summary appraisal report - anchorage, alaska · appraisal institute 1993; dictionary of real estate...

Summary Appraisal Report John Thomas Building

325 E. 3rd Avenue

Anchorage, Alaska 99501

FOR Report Date Municipality of Anchorage August 14, 2012 Real Estate Department

4700 Elmore Road Effective Date of Value Anchorage, Alaska 99507 July 31, 2012

FILE #12-070

BY

Ryan McGillivray, Appraiser

Brian Bethard, MAI

BLACK-SMITH, BETHARD & CARLSON, LLC 1199 E. Dimond Boulevard, Suite #200


Black-Smith, Bethard & Carlson, LLC 1

PART I - INTRODUCTION


August 14, 2012

Client: Municipality of Anchorage

Real Estate Department

4700 Elmore Road


Attn: Allison Smith

Re: John Thomas Building

325 E. 3rd Avenue


Dear Ms. Smith:

We are submitting a Summary Appraisal Report estimating the market value of the fee simple and leased fee interest in the property identified above. Our opinions of the as-is

value, as of July 31, 2012 (the date of inspection), are as follows:

‘As-Is’ Fee Simple Market Value $1,650,000

‘As-Is’ Leased Fee Market Value $1,492,000

The value conclusion does not consider any enhancement from a possible 10 year tax

exemption and 5 year tax deferral on the property. The value opinion is stated in terms of

cash. The market exposure period (looking backward) and the marketing time (looking

forward) are both estimated at six months to one year.

The report is intended to comply with the reporting requirements set forth under Standards

Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice for a Summary

Appraisal Report. As such, it presents only summary discussions of the data, reasoning,

and analyses that were used to develop the appraiser’s opinion of value. Supporting

documentation concerning the data, reasoning, and analyses is retained in the appraiser’s

file. The depth of discussion contained in this report is specific to the client's intended use.

The value opinions reported are qualified by certain definitions, assumptions, limiting

conditions, and certifications.

This narrative appraisal report conforms to and satisfies the requirements of USPAP and

Volume 12, Code of Federal Regulations, Part 34, Subpart C. A copy of the appraisal

instructions is contained in the Addenda.

Sincerely,

BLACK-SMITH, BETHARD & CARLSON, LLC

Brian Z. Bethard, MAI Ryan T, McGillivray, Appraiser

BLACK-SMITH, BETHARD & CARLSON, LLC

Appraisers 1199 E Dimond Blvd Ste #200


Phone: 907-274-4654

Fax: 907-274-0889

E-mail: [email protected]


General Real Estate Appraiser (Cert. # 281)


Table of Contents PART I - INTRODUCTION ......................................................................................................... 1 CERTIFICATION ....................................................................................................................... 5 EXECUTIVE SUMMARY ........................................................................................................... 6 SUBJECT PHOTOS................................................................................................................... 7 PART II – PREMISES OF THE APPRAISAL ............................................................................11 IDENTIFICATION OF THE PROPERTIES ................................................................................12 NATURE OF THE ASSIGNMENT .............................................................................................13 SCOPE OF WORK ...................................................................................................................14 EXTRAORDINARY ASSUMPTIONS AND HYPOTHETICAL CONDITIONS .............................15 PART III - PRESENTATION OF DATA .....................................................................................16 AREA OVERVIEW ....................................................................................................................17 NEIGHBORHOOD DESCRIPTION ...........................................................................................19 SITE DESCRIPTION.................................................................................................................21 IMPROVEMENT DESCRIPTION ..............................................................................................23 REAL ESTATE TAXES AND ASSESSMENTS .........................................................................29 PART IV – ANALYSIS OF DATA AND CONCLUSIONS ...........................................................30 MARKET ANALYSIS – SUMMARY REPORT ...........................................................................31 HIGHEST AND BEST USE .......................................................................................................34 COST APPROACH ...................................................................................................................36 SALES COMPARISON APPROACH ........................................................................................37 INCOME APPROACH ...............................................................................................................41 RECONCILIATION AND CONCLUSION ...................................................................................47

Addenda Engagement letter to Appraisers

Qualifications of Appraisers

Assumptions and Limiting Conditions


Certification The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. We have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. Brian Z. Bethard and Ryan T. McGillivray have made a personal inspection of the property that is the subject of this report. No one provided significant real property appraisal assistance to the persons signing this certification. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this report I, Brian Bethard, MAI, have completed the continuing education program of the Appraisal Institute. Brian Z. Bethard, MAI is currently certified by the State of Alaska as a General Real Estate Appraiser (Certificate No. 281). Brian Z. Bethard and Ryan T. McGillivray have the appropriate knowledge and experience necessary to complete this appraisal assignment competently. We have performed services as an appraiser regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. See Scope of Work. Dated this 8

th day of August, 2012.

Brian Z. Bethard, MAI Ryan T. McGillivray, Appraiser

General Real Estate Appraiser (Cert. # 281)


Executive Summary

Property Appraised

Lot 11A, Block 37B is improved with a 14,696 SF, 4-story, concrete block, office building

constructed in 1968 that is in average-condition. The street address is 325 E. 3rd Avenue,

Anchorage, Alaska, 99501.

Lots 9 and 10, Block 37B are vacant parking lots used as parking for the improvement on

Lot 11A. As an assemblage the site covers 28,000 SF.

Street

Address Legal

Description Tax ID #

Size

325 E. 3rd

Ave Lot 11A, Block 37B, East Addition Subdivision 002-083-30 14,000 SF

325 E. 3rd

Ave Lot 10, Block 37B, East Addition Subdivision 002-083-32 7,000 SF

225 Cordova St Lot 9, Block 37B, East Addition Subdivision 002-083-33 7,000 SF

Total Area 28,000 SF

Ownership of all properties reportedly vests with the Municipality of Anchorage; Real

Estate Services, per MOA records.

Property Rights Appraised: As-Is Market value of the Fee Simple and Leased Fee Interests

Date of Appraisal: August 14, 2012

Date of Valuation (date of inspection): July 31, 2012

Highest & Best Use: As Vacant: Owner-user development or hold for speculation As Improved: ‘As-Is’

Summary of Value Indicators

Cost Approach N/A Sales Approach $1,764,000 Income Approach $1,546,000

Final Value Conclusion

The final value conclusion is presented as follows:

Description Date Value

Fee Simple Market Value July 31, 2012 $1,650,000

Leased Fee Market Value July 31, 2012 $1,492,000


Subject Photos

View of the subject from corner of Cordova

Street and E.3rd.

Looking easterly from the parking lot.

Looking northwest at the rear of the

subject.

Looking northwest at the rear of the

subject.

Street scene looking east on E. 3rd Avenue. Street scene looking west on E. 3rd

Avenue.


Subject Photos

Looking south at the western portion of

the parking lot.

Looking southeast at the parking lot.

View of the entrance and minor deferred

maintenance (paint).

First floor lobby.

First floor lobby. First floor conference room.


Subject Photos

First floor office space. First floor office space.

View of the elevator mechanical room. View of the second floor hallway.

Typical office space (second floor). Typical restroom (second floor).


Subject Photos

Second floor conference room. Third floor hallway.

Typical office (third floor). Fourth floor hallway.

Typical office (fourth floor). Looking at the roof.


PART II – PREMISES OF THE APPRAISAL


Identification of the Properties

Properties Appraised

According to our on-site inspection, Lot 11A, Block 37B is improved with a 14,696 SF,

average-quality, concrete block, 4-story office building constructed in 1968. The street

address is 325 E. 3rd Avenue, Anchorage, Alaska, 99501.

Lots 9 and 10, Block 37B are vacant parking lots used for the improvement on Lot 11A.

Legal Description

Lot 9, Block 37B, East Addition Subdivision

Lot 10, Block 37B, East Addition Subdivision

Lot 11A, Block 37B, East Addition Subdivision

Ownership

Ownership of the properties reportedly vests with the Municipality of Anchorage; Real

Estate Services, per MOA records.

Property History

There have been no sales of the subject within the three years preceding the date of

valuation.

N

Lot 9

Lot 10 SUBJECT

Lot 11A


Nature of the Assignment Client

Municipality of Anchorage

Real Estate Department

4700 Elmore Road


Attn: Allison Smith

Purpose of the Appraisal and Property Rights Appraised

The purpose of this appraisal is to estimate the as-is market value1 of the fee simple2 interest and leased fee estate3 as of July 31, 2012 (the date of inspection). Effective Date of Value

July 31, 2012, the date of inspection

Report Date

August 14, 2012

Intended Use of the Appraisal/Intended Users

The intended use is for asset evaluation in preparation for a potential sale of the property.

The intended users include the client (MOA; Real Estate Department), and other municipal

agencies that may participate in the potential sale.

