time period as compared to past or future value conclusions. 2. In accounting, synonymous with market value. (p. 57)

Debt Coverage Ratio (DCR) The ratio of net operating income to annual debt service (DCR = NOI/Im), which measures the relative ability of a property to meet its debt service out of net operating income; also called Debt Service Coverage Ratio (DSCR). A larger DCR indicates a greater ability for a property to withstand a reduction in income, providing an improved safety margin for a lender. (p. 60) Deed Restriction A provision written into a deed that limits the use of land. Deed restrictions usually remain in effect when title passes to subsequent owners. (p. 61) Deferred Maintenance Items of wear and tear on a property that should be fixed now to protect the value or income-producing ability of the property, such as a broken window, a dead tree, a leak in the roof, or a faulty roof that must be completely replaced. These items are almost always curable. (p. 61) Demand The desire and ability to purchase or lease goods and services; in real estate, the amounts of a type of property desired for purchase or rent at various prices in a given market for a given period of time. (p. 62) Depreciation

1. In appraisal, a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date. In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method.

2. In accounting, an allocation of the original cost of an asset, amortizing the cost over the asset’s life; calculated using a variety of standard techniques. (p. 63)

Direct Capitalization A method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor. Direct capitalization employs capitalization rates and multipliers extracted or developed from market data. Only one year’s income is used. Yield and value changes are implied, but not explicitly identified. (p. 65) Discounted Cash Flow (DCF) Analysis The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams and the quantity and timing of the reversion, and discounts each to its present value at a specified yield rate. (p. 66) Disposition Value The most probable price that a specified interest in property should bring under the following conditions:

1. Consummation of a sale within a specified time, which is shorter than the typical exposure time for such a property in that market.

2. The property is subjected to market conditions prevailing as of the date of valuation. 3. Both the buyer and seller are acting prudently and knowledgeably. 4. The seller is under compulsion to sell. 5. The buyer is typically motivated.

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6. Both parties are acting in what they consider to be their best interests. 7. An adequate marketing effort will be made during the exposure time. 8. Payment will be made in cash in US dollars (or the local currency) or in terms of financial

arrangements comparable thereto. 9. 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. This definition can also be modified to provide for valuation with specified financing terms. (p. 67) Easement The right to use another’s land for a stated purpose. (p. 71) Effective Date

1. The date on which the appraisal or review opinion applies. (SVP) 2. In a lease document, the date upon which the lease goes into effect. (p. 74)

Effective Gross Income (EGI) The anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income. (p. 74) Effective Rent Total base rent, or minimum rent stipulated in a lease, over the specified lease term minus rent concessions; the rent that is effectively paid by a tenant net of financial concessions provided by a landlord. (p. 74) Eminent Domain The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the US Constitution, also known as the takings clause, guarantees payment of just compensation upon appropriation of private property. (p. 75) Equity Dividend The portion of net operating income that remains after total mortgage debt service is paid but before ordinary income tax on operations is deducted; also called equity cash flow. (p. 78) Excess Rent The amount by which contract rent exceeds market rent at the time of the appraisal; created by a lease favorable to the landlord (lessor) and may reflect unusual management, unknowledgeable or unusually motivated parties, a lease execution in an earlier, stronger rental market, or an agreement of the parties. (p. 81) Expense Recovery The dollar amount a landlord receives from tenants as reimbursements for operating expenses such as maintenance and repair, utilities, security, insurance, and taxes; also known as pass-throughs, reimbursables, or billables. (p. 82) Exposure Time

1. The time a property remains on the market. 2. The estimated length of time that 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 appraisal. Comment: Exposure time is a retrospective opinion based on an analysis of past events assuming a competitive and open market. (p. 83)

Extraordinary Assumption An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or

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economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends or about the integrity of data used in an analysis. (p. 83) Fair Market Value

1. In nontechnical usage, a term that is equivalent to the contemporary usage of market value. 2. As used in condemnation, litigation, income tax, and property tax situations, a term that is similar

in concept to market value but may be defined explicitly by the relevant agency. For example, one definition of fair market value provided by the Internal Revenue Service for certain purposes is as follows: the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate. (p. 85)

