S. The Grove Drive, Los Angeles, California 90036

Transcription

1 S. The Grove Drive, Los Angeles, California Copyright 2011 Hayward Appraisal Company, Inc.

2 DATE OF VALUE: DECEMBER 31, 2010 Subject Photographs SUBJECT PHOTOGRAPHS Maggianos Wood Ranch BBQ & Grill 1-2

3 DATE OF VALUE: DECEMBER 31, 2010 Subject Photographs SUBJECT PHOTOGRAPHS Store fronts westerly view Store fronts easterly view 1-3

4 DATE OF VALUE: DECEMBER 31, 2010 Subject Photographs SUBJECT PHOTOGRAPHS Movie theatre Additional store front view easterly 1-4

5 Important Facts SUMMARY OF IMPORTANT FACTS Property Types: Property Location: Property Identification: Land Area: Leased Land S. The Grove Drive, Los Angeles The legal description, due to its length, is not presented here but has been retained in our files for reference ,918 Square Feet or 4.08 Acres ,077 Square Feet or 9.09 Acres ,853 Square Feet or 0.71 Acres ,633 Square Feet or 0.08 Acres ,142 Square Feet or 0.09 Acres ,566 Square Feet or 1.57 Acres Total 681,189 Square Feet or Acres Building Type / Size: Quality / Condition: Zoning Classification: Leased Land N/A General Commercial (C2-2D) classification per the city of Los Angeles. Assessor s Parcel No(s).: Book 5512 Page 003 Parcel(s) Property Owner(s): Ownership Interest Appraised: Subject s Sale History: Property Rights Appraised: Gilmore Grove LLC Leased land interest appraised. There has been no open market transfer in ownership within the past three years or more. There is no current listing of sale, option or agreement of sale. The subject has a lease contract in the form of a ground lease. The ground lease has a remaining lease term of about 55 years. Building improvements have been constructed on the site, and existing improvements are expected to remain until termination of the lease. Thus, the leasehold estate value appraised includes the lessee s right to use and occupy the site and its improvements. According to the Appraisal Institute, a leasehold interest usually has value when contract rent is less than market rent. If the lessee has a rent advantage, the 1-5

6 Important Facts SUMMARY OF IMPORTANT FACTS leasehold interest has a positive value. Date of Property Inspection: Appraisal Methodology: The subject was last inspected by David S. Hayward of the Hayward Appraisal Company, Inc. on June 14, The subject was inspected on various times during the course of this appraisal. Consideration was given to all three traditional approaches to value. Only the sales approach and income approaches to value were considered to be the most relevant and appropriate for the subject. 1-6

7 Important Conclusions SUMMARY OF IMPORTANT CONCLUSIONS Highest and Best Use Conclusion: The concluded highest and best use of the subject site as if vacant is that the site be developed with a commercial use consistent with similar developments within the surrounding area. The highest and best use analysis undertaken in this appraisal is not intended to be an exhaustive analysis of every possible use for the subject. Rather, it is intended to provide sufficient analysis of the most likely and most reasonable alternatives. Market Rent Trend: Market Value Trend: Declining, with a downward trend near the rate of inflation. Declining, with a downward trend tied closely to future rent trends. ESTIMATED MARKET VALUE: $34,000,000 Value Indications: Income Approach $33,461,777 Sales Comparison Approach $30,650,000 to 37,465,000 Replacement Cost Approach Neighborhood s Major Influence: Not applicable The neighborhood s major influences include: the fact that supply and demand are currently in disequilibrium future supply is forecast to decrease due to depreciation of current stock, or other changes future demand is forecast to decrease due to anticipated economic or other changes retail trade generated by tourism due to destinations such as Disneyland, Sea World, Hollywood, and Beverly Hills manufacturing and trade; the Ports of Long Beach and Los Angeles are the number one and two ports in goods imported or exported on the West Coast strong education and research promoted at universities such as Cal Tech, USC, and UCLA. hotel and convention facilities such as the Long Beach Convention Center and the Los Angeles Convention Center employment growth within the motion picture industry, as many of the nation s movies are produced here. declining demand for high tech and dot com office 1-7

