iron horse inn appraisal

7/28/2019 Iron Horse Inn appraisal

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Appraisal of Real Property Conveyed

in a Restricted Use Appraisal Report

IRON HORSE INNExisting Lodging Property (52 total rooms)

On a 2.361-Acre Site along the Yampa RiverLocated at 331 and 333 South Lincoln Avenue

City of Steamboat Springs, Colorado 80487

As of

April 29, 2013

Prepared For

The City of Steamboat SpringsAnne Small, Director of General Services

137 Tenth Street (P.O. Box 775088)Steamboat Springs, Colorado 80477

Prepared ByKevin A. Chandler, MAI

Chandler ConsultingP.O. Box 774685

Steamboat Springs, Colorado 80477


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IRON HORSE INN 1

CHANDLERCONSULTINGKEVIN A.CHANDLER,MAI

P.O.BOX 774685

STEAMBOAT SPRINGS,CO80477

(970)879-1405

[email protected] 6, 2013

Anne Small, Director of General ServicesThe City of Steamboat Springs137 Tenth Street (P.O. Box 775088)Steamboat Springs, Colorado 80477

Re: Appraisal of the Iron Horse Inn

Existing Lodging Property (52 total rooms)On a 2.361-Acre Site along the Yampa RiverLocated at 331 and 333 South Lincoln AvenueCity of Steamboat Springs, Colorado 80487

Dear Anne:

At your request, I have estimated the as is market value of the above captioned real property.According to Standards Rule 2-2(c) of the Uniform Standards of Professional Appraisal Practice(USPAP), this analysis is conveyed in a restricted use appraisal report. As such, it only presentsa limited discussion of the data, reasoning, and analyses that were used in the appraisal processto develop the opinion of value. This appraisal is for client (internal) use only, with supportingdocumentation retained in my workfile. The analysis is contingent upon certain definitions,assumptions, limiting conditions, and comparison of report types, which follow the certification.

Scope of Work

The client and only intended users of this report is the City of Steamboat Springs, as the currentowner of record. This specifically includes duly authorized representatives of the municipality,such as the Director of General Services, members of the City Council, and their legal counsel.The purpose of this assignment is to estimate the as is market value for the fee simple interest(as defined at the end of this report), and the intended use is to assist the client with decisionmaking in regards to potential disposition of this asset. The effective date of the as is valueestimate is April 29, 2013, which is the date of my most recent inspection. This restricted useappraisal is not intended for any other users or purpose, and I am not responsible for itsunauthorized use. The date of report preparation and transmittal to the client is May 6, 2013.Known as the Iron Horse Inn, the subject is an existing lodging property with 52 rooms in twobuildings, which are situated on a 2.361-acre site that fronts the Yampa River and the Core Trail.Only the Sales Comparison and Income Capitalization Approaches were employed to value thesubject, both as a redevelopment site (as if vacant) and an existing lodging facility (as improved).Comparable commercial and multi-family land sales were analyzed to value the underlying siteas vacant land, with a deduction made for the costs to demolish the existing improvements (i.e.,assumed to be $500,000, including asbestos removal). Sales of local lodging properties wereanalyzed to determine the value of the subject property as improved, with a deduction made forthe estimated cost to renovate the facility so it is competitive with the market (i.e., $2,000,000).The Income Approach was employed for secondary support to the indicated value as improved,but the Cost Approach was omitted since it is not typically utilized by local market participants.


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IRON HORSE INN 2

Area and Market Overview

Detailed analyses for the region, residential market, and neighborhood are found at the end ofthis report. Routt County and the City of Steamboat Springs have experienced weak conditionssince Fall 2008, as the Great Recession has continued to negatively impact the local economy.This resulted in higher unemployment, lower sales tax revenues, very little new construction,record foreclosures, and reduced sales volume at lower average prices for all types of property.Intrawest continues to operate the Steamboat Ski Area as a subsidiary of Fortress Investments,

but has experienced declining skier visits since the downturn. The subject is located in the Townand Mountain submarket, which offers neighborhood services that cater to locals and visitors.While many older properties were acquired for redevelopment between 2005 and 2008, the trendhas been little new construction due to the lack of demand and oversupply of available space.Local real estate market conditions appear to have stabilized recently, but the future is uncertain.

Ownership and History

The subject property is currently owned by the City of Steamboat Springs Building Corporation,who acquired it from Iron Horse Partners, LLC on October 30, 2007 for a price of $4,050,000(Reception #666262). The sellers are a group of investors that reportedly purchased the propertyout of foreclosure on February 11, 2002 for consideration of $1,700,000 (Reception #559148).

The city planned to use the existing lodging facility as workforce housing, which was financedwith more than $5,000,000 in debt (and annual payments of about $475,000). The New Building(26 rooms) was managed via third party as nightly hotel rentals for some time, but this operationwas closed on November 1, 2012. The Old Building (26 rooms) continues to be leased as studioapartments on a monthly basis, and is generally fully occupied at rental rates of $625 per month.Spurred by a pending sale of the downtown facility, the city planned to occupy the subject as atemporary police station, but abandoned the idea when renovations cost far exceeded projections.While there have been no transfers of ownership during the past three years, and the subject isneither listed for sale nor under contract to purchase, two unsolicited offers have been received.In March 2013, a Chicago-based developer (Bob Helle) indicated he would pay up to $400,000for the property for redevelopment with 42 affordable housing units, which is public knowledge.

A local developer (KC Wilson) submitted a proposal to acquire the subject at a price of $915,000for renovation as a hotel, with a copy of his offer on the following pages (which is confidential).

Property Description

The subject is an existing hotel with 52 rooms (and common area) in two detached structures.According to county assessor records, the Old Building is two stories with an external stairwell,was completed in 1968, and contains 26 studio apartments with 11,619 square feet of floor area.The New Building is also two stories with internal stairwells, was built in 1995, and contains 26hotel rooms (with lobby/breakfast area) with 11,162 square feet of floor area. A third structureof 216 square feet features a recreation room, sauna, and hot tub on an attached wooden deck.Thus, the subject property comprises 22,997 square feet of total building area. According to aVisual Structural Inspection that was prepared on October 10, 2012 by a local engineer, items ofmajor deferred maintenance are noted at the subject. For example, inadequate drainage hasapparently created settlement of the parking lot, ice dams are problematic at the New Building,and movement in the roof trusses (plus inadequate insulation) was observed at the Old Building.In my opinion, the subject property is considered to be in fair to average physical condition. Theunderlying site comprises 2.361 acres (102,845 SF) of land area in a single unplatted tract, whichis situated between U.S. Highway 40 and the Yampa River. The parcel has direct ingress/egressfrom the highway, although a left-turn is prohibited by concrete median. Please refer to maps,plans, and photographs of the subject property on the following pages for visual edification.


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IRON HORSE INN 3

OFFERTOPURCHASE(page one of two)


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IRON HORSE INN 4

OFFERTOPURCHASE(page two of two)


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IRON HORSE INN 5

ASSESSOR TAX PARCEL MAP

CITY GIS AERIAL MAP


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IRON HORSE INN 6

ZONINGMAP


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IRON HORSE INN 7

SITE PLAN WITH ROOM LAYOUT


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IRON HORSE INN 8

SUBJECT PHOTOGRAPHS

Exterior View of New Building (nightly rentals) Looking West from Parking Lot

Exterior View of Old Building (monthly rentals) Looking North from Parking Lot


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IRON HORSE INN 9

SUBJECT PHOTOGRAPHS

Interior View of Typical Unit in New Building (hotel room for nightly rental)

Interior View of Typical Unit in Old Building (apartment for monthly rental)


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IRON HORSE INN 10

SUBJECT PHOTOGRAPHS

View of Core Trail along the Yampa River at Western Boundary of Subject Site

Exterior View of Amenity Building Looking North (hot tub on attached deck)


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IRON HORSE INN 11

Assessment and Taxes

The subject real property is identified as Parcel #9361-74-004 and Account #R4772309, and isassessed as a motel. The 2013 actual value of $2,892,430 is allocated as $826,000 for land and$2,066,430 for improvements, with a corresponding assessed value of $838,800 (29% of actual).The 2012 actual value of $717,470 is inaccurate since the buildings were only assessed at $30.While the subject is owned by a municipality and thus exempt from property taxes, applying the2012 mill levy of 41.627 results in current real estate taxes of $34,917 if in private ownership.