Feasibility Rent The rent necessary to justify new construction. This concept helps the analyst determine the timing of development, as well as the difference between the required rent and market rent based on known costs and expected returns to the investor. Feasibility rent may also be used to estimate the depreciation of an improved property. The capitalized difference between feasibility rent and market rent represents total depreciation of the existing improved property if market rent is less than feasibility rent. (p. 87) Fee Simple Estate 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. (p. 90) Functional Obsolescence The impairment of functional capacity of improvements according to market tastes and standards. (p. 97) Functional Utility The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms. (p. 97) Going Concern

1. An established and operating business having an indefinite future life.

2. An organization with an indefinite life that is sufficiently long that, over time, all currently incomplete transformations [transforming resources from one form to a different, more valuable form] will be competed. (p. 102)

Going-Concern Value An outdated label for the market value of all the tangible and intangible assets of an established and operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of the going concern or market value of the total assets of the business. (p. 102) Going-In Capitalization Rate (Ro) The overall capitalization rate obtained by dividing a property’s net operating income for the first year after purchase by the present value of the property. (p. 102) Goodwill

1. Unidentifiable intangible assets. 2. The amount by which the acquisition price exceeds the fair value of identified assets. 3. That intangible asset arising as a result of name, reputation, customer loyalty, location, products,

and similar factors not separately identified. (International Glossary of Business Valuation Terms)

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4. That intangible asset arising as a result of elements such as name, reputation, customer loyalty, location, products, and related factors not separately identified and quantified. (ASA Glossary) (p. 102)

Gross Building Area (GBA)

1. Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above-grade area. This includes mezzanines and basements if and when typically included in the market area of the type of property involved.

2. Gross leasable area plus all common areas. 3. For residential space, the total area of all floor levels measured from the exterior of the walls and

including the super-structure and substructure basement; typically does not include garage space. (p. 104)

Gross Leasable Area (GLA) Total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines; measured from the center of joint partitioning to the outside wall surfaces. (p. 105) Gross Lease A lease in which the landlord receives stipulated rent and is obligated to pay all of the property’s operating and fixed expenses; also called a full service lease. (p. 105) Gross Living Area (GLA) Total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. (Finished basements and attic areas are not generally included in total gross living area. Local practices, however, may differ.) (p. 105) Gross Rent Multiplier (GRM) The relationship or ratio between the sale price or value of a property and its periodic gross rental income. (p. 105) Ground Lease A lease that grants the right to use and occupy land. Improvements made by the ground lessee typically revert to the ground lessor at the end of the lease term. (p. 106) Ground Rent The rent paid for the right to use and occupy land according to the terms of a ground lease; the portion of the total rent allocated to the underlying land. (p. 106) Highest and Best Use

1. The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.

2. The use of an asset that maximizes its potential and that is possible, legally permissible, and financially feasible. The highest and best use may be for continuation of an asset’s existing use or for some alternative use. This is determined by the use that a market participant would have in mind for the asset when formulating the price that it would be willing to bid. (IVS)

3. The highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future. (Uniform Appraisal Standards for Federal Land Acquisitions) (p. 109)

Hypothetical Condition

1. A condition that is presumed to be true when it is known to be false. (SVP) 2. A condition, directly related to a specific assignment, which is contrary to what is known by the

appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. Comment: Hypothetical conditions are contrary to known facts about physical, legal, or

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economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (USPAP, 2016-2017 ed.) (p. 113)