8 Important Conclusions SUMMARY OF IMPORTANT CONCLUSIONS space; however, dot com office leases are considered to be somewhat risky. the FIRE (Finance, Insurance, and Real Estate) sector, especially in the downtown area where these companies desire ready access to each other. migration of professional services from downtown to suburban office locations. the increasing demand for office space by small users is being met with new flex-tech space that allows these users to get the amount of space they require. Subject s Major Strengths: The subject s major strengths include: (General) its distinctive and unique architecture its unimpeded views and the likelihood that these views will remain unimpeded in the future the geographic location on 3 rd Street and Fairfax Avenue in Los Angeles the ability to benefit from the retail, hotel, and other facilities in close proximity its visibility from major traffic corridors the quality and condition of the property s construction and maintenance the desirability of the existing credit tenants and high occupancy rate its close proximity to major employment / retail centers its easy accessibility to public transportation its close proximity to public schools and the desirability of the city s school district its close proximity to public parks and recreation areas. the historically high occupancy rates in the subject neighborhood the historically high rent levels in the subject neighborhood its close proximity to expressways, toll roads & airports the lack of land available for new, competitive construction Subject s Major Risks: The subject s major risks include: (General) The projected increase in property tax, per Proposition 13, triggered by the sale of the subject, may not be fully reimbursed by the current tenant as an expense passthrough. Thus, the property tax increase will become an additional expense to the new owner for the current tenant s remaining lease term. its lack of access to expressways, toll roads, and airports 1-8

9 Important Conclusions SUMMARY OF IMPORTANT CONCLUSIONS Marketability for Sale: Estimated Marketing Time: Estimated Exposure Time: Appraiser Comments: the subject property s advanced age, which causes difficulty in competing with newer, competitive projects for tenants its increased need for repairs, maintenance and capital expenditures for long-lived components, such as roof cover, parking lot, HVAC, etc. The most likely purchaser of the subject is considered to be a local investor/owner occupant. Sufficient demand exists for this property type, and supply appears to be in balance. The marketing period or amount of time necessary to expose the subject to the open market to achieve the estimated market value, is estimated between 6 and 12 months, based on current market conditions. The estimated marketing period assumes that the property will be actively exposed and aggressively marketed to potential purchasers through marketing channels commonly used by sellers of similar properties. The exposure period, or the amount of time the subject would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of appraisal, is estimated between 6 and 12 months. The subject will compete successfully with its competitive peer group. See the attached Specific Assumptions and Limiting Conditions. 1-9

10 DATE OF VALUE: December 31, 2008 Summary of Supporting Data and Analyses 1-10

11 SUBJECT PROPERTY DESCRIPTION Location / Address: As shown on the area map (see Area Map), the subject fronts The Grove Drive. This location is commonly known as the S. The Grove Drive in the city of Los Angeles, California. Neighborhood Description: The surrounding neighborhood consists of a variety of property types and uses. The predominant land use is of commercial and residential properties, which are similar to the subject. The neighborhood life cycle is current declining with marked losses. Surrounding property values, rent, and occupancy levels, indicate declining economic characteristics detrimental to the subject. This location also benefits from ready access to business and employment centers. Market conditions appear to be average related to supply and demand considerations and downward trending property values (see Subject Neighborhood Description Summary). Site Analysis and Conclusions: The subject site has been inspected and analyzed in comparison with similar sites in the surrounding area. Based upon our observations and the supporting data (see Subject Site Description Summary), the subject site, as if vacant, is considered to be adequate for development to its highest and best use. Improvement Analysis and Conclusions: The subject is currently fully developed with numerous buildings, a parking structure and is known as The Grove. 1-11

12 SUBJECT SITE DESCRIPTION SUMMARY Land Area (SF): 1 681,189 Sq. Ft. Shape: Functional Accessibility: Good Function/Utility: Good Exposure: Good Topography: Flat and level Visibility: Good Utilities: All connected Flood Hazard: 2 None apparent Soils/Geology: 4 Appears adequate Earthquake Hazard: 2 Unknown Drainage: Appears adequate Zone: 3 C2-2D-0 Environ. Hazards: 5 None apparent Excess Land: None Easements/Restrictions: 6 Unknown Parking Spaces: Parking Structure CC&Rs: 7 None Traffic Pattern: Good Landscaping: None Traffic Volume: Good Assessor s Parcel Book 5512 Page 003 Parcel 037 No(s).: Assessed Values: Land $14,444,030 Building $51,615,550 Total $66,095, Total Tax Rate: % Real Estate Taxes: 8 $833, Assessor s Parcel Book 5512 Page 003 Parcel 038 No(s).: Assessed Values: Land $33,254,510 Building $94,499,180 Total $127,753, Total Tax Rate: % Real Estate Taxes: 8 $1,811,999 Assessor s Parcel Book 5512 Page 003 Parcel 039 No(s).: Assessed Values: Land 2,428,616 Building $5,127,219 Total $7,555, Total Tax Rate: % Real Estate Taxes: 8 $94, Assessor s Parcel Book 5512 Page 003 Parcel 040 No(s).: Assessed Values: Land $366,108 Building $11,440 Total $377, Total Tax Rate: % Real Estate Taxes: 8 $4, Assessor s Parcel Book 5512 Page 003 Parcel 041 No(s).: Assessed Values: Land $358,160 Building $11,440 Total $369, Total Tax Rate: % Real Estate Taxes: 8 $4, Assessor s Parcel Book 5512 Page 003 Parcel 042 No(s).: Assessed Values: Land $5,302,554 Building $10,357,450 Total $15,660, Total Tax Rate: % Real Estate Taxes: 8 $235,