Zoning and Land Use

The subject property is zoned CC, Community Commercial, by the City of Steamboat Springs.This district is intended to provide nodes for commercial services and sale of goods (for bothresidents and visitors), as well as office, lodging, and residential development. Most commercialuses are permitted by right in this district (such as retail, office, lodging, and entertainment),while special-purpose facilities and residential units are conditional uses (or those with criteria).The CC zoning code was changed in early 2010 to adopt development criteria that are based onbuilding form and placement. For example, the code formerly stipulated maximum lot coverageof 50% and a maximum floor area ratio (FAR) of 0.50. However, the revised CC zoning has nomaximum density standards, with building intensity determined by setbacks, height, and parking.

The maximum overall building height permitted is 63 feet, with a second story now required at75% of the first floor area. The maximum residential unit size is currently 1,400 square feet.Front yard setbacks are currently a minimum of five feet and a maximum of twenty feet, withside and rear yards generally having a minimum setback of 7.5 feet. There is no minimum ormaximum lot size or depth, just a minimum lot width of 25 feet. While few projects have beenprocessed since the CC standards were revised, the Planning Department indicates a maximumFAR of 0.70 to 1.00 is realistic for most sites (depends on underground versus surface parking).

Highest and Best Use Analysis

The highest and best use of real property generates the highest return at the least risk, and may beredevelopment with another use if the value as if vacant is greater than the value as improved.Based on current zoning and natural characteristics, commercial, mixed-use, and/or multi-familydevelopment is legally permissible and physically possible. The subject is a desirable infill site,as it is situated south of downtown, with highway frontage and direct access to the Yampa River.However, it would have limited appeal to a convenience-oriented user (such as a gas station orfast food restaurant) since ingress/egress is circuitous, and it is not located at a signalized corner.The most likely users would be destination commercial and/or residential, such as professionaloffice, motel/hotel, sit-down restaurant, condominiums, apartments, etc. However, speculativedevelopment of this type is not financially feasible at this time given weak market conditions.The subject site is currently improved with two lodging buildings that are owned by the city, andhas operated in this manner for many years. However, the property is in need of a majorrenovation, and the motel was closed last year since it did not generate sufficient net income tocover operating costs. While the studio apartments are fully leased, the conversion from nightlyrentals was reportedly done without permits or planning approvals, and is a non-conforming use.Thus, considerable capital will likely be required to bring the existing structures up to code, andcompetent management will almost certainly be required if the motel was to reopen to the public.This scenario entails some risk, as the structures suffer from considerable physical depreciationand functional obsolescence (especially the Old Building). Based on the foregoing, the subjectcould be redeveloped with another use (most likely multi-family) when warranted by improvingmarket conditions and escalating land values. In the interim, the existing lodging use generates ahigher value than the underlying site as if vacant (considering demolition and renovation costs).


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IRON HORSE INN 12

Value of Subject As If Vacant

As previously discussed, the subject site is zoned CC, and would most likely be developed with asingle-tenant commercial or multi-family residential project in light of current market conditions.While there have been few closings since the economic downturn occurred in Fall 2008, the mostrelevant commercial and multi-family land sales since 2000 are summarized on the next pages.The commercial transactions report a price range of $4.24 to $17.76 per square foot of land area,while the entry-level multi-family land purchases bracket prices $10,000 to $165,714 per unit.

The transactions of each type that are deemed to be most comparable to the subject property arepresented below, followed by my professional opinion of the indicated land value for the site.

Property Identification

Legal Description

Sale Date

Sale Price

Land Area

Price Per SFComments

Walgreens Drug Store

City South Subdivision, Lot 2

Jun-2011

$905,000

50,965 SF

$17.76 PSF

Build-to-suit big-box retail store for credit tenant

Planning approval by seller, site work by buyer

Steamboat Resorts Property

Fox Creek Park, Filing #2, Lot 1

Sep-2006

$1,000,000

147,233 SF

$6.79 PSF

Acquired by local property management company

About half of site is not useable due to creek/slopes

Future Development Site

Unplatted Tract in Section 20

Mar-2006

$775,000

182,952 SF

$4.24 PSF

About half of site is not buildable due to wetlands

Investor re-sold land in May-2007 for $1,525,000

Future Development SiteUnplatted Tract in Section 20

Sep-2005$530,000

98,010 SF$5.41 PSF

About half of site is not buildable due to wetlandsInvestor re-sold land in Oct-2006 for $740,000

Pine Grove Business Center

Parcel C, Pine Grove Bus. Center

Jan-2006

$325,000

32,234 SF

$10.08 PSF

Developer constructed multi-tenant office building

Near Fish Creek, but odd (triangular) configuration

First National Bank of the Rockies

Sundance North Village, Lot 1

Dec-2004

$483,000

48,300 SF

$10.00 PSF

Owner-occupied branch bank site with drive-thru

About 80% of site is buildable due to steep slopes

Project Name

Location

Sale Date

Sale Price

Land Size

Units (Type)

Price Per Unit

Price Per SF

Density (entitlements)

Zoning District

Eco Corral

Hilltop Parkway

Jan-2013

$780,000

2.35 acres

24 (townhouse)

$32,500

$7.62

10.21 Units/Acre (some approvals)

Multi-Family One (MF-1)

Skyview Apartments

Whistler Road

May-2010

$615,388

1.20 acres

36 (apartments)

$17,094

$11.77

30.00 Units/Acre (no approvals)

Commercial Neighborhood (CN)

Rocky Peak Village

Tamarack Drive

Mar-2005

$750,000

3.00 acres

34 (townhouse)

$22,059

$5.74


Multi-Family Three (MF-3)

Fox Creek Village

Hilltop Parkway

Dec-2004

$500,000

3.92 acres

30 (condominium)

$16,667

$2.93


Community Commercial (CC)

Sundance Creek Phase I

Anglers Drive

Aug-2003

$425,000

2.41 acres

19 (condominium)

$22,421

$4.06



Pines at Orehouse Plaza

Pine Grove Road

Aug-2002

$650,000

4.08 acres

65 (condominium)

$10,000

$3.66



Based on the foregoing commercial sales, the subject site (102,845 SF) would likely command aland value in the middle of the range of about $10.00 per square foot, or $1,025,000 as rounded.The most comparable multi-family land sales report a price range of $10,000 to $32,500 per unit.Assuming the subject site could be developed at a density of 15 to 20 units per acre, the 2.361-acre parcel would support 35 to 47 condominium units. Applying a price of $25,000 per unit forriverfront land with no approvals indicates a value for the subject site of $875,000 to $1,175,000.In my professional opinion, the subject property has a land value as if vacant of $1,025,000, butdeducting required demolition costs (including asbestos removal) that are estimated at $500,000results in an as is market value for the subject property as a redevelopment site of $525,000.


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IRON HORSE INN 13

SUMMARY OF COMMERCIAL AND MIXED-USE LAND SALES

Property Identification

Legal Description

Sale Date

Sale Price

Land Area

Price Per SFComments

Walgreens Drug Store

City South Subdivision, Lot 2

June-2011

$905,000

50,965 SF

$17.76 PSF

Build-to-suit big-box retail store for credit tenant

Approvals by seller, most site work by buyer

Centennial Bank SiteWildhorse Marketplace, Lot 6

Aug-2008$635,000

45,259 SF$14.03 PSF

Owner-occupied branch bank site with drive-thruPad site at shopping center with vested approval



Aug-2007

$850,000

100,624 SF

$8.45 PSF

Sheraton Hotel acquired for affordable housing

About 75% of 2.31-acre site is useable (wetlands)

Steamboat Crossing North & South

Mid-Valley Bus. Center, Lots 2 & 6

Jul-2007

$8,875,000

639,475 SF

$12.80 PSF

Assumed plans for mixed-use/multi-family projects




May-2007

$1,525,000

182,952 SF

$8.34 PSF

Speculative purchase for mixed-use development


Future Restaurant Site (re-sale)


Oct-2006

$740,000

98,010 SF

$7.55 PSF

Acquired for Mexican restaurant, remains vacant


Steamboat Resorts Property

Fox Creek Park, Filing #2, Lot 1

Sep-2006

$1,000,000

147,233 SF

$6.79 PSF

Acquired by local property management company

About 50% of 3.38-acre site is useable (creek/slope)

Resort Group Building Three

Steamboat Village Replat B, Lot 3

Jul-2006

$530,000

32,670 SF

$16.22 PSF

Improved with mostly owner-occupied office bldg.