1 "The most probable price, which a property should bring in a competitive and open market under all conditions requisite to a fair

sale, the buyer and seller, each acting prudently, and knowledgeably, and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under

conditions whereby:

1) Buyer and seller are typically motivated;

2) Both parties are well informed or well advised, and both acting in what they consider their own best

interest;

3) A reasonable time is allowed for exposure in the open market;

4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto;

and

5) The price represents the normal consideration for the property sold unaffected by special or creative financing or

sales concessions granted by anyone associated with the sale.

Office of the Comptroller of the Currency under 12 CFR,

Part 34, Subpart C-Appraisals, 34.43 Definitions [f].

2 Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers

of taxation, eminent domain, police power, and escheat. Appraisal Institute 1993; Dictionary of Real Estate Appraisal

3 “An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease” Appraisal Institute 1993; Dictionary of Real Estate Appraisal


Scope of Work Property Data

Brian Bethard and Ryan McGillivray inspected the subject on July 31, 2012 with the

property contact David Grubbs. The building was also inspected and measured by Brian

Bethard and Ryan McGillivray for a prior appraisal assignment (BSBC #07-060). We

reconstructed the gross building area (GBA) based on the owners input, records/sketches

from the MOA assessor and our inspection. Plat/grid maps and zoning maps/regulations

were obtained from MOA. All requested information that was available was provided.

Prior Appraisal

Black-Smith, Bethard & Carlson previously appraised the subject for the Municipality of

Anchorage on November 5, 2009. The purpose of the appraisal was to estimate the as-is market value of the fee simple interest on October 27, 2009, the date of inspection (BSBC

#09-102). Prior to this, we appraised the subject on May 21, 2007 (BSBC #07-060) for the

same purpose. Area Data

In order to identify significant trends and indicators, we spoke with local property owners,

real estate agents and appraisers. We obtained a community profile from the State of

Alaska Department of Community and Regional Affairs. We also reviewed various

publications, reports, and surveys including Alaska Economic Trends, Alaska Business Monthly, and the Alaska Journal of Commerce.

Market Data

Alaska is a non-disclosure state. Comparable data was obtained by searching the local

multiple listing service records, surveying real estate agents/brokers, property managers,

and other appraisers. Market data was confirmed with the property owners, managers, or

agents.

Market Analyses

The Appraisal Institute recognizes two categories of market analysis: inferred and fundamental. Because the subject is a conventional property type in a stable market, a

lower level of analysis is appropriate. For the purposes of this appraisal, demand is

inferred from general market conditions and the available data. Valuation

All three approaches to value have been considered. The sales comparison and income

approaches are fully developed and are utilized to estimate the value of the subject

property. The subject improvement is over 40 years old and the cost approach does not

provide a meaningful indicator of value. Therefore, the cost approach is omitted. As

required by USPAP the omission is explained.

Value indicators by the sales comparison and income approaches are reconciled into a final

opinion of value for the improved site including the parking lot. This summary appraisal report is a brief recapitulation of the appraiser's data, analyses and conclusions.

Supporting documentation is retained in the appraiser's file.


Extraordinary Assumptions and Hypothetical Conditions General assumptions and limiting conditions are contained in the addenda of the report.

Extraordinary assumptions4 and hypothetical conditions5 are summarized as follows:

We developed our appraisal according to the extraordinary assumption that all

electrical, plumbing and mechanical systems are in good working order, with an

exception of the elevator as mentioned above.

The Anchorage Assembly amended and approved a resolution conditionally granting

a 10-year real property tax exemption and a 5-year tax deferral consecutive to the

immediate neighborhood in which the subject is located [AR No. 2009-126(s)],

subject to a public site plan review. It is an extraordinary assumption of this report

that the property will be taxed as normal. If a site plan review is provided that

guarantees the subjects tax exemption status, we retain the right to amend this

report. The value increase would be the present value of the tax savings.

The subject was renovated in 1993/95 with CDBG funds that may require

reimbursement to HUD if the property is sold or the use is altered. We have not

considered any reimbursement in this appraisal. It is an extraordinary assumption

that the subject is unencumbered.

We developed our opinion of value according to the extraordinary assumption

that the sites and improvements are not affected by environmental issues.

4 "An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or

conclusions." Uniform Standards of Professional Practice.

5 "That which is contrary to what exists, but is supposed for the purpose of analysis." Uniform Standards of Professional Practice.


PART III - PRESENTATION OF DATA


Area Overview

ALASKA6

Alaska gained jobs for the second consecutive year in 2011 after ripple effects from the

national and global recession ended the state’s 21-year growth streak in 2009. (See Exhibits

1 and 2.) More growth is forecasted for Alaska in 2012 — a modest increase of 1.2 percent,

or 3,900 jobs — but neither the global nor U.S. economies are on clear recovery paths yet,

and that will dampen the Alaska outlook in the coming year.

Job growth in 2011 was widespread but not

particularly strong, with the exception of

health care. Only construction and financial

activities recorded losses, and in both cases,

they were small. A number of other sectors

merely sustained their job counts, including

professional and business services and state

and federal government.

With a few minor changes, the same pattern

is forecasted to continue through 2012: small

but important gains across most of the

economy as the state’s economic drivers

remain guardedly healthy.

6 Alaska Economic Trends January 2012


ANCHORAGE

Anchorage is Alaska’s largest city. It is a

strategic hub for the state’s

transportation industry and the center of

commerce. Oil and gas industries,

finance and real estate, communications,

and government agencies are also

headquartered in Anchorage. The State

of Alaska Department of Labor reported

the 2010 population of Anchorage at

291,826. The total for the nearby

Matanuska-Susitna Borough (MSB; a/k/a

the Valley) was 88,995.

Like the rest of the state, the region is heavily dependent on the oil industry and

government spending. However; the Anchorage economy has become more diversified in

recent years. The Anchorage Economic Development Corporation 2011 mid-year forecast

predicted modest growth. "Alaska and Anchorage are still in a position of relative economic

strength," say the authors, despite weaker economic indicators for the nation as a whole.

January 2012 Outlook7

Employment in Anchorage dipped slightly in

2009, but quickly resumed growing in 2010.

By early 2011, the city had recouped all its

losses and employment reached record levels.

All signs point to another year of growth for

Anchorage — and right now, there are few

potentially course-altering economic events on

the horizon. The city’s economy is forecasted

to grow by 1,000 jobs in 2012, or 0.6 percent

— close to the 10-year annual average growth

rate of 1 percent. (See Exhibit 4.)

The forecasts for individual industries are

mixed, with construction employment

expected to decline for the sixth year in a row and health care likely to be the big winner

again. Record oil prices, generally high commodity prices, and a recovering visitor industry

are also anticipated in 2012. (See Exhibit 5.) Declining oil production and massive federal

cuts loom in the near future, however, and both are already hampering economic growth.

By 2013, planned federal budget cuts are likely to take center stage.

7 Alaska Economic Trends January 2012


Neighborhood Description

GENERAL NEIGHBORHOOD – Central Business District (CBD)

Infrastructure: Good commuter linkages; public utilities including gas, electricity,

water/sewer. Land Use: Mixed, few residences, low-rise and multi-story offices, parking

garages, hotel, retail shopping malls and department stores typical

of commercial business districts. % Developed: 95%; many sites are underutilized with aged improvements that

have limited remaining economic lives. Redevelopment is evident.

Neighborhood Cycle: Stability / Renewal Externalities: No significant negative externalities noted. The CBD has been a

focal point for private and public investment over the past decade.

Suitability: The neighborhood is suitable for developers and investors.

SUBJECT


IMMEDIATE NEIGBORHOOD – Cordova Street and E. 3rd Avenue

Location: The immediate neighborhood is located at the northeast

fringe of the downtown core.

Land Use: Parking, hotel, office, museum, government

% Developed: 95%

Neighborhood Cycle: Growth

Externalities: No significant negative externalities noted. The quality and

condition of development deteriorates east of the subject.

Suitability: Suitable for developers and investors

SUBJECT

SUBJECT


Site Description Location

The subject property is located on the

northeast corner of Cordova Street and E. 3rd

Avenue. The subject street address is 325 E.

3rd Avenue Anchorage, Alaska 99501.

Site Area/Dimensions

According to Plat Map 72-129, dimensions for

lots 9 and 10 are each 50’×140’ while lot 11A

dimensions are 100’×140’ they are all

rectangular in shape.