13 Appraiser s Comments: The subject is a acre site on a paved street served by necessary utilities. Access appears to be good. Visibility/exposure is good. There are no adverse soils conditions of which Hayward Appraisal Company, Inc., is aware, however this was near a former oil drilling site and a soils report is recommended if any concern should arise. The shape of the parcel is functional, and results in no specific development limitation. The topography is generally level and poses no specific development limitation. 1. According to the county Assessor s parcel map. 2. We did not determine any flood or earthquake hazards, and no professional studies were made available to us, if any. 3. The zoning classification and permitted uses are according to city codes. 4. We did not determine the suitability of soils and underlying geology, and no professional studies were made available to us, if any. 5. We did not determine any environmental hazards, and no professional studies were made available to us, if any. 6. We only considered easements and restrictions furnished to us in a title report. 7. We only considered conditions, covenants, and restrictions furnished to us by the client, if any. 8. The appraised value assumes that the subject property sold on the date of value and that all property taxes are current. If the subject property were sold, a reassessment at that sale price (market value) would occur. The consequences of this reassessment have been considered and its possible impact as an additional expense to be paid by the new owner. Source: Hayward Appraisal Company, Inc., subject s ownership/management and various secondary sources, including public records. 1-13

14 SUBJECT IMPROVEMENT DESCRIPTION SUMMARY Type/Use: Shopping Center No. of Stories: Various Gross Building Area SF: 1 Various Construction Type: Class A Rentable Bldg. Area SF: 1 Various Quality: Good Year Built: 2001 Foundation: Concrete No. of Units: Various Frame: Steel Effective Age: 2 5 years Roof Cover: 5 Built-up composition Remaining Econ. Life: 2 55 years Exterior Condition: Good Overall Condition: Good Interior Condition: Proposed HVAC: Yes Exterior Walls: Stucco Elevator: Yes Fire Sprinklered: Yes Tenancy: Various Demising Walls: Drywall Restrooms: Yes ADA Compliant: 6 Appears adequate Deferred Maintenance: 3 See notes Environmental Issues:`7 Unknown Capital Expenditures: 4 See notes Security: Adequate Electrical: Adequate Appraiser s Comments: The subject s building improvements are considered to be typical and consistent with the highest and best use of the subject site. 1. According to the subject s ownership/management, supporting data, or floor plans. 2. Based upon our visual observation and experience. 3. Excessive deferred maintenance was not noted 4. Capital expenditures were not noted 5. Roof cover is reported to be in adequate condition. 6. I did not determine American with Disabilities Act compliance, and no professional studies were made available to us, if any. 7. I did not determine any environmental issues and no professional studies were made available to us, if any Source: Hayward Appraisal Company, Inc., subject s ownership/management and various secondary sources, including public records. 1-14

15 SUBJECT NEIGHBORHOOD DESCRIPTION SUMMARY Location: Urban Land Use Change: Not likely Built-Up: Over 100% Predominant Use: Office Growth Rate: Stable Predominant Occupancy: Owner Property Values: Stable Rental Demand: Average Demand / Supply: In balance Vacancy Trend: Increasing Marketing Time: 6 to 12 mos. Development Trend: Down Maintenance / Condition: Good Employment Trend: Increasing Transportation / Access: Average Population Trend: Increasing Property Compatibility: Good Adverse Influences: None noted Source: Hayward Appraisal Company, Inc. Neighborhood Map 1-15