Buyer will upgrade road for $20,000, fully useable

Sundance North


Mar-2006

$2,200,000

439,520 SF

$5.00 PSF

Purchased before mixed-use project was approved

About 35% of 10.09-acre site is useable (slopes)



Mar-2006

$775,000

182,952 SF

$4.24 PSF

Investor re-sold site in May-2007 for $1,525,000

Re-sale indicates annual appreciation of 78%



Sep-2005

$530,000

98,010 SF

$5.41 PSF

Investor re-sold site in Oct-2006 for $740,000


Pine Grove Business Center

Parcel C, Pine Grove Bus. Center

Jan-2006

$325,000

32,234 SF

$10.08 PSF

Developer constructed multi-tenant office building

Near Fish Creek, but triangular configurationFirst National Bank of the Rockies


Dec-2004

$483,000

48,300 SF

$10.00 PSF

Owner-occupied branch bank site with drive-thru

About 80% of 1.11-acre site is useable (slopes)

Former Big Country Realty Site

Sandefur Subdivision, Lot 2

Nov-2004

$400,000

24,829 SF

$16.11 PSF

Old office building was subsequently demolished

Signalized corner adjoining Steamboat Crossing


Steamboat Village Replat F, Lot 3

Oct-2004

$1,861,000

183,080 SF

$10.17 PSF

Investor buy at Central Park Plaza, remains vacant

Seller credited $60,000 for private road, all useable


Steamboat Village Replat B, Lot 3

Dec-2003

$400,000

32,670 SF

$12.24 PSF

Investor re-sold site in Jul-2006 for $530,000


Steamboat Crossing Property

Mid-Valley Bus. Center, Lots 2 & 6

Aug-2003

$2,250,000

395,089 SF

$5.69 PSF

Acquired for commercial/residential development

Price reflects 100% interest with motivated seller

Strings in the Mountains

Steamboat Village Filing 3, Parcel A

May-2003

$1,665,000

260,489 SF

$6.39 PSF

Improved with non-profit performing arts facility

Seller donated 1.20 acres of adjacent open space

Southside Station

Evergreen Subdivision, Lot 2

Mar-2003

$410,000

94,090 SF

$4.36 PSF

Owner-occupied gas station with convenience store


Young Tracks Day Care

Mid-Valley, Lot 1, Filing 2

Dec-2001

$300,000

37,362 SF

$8.00 PSF

Owner-occupied day care at Steamboat Crossing

Below market price to non-profit (discounted 25%)

Wildhorse Marketplace

Steamboat Village Replat E, Lot 2

Jul-2001

$2,500,000

372,815 SF

$6.71 PSF

Developed as seven-lot commercial subdivision

Major site work and utilities required, fully useable


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IRON HORSE INN 14

SUMMARY OF ENTRY-LEVEL MULTI-FAMILY LAND SALES

Project Name

Location

Sale Date

Sale Price

Land Size

Units (Type)

Price Per Unit

Price Per SF

Density (entitlements)

Zoning District

Sundance North

Anglers Drive

Listing

$1,650,000

3.25 acres (useable)

110 (apartments)

$15,000

$11.65



Rollingstone VillagePine Grove Road

Listing$3,000,000

2.79 acres70 (condominium)

$42,857$24.68

25.09 Units/Acre (full approvals)Community Commercial (CC)

Elk River Village

Elk River Road

Exp. Listing

$1,500,000

10.76 acres

67 (condo & SF)

$22,388

$3.20


Commercial Services (CS)

Eco Corral

Hilltop Parkway

Jan-2013

$780,000

2.35 acres

24 (townhouse)

$32,500

$7.62



Wildhorse Meadows

Mount Werner Road

Dec-2012

$5,825,000

17.19 acres

328 (condo & town)

$17,759

$7.78


Resort Residential One (with PUD)

Chadwick Estate Villas

Eagle Ridge Drive

Mar-2012

$900,000

2.30 acres

15 (townhouse)

$60,000

$8.98

6.52 Units/Acre (expired approvals)

Resort Residential One (RR-1)

Skyview Apartments

Whistler Road

May-2010

$615,388

1.20 acres

36 (apartments)

$17,094

$11.77


Commercial Neighborhood (CN)

Eco Corral

Hilltop Parkway

Sep-2008

$4,640,000

2.67 acres

28 (townhome)

$165,714

$39.90

10.49 Units/Acre (ready to build)


Rocky Peak Village

Tamarack Drive

Apr-2008

$2,800,000

3.92 acres

34 (townhouse)

$82,353

$16.41

8.68 Units/Acre (full approvals)


Rollingstone Village

Pine Grove Road

Aug-2007

$5,750,000

2.79 acres

68 (condominium)

$84,559

$47.31



Aspens at Walton Creek

Whistler Road

Sep-2006

$1,000,000

1.87 acres

28 (town & condo)

$35,714

$12.28

14.97 Units/Acre (full approvals)


Elk River Village

Elk River Road

Aug-2006

$2,253,800

10.76 acres

67 (condo & SF)

$33,639

$4.81


Commercial Services (CS)Fulton Ridge (Eco Corral)

Hilltop Parkway

May-2006

$875,000

2.67 acres

28 (town & condo)

$31,250

$7.52



Sundance Creek Phase II

Anglers Drive

Aug-2005

$598,700

1.70 acres

19 (condominium)

$31,089

$7.98



West End Townhomes

Downhill Drive

Apr-2005

$480,000

1.64 acres

20 (townhouse)

$24,000

$6.72


Multi-Family Two (MF-2)

Rocky Peak Village

Tamarack Drive

Mar-2005

$750,000

3.00 acres

34 (townhouse)

$22,059

$5.74



Fox Creek Village

Hilltop Parkway

Dec-2004

$500,000

3.92 acres

30 (condominium)

$16,667

$2.93



Aspens at Walton Creek

Whistler Road

Dec-2004

$500,000

0.95 acres

14 (townhouse)

$35,714

$12.08



Sundance Creek Phase I

Anglers Drive

Aug-2003

$425,000

2.41 acres

19 (condominium)

$22,421

$4.06



Pines at Orehouse Plaza

Pine Grove Road

Aug-2002

$650,000

4.08 acres

65 (condominium)

$10,000

$3.66



Sunray Meadows

Village Drive

Jun-2000

$1,752,000

10.93 acres

136 (condominium)

$12,882

$3.68




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IRON HORSE INN 15

Value of Subject As Improved

The subject was also analyzed as an improved property, namely the existing closed motel withstudio apartments (52 rooms). The local market was researched for comparable sales of lodgingproperties, with the most recent transactions summarized in the table below. These improvedsales report a price range of $55,769 to $107,353 per room, which is influenced by closing date.In my opinion, the subject property would be able to command a current market value of $50,000to $60,000 per room, assuming required renovations have been completed to make it competitive

with other local properties. Based on the 52 existing rooms, the indicated value as complete is$2,600,000 to $3,120,000. Deducting estimated renovation costs of about $2,000,000 results inan asis market value for the subject as a motel/apartment property of $600,000 to $1,120,000.