Lot Size

002-083-33 Lot 9 Block 37B 7,000 SF

002-083-32 Lot 10 Block 37B 7,000 SF

002-083-30 Lot 11A Block 37B 14,000 SF

Total Area 28,000 SF

PLAT MAP NO. 72-129

Access

The subject fronts E. 3rd Avenue and Cordova Street with direct access from Cordova. To

the north, the subject has paved access on E. 2nd Court. East 2nd Court comes to a dead end

1 block east of the subject and has features more typical of an alleyway. Cordova Street is a

two-way, asphalt paved street traveling north-south in Anchorage. East 3rd Avenue is a

two-lane, asphalt paved, one-way street traveling westbound into Anchorage’s CBD. The

streets are typical of a downtown area with curbs, gutters, sidewalks and streetlights. The

site has roughly 200’ of frontage on East 3rd Avenue and 140’ of frontage on Cordova Street. Utilities

Public services include water, sewer, electricity, natural gas and telephone.

Topography, Soils and Flood Hazard

The subject is level and slightly above grade with Cordova on the northwest corner and the

alley way to the north. The subject is at grade with E. 3rd Avenue. It is located outside

designated wetlands8 and floodplains.9 As prepared, the soils are considered to be adequate

to support existing improvements. Seismic Information

According to the Harding-Lawson Associates 1979 "Geotechnical Hazard Assessment

Study" the subject is described as having “high to very high ground failure susceptibility”.

Much of downtown Anchorage is also located in highly seismic areas, but the market has

not demonstrated resistance or any discounting of prices. We are not qualified to ascertain

the structural stability of the soils. If the seismic classification of the site is a major

concern, we suggest that an analysis is obtained from an expert in this field. We have

assumed no negative impact on value.

8 2008 MOA Wetlands Map #9

9 FEMA Flood Insurance Rate Map Panel 235 of 625 Community-Panel Number 020005-0235, March 5, 1990


MOA Grid Map SW 1231

Easements

We were not provided with a

title report. We are not aware

of any easements or private

restrictions that limit utility.

According to MOA Grid Map

SW1231 and Plat Map No. 72-

129 there is a 10’×80’ water

easement running along the

eastern edge of lot 11A.

Zoning

The subject is zoned R-O, This

district includes urban and

suburban residential and

professional office uses in

areas undergoing a transition,

or in areas where commercial uses might be damaging to established residential

neighborhoods. The R-O district also provides a mix of low- to medium-density residential

uses with certain specified business, personal and professional services that can function

efficiently without generating large volumes of traffic. This district is governed by

section 21.40.120 of the municipal code. Environmental Issues

We are not aware of any environmental issues affecting the properties. Our value opinion

is developed according to the extraordinary assumption that the parcel is environmentally

clean. Suitability

The site is well located and has adequate access and exposure for an office building. The

existing improvement represents a use that conforms to the public restrictions of zoning

and is compatible with the surrounding neighborhood.


Improvement Description Lot 11A Block 37B, East Addition Subdivision

325 E. 3rd Avenue improved with an average-quality, 4-story, concrete block office building

constructed in 1968.

Below is a brief description and general summary of the building specifications.

KEY INDICATORS

Gross Building Area 14,696 SF* Floor GBA per floor Rentable Area

1 3,686 SF 3,298 SF 2 3,670 SF 3,282 SF 3 3,670 SF 3,282 SF 4 3,670 SF 3,282 SF

Total 14,696 SF 13,144 SF

Rentable Area (GBA –stairs & elevator shaft) 13,144 SF Efficiency- Rentable 89% Year Built 1968 Effective Age ±35 Yrs Remaining Life (economic) ±15-20 Yrs First Floor-Footprint 3,686 SF Site Area – Improved Site (excludes parking area) 14,000 SF Parking Area (Lot 9 &10) 14,000 SF Site Area – Building & Parking Area 28,000 SF Site Coverage (Footprint/Total Site) ±13% Site Coverage (Footprint/Improved Site ) ±26% Land to GBA Ratio (Entire Site) 1.91 : 1 Land to GBA Ratio (Excluding Parking Area ) 0.96 : 1 *Based on our on-site measurements and plans provided.

General construction specifications, based on our inspection and the data provided, are

summarized below: Foundation

The foundation is concrete. Exterior Walls

The exterior walls are concrete block with wood siding accents. The exterior walls have

yard lights mounted around the north and west parking areas and entrances to the

building. During the inspection we noticed paint pealing on the awning over the front

entrance. This is a slight cosmetic maintenance item and we have not made a specific

adjustment for deferred maintenance.

Roof

The roof is a flat, built-up/hot mopped roof. We were able to access the roof on our

inspection. We are aware that the roof was completely resurfaced in 2003. This was a

complete re-roof down to the decking with new vapor barrier. We are not aware of any

leaks or problems with the roof. The appraisal is developed according to the

extraordinary assumption that the roof is in good functional condition.


Interior Finish/Layout

The subject is a typical Class C/B office building for the Anchorage market. It is older and

the interior finish is in average, but dated, condition.

The first level has a small entrance lobby with limited common areas for restrooms and

elevators. The primary entrance doors are located on the west side of the building. A

second entrance is located on the south side of the building. The north end of the first floor

has a conference room and full kitchen. The south side of the first floor is mainly office

space. A common elevator servicing all floors is in the approximate center of the building.

These floors are also accessible from two stairwells; one stairwell is adjacent to the elevator

and the other is on the south side of the building near the south entrance. On opposite

sides of elevator are the men’s and women’s restrooms. Both have two lavatories and sinks

while the men’s room has an additional urinal. The first floor layout is not ideal with

limited common area and extensive partitioning to the office areas.

Floors 2-4 are typical office areas that have common interior hallways providing access to

the various offices and rooms on each floor. There are handicap accessible men’s and

women’s 2-fixture restrooms on floors 2-4.

The second floor has a large conference room and kitchen area on the west side of the

building. The kitchen features a refrigerator, stove, sink and minimal cabinetry that

appear to be in average, functioning condition. The rest of the second floor is office space

that is in average but dated condition.

The third and fourth floors of the building are office space and they are in a condition

consistent with the rest of the building. The flooring is all commercial grade carpet in

average condition. The walls all have sheetrock and are painted in an average condition.

Doors and frames are metal while windows are wood framed. The ceiling is dropped tile

and the fluorescent lighting provided is adequate.

Copies of the building plans provided are presented on the following pages.


First Floor Layout


Second Floor Layout


Third and Fourth Floor Layouts


Mechanical, Plumbing & Electrical

The building is not air conditioned. In a past appraisal (BSB&C #07-060) the property

contact, Mike Fleagle, stated that the mechanical, plumbing and electrical systems are in

good operational condition. He was unaware of the ages of these systems. We developed

our appraisal according to the extraordinary assumption that all electrical, plumbing and

mechanical systems are in good working order and commensurate with the overall quality

of the building. There is a dated, but operational, passenger elevator in average condition.

Site Improvements and Parking

The entrance to the building is improved with two large concrete planters for landscaping.

The bordering edges of the parking lot are also landscaped with shrubs and hedges. The

rear of the building has an open lawn and a partially fenced area with a lawn. The parking

lot is paved and striped with concrete curbs and contains +/-50 parking spaces.

The MOA requires one parking space for every 300 SF of office space based on GBA. By

this formula the required parking is calculated as follows.

Level GBA (SF) MOA

Requirements # of Spaces

1st Floor 3,686 SF 1 per 300 SF 12.3 spaces

2nd

Floor 3,670 SF 1 per 300 SF 12.2 spaces

3rd


4th


Required Parking 49 spaces

Based on MOA requirements, the current use requires a total of 49 spaces. Parking

appears to be adequate.

Age, Quality, and Condition

The Marshall Valuation Service indicates that the life expectancy of an average quality

class “C” office building is 50 years. The actual age of the subject is 44 years. The condition

is average for its age. The effective age is estimated at ±35 years. Regular building

maintenance can extend the remaining economic life expectancy; the remaining economic

life expectancy is estimated at 15-20 years ±. Suitability of the Improvements

The subject is a multi-tenant office building that has average quality construction, appears

functionally adequate and is in overall average condition. The interior layout would not be

replicated today and it is noted that the first floor has limited entrance common areas with

extensive partitioning. Regardless, the layout has been adequate for several years and is

functional given the date of construction. The adjoining Lots 9 and 10 are used as a

parking lot for the improvement.

The existing use appears to be a conforming compatible use and it is suitable for continued

use as-is. The improvement is functional and well suited for use as an office building.


Real Estate Taxes and Assessments

Outstanding taxes or assessments are liens. Verification and reporting is a function of

preliminary title reports. We were not provided with a title report. We develop our value

opinion as if free and clear. The subject property has been deemed exempt from real estate

taxes because it is owned by the Municipality of Anchorage, therefore a 3 year tax history is

not applicable.