Income Capitalization Approach Specific appraisal techniques applied to develop a value indication for a property based on its earning capability and calculated by the capitalization of property income. (p. 115) Incurable Functional Obsolescence An element of depreciation; a defect caused by a deficiency or superadequacy in the structure, materials, or design that cannot be practically or economically corrected as of the effective date of the appraisal. (p. 116) Incurable Physical Deterioration A form of physical deterioration that cannot be practically or economically corrected as of the effective date of appraisal. (p. 116) Induced Demand A component of latent demand, stimulated by sources other than fundamental demand drivers; created by, for example, aggressive marketing efforts, the opening of a major demand generator, or the provision of new amenities. (p. 116) Ingress A means of entering; an entrance. (p. 117) In Lieu Tax A tax that substitutes for property taxes; also called in lieu payments or payments in lieu of taxes. (p. 117) Institutional-Grade Property A property of sufficient size and stature to merit attention by large national or international investors. These properties are of good design and construction, although they are rarely monumental in design or the use of construction materials. They are typically large. They may be located in secondary metropolitan areas, but invariably they will have a very stable tenant base. Investment properties usually contain state-of-the-art mechanical, electrical, life safety, elevator, and communications systems. Their finishes are of the highest standards, and they often provide the occupants with an exceptional mix of amenities in variety and quality. Often they house a lead tenant for whom the property is named, and usually they are located in a premier metropolitan area. Investment-grade properties need not be considered to be “trophy” material, but trophy properties are usually investment-grade. (BOMA) (p. 118) Insurable Value A type of value for insurance purposes. (p. 119) Interim Use The temporary use to which a site or improved property is put until a different use becomes maximally productive. (p. 120) Investment Value

1. The value of a property to a particular investor or class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.

2. The value of an asset to the owner or a prospective owner for individual investment or operational objectives. (IVS) (p. 121)

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Just Compensation In condemnation, the amount of loss for which a property owner is compensated when his or her property is taken. Just compensation should put the owner in as good a position pecuniarily as he or she would be if the property had not been taken. (p. 123) Leased Fee Interest The ownership interest held by the lessor, which includes the right to the contract rent specified in the lease plus the reversionary right when the lease expires. (p. 128) Leasehold Improvements Improvements or additions to leased property that have been made by the lessee. (p. 128) Leasehold Interest The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease. (p. 128) Lessee One who has the right to occupancy and use of the property of another for a period of time according to a lease agreement. (p. 129) Lessor One who conveys the rights of occupancy and use to others under a lease agreement. (p. 129) Liquidation Value The most probable price that a specified interest in property should bring under the following conditions:

1. Consummation of a sale within a short time period.

2. The property is subjected to market conditions prevailing as of the date of valuation.

3. Both the buyer and seller are acting prudently and knowledgeably.

4. The seller is under extreme compulsion to sell.

5. The buyer is typically motivated.

6. Both parties are acting in what they consider to be their best interests.

7. A normal marketing effort is not possible due to the brief exposure time.

8. Payment will be made in cash in U.S. dollars (or the local currency) or in terms of financial arrangements comparable thereto.

9. 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.

This definition can also be modified to provide for valuation with specified financing terms. (p. 132) Loan-to-Value Ratio The ratio between a mortgage loan and the value of the property pledged as security, usually expressed as a percentage; also called loan ratio or LTV. (p. 134) Marketability The relative desirability of a property (for sale or lease) in comparison with similar or competing properties in the area. (p. 138) Marketing Time An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. (Advisory Opinion 7 of the Appraisal Standards Board of The Appraisal Foundation and Statement on Appraisal Standards No. 6, “Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions” address the determination of reasonable exposure and marketing time. (p. 140)

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Market Penetration A comparison of the sales or use of a product or service compared to the total theoretical market for that product or service. Examples include the proportion of seniors living in senior housing or the proportion of automobile owners who use car wash facilities. (p. 140) Market Rent The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements. (p. 140) Market Study An analysis of the market conditions of supply, demand, and pricing for a specific property type in a specific area. (p. 140) Market Value A type of value that is the major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined, such as the following:

1. The most widely accepted components of market value are incorporated in the following definition: The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

2. Market value is described, not defined, in the Uniform Standards of Professional Appraisal Practice (USPAP) as follows: A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal. (p. 141)

Master Lease

1. A lease in which the fee owner leases a part or the entire property to a single entity (the master lease) in return for a stipulated rent. The master lessee then leases the property to multiple tenants.