Identification

Location

Sale Date

Sale Price

Year Built

Condition

Total Rooms

Price / RoomComments

Inn at Steamboat

Near the ski area

May-2012

$1,475,000

1974

Average

23 rooms

$64,130

Failed condo-hotel project, sale of 23 unsold units

Excess land value offset by deferred maintenance

Quality Inn

South end of town

Jun-2011

$2,900,000

1995

Average

52 rooms

$55,769

Former Comfort Inn, buyer re-branded after sale

Seller acquired in 2001 for $3,500,000 (17% loss)

Inn at Steamboat

Near the ski area

Jan-2008

$3,650,000

1974

Average

34 rooms

$107,353

Buyer to renovate and subdivide as condo units

Price includes excess land (approved for ten units)

Hampton Inn

Town and Mountain

Nov-2007

$6,273,000

1997

Average

68 rooms

$92,250

Buyer to renovate and also add five hotel rooms

Prices includes excess land (valued at $425,000)

Iron Horse Inn

Town and Mountain

Oct-2007

$4,050,000

1968

Fair

52 rooms

$77,885

City of Steamboat bought for employee housing

Buyer planned to renovated at cost of $1,000,000

La Quinta Inn

South end of town

Sep-2007

$3,075,000

1998

Good

29 rooms

$106,034

Former Days Inn, buyer re-branded motel after sale

Major renovation in 2005 at cost of about $600,000

Alpiner Lodge

Downtown

Jul-2007

$3,100,000

1967

Average

33 rooms

$93,939

Buyer will operate until ready for redevelopment

Purchase price is same as the Jul-2007 land value

Fairfield Inn & Suites

South end of town

Sep-2006

$3,950,000

1999

Average

66 rooms

$59,848

Buyer also owns nearby La Quinta n Steamboat

Continued operation, no recent major renovations

Alpiner LodgeDowntown

Feb-2006$2,200,000

1967Average

33 rooms$66,667

Buyer acquired for continued operation as motelRe-sold in Jul-2007 for $3,100,000 (41% more)

It is also instructive to consider the foregoing value range for the Iron Horse Inn in light of itsability to generate net income from current and former operations. Although the New Buildingwas closed to the public on November 1, 2012, it was previously open for nightly (motel) rentals.According to the property manager, this component generated about 30% annual occupancy at anaverage daily rate of around $75.00. Applying this data to the 26 rooms over 365 days indicatesestimated gross revenue for the New Building of $213,525 (i.e., $75.00 x 365 x 30% x 26).Moreover, the Old Building has been fully leased as 26 studio apartments at a monthly rental rateof $625 per unit (which includes water, sewer, and trash), for gross annual revenue of $195,000.This results in potential gross income of $408,525, which is higher than actual revenues of about

$305,000 from 2012 and $340,000 during 2011 (but is probably explained by operational issues).In my experience, lodging properties are typically purchased at a multiple of three times grossrevenues, which indicates a value range for the subject as improved of $915,000 to $1,225,000.However, the subject reports operating expenses (excluding debt service and major capital items)of about $375,000 in 2012, and $350,000 in 2011. Thus, the subject has essentially operated at aloss during the past two years, which was the primary reason that the motel was closed last fall.In my professional opinion, the subject property has an as is market value as improved in therange of $600,000 to $1,225,000, which supports the most recent purchase offer of $915,000,oronly $17,596 per room (which is below the sales but reasonable given the required renovations).


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IRON HORSE INN 16

Value Conclusion for Subject Property

The subject property has an estimated land value as if vacant of $525,000, which is higher thanthe offer received in March 2013 to pay a maximum of $400,000 as a redevelopment site. Pleasenote the land value is influenced by demolition costs of $500,000, which appear reasonable givenknown environmental (asbestos) issues, and assumed to be accurate for purposes of this analysis.The indicated value for the subject as an improved property in the as is condition ranges from$600,000 to $1,225,000, which brackets the other offer received from KC Wilson of $915,000.

This amount is also dependent on estimated renovation costs of $2,000,000 to make the propertycompetitive with other lodging facilities in the local market, which is assumed to be accurate.Based on the foregoing, demolition of the buildings to allow redevelopment of the site with analternative project does not generate a higher return than continued operation as a lodgingproperty. However, this could change in the foreseeable future if land values begin to escalate.The offer at $915,000 is most representative of the as is market value of the subject property.

I trust this restricted use appraisal provides valuable insight and fulfills the terms of ourengagement, but please feel free to contact me with any questions or comments.

Respectfully submitted,

Kevin A. Chandler, MAICertified General AppraiserState of Colorado, #CG40022860


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CERTIFICATION

I certify that, to the best of my 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.

I have no present or prospective interest in the property that is the subject of this report, andno personal interest with respect to the parties involved.

I have no bias with respect to the property that is the subject of this report or to the partiesinvolved with this assignment.

my engagement in this assignment was not contingent upon developing or reportingpredetermined results.

my compensation for completing this assignment is not contingent upon the development orreporting of a predetermined value or direction in value that favors the cause of the client, theamount of the value opinion, the attainment of a stipulated result, or the occurrence of asubsequent event directly related to the intended use of this appraisal.

I have made a personal inspection of the property that is the subject of this report. no one provided significant real property appraisal assistance to the person signing this

certification.

the reported analyses, opinions, and conclusions were developed, and this report has beenprepared, in conformity with the Uniform Standards of Professional Appraisal Practice.

the use of this report is subject to the requirements of the Appraisal Institute relating toreview by its duly authorized representatives.

as of the date of this report, I have completed the continuing education program of theAppraisal Institute.

I have performed no services, as an appraiser or in any other capacity, regarding the propertythat is the subject of this report within the three-year period immediately precedingacceptance of this assignment.

Certified by,

Kevin A. Chandler, MAICertified General AppraiserState of Colorado, #CG40022860


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IRON HORSE INN 18

ASSUMPTIONS AND LIMITING CONDITIONS

The value conclusions in this appraisal report are subject to the following assumptions andlimiting conditions:

1. This appraisal is not subject to any hypothetical conditions or extraordinary assumptions,which would be presented in the opening paragraphs of this report.

2. The date of value to which the opinion of value applies is set forth in the transmittalletter of this report. The appraiser assumes no responsibility for economic or physicalfactors occurring at some later date that may affect the opinions stated herein.

3. No responsibility is assumed for the legal description, as well as legal or title matters.Unless otherwise stated, title to the subject property is assumed to be good andmarketable. The land and building areas utilized for the analysis are assumed to beaccurate, and the appraiser reserves the right to revisit the valuation if they are incorrect.

4. Unless otherwise stated, the subject is appraised free and clear of any or all liens orencumbrances, and responsible ownership and competent management are assumed.

5. The information contained in this appraisal has been gathered by sources assumed to bereliable, including the owner of the property and local market participants. No warrantyis given for its accuracy, and the comparable sales utilized are believed to be accurate.

6. The tracts according to survey maps or record plats are assumed to go with the property,unless easements or deeds of record prove contrary.

7. All engineering is assumed to be correct. The sketches, maps, plans, and illustrativematerials in this report are included only to assist the reader in visualizing the property.

8. It is assumed that there are no hidden or unapparent conditions of the property, subsoil,or structures that render it more or less valuable. No responsibility is assumed for suchconditions, or arranging for engineering studies that may be required to discover them.

9. It is assumed that there is full compliance with all applicable federal, state, and localenvironmental regulations and laws unless noncompliance is stated, defined, andconsidered in the appraisal report.

10. It is assumed that all applicable zoning and land use regulations and restrictions havebeen complied with. Any nonconformance has been stated, defined, and considered.

11. It is assumed that all required licenses, certificates of occupancy, consents, or otherlegislative or administrative authority from any local, state, or national government orprivate entity or organization have been or can be obtained or reviewed for any use onwhich the value estimate contained in this report is based.

12. Unless noted, it is assumed that the utilization of the land and improvements is withinthe boundaries of the property described and that there is no encroachment or trespass.


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IRON HORSE INN 19

ASSUMPTIONS AND LIMITING CONDITIONS (continued)

13. Unless otherwise stated, subsurface mineral rights (including oil, gas, and coal) were notconsidered when valuing the subject property. The independent valuation of excesswater rights or severable mineral rights is beyond the scope of this assignment.

14. Unless otherwise noted, this appraisal assignment is for real property only, includingfixtures that may be permanently attached and considered to be part of the real estate.The appraiser has disregarded any personal property, such as furnishing and equipment.

15. Unless otherwise stated in this report, the appraiser did not observe any hazardousmaterials or conditions that may be present at the subject. The appraiser has noknowledge of the existence of such materials on or in the property. The appraiser,however, is not qualified to detect such substances. The presence of substances such asasbestos, urea-formaldehyde foam insulation, or other potentially hazardous materialsmay affect the value of the property. The value estimate is predicated on the assumptionthat there is no such material on or in the property that would cause a loss in value. Noresponsibility is assumed for any such conditions, or for any expertise or engineering

knowledge required to discover them. The client is urged to retain an expert in this field.