In 2006, the Anchorage Assembly approved Ordinance No. AO 2006-139(s), an ordinance of

the Anchorage Municipal Assembly designating certain real property under Chapter 12.35

and AS 29.45.050 as a deteriorated area located in East Addition Subdivision Block 37, Lots

1 of Acre Lt 2, 2 of Acre Lt 2, 3, 4 S16', 4 N2, 5, 6 S2 of Acre Lt 2, 7, 8, 9, 11, 12 N33', 12

S16', 13 of acre Lt 2, 14 of Acre Lt 2, 15 of Acre Lt 2, 16 of Acre Lt 2, 17, 18 of Acre Lt 2 and

19 and Block 37B, Lots TR A, 2A, 3A, 4A, 5A, 6B, 9, 10, 11A, 13A, 13B, 15A, 15B and 16.

This ordinance approved by the Anchorage Assembly designates these properties as being

deteriorated and available for a tax exempt status. Further assembly action would be

required to obtain a tax deferral on each property.

The properties affected in the immediate area are shown in the red box on the following

map. The subject sites are shown in the dashed box.

More recently, the Anchorage Assembly amended and approved a resolution conditionally

granting a 10-year real property tax exemption and a 5-year tax deferral consecutive to the

exemption for these properties [AR No. 2009-126(s)] subject to a public site plan review.

The impact on value is positive, as the ordinance encourages redevelopment and

investment in the area. A copy of the resolution is located in the addenda. Because a site

plan review is required to guarantee an exemption for this property, we have not attempted

to value the enhancement of the savings. (See Extraordinary Assumptions)

SUBJECT


PART IV – ANALYSIS OF DATA AND CONCLUSIONS


Market Analysis – Summary Report

The Appraisal Institute recognizes two categories of market analysis: inferred and

fundamental. In the following overview, demand is inferred from general market conditions

and the available data. This is a summary report and details are retained in the appraiser’s

files.

Commercial Land

Most of the activity is attributable to users. An expansion by regional and national chains

continues to generate demand for strategic sites, both pad sites and stand-alone locations.10

Numerous special purpose facilities have been completed, are currently under construction,

or proposed. The available data indicates that:

The market recognizes a price-per-square-foot unit of comparison;

Anchored out-lots command a premium over stand-alone sites; and,

Terms are typically cash and a market exposure period of one year is not

unreasonable.

Prices trended upward through 2007 but have stabilized.

Improved Property Overview In mid-decade, values were trending upward in response to sustained low interest rates,

declining income capitalization rates and increasing development costs. But cap-rate

appreciation stalled in 2008 and inflationary pressures on costs eased with the economic

downturn.

While general economic conditions cloud the outlook, real estate markets are local.

Occupancy levels for Anchorage retail, office and industrial markets generally exceed 90%.

Rental rates are stable and there is little evidence of a trend toward significant concessions.

Outside commercial districts anchored by regional and national chains, and a couple of

select submarkets, market rents will not support speculative additions to the inventory.

Nevertheless, many sub-markets are driven by users. Limited availability of improved

properties and high replacement costs favored existing conventional buildings with

functional designs.

Office-Market Sales

Demand is strong and the availability of office buildings for sale is limited; particularly

larger buildings suitable for multi-tenants. In addition, high construction costs and limited

available land contribute to stable demand for good quality existing office buildings.

In addition, high construction costs and limited available land contribute to stable demand

for existing office buildings. Alaska Statewide MLS activity for Anchorage office buildings

with a GBA of over 9,000 SF since 2006 is presented in the following table.

10 Big-box national retailers, convenience store chains, franchised restaurants, auto dealerships, specialty garages (mini-lubes, mufflers/brakes), and lodging facilities.


Sales

Sale Date

Sale Price

Address

SF $/SF

GBA± (1)

Yr. Blt.

DOM

3-06 $6,312,000 3000 A 52,839 $119.50 1985 83

3-06 $33,450,000 3201/3301 C 208,448 $160.50 1974/1977 Not reported

5-06 $3,263,150 4200 Lake Otis 22,635 $144.00 1984 Not reported

6-06 $2,400,000 810 N 16,510 $145.50 1978 80

7-06 $3,100,000 670 W. Fireweed 35,499 $87.50 1976 22

2-07 $15,500,000 900 W. 5th 79,381 $195.50 1979 Not reported

10-07 $720,000 810 E. 9th 10,902 $66.00 1983 593

10-07 $1,400,000 1231 Gambell 16,818 $83.00 1985 226

2-08 $1,925,000 2605 Denali 12,656 $152.00 1982 441

3-08 $1,575,000 1709 S. Bragaw 12,376 $127.50 1982 65

4-08 $2,900,000 3812 Spenard 20,404 $142.00 1974 222

9-08 $1,200,000 921 W. 6th 9,227 $130.00 1968 55

4-09 $2,225,000 3003 Minnesota 14,077 $158.00 1983 131

2-10 $1,950,000 500 W. 6th 12,952 $150.50 1962 Not reported

5-10 $4,880,000 431 W. 7th 27,546 $177.00 1969 Not reported

3-11 $12,000,000 4300 Boniface 77,537 $155.00 1985 Not reported

(1) Including land

Listings

MLS# Address DOM* Price-List SF-Bldg $/SF

11-1331 1520 Post 540 $1,825,000 33,822 $53.96

11-7345 4241 B 378 $3,500,000 22,355 $156.56

11-9700 4510 Old International Airport 364 $2,400,000 28,773 $83.41

12-1065 4625 Old Seward 163 $4,250,000 32,213 $131.93

12-1107 670 Fireweed 162 $7,300,000 35,499 $205.64

12-2279 201 56th 135 $6,000,000 38,371 $156.37

12-4116 7033 Tudor 95 $3,500,000 20,076 $174.34

12-6470 608 4th 59 $1,795,000 21,456 $83.66

12-7513 3400 Spenard 41 $2,100,000 23,900 $87.87

Averages 215 $3,630,000 28,496 $125.97

*Days on the Market

Currently, there are 9 office buildings listed for sale between 20,000 and 50,000 SF for an

average price of nearly $126/SF.

Market Time

The overall concept of reasonable exposure encompasses not only adequate, sufficient and

reasonable time but also adequate, sufficient and reasonable marketing effort. Marketing

time is also a function of the amount and quality of the available inventory, asking prices

and investor requirements. Market exposure time may be defined as "the estimated length

of time the property interest being appraised would have been offered on the market prior

to the hypothetical consummation of a sale at market value on the effective date of the


appraisal; a retrospective estimate based upon an analysis of past events assuming a

competitive and open market." 11

Market Exposure Period

Active listings and sold office properties indicate an exposure period of approximately 215

days.

For most property types, the data supports exposure period estimates of 6 months to one

year assuming the properties are professionally marketed and priced to reflect current

market conditions. OFFICE-MARKET LEASING Rental Rates and Occupancy Levels

Second Quarter 2012 statistics12 indicate Class B (Class C not reported) vacancy down

slightly to 4.84% and rents remaining steady at $1.90/SF full service. As anticipated, the

vacancy rate increased in 2012 as a large oil tenant pulled out of Anchorage and several

firms consolidated. Construction of the RE/MAX- Dynamic building on C Street is moving

forward with occupancy beginning in November. The remodel of the Union 76 building on

9th Avenue should also be completed in November with the tenant (NANA) moving in

around December.

The 2012 BOMA forecast is for stable rental rates with increasing vacancy.

Summary

2012 will see limited new demand but it will not be without limited new supply. The data

suggests the local office market is not over built but market rents and general economic

conditions do not support speculative additions to the inventory. The current market

conditions are relatively stable in terms of both vacancy and rents.

In summary, current conditions favor existing improved properties.

11 Source: Appraisal Standards Board Statement 6 and Advisory Opinion G-7. 12 Jeff Thon, CPM; Commercial Real Estate Newsletter, 2nd Quarter 2012.


Highest and Best Use Highest and best use is defined as:

“the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that

results in the highest value.”13

HIGHEST AND BEST USE “AS VACANT”

Possible Uses

The site is located in the downtown area, contains 28,000 SF, is fairly level and is served by

all available public utilities. Access is adequate and the soils appear to have adequate

bearing qualities as evidenced by the existing improvements as well as the surrounding

developments. The site could be developed with a number of physically possible uses.

Permissible Use

Legal restrictions, as they apply to the subject sites, include typical easements, if any, and

the public restrictions of zoning, as included in Title 21 of the Anchorage Municipal Code

"Land Use Regulations" and private restrictions.

The subject is zoned R-O, This district includes urban and suburban residential and

professional office uses in areas undergoing a transition, or in areas where commercial uses

might be damaging to established residential neighborhoods. The R-O district also provides

a mix of low- to medium-density residential uses with certain specified business, personal

and professional services that can function efficiently without generating large volumes of

traffic. Easements appear to be confined to the perimeter without impacting the highest

and best use. We are not aware of any private restrictions affecting the sites.