16 Income Approach Summary Income Approach Summary 1-16

17 Income Approach Summary Valuation of Land Owner s Leased Fee Interest Lease Terms INCOME APPROACH According to information provided by a representative of the client, the ground lease between the land owner and the client has a base term that extends until In addition, the client has an option to extend the lease for an additional 20 years. Reportedly, the rent is to remain fixed at $194, per month (or $2,336, annually) for the entire duration of the lease term including the option period. For purposes of this appraisal, we have assumed that the client will exercise the extension option (if such is not the case, the value conclusion contained herein for the landowner s leased fee interest would be impacted). At the outset of a new ground lease, ground lease rental payments are generally determined based upon a fair market rate of return on the fee simple land value. Historically, the industrystandard fair market rate of return on land has been about 8% to 10%. Depending on how a particular ground lease is written, at points in time after the commencement of the ground lease, the ground lease payments may offer either more or less than a fair market rate of return on the land value. In the case of the subject property, the current annual ground rent that the client pays to the land owner in the amount of $2,336, represents a rate of return of approximately 0.20% on the subject s estimated underlying fee simple land value (2,336, ,150,000 =.08). The 0.80% rate of return is within the industry-standard range for fair market rates of return on land of 8% to 10%. Thus, the client benefits greatly from market rent and it can be concluded that the chance of default by the client on this lease is extremely low. Selection of Discount Rate In order to select an appropriate discount rate to utilize in calculating the net present value associated with land owner s leased fee interest in the subject property, we consulted the Fourth Quarter 2010 edition of the PriceWaterhouse Coopers Korpacz Real Estate Investor Survey. According to the survey, discount rates for the national strip shopping center market range from 5.50% to 9.50%. It is our opinion that a discount rate at the low end of this range is appropriate for the valuation of the land owner s leased fee interest in the subject property considering the magnitude of the below-market rent and the extremely low risk of default by the client. In consideration of this, a discount rate of 7.25% has been concluded to be appropriate for the valuation of the land owner s leased fee interest in the subject property. 1-17

18 Income Approach Summary Value Conclusion Land Owner s Leased Fee Interest The calculation of the net present value of the income stream and reversion associated with the land owner s leased fee interest in the subject property is calculated in the next table. In Year 55, at the end of the lease, the reversion is based upon the future value of the land after escalating the current land value of $31,150,000 at a compounding rate of 3.00% annually and then taking a one-time deduction of 3.00% for selling costs in the reversionary year. As shown in the next table, when the cash flows and reversion are discounted at a rate of 7.25%, the resulting estimate of market value for the land owner s leased fee interest in the subject property is, rounded. 1-18

19 Income Approach Summary Base Rent DCF 1-19

20 Income Approach Summary Base Rent with Percentage Rent DCF 1-20

21 Income Approach Summary INVESTOR RATE OF RETURN SURVEY OAR Range2 Average IRR Range3 Average Marketing Time4 National Regional Mall Market 5.00% to 10.50% 7.58% 6.00% to 14.00% 9.81% 7.42 mo National Power Center Market 7.00% to 10.00% 8.08% 8.00% to 11.00% 9.05% 9.30 mo National Strip Shopping Center Market 5.50% to 9.50% 7.63% 6.50% to 12.00% 8.88% 8.22 mo Location/Property Type1 Retail shopping centers Non-institutional grade properties. Overall capitalization rate (OAR) range. Internal rate of return (IRR) range. Overall average marketing time. Source: Korpacz Real Estate Investor Survey 4th Quarter Compiled by: Hayward Appraisal Company, Inc. 1-21

22 Income Approach Summary Sales Comparison Approach Summary 1-22

23 Income Approach Summary SALES COMPARISON APPROACH The sales comparison approach provides an estimate of market value based on analyzing transactions of similar properties in the market area. The method is based on the proposition that an informed purchaser would pay no more for a property than the cost of acquiring an existing one with the same utility. When there are an adequate number of sales of truly similar properties with sufficient information for comparison, a range of values for the subject can be developed. Analysis of Comparable Sales: Comparable sales were analyzed on the basis of price per square foot. The unit of comparison selected is the result of interviews with buyers and sellers in the marketplace. Comparable Sales Summary summarizes the comparable sales within the parameters that were identified and used in the valuation analysis. Adjustments to increase comparability included terms of sale, market conditions, location, type of use, and physical and economic characteristics. The primary adjustment factors were location and physical and economic characteristics. The location adjustment takes into account differences in the comparables relative to their surrounding environs, exposure, corner, view, traffic access, surrounding land uses, proximity to major transportation routes, distance/time between employment centers and/or residential centers, economics, and demographics in the immediate area. The physical characteristics adjustment takes into account differences in the comparables relative to building and land sizes, building age and condition, quality of construction, and functionality. The economic characteristics adjustment takes into account differences in the comparables relative to their income-producing abilities, operating expense ratios, and occupancy levels. Conclusion of the Sale Comparison Approach to Value: The indicated estimated stabilized value range of the subject via the sale comparison approach (see Sales Comparison Value Indicators Summary -- The Subject) ranges from $30,700,000 to $34,000,000. The indicated price per square foot range is supported by the comparable sale properties and the overall average after considering the need for adjustments for the subject s location, physical characteristics, and economic characteristics. 1-23