16. The distribution, if any, of the total value between land and improvements applies onlyunder the stated program of utilization. The separate allocations for land and buildingsmust not be used in conjunction with any other appraisal, and are invalid if so used.

17. Possession of this report, or a copy thereof, does not carry with it the right ofpublication. It may not be used for any purpose by any person or party, other than theparty or client to whom it is addressed and prepared for, without the written consent ofthe appraiser; and in any such event only with proper written qualifications and in itsentirety. The appraisal is not intended to influence any third party investment decisions.

18. Unless arrangements have been previously made, the appraiser herein by reason of thisappraisal is not required to give further consultation, testimony, or be in attendance incourt with reference to the property in question. No liability for legal matters or right tocourt testimony is included in the scope of this assignment.

19. Neither all nor any part of the contents of this report (especially any conclusions as tovalue, the identity of the appraiser, or the firm with which the appraiser is connected)shall be disseminated to the public through advertising, public relations, news, sales, orother media, without the prior written consent and approval of the appraiser.

20. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. Theappraiser did not make a specific compliance survey or analysis of the subject propertyto determine whether or not it is in conformance with detailed requirements of the ADA.It is possible that a compliance survey of the property, together with a detailed analysisof the requirements of the ADA, could reveal that the property is not in compliance withone or more of the requirements of the Act, which could adversely impact market value.


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IRON HORSE INN 20

DEFINITIONS

Source: The Dictionary of Real Estate Appraisal, Fifth Edition, 2010, Appraisal Institute

Market ValueThe most probable price which a property should bring in a competitive and open market underall conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeablyand assuming the price is not affected by undue stimulus. Implicit in this definition is theconsummation of a sale as of a specified date and the passing of title from seller to buyer underconditions whereby:

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

their own best interest;

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

Fee Simple Estate

Absolute ownership unencumbered by any other interest or estate, subject only to the limitationsimposed by the governmental powers of taxation, eminent domain, police power, and escheat.

Leased Fee EstateA freehold (ownership interest) where the possessory interest has been granted to another partyby creation of a contractual landlord-tenant relationship (i.e., a lease).

Highest and Best Use

The reasonably probable and legal use of vacant land or an improved property that is physicallypossible, appropriately supported, financially feasible, and that results in the highest value. Thefour criteria the highest and best use must meet are legal permissibility, physical possibility,financial feasibility, and maximum productivity. Alternately, the probable use of land orimproved property - specific with respect to the user and timing of the use - that is adequatelysupported and results in the highest present value.

Exposure TimeThe estimated length of time the property interest being appraised would have been offered onthe market prior to the hypothetical consummation of a sale at market value on the effective dateof the appraisal; a retrospective estimate based on an analysis of past events assuming acompetitive and open market.

Marketing TimeAn opinion of the amount of time it might take to sell a real or personal property interest at theconcluded market value level during the period immediately after the effective date of anappraisal. Marketing time differs from exposure time, which is always presumed to precede theeffective date of an appraisal.


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IRON HORSE INN 21

COMPARISON OF REPORT TYPES

Self-Contained Summary Restricted

i. identify and describe the realestate being appraised;

i. identify and provide asummary description ofthe real estate beingappraised;

i. identify the real estatebeing appraised;

ii. state the real property interestbeing appraised;

ii. state the real propertyinterest being appraised;

ii. state the real propertyinterest being appraised;

iii. state the purpose andintended use of the appraisal;

iii. state the purpose andintended use of theappraisal;

iii. state the purpose andintended use of theappraisal;

iv. define the value to beestimated;

iv. define the value to beestimated;

iv. state and reference adefinition of the value to beestimated;

v. state the effective date of theappraisal and the date of thereport;

v. state the effective date ofthe appraisal and the dateof the report;

v. state the effective date ofthe appraisal and the dateof the report;

vi. describe the extent of theprocess of collecting,

confirming, and reportingdata;

vi. summarize the extent ofthe process of collecting,

confirming and reportingdata;

vi. state the extent of theprocess of collecting,

confirming and reportingdata;

vii. state all assumptions andlimiting conditions that affectthe analyses, opinions andconclusions;

vii. state all assumptions andlimiting conditions thataffect the analyses,opinions and conclusions;

vii. state all assumptions andlimiting conditions thataffect the analyses,opinions and conclusions;

viii. describe the informationconsidered, the appraisal

procedures followed, and thereasoning that supports theanalyses, opinions, andconclusions;

viii. summarize the informationconsidered, the appraisal

procedures followed, andthe reasoning that supportsthe analysis, opinions andconclusions;

viii. state the appraisalprocedures followed; statethe value conclusions andreference the existence ofspecific file information insupport of the conclusion;

ix. describe the appraiser'sopinion of the highest and

best use of the real estate,when such an opinion isnecessary and appropriate;

ix. summarize the appraiser'sopinion of the highest and

best use of the real estate,when such an opinion isnecessary and appropriate;

ix. state the appraiser's opinionof the highest and best useof the real estate, whensuch an opinion isnecessary and appropriate;

x. explain and support theexclusion of any of the usualvaluation approaches;

x. explain and support theexclusion of any of theusual valuationapproaches;

x. state the exclusion of anyof the usual valuationapproaches;

xi. describe any additionalinformation that may beappropriate to showcompliance with, or clearlyidentify and explain

permitted departures from thespecific guidelines of

Standard 1;

xi. summarize any additionalinformation that may beappropriate to showcompliance with, or clearlyidentify and explain

permitted departures from,the requirements of

Standard 1

xi. contain a prominent userestriction that limitsreliance on the report to theclient and warns that thereport cannot be understood

properly without additionalinformation in the work file

of the appraiser, andidentify any permitteddeparture from therequirements of Standard 1;

xii. include a signed certificationin accordance with StandardsRule 2-3.

xii. include a signedcertification in accordancewith Standards Rule 2-3.

xii. include a signedcertification in accordancewith Standard Rule 2-3.

Source: Uniform Standards of Professional Appraisal Practice.


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IRON HORSE INN 22

QUALIFICATIONS OF KEVIN A.CHANDLER,MAI

Education

Master of Arts, Real Estate and Urban Analysis, University of Florida

Bachelor of Science, Business Administration (Finance), University of Florida

Affiliations

Member, Appraisal Institute (MAI)

Certified General Appraiser, State of Colorado

Experience

Kovacs Real Estate Valuation Services, Inc., Denver, ColoradoCommercial Real Estate Appraisal and Consulting

Concorde Investments, Inc., Tampa, Florida

Commercial Real Estate Development and Investment

Wellington Realty Advisors, Inc., Tampa, FloridaSite Selection for Boston Market and Einstein Bagels throughout Florida

Arthur Andersen, LLP, Atlanta, GeorgiaCommercial Real Estate Appraisal and Business Valuation

Real Estate Marketing Consultants, Inc., Tampa, FloridaCommercial Real Estate Appraisal and Consulting

Seminars

Appraising Agricultural Land in Transition

Appraisal Standards for Federal Land Exchanges

Emerging Issues in Water Rights and Energy Development

Condemnation and Litigation Appraising, Advanced Topics

Assignment Types Representative Clients

Commercial Properties City of Steamboat Springs

Going Concern and Special-Use Various Commercial Lenders

Conservation Easements Colorado Housing Finance Authority

Mountain Ranches and Resorts Yampa Valley Land Trust

Subdivision Analysis National Resources Conservation Service

Eminent Domain U.S. Forest Service

Litigation Support Colorado Division of Wildlife

Appraisal Review Routt County, Colorado (expert witness)


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STATE CERTIFIED GENERAL APPRAISERLICENSE


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REGIONAL ANALYSIS

The subject is located in Routt County, north of I-70 and west of I-25, on the Western Slope ofColorado. Routt County is bordered by the State of Wyoming to the north, Jackson County tothe east, Eagle and Rio Blanco Counties to the south, and Moffat County to the west. SteamboatSprings is the county seat and largest municipality, and is located 160 miles northwest of theDenver metro area. It has been branded Ski Town USA and home of the Steamboat Ski Area.Almost half of the 2,231 square miles (1.5 million acres) of land area is in public ownership.The alpine region features a diverse and picturesque landscape, with elevations ranging from7,000 to 10,000 feet and four distinct seasons (annual snowfall varies from 170 to 450 inches).