Feasible Use

The office market has seen a number of newly constructed owner/user and investor

buildings over the past several years. Due to the high costs of construction, Class “A” rents

with $20 to $45/rsf for tenant improvements are required for feasibility. Hotel and

residential condominium construction has also been evidenced, but new downtown projects

are unlikely at this time.

Maximally Productive Use

Based on the zoning, location characteristics and current market conditions, the subject’s

Highest and Best Use is for development with a conforming owner user office or to hold for

future speculative development.

HIGHEST AND BEST USE “AS IMPROVED”

The subject “as improved” is an average quality, 4-story, concrete block, Class “C+/B-” office

building. The improvements to Lot 2C Block 2 represent a substantial conforming use with

a significant remaining economic life expectancy. Value indicators by both approaches are

well above land value as vacant. We are not aware of any financially feasible use that

13 Appraisal Institute, The Appraisal of Real Estate, 12th Edition


would justify demolition or conversion to an alternative use. The highest and best use as

improved is as-is.

Most Probable Buyer

Given the neighborhood attributes and the physical characteristics of the improvements,

the property is suitable for an investor or owner-user.


Cost Approach

The existing improvement is 44 years old. The market would not give substantial weight to

a depreciated replacement cost estimate. In this case, the omission of the cost approach is

appropriate. In accordance with the Uniform Standards of Professional Appraisal Practice,

the omission is explained.


Sales Comparison Approach

In the sales comparison approach, an opinion of market value is developed by analyzing

similar properties that have recently sold, are listed for sale, or are under contract and

comparing them with the subject property. A major premise of the sales comparison

approach is that the market value of a property is related to the prices of comparable,

competitive properties.14 The properties are typically evaluated in terms of a physical unit

of comparison (e.g., “price per square foot”, “price per unit”) and correlated by adjusting for

various inequalities.

For this property type, the market recognizes a price-per-square-foot of gross building area,

including the land.

The sales of several downtown Class “C”/”B” office properties were examined; recent sales of

generally similar properties are summarized in the following table and identified on the

map. Details are summarized along with a correlation in the table on the following page.

Summary of Comparable Sales

No. Address Date of

Sale Sale Price GBA

$/SF GBA

1 431 W. 7th

Ave. 5-10 $4,880,000 27,546 SF $177 2 610 E. 5

th Avenue 10-08 $800,000 6,000 SF $133

3 441 W. 5th

Ave. 6-10 $3,800,000 (1) 32,957 SF $115 4 1015 E. 6

th Avenue 7-10 $1,000,000 8,736 SF $114

5 717 K Street 4-11 $1,700,000 10,885 SF* $156 Subj. 325 E. 3

rd Avenue --- --- 14,696 SF ---

(1) $3,700,000 “as is” and $100,000 deferred maintenance for roof repair.*inc 1,555 SF bsmt

14 The Appraisal of Real Estate, 12th Edition, Appraisal Institute (2001) p. 417


Description of the Comparables

The comparables are identified on the previous table and map. This is a summary report;

details are retained in our work file.

Correlation (explanation of the adjustments)

All of the comparables reflect arm’s length sales/acquisitions of the fee simple interest. No

undue stimulus was reported. Atypical motivations, if any, are recognized in the

reconciliation. The indicated unit values are already adjusted to a cash equivalent value (if

required) and for expenditures immediately after purchase (e.g. demolition or the cost-to-

cure known defects/deficiencies).

QUANTITATIVE ADJUSTMENTS Market Conditions

We recognize a slowdown in the real estate market and no definitive data to support

continued appreciation after January 2008. All of the sales occurred from April 2008 to

July 2011 and there is no definitive market data to support an adjustment for market

conditions.

Configuration

If the comparables include below grade basement or storage space in their gross building

area estimates, we developed an adjustment for configuration. Cost manual data and local

market rentals suggest that these areas contribute 20% to 30% of the office space. For the

purposes of our analysis, we calculate an effective GBA recognizing the contribution of the

garage/storage or basement space at 25%.

QUALITATIVE ADJUSTMENTS

A sufficient number of paired-sales are not available from which to extract reliable

adjustments for other inequalities. We correlated physical inequalities with qualitative

adjustments (superior, inferior, approximately equal).


RELATIVE COMPARISON ANALYSIS Comp / Ref SUBJECT NO. 1 NO. 2 NO. 3 NO. 4 NO. 5

Photo / Location

325 E. 3rd Ave.

431 W. 7

th Ave.

610 E. 5

th Ave.

441 W. 5

th Ave.

1015 E. 6

th Ave.

717 K Street

Sale Price N/A $4,880,000 $800,000 $3,800,000 $1,000,000 $1,700,000

Purchaser --- Investor User Investor Investor User

Market Conditions October 2009 May 2010 (no adj.)

October 2008 (no adj.)

June 2010 (no adj.)

July 2010 (no adj.)

April 2011 (no adj.)

Other Conditions of the sale

--- None None None None None

Adj. CEV incl. land --- $4,880,000 $800,000 $3,800,000 $1,000,000 $1,700,000

Configuration 4-story 2-story walk-up Two-story walk-up 5-story office Two-story walk-up 2-story office

GBA 14,696 SF 27,546 SF 6,000 SF 32,957 SF 8,736 SF 10,885 SF

Less: Basement/Storage

None None None (1,636SF) None (1,555 SF)

Allocation of Office Space

14,696 SF 27,546 SF 6,000 SF 31,321 SF 8,736 SF 9,330 SF

Add:25% Basement/ Storage

0 0 0 409 SF 0 389 SF

Adj. Eff. GBA* 14,696 SF 27,546 SF 6,000 SF 31,730 SF 8,736 SF 9,719 SF

Adj. $/CEV/SF N/A $177/SF $133/SF $126/SF $114/SF $175/SF

Year Built 1968 1960/ 06-09 rem

(superior) 1976

(approx=) 1958-71

(approx=) 1983

(superior) 1971

(approx=)

Quality/Type Avg. Concrete Block Avg. cc & wood fr

(inferior) Avg. cc block

(approx=) Avg. cc & steel fr (slightly superior)

Avg. stucco/ wd frm. (inferior)

Avg.+ cc (slightly superior)

Condition Average Average+ (superior)

Average (approx. =)

Good (superior)

Average (approx. =)

Good (superior)

Location Downtown/;

NEC of Cordova & E. 3

rd

Downtown/CBD; 7

th Ave

(superior)

Downtown; SEC of E. 5

th &

Fairbanks (approx=)

Downtown; W. 5

th

(superior)

Downtown fringe; Corner of E. 6

th &

Karluck (approx=)

Downtown; K Street

(superior)

Access Adequate Adequate

(approx. =) Adequate




(approx. =)

Zone R-O B-2B

(superior) B-2C

(superior) B-2A

(superior) B-3

(approx. =) B-2B

(superior)

Land to Bldg. (GBA) 1.91 : 1 1.02 : 1 1.25 : 1 .20 : 1 1.60 : 1 1.29 : 1

No. of Spaces (on-site)

± 50 spaces ± 40 spaces**

(superior)

±20 spaces**

(superior)

Limited

(slightly inferior)

±30 spaces

(slightly inferior)

Open / Adequate

(slightly superior)

Elevator Yes No

(inferior) No

(inferior) Yes

(approx. =) No

(inferior) Yes

(approx. =)

Building Amenities-HVAC/ Sprinkler

No/ No Yes/ No

(slightly superior) No/ No

(approx. =) Yes/ Yes

(slightly superior) No/ No

(approx. =) Yes/ No

(superior)

Other None None None None None None

Ind. $/SF (GBA) N/A <$177/SF <$133/SF <$126/SF >$114/SF <$175/SF

*Basement SF x 25% + Allocation of Office Space = Effective GBA **No on-site parking required for B-2B & B-2C zoned land (Comparable Nos. 1 & 2).


RECONCILIATION AND CONCLUSION

Like the subject, all of the comparables are late ‘60’s to mid 80’s vintage, low to mid rise

office buildings. In the relative adjustment analysis an overall range of value is established

from $114 to $177/SF.

The subject’s relative market position is situated towards the low end of the range between

Comp. 4 ($114/SF) and Comp. 2 ($133/SF).

Giving most weight to the bracketing comparables, an indicated unit price for the subject is

estimated at $120/SF, or $1,764,000, rounded ($120 × 14,696 SF).


Income Approach

The basis for this approach is the property operating data (potential income less vacancy

and expenses). Using income capitalization methods, the income is then translated into an

estimate of value. Direct capitalization is an appropriate measure at stabilized occupancy.