2. The first lease in a sandwich lease. (p. 143) Modified Gross Lease A lease in which the landlord receives stipulated rent and is obligated to pay some, but not all, of the property’s operating and fixed expenses. Since assignment of expenses varies among modified gross leases, expense responsibility must always be specified. In some markets, a modified gross lease may be called a double net lease, net net lease, partial net lease, or semi-gross lease. (p. 148) Net Lease A lease in which the landlord passes on all expenses to the tenant. (p. 157) Net Operating Income (NOI or Io) The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before mortgage debt service and book depreciation are deducted. Note: This definition mirrors that convention used in corporate finance and business valuation for EBITDA (earnings before interest, taxes, depreciation, and amortization). (p. 158) Net Present Value The difference between the present value of all expected investment benefits (PV) and the present value of the capital outlays (CO), i.e., NPV=PV-CO. (p. 158)

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Obsolescence One cause of depreciation; an impairment of desirability and usefulness caused by new invention, changes in design, improved processes for production, or external factors that make a property less desirable and valuable for a continued use; may be either functional or external. (p. 161) Occupancy Rate

1. The relationship or ratio between the potential income from the currently rented units in a property and the income that would be received if all the units were occupied.

2. The ratio of occupied space to total rentable space in a building. (p. 161) Operating Expenses The periodic expenditures necessary to maintain the real estate and continue production of the effective gross income, assuming prudent and competent management. (p. 163) Option A legal contract, typically purchased for a stated consideration, that permits but does not require the holder of the option (known as the optionee) to buy, sell, or lease real estate for a stipulated period of time in accordance with specified terms; a unilateral right to exercise a privilege. (p. 163) Partial Interest Divided or undivided rights in real estate that represent less than the whole, i.e., a fractional interest such as a tenancy in common, easement, or life interest. (p. 168) Pass-Through A tenant’s portion of operating expenses that may be composed of common area maintenance (CAM), real property taxes, property insurance, and any other expenses determined in the lease agreement to be paid by the tenant. (p. 168) Personal Property

1. The interests, benefits, and rights inherent in the ownership of tangible objects that are considered by the public as being personal; also called tangible personal property.

2. Identifiable tangible objects that are considered by the general public as being “personal” – for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all tangible property that is not classified as real estate. (p. 170)

Potential Gross Income (PGI) The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted. (p. 173) Property Rights Adjustment An adjustment made to the indicated property value if the value of the property is not at market occupancy or market rent. (p. 179) Prospective Market Value “As Completed” and “As Stabilized” A prospective market value may be appropriate for the valuation of a property interest related to a credit decision for a proposed development or renovation project. According to USPAP, an appraisal with a prospective market value reflects an effective date that is subsequent to the date of the appraisal report. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. Two prospective value opinions may be required to reflect the time frame during which development, construction, and occupancy will occur. The prospective market value – as completed – reflects the property’s market value as of the time that development is expected to be completed. The prospective market value – as stabilized – reflects the property’s market value as of the time the property is projected to achieve stabilized occupancy. For an income-producing property, stabilized occupancy is the occupancy level that a property is expected to achieve after the property is exposed to the market for lease over a reasonable period of time and at comparable terms and conditions to other similar properties. (p. 179)

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Redevelopment 1. In an urban renewal area, the development or improvement of land that is undeveloped or has

been cleared; technically includes the erection of buildings and other development and improvement of the land by private or public redevelopers to whom the land has been made available.

2. In general, the demolition of a building or portion of a building and the subsequent development on the same site. (p. 192)

Remaining Economic Life The estimated period over which existing improvements are expected to contribute economically to a property; an estimate of the number of years remaining in the economic life of a structure or structural components as of the effective date of the appraisal; used in the economic age-life method of estimating depreciation. (p. 195) Renewal A new lease entered into by an existing tenant upon expiration of their original lease term. Not to be confused with renewal option. (p. 196) Renewal Option An agreement entered into at the time of the original lease providing the tenant with the right, but not the obligation, for the tenant to extend the lease term for a specified time at a rent specified in the option agreement or at the market rate at the time of renewal. (p. 196) Rentable Area For office or retail buildings, the tenant’s pro rata portion of the entire office floor, excluding elements of the building that penetrate through the floor to the areas below. The rentable area of a floor is computed by measuring to the inside finished surface of the dominant portion of the permanent building walls, excluding any major vertical penetrations of the floor. Alternatively, the amount of space on which the rent is based; calculated according to local practice. (p. 196) Rent Control A legal regulation that specifies the maximum rental payment for the use of property. (p. 196) Replacement Cost The estimated cost to construct, at current prices as of a specific date, a substitute for a building or other improvements, using modern materials and current standards, design, and layout. (p. 197) Replacement Cost for Insurance Purposes The estimated cost, at current prices as of the effective date of valuation, of a substitute for the building being valued, using modern materials and current standards, design, and layout for insurance coverage purposes guaranteeing that damaged property is replaced with new property (i.e., depreciation is not deducted). (p. 197) Reproduction Cost The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all of the deficiencies, super-adequacies, and obsolescence of the subject building. (p. 198) Retrospective Value Opinion A value opinion effective as of a specified historical date. The term retrospective does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with this term is appropriate, e.g., “retrospective market value opinion.” (p. 201)