Demographic Profile

According to the U.S. Census, Routt County reports a 2010 population of 23,509 residents. Thisis an increase of 19% from the 2000 population of 19,690 residents, which is slightly higher thanthe statewide growth rate for the same time period of 17%. The local population is also aging, as41% of Routt County residents are ages 45 and older as of 2010 (versus only 31% as of 2000).The City of Steamboat Springs reports a 2010 population of 12,088 people (51% of the county),

which is a 23% increase from the 2000 total of 9,815 residents. However, it is important to notethat tourists, part-time residents, and seasonal employees may double the daily population count.Routt County reports 6,006 total households in 2010, with an occupancy rate of 60.7%, medianage of 38.9 years, and average household size of 2.34 people. The 2009 per capita personalincome for Routt County of $49,139 is 17% higher than the 2009 statewide average of $41,895.

Economic Conditions

The local economy was traditionally based on coal mining and livestock (cattle/sheep) ranching,but tourism has become the primary industry since the emergence of skiing during the 1950s.The centerpiece of the economy is the Steamboat Ski Area, which logs 900,000 to 1,000,000annual skier visits and currently has about 830 full-time and seasonal employees (largest

employer in the county). The dominant employment sectors are accommodation/services, retailtrade, and construction (with 1,700 lost jobs in this industry since 2007). The county ranks in thetop three for Colorado in terms of coal extraction, which supplies the Hayden Generation Plant.Routt County reports an unemployment rate of 5.8% as of March 2013 (versus only 4.1% as ofDecember 2008), which is lower than the statewide average of 7.3% for the same time period.The city collected similar sales tax revenue during both 2007 and 2008 of about $19.7 million.While receipts of $16.7 million from 2009 were 16% less than what was collected during 2008,collections stabilized in 2010 at $16.5 million, and were about $17.3 million in 2011 and 2012.

Transportation and Services

Transportation remains a difficult issue for the area due to the lack of interstate highway access.The major arterial is U.S. Highway 40, which traverses the county in an east/west direction.State Highway 131 provides secondary access to Steamboat from the south, where it connectswith I-70 in Eagle County (75 miles south). The area has an extensive network of county roads,ranging from paved arterials with heavy traffic to gravel surface with no winter maintenance.The Yampa Valley Regional Airport accommodates commercial jets, recently underwent a $26.2million expansion/renovation, and logs about 110,000 customers per year (mostly during winter).Steamboat Springs is a self-sufficient community in terms of civic, cultural, shopping, medical,employment, educational, and entertainment services. It features public parks and open space, astate-of-the-art hospital, daily newspaper, and satellite campus for Colorado Mountain College.


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REGIONAL ANALYSIS

Housing and Development Trends

Most residential housing is concentrated within the city limits, with the highest density found indowntown or at the ski area (such as multi-family apartments, timeshare, and condominiums).Major employment centers and shopping facilities for the region are generally found along the

U.S. Highway 40 corridor in Steamboat. The remainder of the county is mostly rural in nature,with working cattle/sheep ranches, rural residential homesites, and ample public land holdings(managed by the BLM, USFS, or State of Colorado). Most homesites are concentrated alongcounty roads, with a minimum buildable lot size of 35 acres. However, development of sharedranch communities with luxurious private amenities on agricultural holdings was prevalentduring the past decade, with most homesites priced between $1,000,000 and $2,000,000. Localreal estate values soared during the 1990s due to dynamic population growth, but increased atmore moderate levels between 2000 and 2003. Housing prices had reached record levels duringthe boom period of 2005 through 2008, but are about 30% lower on average since the downturn.The lack of affordable housing was a major issue for the region due to high single-family price inSteamboat Springs, but has subsided since the downturn. Hayden, Oak Creek, and Stagecoachhave emerged as bedroom communities, with typical new home prices of $150,000 to $300,000.This trend in Steamboat Springs is medium to high-density residential development, supportingcommercial/industrial uses, as well as infill projects in downtown or at the ski area base village.

Recreation and Steamboat Ski Area

The area offers four seasons of recreational opportunities, such as hunting, camping, fishing,hiking, riding, skiing, snowmobiling, and other winter sports. The Elk River carves a scenicvalley northwest of town, and flows into the Yampa River about ten miles west of the city limits.Stagecoach Reservoir is a popular natural amenity in southern Routt County, with Steamboat andPearl Lakes found in North Routt. The Routt National Forest forms the northern and easternboundaries of the county, and provides valuable recreational amenities in the Flat Tops and

Mount Zirkel Wilderness Areas. The popular Strawberry Park Hot Springs is a year-roundfacility on private land that is located a few miles north of downtown. The Steamboat Ski Areawas purchased in March 2007 by Intrawest (subsidiary of Fortress Investments) for $265 million,with combined season passes offered for the sister resorts of Copper Mountain and Winter Park.The new owner completed about $16 million of on-mountain upgrades in 2007/2008, such asmajor re-grading at the bottom of the hill and replacing older lifts with more modern equipment.This has been supplemented by several million dollars of public infrastructure improvements thatare funded by an Urban Renewal Authority (URA) that was created in 2005. About $9 millionof bonds were issued in 2007 to fund public streetscape, utilities, and pedestrian improvements,with two roundabouts at the base village completed in Fall 2008. About $7 million of remainingsite work was finished during 2012, including a new promenade that opened in November 2011.

Average skier visits during the past three seasons are about 10% less than the prior three seasons.

Regional Conclusion

In summary, the subject is located in Routt County, a rural community in Northwest Colorado.The only major city is Steamboat Springs, a thriving town known for its world-class ski resort.The local economy has shifted from agriculture to tourism, and is diversified but was adverselyimpacted by the ongoing recession. The county is not serviced by an interstate highway, butfeatures a regional airport that was recently expanded. While declining sales tax revenues havestabilized, unemployment remains relatively high and the outlook is uncertain for the short term.


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MARKET ANALYSIS

Routt County is a mountain resort market that features a diversified economy and the world-classSteamboat Ski Area. The most recent major downturn for property values in the region occurredduring the 1980s, but the market experienced double-digit appreciation in the 1990s. Stagnantconditions were experienced from 2001 until 2003, but the local real estate market then entered aboom period that resulted in rising sale prices and total volumes each year since 2004. TheMarch 2007 acquisition of the ski area by Intrawest was a major catalyst for unprecedentedactivity in virtually every sector of the local market, with record prices and volumes recorded.However, the Great Recession adversely impacted the region in late Summer or early Fall 2008,with very little absorption that has resulted in much lower sale prices from the recent peak levels.The market has since stabilized at sale prices/volumes that likely represent the new normal.

Residential Market Overview

The local population has almost doubled since 1980, which has created demand for additionalresidential housing. The highest density uses are generally concentrated near the ski resort, suchas condominiums, apartments, and timeshare units. Affordable housing is a major problem, and

generally consists of a few mobile home parks and older condominiums. Newer single-familyhomes on the west side of town are located in small platted subdivisions (50 to 150 lots). Due tothe small size of the market, there are no production builders (i.e., U.S. Homes, Richmond, etc.).Many working ranches in the county are being purchased at much more than agricultural value tobe developed with rural residential housing. These are typically large-lot subdivisions with aminimum size of 35 acres, and some projects offer amenities that cater to the affluent buyer.

Residential Building Activity

New Dwelling Units for City of Steamboat Springs as well as Routt County (including Hayden)

Housing Type (area) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Single-Family (City) 66 73 39 45 31 20 8 7 11 21

Single-Family (County) 146 118 159 161 127 95 55 27 31 34

Duplex (City) 34 67 107 64 52 28 12 2 2 4

Duplex (County) 14 2 10 2 18 6 0 0 0 0

Multi-Family (City) 55 101 202 113 265 149 0 0 0 0

Multi-Family (County) 0 0 0 14 0 10 0 0 0 0

Total Combined Units 315 361 517 399 493 308 75 36 44 59

The foregoing data was provided by local building departments, but the actual number of permitsissued is lower than total units approved since duplex/multi-family permits allow multiple units.