For the purpose of our analysis, net operating income (NOI) is defined as:

“Income remaining after deduction of all property expenses including replacement reserves (if any) and before consideration of leasing commissions and tenant improvements." 15

Market Rent

The subject’s contract rates are shown in the table below. With the exception of

telecommunications, all utilities and maintenance are paid by the owner.

Area Tenant SF Monthly

Rent

1st Floor Mabel T. Caverly Senior Center 1,919 SF $480.00

2nd

Floor Intervention Helpline 3,660 SF $915.00

3rd

Floor Older Persons Action Group, Inc. 3,660 SF $915.50

4th Floor Nubian Sisterhood 794 SF $199.00

4th Floor NAACP 1,830 SF $457.50

Total $2,967.00

The subject office space is occupied by several non-profit groups at below market rental

rates ($0.25/SF). According to Jacque Tennis, Senior Office Associate, Real Estate Services,

the leases all commenced on January 1, 2012 and terminate on December 31, 2012. The

tenants have the option to extend their lease for two (2) one-year periods. Ms. Tennis

thought there was a high probability that each tenant would exercise the option to extend.

Either the tenant or landlord can terminate the lease with 90 days notice in an option term.

The leased fee value of the subject will be calculated at the end of the report.

Market rent is estimated based on comparable properties, utilizing the price per SF of

rentable area. The rental comparables are adjusted to reflect full service occupancies with

owner paying all operating expenses including 5-day per week janitorial. Office Rental Comparables

# Location Date/ Term

Size Rent/SF Expenses Adjusted $

1 243 E. 5th

#201 Active 1,063 SF $1.50 Janitorial +$0.10

$1.60

2 921 W. 6th

Avenue 2nd

Floor Active 3,943 SF $1.75 None $1.75

3 203 W. 15th Avenue 10/2011 600 SF $1.45

Janitorial +$0.10

$1.55

4 1231 Gambell Street 10/2011 5,000 SF $1.60 None $1.60

Sub. 325 E. 3rd

Ave --- 13,144 SF --- --- ---

15 Korpacz Real Estate Investor Survey.


Description of the Comparables

The comparables are identified in the previous table and following map. This is a summary

report; details are retained in our work file.

Property ID Subject Comp #1 Comp #2 Comp #3 Comp #4

Address 325 E. 3

rd

Avenue 243 E. 5

th

Avenue 921 W. 6

th

Avenue 203 W. 15

th

Avenue 1231 Gambell

Street

Location

Downtown; NWC of

Cordova & E. 3

rd Avenue

Downtown; NWC of Cordova & E.

5th

Avenue (slightly superior)

Downtown; 6th

near K

(slightly superior)

Downtown; NWC of 15

th & C

(approx=)

Downtown; Corner 12

th &

Gambell (far inferior)

Parking Availability

On site Street

(inferior)

Street/ on-site negotiable (inferior)

On-site

(approx=)

On-site

(approx=)

Lease Date --- Active Active 10/2011 10/2011

Lease Term --- 3-5 year 3-5 year 3 year 5 year

Year Built 1968 1977

(approx=) 1974

(approx=) 1972

(approx=) 1985

(slightly superior)

Quality/ Condition

Average/ Dated

Average/Fair

(approx=)

Average/Fair

(approx=)

Average/ Dated

(approx=)

2007 remodel Average+

(slightly superior)

Size 13,144 SF 1,063 SF 3,943 SF 600 SF 5,000 SF

AC No No

(approx=) No

(approx=) No

(approx=) Yes

(superior)

Other Elevator No

(inferior)

No

(inferior)

No

(inferior)

Sprinkler system & elevator (superior)

Adjusted Rent/SF

--- >$1.60 +/-$1.75 >$1.55 >$1.60

Market Rent Reconciliation

The rent comparables indicate a range from $1.55/SF to $1.75/SF. The subject is superior

to the low-end indicator ($1.55/SF). The remaining comparables range from $1.60 to

$1.75/SF. The subject is in average but dated condition. It has elevator service to all floors,

N


is well located on the north eastern fringe of the downtown business district and has ample

parking. Giving most weight to upper-end of the narrowed range, market rent is concluded

at $1.75/SF.

Vacancy and Collection Loss

Recent surveys of office market space have suggested that the overall vacancy rate for class

B office is just under 5% (See Market Analysis). The subject is in average condition, but it

is dated and reflects its age. We project the overall potential for vacancy and collection loss

at 5%.

Operating Costs

Operating costs were provided for the past three years. These expense categories are

summarized in the following table.

2009 $/SF

Janitorial $7,320 $0.50

Elevator $2,396 $0.16

Fire Systems $1,681 $0.11

Extinguishers $360 $0.02

Parking/Concrete $0 $0.00

Parking Sweeps $417 $0.03

Snow Removal $4,150 $0.28

Window Washing $0 $0.00

Labor/1634 $18,160 $1.24

Utilities $35,126 $2.39

Refuse $2,283 $0.16

2010 $/SF


Elevator $2,414 $0.16




Parking Sweeps $1,559 $0.11


Window Washing $1,500 $0.10

Labor/1634 $9,496 $0.65

Utilities $31,374 $2.13

Refuse $2,283 $0.16

2011 $/SF


Elevator $2,227 $0.15




Parking Sweeps $784 $0.05


Window Washing $0 $0.00

Labor/1634 $17,228 $1.17

Utilities $32,461 $2.21

Refuse $2,283 $0.16

Operating Costs Comparisons

Operating costs are also projected by comparing operating expenses based on our office

files.

Expense Comparisons Comparison Expenses*

Expense Category

Class “A” Office

74,000 SF


53,000 SF

Class “B” Office

19,244 SF


100,000 SF

Class “A-” Office

42,636 SF

Class “B” Office

77,537 SF

R. E. Taxes $2.11 $2.26 $2.40 $1.59 $2.15 $2.37

Insurance $0.14 $0.14 $0.48 $0.57 $0.36 $0.48

Utilities $2.41 $1.83 $3.24 $2.11 $4.13 $2.81

Janitorial $0.78 $1.06 $1.32 $1.02 $1.14 $1.15

Build./Grds. Maint. $2.04 $1.69 $3.12 $1.65 $2.81 $1.73

Total ($/SF per Year) * $7.48 $6.98 $10.56 $6.94 $10.59 $8.54

Real Estate Taxes

The subject is a city building that is not currently taxed. Therefore, we analyzed taxes on a

price-per-square-foot basis for four similar properties used in the sales comparison

approach. For this comparison we used the 2012 assessed value multiplied by the

applicable mil rate for the building.

No. Location 2012 Assessment Mil Rate 2012 Taxes GBA $/SF

1 750 W. 2nd

Avenue $1,626,600 15.57 $25,326 18,192 SF $1.39/SF

2 610 E. 5th

Avenue $734,500 15.57 $11,436 6,000 SF $1.91/SF

3 3003 Minnesota Drive $1,945,200 15.57 $30,287 14,077 SF $2.15/SF

4 1015 E. 6th

Avenue $811,500 15.57 $12,635 8,736 SF $1.45/SF

5 7033 E. Tudor Road $2,734,500* 15.57 $42,576 17,122 SF $2.49/SF

Subj. 325 E. 3rd

Avenue --- 14,696 SF --- *Tax exemption for being owned by a charitable institution. Tax assessment is for 2011 (last available).


Four of the properties used in the sales comparison approach indicate a range from $1.39 to

$2.15/SF. State statutes require that real property be assessed at 100% of market value;

however, properties typically lag the market. The value established in the sales

comparison approach for the subject was $1,764,000. At this value, taxes for the subject

would be $1.86 and bracketed within the range established by the comparables. Giving

most weight to this value, as supported by the comparables, taxes are projected at $1.86/SF,

or $27,335.

Insurance

The expense comparables insurance premiums range from $0.14 to $0.57/SF/year. The

subject is a concrete block structure without a sprinkler system. Recognizing the upper-end

expense comparables are Class ‘B’ buildings similar to the subject, we project an annual

premium near the upper-end, $0.40/SF.

Management

The operating data provided does not report a line item for property management. Rates

for management fees range from 3% to 7%, depending on the size of the project and number

of tenants. The subject is configured for multiple tenants. We projected management at 5%

of the effective gross income to include legal and professional fees.

Utilities

These expenses typically include gas, electric, water, sewer and refuse. The utility costs

provided for gas, electric, water, sewer and refuse total $34,744 or $2.36/SF and has

remained relatively the same for the past 3 years. The expense is within the bracketed

range of the cost comparables. Giving most weight to the subject data, while recognizing

the likelihood of increases in utilities, we project this expense at $2.40/SF. Grounds and General Building Maintenance

Grounds maintenance for the last year included parking/concrete, parking sweeps, snow

removal and window washing. The total for these services equals $8,018 or $0.60/SF.