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Riparian Rights A water right that, under common law, grants a landowner the ownership of waters that share a border with the parcel owned or that flow across the land. (p. 204) Sales Comparison Approach The process of deriving a value indication for the subject property by comparing sales of similar properties to the property being appraised, identifying appropriate units of comparison, and making adjustments to the sale prices (or unit prices, as appropriate) of the comparable properties based on relevant, market-derived elements of comparison. The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant when an adequate supply of comparable sales is available. (p. 207) Sandwich Lease A lease in which an intermediate, or sandwich, leaseholder is the lessee of one party and the lessor of another. The owner of the sandwich lease is neither the fee owner nor the user of the property; he or she may be a leaseholder in a chain of leases, excluding the ultimate sublessee. (p. 207) Section 8 Housing A residential property occupied under a federal program that provides assistance for lower-income households. The difference between the HUD-established allowable rent for each unit and the household’s contribution is paid by HUD to the project owner or manager. (p. 210) Stigma An adverse public perception regarding a property, commonly the identification of a property with a condition such as environmental contamination or other detrimental condition, such as a violent crime, that penalizes the marketability of the property and may also result in a diminution in value. (p. 221) Subdivision Development Method A method of estimating land value when subdividing and developing a parcel of land is the highest and best use of that land. When all direct and indirect costs and entrepreneurial incentive are deducted from an estimate of the anticipated gross sales price of the finished lots (or the completed improvements on those lots), the resultant net sales proceeds are then discounted to present value at a market-derived rate over the development and absorption period to indicate the value of the land. (p. 223) Sublease An agreement in which the lessee in a prior lease conveys the right of use and occupancy of a property to another, the sublessee, for a specific period of time, which may or may not be coterminous with the underlying lease term. (p. 224) Superadequacy An excess in the capacity or quality of a structure or structural component; determined by market standards. (p. 226) Tax Abatement A reduction in the local taxes levied on a project for a specific period of time; may refer to a rebate of taxes previously paid due to overassessment of property. (p. 229) Temporary Easement An easement granted for a specific purpose and applicable for a specific time period. A construction easement, for example, is terminated after the construction of the improvement and the unencumbered fee interest in the land reverts to the owner. (p. 231) Tenant Improvements (TIs)

1. Fixed improvements to the land or structures installed for use by a lessee. 2. The original installations of finished tenant space in a construction project; subject to periodic

change for succeeding tenants. (p. 232)

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Transferable Development Right (TDR) A development right that cannot be used by the landowner, or that the owner chooses not to use, but can be conveyed to landowners in another location or leased for a period of years to then revert back to the original owner; TDRs are said to be transferred from a landowner in a sending district to the use of a landowner in a receiving district. (p. 235) Uniform Standards of Professional Appraisal Practice (USPAP) In the United States, professional standards, developed for appraisers and users of appraisal services by the Appraisal Standards Board of The Appraisal Foundation, that are required for use in federally related transactions. Compliance with USPAP is also required in certain appraisals by state certification and licensing boards. (p. 239) Use Variance A decision by a board of adjustment that grants a property owner the right to develop or use his or her property in a manner that violates the strict terms of the applicable zoning authority; granted on a property-by-property basis. (p. 241) Value-in-Use The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptually. (p. 245) Zoning Variance A legally authorized modification in the use of property at a particular location that does not conform to the regulated use set forth in the zoning ordinance for the surrounding area; not an exception or change in the legally applicable zoning. A zoning variance is typically only granted if the property owner can prove a particular hardship due to unusual property characteristics. (p. 252)

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