Single-family permits are typically issued at platted subdivisions in the county, while duplex andmulti-family units are often built within the city limits. Between 36 and 517 new dwelling unitswere approved in the combined city and county during the past decade (the average is 261 units).The record year of 2005 (517 units) was nearly eclipsed in 2007 (493 units), but activity sloweddramatically after 308 units were permitted in 2008, with 36 to 75 units between 2009 and 2012.The combined area witnessed an average of 154 single-family permits between 2003 and 2008,but only 54 permits on average were issued in the past four years (decline of 65%). Moreover,only twenty duplex units have been approved since 2008, with no new multi-family projects.The anticipated trend is gradual increases in building activity as the market continues to recover,but there are no major projects in the pipeline and most residential permits are for remodels.


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IRON HORSE INN 27

MARKET ANALYSIS

Residential Prices and Volumes

Calendar Year 2007 2008 2009 2010 2011 2012

Total Volume of All Sales $1,587,357,500 $725,101,200 $439,774,300 $512,100,114 $450,579,300 $483,899,850

Number of Sale Transactions 2,555 1,077 1,063 1,817 1,398 1,176

Average Sale Price (all types) $621,275 $673,260 $413,711 $281,838 $322,303 $411,479

Average Price (all residential) N/A $786,819 $716,494 $705,558 $523,585 $506,079

The foregoing data was provided by Land Title Steamboat Springs, and includes all arms-lengthclosed sale transactions in Routt County (per the MLS and Clerk/Recorder). Total sales volumeduring 2012 of about $484 million is bracketed by 2011 ($450 million) and 2010 ($512 million),and is 10% higher than 2009 ($440 million) but only 31% of the 2007 record ($1.587 million).While the number of transactions from 2012 is 16% less than 2011, it is only half of 2007 levels.Major swings are noted in regards to average sale prices for all property types in Routt County,as the 2012 amount of $411,479 is 28% higher than 2011, but 39% lower than the peak of 2008.Average residential prices from 2011 and 2012 are about 30% less than the previous three years.The Fish Creek submarket reports an average transaction price for 2012 of $456,541, which is45% lower than the 2010 average of $822,989 but 59% less than the 2008 average of $1,110,459.By comparison, the 2012 average transaction price was $151,379 for Stagecoach, $301,871 forWest Steamboat, $475,774 for Downtown Steamboat, and $537,655 for Mountain Steamboat.

Local Housing Trends

Very low mortgage interest rates (below 5%) reduced housing costs, but the recent trend is asignificant rise in foreclosures. While 303 notices of election and demand were filed in RouttCounty during 2010, with 306 more filings in 2011, this amount dropped to 216 filings in 2012.Moreover, there were only 33 filings in the first quarter of 2013 (versus 65 during first quarter of2012), with generally about 50 to 100 annual filings prior to the recession. Foreclosure and short

sales have had a negative impact on prices, but have also improved the affordability of housing.Elected officials formed the Yampa Valley Housing Authority (YVHA) in 2004 to coordinate acountywide program, but this non-profit entity does not have a source of permanent funding.The City of Steamboat Springs adopted an Inclusionary Zoning ordinance during 2006, but theprogram had limited success and has not been tested due to the lack of new projects since 2008.The West of Steamboat Springs Area Plan dictates that future development should occur west ofthe city limits (along U.S. Highway 40) via annexation of about 1,200 acres of unincorporatedland from east to west, and was updated in June 2006. Steamboat 700 submitted plans for up to2,000 dwelling units and 380,000 square feet of commercial space on 487 acres at the city limits.While City Council approved the annexation in 2009, it was overturned by a public vote in 2010.Moreover, 360 Village was seeking to develop up to 650 dwelling units with commercial space

on 112 acres further to the west. However, the project failed and the land is now bank owned.

Residential Market Conclusion

In summary, supply and demand are not currently in balance for the local residential market.Sale prices and volumes had reached record levels during the boom period of 2005 through 2008,which led to major appreciation and a shortage of affordable housing. However, constructionactivity has ground to a halt since the existing inventory of available product exceeds demand,and some local experts predict it will be three to five years before additional supply is warranted.This uncertainty has resulted in declining sale prices with a lack of any measurable absorption.


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MARKET ANALYSIS

Commercial Market Overview

Steamboat Springs has four distinct commercial submarkets, with each described as follows:

Mountain submarket is concentrated at the Steamboat Ski Area at the southeast city limits,which consistently ranks in the top ten nationally in terms of skier visits. The base village was

developed at the lower slopes in the 1970s, but many properties have a tired appearance. Mostbuildings are residential in nature, including condominiums (full and interval ownership),townhouses, duplexes, houses, and hotels. Commercial businesses are generally found on theground floor and primarily support tourists (such as specialty retail, restaurants, taverns, etc.).An Urban Renewal Authority was adopted in 2005 to help finance major public improvements,with about one million square feet of new space built near the ski area during the recent boom.

Downtown submarket is the central business district, and encompasses several city blocksbetween the Yampa River and Old Town residential neighborhood. It is bisected by LincolnAvenue (a/k/a U.S. Highway 40), which is a pedestrian-friendly street with heavy traffic. Mostbuildings are of historic vintage, with major new construction and renovation occurring. Manyretailers are found in this area, as well as restaurants, entertainment concepts, motels, and civicfacilities. The latest phenomenon has been the redevelopment of older properties with mixed-useand residential condominium projects that generally cater to upscale second homeowners.Downtown appeals to both visitors and residents, and generally stays busy throughout the year.It benefits from public amenities (i.e., the river, parks, Howelsen Hill ski area, rodeo arena, etc.)and special events that are quite popular. Very little vacant land remains in the downtown core,and four mixed-use projects have added about 50,000 square feet of new space to this submarket.

Town and Mountain submarket is primarily defined as the U.S. Highway 40 corridor, betweendowntown and the southern city limits. It also includes peripheral development along secondarycollector streets that lead to the ski area, such as a regional hospital and medical office building.This area features neighborhood shopping centers that are anchored by Safeway and City Market

(the only major grocery stores in the county), as well as Walmart (located at Central Park Plaza).Wildhorse Marketplace is a relatively new shopping center that is anchored by Sports Authorityand a six-plex movie theater, and a new facility for Centennial Bank was completed in 2010.Sundance North was approved for 45,000 square feet of commercial space and 27 residentialunits near Safeway (which have expired), and the vacant site may be developed with apartments.Mid-Valley Business Center is improved with Staples and two multi-tenant buildings, and a newWalgreens Drug Store opened in February 2012 (U.S. Post Office decide to not relocate here).The other major project in the area is a $20 million dollar senior campus next to Caseys Pond onWalton Creek Road, which will deliver apartments with assisted living (117,000 SF) by 2014.

West Steamboat submarket is defined as the U.S. Highway 40 corridor from downtown to thewestern city limits, as well as peripheral development along Elk River Road and 13 th Street.This working class area caters to local businesses in light industrial space at platted businessparks, such as Copper Ridge and Downhill Plaza. The majority of properties are owner-occupiedfor office/warehouse, mini-storage, outdoor storage/sales, and automotive service/sales uses.Retail/office and special-purpose development has occurred at the Curve Subdivision, located atthe intersection of U.S. Highway 40 and Elk River Road. Elk River Crossing is anchored by AceHardware (formerly Curve Market), with some in-line space and a gas station/convenience store.Single-tenant facilities include the local newspaper, lumberyards, and car dealerships. RiversideCenter was renovated in 2007, and is currently anchored by Sears and Steamboat Power Sports.Live/work space that provides affordable housing was also developed during the recent boom.