Building maintenance includes elevator, fire systems, extinguishers, maintenance supplies

and labor. This expense totals $7,125 or $1.85/SF.

Maintenance is difficult to estimate with any degree of precision as this expense item varies

widely from property to property and year to year. This is attributable to differing

ownership/management philosophies and accounting methods. The combined cost of

ground and general building maintenance for the subject is $2.45. The expense

comparisons reflect a wide range from $1.69 to $3.12/SF. The higher cost of labor for the

subject is attributable to municipal employees providing maintenance to the building.

These costs are often higher for public agencies. Recognizing the current cost for ground

and building maintenance for the subject and the cost comparables, we project costs for this

expense slightly lower at $2.00/SF.

Janitorial

The comparables indicate a range from $0.78 to $1.32/SF and average $1.08/SF. The

subject data suggests $0.45 to $0.50/SF and has been consistent over the past 3 years. This

amount would be low for a contracted, 5-day per week service. Giving most weight to the

comparable data, while recognizing that labor costs are increasing, janitorial expenses are

projected at $1.00/SF.


Reserves

The 2nd Quarter 2012 issue of Korpacz Real Estate Investor Survey indicates replacement

reserves for suburban office properties range from $0.15 to $0.50/SF with an average of

$0.28/SF. Replacement costs are higher in Anchorage than most other locales. Using the

average indicator for office use and adjusting it upward by a local cost multiplier; we project

replacement reserves at $0.35/SF ($0.28/SF x 1.26, rounded)16 of the GBA.

Projected Operating Statement Projected Rents Rent/SF RSF Monthly Inc. Annual Inc.

1st Floor Office Space $1.75 3,298 $5,772

2nd

Floor Office Space $1.75 3,282 $5,744

3rd


4th


Potential Gross Rental Income 13,144 $23,002 $276,024

Total Potential Gross Income $276,024

Less: Vacancy & Credit Loss 5% ($13,801)

Effective Gross Annual Income $262,223

GBA $/Yr.

Less: Operating Expenses 14,696

Real Estate Taxes $1.86 ($27,335)

Insurance $0.40 ($5,878)

Management 5% of EGI ($13,111)

Utilities $2.40 ($35,270)

Grounds & General Building Maint. $2.00 ($29,392)

Janitorial $1.00 ($14,696)

Reserves $0.35 ($5,144)

Total Operating Expenses % of EGI 50% ($130,826)

Net Operating Income $/GBA $8.94 $131,397

% of EGI 50%

Income Capitalization

The value of the subject at stabilized occupancy is derived by direct capitalization. With

this technique, the net operating income (NOI) is divided by a market-supported overall

capitalization rate (OAR) to indicate a value.

The 2nd Quarter 2012 issue of Korpacz Real Estate Investor Survey indicates the following

overall rates (OAR's) for the Suburban Office Market.

Period Suburban Office Market Average

2nd

Quarter 2009 9.55%

2nd

Quarter 2010 10.01%

2nd

Quarter 2011 9.14%

2nd

Quarter 2012 9.04%

National indicators have decreased over the past year. The stated range for institutional

properties is 6% to 11%, with an average of 8.17%. A sampling of the Anchorage office

16 The Marshall Valuation local cost multiplier for Anchorage, Jan. 2012.


market shows signs of trending with the national markets. OARs extracted from local sales

generally support the national market.

Property Date Buyer Area OAR

1227 W. 9th Ave. 1-06 User/Investor Fringe CBD 8.4%

810 “N” St. 3-06 Investor Fringe CBD 8.8%

3000 ‘A’ St. 3-06 Investor Midtown 9.4%

3201/3301 ‘C’ St. 3-06 Investor Midtown 10.1%

360 W. Benson Blvd 3-06 Investor Midtown 8.8%

900 W. 5th

Ave. 2-07 Investor CBD 7.3%

1199 E. Dimond Blvd. 3-07 User/Investor South Anchorage 7.7%

2605 Denali St. 10-07 Investor Midtown 7.7%

1709 Bragaw St. 1-08 User/Investor East Anchorage 9.3%

3003 Minnesota By-pass 4-09 User/Investor Midtown 7.1%

2121 Abbott Rd. 6-09 Investor South Anchorage 9.0%

500 W. 6th


431 W. 7th


441 W. 5th


4300 Boniface 3-11 User East Anchorage 8.2%

2601 Denali Street 9-11 Investor Midtown 7.8%

2600 Denali Street 12-11 Investor Midtown 7.4%

Local sales trend near the national indicators and recent transactions reflect a range from

7.0% to 10.0% with an average of +/-8.47%. Although the national financial crisis was a

concern, capitalization rates have trended back downwards and there was no evidence of

increased capitalization rates in the Anchorage market.

Description OAR Range OAR AVG

National Indicators 8.17 % to 9.71% 9.02%

Anchorage Offices 7.00% to 10.10 % 8.47%

The subject is an average quality office building suitable for multiple tenants or a single

user. It’s located on the eastern fringe of the downtown business district with adequate

onsite parking. The interior of the building is in dated but in average condition. The

supply of properties suitable for users and investors is limited. Giving weight to the local

indicators, a capitalization rate of 8.50% is reasonable for the subject. Market value by the

income approach is calculated as follows:

Projected NOI $131,397

OAR 8.5%

Indicated Value (rounded) $1,545,844

Indicated Value by the Income Approach (rounded): $1,546,000 (rounded)


Reconciliation and Conclusion

The indicated values are summarized as follows:

COST APPROACH N/A SALES COMPARISON APPROACH $1,764,000 INCOME APPROACH $1,546,000

The value indicators establish an overall range from $1,460,000 to $1,764,000 for the

subject site and improvements.

The sales comparison approach established a narrow range of indicated values for similar

low-rise office buildings. Three of the comparable sales were purchased by either a user or

user-investor. The supply of suitable alternatives is limited and value is driven by users.

Users are more likely to evaluate function and utility in terms of a physical unit of

comparison. On this basis, the sales approach is considered a reasonable approach to value.

The income approach represents the low-end of the range. The supply of good-quality

offices suitable for users and/or user-investors is limited. In this sub-market, users are

pressuring prices above the levels supported by investors. Regardless, the income approach

is reasonable and is given weight in this analysis.

Giving weight to both the sales comparison and the income approaches, market value is

concluded at $1,650,000.

LEASED FEE ANALYSIS

The leased fee analysis takes into consideration the present value of the below market

rents. The low rents would be realized by either an investor or partial user.

In the income approach we determined market rent at $1.75/SF. The current leases for all

tenants are $0.25/SF per month. These leases expire 12/31/12 and tenants have the option

to extend the lease for 2 one-year options. The lease can be terminated by either the tenant

or landlord during either of the option periods by giving 90 days written notice to the other

party. Therefore, the below market rates are probable until March 31, 2013 (90 days into

the first renewal option).

The net rent disadvantage is calculated at $19,716/month (market rent [$1.75/SF] –

contract rent [$0.25/SF] × 13,144 = $19,716). Over 8 months the loss in rent amounts to

$157,728 ($19,715 × 8 months). Due to the short term nature of the rent loss, we have not

discounted the income stream. The rent loss essentially falls to the bottom line. Market

value of the leased fee interest is calculated as follows:

Estimated Fee Simple Market Value “As Is” $1,650,000 Less: Rent Disadvantage <$158,000> Estimated Leased Fee Market Value “As Is” $1,492,000

ADDENDA

Great. This is your notice to proceed.

We’ll expect to see the appraisal by August 13.

Please contact me if you need any other information. Thank you.

Alison L. Smith Land Manager MOA, Real Estate Dept. 343-7531

From: [email protected] [mailto:[email protected]]

Sent: Friday, July 13, 2012 10:18 AM To: Smith, Alison L.

Subject: RE: Request for schedule, cost

Thanks Alison, Our fee would be $4,500 and we are about 4 weeks out. Please call if you have questions. Have a good weekend! Brian Brian Bethard, MAI Black-Smith, Bethard & Carlson, LLC. 1199 E. Dimond Blvd., Ste. 200 Anchorage, AK 99515 (907) 274-4654 phone (907) 274-0889 fax

From: Smith, Alison L. [mailto:[email protected]] Sent: Friday, July 13, 2012 9:58 AM

To: '[email protected]'

Subject: RE: Request for schedule, cost

That part has already been finalized. All we need now is the current fair market value

of the property.

If you’re interested, the percentages are 21% to MOA, 79% to CDBG payback.