24 Income Approach Summary COMPARABLE SALES SUMMARY Data No. Name/Location Sale Date Age Lot Size (Yrs.) (SF) Sale Price Overall Total Per SF Comparability1 Commercial Land Sales L1 L2 L3 L Santa Monica Blvd Los Angeles Glenoaks Blvd Pacoima 3570 Foothill Blvd Pasadena 451 N. San Fernando Rd. Bellflower 11/10 N/A 104,108 $59,000,000 $ /10 N/A 87,120 $5,000,000 $57.39 Sl. Superior 03/10 N/A 110,207 $3,850,000 $35.00 Inferior 4/10 N/A 116,741 $4,110,500 $35.26 Inferior Subject Property 681,189 Overall Averages:2 104,544 $17,990,125 $ Superior Data item s overall qualitative comparison to the subject. The use of averages is not directly applicable to the subject, but is presented as an overall observation from market data presented. Source: Comps InfoSystem, Inc., public records, and various secondary sources. Compiled by: Hayward Appraisal Company, Inc. 1-24

25 Income Approach Summary SALES COMPARISON VALUE INDICATORS -- THE SUBJECT Indicated Value per Sq. Ft. $45.00 $55.00 x x Subject Land Area Sq. Ft. 681, ,189 = = Total Value Indication1 (rd) $30,650,000 $37,465, Indicates value assuming stabilized occupancy. Source: Hayward Appraisal Company, Inc. 1-25

26 Cost Approach Summary Cost Approach Summary 1-26

27 Cost Approach Summary REPLACEMENT COST APPROACH The cost approach estimates the value of the vacant site and adds to it the depreciated cost of the improvements. The cost approach is based on the proposition that an informed purchaser would pay no more for the subject than the cost to acquire similar land and construct similar improvements. This method is particularly applicable when the property being appraised involves relatively new improvements, which represent the highest and best use of the land. It is also highly relevant when relatively unique or specialized improvements are located on the site and no comparable properties exist on the market. The cost approach is not applicable in this appraisal. Hayward Appraisal personnel has discussed pricing methodology with various developers, investors, and brokers active in the local market. Most respondents indicated that properties similar to the subject are most often analyzed via a direct capitalization analysis. Secondary consideration is given to an analysis of comparable sales. The cost approach is rarely used as a means to estimate market value for similar properties in the local market. Therefore, the cost approach has not been presented. It is generally recognized that current market value is less than the cost to acquire land and construct a similar property and new construction is not financially feasible in the local market. 1-27

28 Reconciliation Reconciliation 1-28

29 Reconciliation RECONCILIATION OF VALUE Hayward Appraisal Company, Inc., was instructed to estimate the market value of the subject. In analyzing the subject, the three traditional approaches to value were considered: the income, sales comparison, and cost approaches. The value indications reached for each approach are summarized in the following table: SUMMARY OF MARKET VALUE INDICATIONS Valuation Methodology Income Analysis Comparable Sales Replacement Cost $33,461,777 $30,650,000 to $37,465,000 Not applicable Source: Hayward Appraisal Company, Inc. The income approach is predicated on the principle of anticipated economic benefits and, therefore, best reflects the investment characteristics of the subject, however the subject is currently vacant land. The sales comparison approach is predicated on the principle that an investor would pay no more for an existing property than for a comparable property with similar utility. This approach is contingent on the reliability and comparability of available market data and reflects the actions of all market participants. The cost approach is predicated on the principle that an investor would pay no more for an existing property than it would cost to acquire land and construct a building with similar utility and fee simple property rights. The cost approach was eliminated from consideration as previously discussed. Based on the foregoing market data and analysis, it is concluded that the market value of the subject is: FINAL MARKET VALUE CONCLUSION Value Appraised Property Rights Date of Value Estimated Value1 Market Value As Is Fee Simple December 31, 2010 $34,000, This market value estimate is subject to the assumptions and limiting conditions stated throughout this summary report. Source: Hayward Appraisal Company, Inc. 1-29

30 The Subject Exhibits The Subject Exhibits 1-30

31 DATE OF VALUE: DECEMBER 31, 2010 The Subject Exhibits Area Map The accompanying report is an integral part of this exhibit. 1-31

32 DATE OF VALUE: DECEMBER 31, 2010 The Subject Exhibits Parcel Map The accompanying report is an integral part of this exhibit. 1-32