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MARKET ANALYSIS

Commercial Market Conditions

Supply and demand are not in balance, and very limited construction is occurring. I estimate thatthe Steamboat market contains approximately three million square feet of commercial space.Vacancies are noted for all property types, with an average occupancy of about 80% estimated

for the overall market (many tenants are relocating to take advantage of distressed landlords).Development costs have increased dramatically due to the limited supply of vacant land in town,lack of qualified labor in the local work force, and escalating costs for construction materials.While the total valuation of commercial, industrial, and mixed-use development in the combinedcity and county averaged about $7.7 million between 2000 and 2006, almost $45.3 million wasrecorded in 2007. However, new development is anemic, with only $200,000 posted in 2010.Steamboat boasts over eighty restaurants, as well as various entertainment and lodging facilities.The commercial market is tourist-driven, but also caters to permanent residents in the city andoutlying rural areas. The industrial sector primarily services local owner-occupied businesses.Neighborhood retail and office center uses are generally concentrated along U.S. Highway 40.Tourist oriented shops are found in downtown or at the base village. Besides two grocery storesand Ace, the only national big-box retailers in town are Walmart, Sports Authority, and Staples.They will soon be joined by Natural Grocers, which will open in downtown by September 2012.However, the city adopted a big-box ordinance in February 2004 that impacts future commercialdevelopment, as any single-tenant retail store greater than 12,000 square feet must prove a publicbenefit (and be processed as a PUD). The big-box ordinance was revised in January 2006 toprohibit any future retail use within the city limits if it is greater than 40,000 square feet in size(excluding grocery stores), and further limits single-tenant commercial stores south and east ofdowntown to only 15,000 square feet. City Council adopted a linkage requirement in 2007 to theinclusionary zoning ordinance that impacts new commercial projects, which has been suspended.The city is considering other options for affordable housing, such as a fee-in-lieu or transfer tax.

Rental Rates and Sale Prices

Rental rates for commercial and industrial space vary widely based on location, size and age ofthe improvements. The highest rates are for smaller retail units in downtown and near the skiarea, and generally range from $20.00 to $30.00 per square foot, triple net. Professional officespace typically leases for $10.00 to $20.00 per square foot, triple-net. Retail space at anchoredshopping centers ranges from $15.00 to $25.00 per square foot, triple net. The lowest rental ratesare for office/warehouse space, at $5.00 to $10.00 per square foot, triple net. The latest trend hasbeen the development of commercial/industrial condominiums that cater to smaller owner users.Rents had remained relatively flat or increased at the rate of inflation during the recent boom,while sale prices for most commercial real estate had appreciated at double-digit rates between2004 and 2007. While this placed downward pressure on capitalization rates for these property

types, overall rates have recently increased to traditional levels (which support fundamentals) asrents and prices have declined during the past four years to level experienced circa 2004/2005.

Commercial Market Conclusion

The subject is located in the Town and Mountain commercial submarket of Steamboat Springs.Commercial market conditions are soft with very little new construction, and rents/prices for thissegment of the market are trending downward as the ongoing recession impacts local businesses.The anticipated trend is limited demand and even further declining values for a year or two untilnational and local economic conditions improve, with no major additions to supply anticipated.


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NEIGHBORHOOD ANALYSIS

The subject neighborhood is generally defined as the U.S. Highway 40 corridor in SteamboatSprings, located between downtown and the ski area (a/k/a Town and Mountain). It is locatedabout one to two miles south of the central business district, and delineated by Third Street(north), Walton Creek Road (south), Steamboat Boulevard (east), and the Yampa River (west).

Description and Characteristics

The area is a commercial node that supports nearby residential neighborhoods. Convenienceoriented commercial uses are located along U.S. Highway 40, such as shopping centers, gasstations, grocery stores, branch banks, and restaurants. Destination commercial uses are foundon Pine Grove and Mount Werner Roads, including professional office and medical facilities.Medium and high-density residential housing is concentrated between the highway and ski areato the east. Emerald Mountain is a natural feature that comprises more than 6,000 acres, andlimits growth to the west. A 2007 land exchange with the BLM extinguished development rightson 4,139 acres, and created permanent open space for public use and recreation. The subjectneighborhood is approximately 90% developed, with only a few parcels of vacant land available.

Access and Services

The subject site fronts Anglers Drive and Rollingstone Drive, which are local collector streets. Itis in close proximity to U.S. Highway 40, a major arterial that parallels the Yampa River as ittraverses town. The intersection of U.S. Highway 40 with Pine Grove Road is a very busylocale, with an estimated traffic count of 20,000 vehicles per day (one of the highest in the city).Mount Werner Road connects the highway with the ski area base village. The neighborhood isalso on the city bus routes, and has an integrated public hiking/biking trail and sidewalk system.Access to the subject neighborhood is very good, and enhanced by a network of collector streets.Adequate public utilities and services are generally available to accommodate new development.

Residential Development Trends

The subject neighborhood has experienced significant new residential development during thepast few years, including single-family homes, townhomes, condominiums, and timeshare units.However, no new projects are imminent due to the recession. American Skiing Company (ASC)sold several tracts of vacant land and the Central Park Plaza shopping center since 1998 to paydown debt from the ski area purchase. An investment group (led by Whitney Ward) acquired theformer Tennis Meadows (47.5 acres) and the site of One Steamboat Place (4.2 acres) from ASCin December 2003 for $8.9 million. They obtained approvals in 2006 to develop the vacant siteas Wildhorse Meadows, a master-planned community that was approved for 567 dwelling units.Completed projects to date include 41 single-family lots at The Range (sold-out in 2006/2007),

86 condominium units at Trailhead Lodge (one-third sold since 2009 with auction in May 2012),and 47 affordable housing units at First Tracks (fully sold-out as the city allows deed restrictionsto be removed via a fee-in-lieu). A pulse gondola that connects Wildhorse Meadows with OneSteamboat Place was installed in February 2010, and is available for use by the general public.Rollingstone Village is approved for 70 mixed-use units on three acres along Fish Creek, but theentitled site is listed at $3,000,000. Trailside Village comprises 225 proposed condominiums atSteamboat Crossing, and was almost approved in 2008 before being placed on hold indefinitely.Barn Village is a residential subdivision with 62 single-family and duplex lots, but only fifteenhomesites have sold since 2008. A subsidiary of Toll Brothers (national home builder) acquiredthe 47 remaining homesites in September 2011, which were recently placed back on the market.


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NEIGHBORHOOD ANALYSIS

Commercial Development Trends

In terms of commercial space, most recent construction in the neighborhood is owner-occupiedsince speculative commercial/mixed-use development is presently on hold due to the economy.For example, Resort Group completed a third building (19,000 SF) on their campus near Central

Park Plaza in August 2008. Wildhorse Marketplace has vested approval for up to 22,000 squarefeet of retail/office space on Lots 4 and 5, with no plans for development. Centennial Bankcompleted a new branch (10,654 SF) on Lot 6 during 2010. Sundance North was approved for45,000 square feet of commercial space plus 27 residential units, but was been unable to secureconstruction financing in 2009 due to insufficient sales/leasing for the commercial component.The fully approved project on 3.49 useable acres is available for sale at a list price of $1,950,000,but the developer is now contemplating the construction of about 100 apartment units on the site.City South is a commercial subdivision that features Staples, two multi-tenant buildings, andWalgreens (recently completed in February 2012). The U.S. Post Office decided to not relocateto this project from downtown in Fall 2011, although they seriously pursued a new facility here.The other major project in the area is a $20 million dollar senior campus next to Caseys Pond onWalton Creek Road, which could deliver apartments with assisted living (120,000 SF) by 2014.Based on current soft market conditions and lack of anchor tenants, vertical development of thevacant land at Steamboat Crossing, Sundance North, and Wildhorse Marketplace is on hold.

Demographic Profile

After double-digit growth in the 1990s, the permanent population of the neighborhood hasstabilized during the past five years at about 2% to 3% per annum. Household incomes reflect anaffluent population base, with some very high incomes that push the average above the median.There are significant rental units in the neighborhood (mostly near the ski area), with less thantwo-thirds of dwellings owner-occupied and an average household size of two to three people. Itis important to note many part-time residents are not reflected in the population figures, as well

as tourists and visitors at peak times (often 10,000 to 20,000 people on a busy weekend).

Neighborhood Conclusion

In summary, the subject neighborhood is an established commercial node that serves thesurrounding residential and tourist base. U.S. Highway 40 is the major arterial in town, withmost retail and office uses located along this corridor. The area has experienced steady growthfor the past two decades, and there is very limited vacant land available for future development.The subject neighborhood is considered to be stable and affluent, and benefits from its proximityto the ski area. The anticipated trend is residential and commercial construction on infill sites,but current weak market conditions indicate that most development is not feasible at this time

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