From: Smith, Alison L. [mailto:[email protected]] Sent: Friday, July 13, 2012 9:01 AM

To: '[email protected]'

Subject: Request for schedule, cost

Hello Brian-

The Real Estate Department is planning to offer the John Thomas Building for sale via

competitive bid. In 2009 you provided us with a Summary Appraisal Report for the

property. We would like you to complete a standard commercial property appraisal.

mailto:%5bmailto:[email protected]%5d

The purpose of the appraisal is to set the current fair market value to 1) determine the

amount owed to the CDBG program, and 2) establish a minimum bid for the

competitive auction. We’ve been working with HUD to determine the percentage of

the sale price that goes back to the program and we believe that we’ve come to an

agreement with HUD on that percentage.

This project is currently CONFIDENTIAL until we issue a public notice.

Please review the original proposal you provided under the term contract, including

the costs you committed to for specific deliverables.

Please provide your schedule and cost to me via e-mail by 5pm, Monday, July 23,

2012.

Let me know if you have questions. Thanks much, Alison


GENERAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions:

1. No responsibility is assumed for the legal description provided or for matters

pertaining to legal or title considerations. Title to the property is assumed to be good and

marketable unless otherwise stated.

2. The property is appraised free and clear of any or all liens or encumbrances unless

otherwise stated.

3. Responsible ownership and competent property management are assumed.

4. The information furnished by others is believed to be reliable, but no warranty is

given for its accuracy.

5. All engineering studies (if any) are assumed to be correct. The plot plans and

illustrative material in this report are included only to help the reader visualize the

property.

6. It is assumed that there are no hidden or unapparent conditions of the property,

subsoil, or structures that render it more or less valuable. No responsibility is assumed

for such conditions or for obtaining the engineering studies that may be required to

discover them.

7. It is assumed that the property is in full compliance with all applicable federal, state,

and local environmental regulations and laws unless the lack of compliance is stated,

described, and considered in the appraisal report.

8. It is assumed that the property conforms to all applicable zoning and use regulations

and restrictions unless a nonconformity has been identified, described, and considered in

the appraisal report.

9. It is assumed that all required licenses, certificates of occupancy, consents, and other

legislative or administrative authority from any local, state, or national government or

private entity or organization have been or can be obtained or renewed for any use on

which the opinion of value contained in this report is based.

10. It is assumed that the use of the land and improvements is confined within the

boundaries or property lines of the property described and that there is no encroachment

or trespass unless noted in the report.

11. Unless otherwise stated in this report, the existence of hazardous materials, which

may or may not be present on the property, was not observed by the appraiser. The

appraiser has no knowledge of the existence of such materials on or in the property. The

appraiser, however, is not qualified to detect such substances. The presence of

substances such as asbestos, urea-formaldehyde foam insulation and other potentially

hazardous materials may affect the value of the property. The value estimated is

predicated on the assumption that there is no such material on or in the property that

would cause a loss in value. No responsibility is assumed for such conditions or for any

expertise or engineering knowledge required to discover them. The intended user is

urged to retain an expert in this field, if desired. This appraisal report has been made with the following general limiting conditions:

1. Any allocation of the total value estimated in this report between the land and the

improvements applies only under the stated program of utilization. The separate values

allocated to the land and buildings must not be used in conjunction with any other

appraisal and are invalid if so used.

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

publication.

3. The appraiser, by reason of this appraisal, is not required to give further consultation

or testimony or to be in attendance in court with reference to the property in question

unless arrangements have been previously made.

4. Neither all nor any part of the contents of this report (especially any conclusions as to

value, the identity of the appraiser, or the firm with which the appraiser is connected)

shall be disseminated to the public through advertising, public relations, news, sales, or

other media without the prior written consent and approval of the appraiser. Additional Assumptions and Limiting Conditions:

1. Any opinions of value provided in the report apply to the entire property, and any

proration or division of the total into fractional interests will invalidate the opinion of

value, unless such proration or division of interests has been set forth in the report.

2. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The

appraiser has not made a specific compliance surveyor analysis of the property to

determine whether or not it is in conformity with the various detailed requirements of

ADA. It is possible that a compliance survey of the property and a detailed analysis of

the requirements of the ADA would reveal that the property is not in compliance with

one or more of the requirements of the act. If so, this fact could have a negative impact

upon the value of the property. Since the appraiser has no direct evidence relating to this

issue, possible noncompliance with the requirements of ADA was not considered in

estimating the value of the property.

Qualifications Of Brian Z. Bethard, MAI Brian Z. Bethard, MAI

State Certification No. 281

General Education Service High School, Anchorage, Alaska - Graduate 1989 The Colorado College, Colorado Springs, CO - Bachelor of Arts, Economics 1993 University of Alaska, Anchorage, Anchorage, AK - MBA 1996

Employment History Black-Smith, Bethard & Carlson, LLC - Managing Member – 2005 + Black-Smith and Richards, Inc. - Fee Appraiser -1995 to 2005 Randall, Hayes, and Henderson, Inc. - Fee Appraiser -1993 to 1995

Appraisal Courses/Seminars Taken Residential Case Study - University of Alaska Anchorage - 1994 Uniform Residential Appraisal Report - Appraisal Institute - 1993 Standards of Professional Practice, Part A & B - Appraisal Institute - 1996 Advanced Sales Comparison & Cost Approaches - Appraisal Institute - 1997 Appraisal Principles & Procedures - Appraisal Institute - 1998 Highest and Best Use Market Analysis - Appraisal Institute - 1998 Advanced Applications and Market Analysis - Appraisal Institute - 1998 Report Writing and Valuation Analysis - Appraisal Institute, 1998 Advanced Income Capitalization, Course 510 - Appraisal Institute - 2000 Intro to Statistics & Supporting Adjustments - Appraisal Institute - 2002 Market Studies for Affordable Housing - NH&RA - 2002 Standards of Professional Practice - Appraisal Institute – 2002/03/04/05/07/09 Subdivision Analysis - Appraisal Institute – 2004 Rates & Ratios – Appraisal Institute – 2005 Principles of Real Estate Law – IRWA – 2005 Skills of Expert Testimony – IRWA – 2006 Analyzing Distressed Real Estate – AI – 2006 Condemnation Appraising – AI – 2007 Appraisal Challenges in Declining Markets – AI, 2009 Forcasting Revenue – AI, 2009 USPAP Update – AI, 2011 Yellow Book – AI, 2011 Certifications Alaska State Certification: General Real Estate Appraiser #281

Affiliations Member Appraisal Institute (Member No. 11857) President: Alaska Chapter Appraisal Institute – 2005 & 2006 Vice Pres: Alaska Chapter Appraisal Institute - 2004

Typical Clients Appraisal Assignments Cook Inlet Housing Authority Various Multifamily, Land and Special Purpose Northrim Bank Attwood Building Rent Study, Anch., AK Alaska Housing Finance Corp. Kenai Senior Housing Market Study, Kenai, AK HDR Engineering Highlands Luxury Apartments, Anch., AK The Municipality of Anchorage The Veco Building, Anch., AK The City of Valdez City of Valdez Assessment, Valdez, AK Alaska Industrial Development & Export Authority Charter North Hospital, Anch., AK Wells Fargo Bank McKay Building, Anch., AK Key Bank Alaska DOT Building, Juneau, AK State of Alaska Department of Natural Resources Alyeska Pipeline Appraisal, Prudhoe - Valdez First National Bank Alaska 15

th Avenue Extension ROW Project, Anch., AK

Alaska First Bank Saint Paul Health Clinic, St. Paul, AK Denali Alaska Credit Union Residential Mortgage Building, Anch., AK Department of Justice Sprucewood Housing; 300 Units Eielson AFB

QUALITIFICATIONS OF APPRAISER

Ryan T. McGillivray Appraiser

General Education

University of Alaska Anchorage, Bachelor of Arts, Journalism Public Communications,

Minor Business, 2004

Service High School, Anchorage, Alaska – Graduate 1998

Appraisal Courses Taken

Appraisal Institute- Basic Appraisal Principles; 1/2008

Appraisal Institute- General Appraiser Income Approach Part 1; 4/2008

Appraisal Institute- Uniform Standards of Professional Appraisal Practices; 11/2008

Appraisal Institute- Basic Appraisal Procedures; 3/2009

Appraisal Institute- General Appraiser Market Analysis and Highest & Best Use; 3/2010

Appraisal Institute- General Appraiser Sales Comparison Approach; 6/2010

Appraisal Institute- General Appraiser Site Valuation and Cost Approach; 6/2010

Appraisal Institute- General Appraiser Report Writing and Case Studies; 10/2010

Appraisal Institute- Real Estate Finance, Statistics and Valuation; 5/2011

Business Experience

Black-Smith, Bethard and Carlson, LLC, Appraiser, October 2006 +

Licensed Real Estate Agent, Alaska, December 2005

summary appraisal report - anchorage, alaska · appraisal institute 1993; dictionary of real estate...

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