Appraisal Report. Central Place Public Parking Garage 88 E San Fernando Street San Jose, Santa Clara County, California 95113

Transcription

1 Appraisal Report Central Place Public Parking Garage 88 E San Fernando Street San Jose, Santa Clara County, California Report Date: July 2, 2015 FOR: City of San Jose Real Estate Services 200 E Santa Clara Street, 12 th Floor San Jose, CA Attn: Terry Medina Valbridge Property Advisors Hulberg and Associates, Inc Crow Canyon Place, Suite 245 San Ramon, CA phone Valbridge File Number: fax CA valbridge.com

2 3160 Crow Canyon Place, Suite 245 San Ramon, CA phone fax valbridge.com July 2, 2015 Guido M. Villanueva x 7201 gvillanueva@valbridge.com Terrence Medina City of San Jose Real Estate Services 200 E Santa Clara Street, 12 th Floor San Jose, CA RE: Appraisal Report Central Place Public Parking Garage 88 E San Fernando Street San Jose, Santa Clara County, California Dear Mr. Medina: In accordance with your request, we have prepared a real property appraisal of the above-referenced property, presented in a narrative appraisal report format. This appraisal report sets forth the pertinent data gathered, the techniques employed, and the reasoning leading to our value opinions. The subject property is a portion of a mixed-use development commonly known as The 88. The 88 development contains a total of approximately 197 residential condominium units, approximately 31,000 square feet of ground floor retail space, and a three-level subterranean parking garage. This 23 story property is situated on a 57,848 square foot, or acre, site. The subject portion of the overall property consists of the three-level subterranean parking garage. The subject property has been condominium mapped with the parking garage being identified by two parcels: Santa Clara County Assessor s Parcel Numbers and Commonly known as the Central Place Public Parking Garage, the subject parking garage is identified by its address of 88 East San Fernando Street, San Jose, Santa Clara County, California. The parking garage is three levels of parking plus a main entrance on the ground floor. The Central Place Public Parking Garage contains a total of 156,855 square feet as well as a total of 330 parking spaces, distributed across three levels, as depicted in the table below. VALBRIDGE PROPERTY ADVISORS Hulberg & Associates, Inc.

3 Mr. Terence Medina City of San Jose July 2, 2015 CENTRAL PLACE PUBLIC PARKING GARAGE, 88 E SAN FERNANDO, SAN JOSE, CA Total No. Floor % of Floor Level APN Parking Spaces Size (S.F.) bldg Area P , % P , % P , % Grand Totals , % According to a project site plan, and from our physical count of the striped parking, the parking garage consists of 339 garage units with levels P2 and P3 having 127 and 122 spaces, respectively. However, according to the client, the parking garage has 330 parking spaces as 9 spaces are reserved spaces, which are not allocated to the city. It is an assumption of this report that the parking count provided by the client is accurate, as we have utilized this count in this analysis. At the time of our inspection, this property was 100% leased to ABM Parking Services, a parking lot operator. The purpose of this appraisal is to estimate the market value of the subject property. The property rights appraised are those of the fee simple interest. The effective date of valuation for this assignment is June 1, 2015, which coincides with our most recent inspection of the property. The client of this appraisal is the City of San Jose. The intended users of the appraisal and report are the City of San Jose, or its successors and assigns. This appraisal and report are not intended for any other use or any other user. The intended use is of this report is for internal reporting and planning. The value opinions reported herein are subject to the definitions, assumptions and limiting conditions, and certification contained in this report. We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Interagency Appraisal and Evaluation Guidelines; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them. The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are contingent on the following extraordinary assumptions and/or hypothetical conditions: Extraordinary Assumptions: Several extraordinary assumptions will be utilized in this appraisal report. These extraordinary assumptions are as follows: 1. We were provided with site plans, drawings and dimensions for the subject property. However, some information, especially in regards to building sizes, was inconsistent. We assume that the submitted information regarding the subject, which we have incorporated in VALBRIDGE PROPERTY ADVISORS Hulberg & Associates, Inc.

4 Mr. Terence Medina City of San Jose July 2, 2015 our analysis, is accurate for the purposes of this appraisal. Should this be proven incorrect, we reserve the right to amend this appraisal report. 2. At the request of the client, the appraisers are to "assume that the property will be sold to a private party and that, as a result of such sale, the Property Use and Parking Agreement between Safeway and the former Redevelopment Agency of the City of San Jose dated September 3, 2009 will be terminated." We note that the aforementioned lease between Safeway and the former Redevelopment Agency of the City of San Jose, dated September 3, 2009, was still in place at the time of our inspection. Thus, it is an extraordinary assumption of this report is that this lease can be terminated upon sale to a private party. 3. According to a project site plan and from our physical count of the striped parking, the parking garage consists of 339 garage units with levels P2 and P3 having 127 and 122 spaces, respectively. However, according to the client, the parking garage has 330 parking spaces as 9 spaces are reserved spaces which are not allocated to the city. It is an assumption of this report that the parking count provided by the client is accurate. Should the actual parking count differ, there could be an impact on the subject's income and in turn, impact the overall value of the subject property. 4. While we were provided information regarding the number of monthly parking spaces versus the number of transient parking spaces and validations, we were not provided with the exact amount of each. As such, we have calculated the number of monthly and transient parking spaces, based on the income received for each of these types of parking spaces. As noted in our Income Approach analysis, based on our analysis, the subject property contains approximately 123 monthly parking spaces and approximately 207 transient parking spaces. It is an extraordinary assumption of this report that this breakdown of monthly versus transient parking spaces is correct. Should either the actual number of monthly or transient parking spaces differ from this estimate, this could have an impact on the subject's income which, in turn, impacts the overall value of the subject property. 5. A draft Basement Leak Assessment report for the Central Place Garage published by Allana Buick & Bers, Inc., dated January 15, 2009, indicates that the subject property s below-ground basement is exhibiting some active basement leaks. A copy of this report can be found in the Addenda. This report was solicited by the Agency and completed as a result of identified water intrusion prior to the completion/opening of the garage. A "Targeted Leak Injection" remediation was completed by the developer/contractor prior to the opening of the garage at a cost unknown to the Agency. It is anticipated that over time, additional targeted leak injection remediation would be necessary. However, the extent of any future water intrusion is unknown, and remediation costs and scope associated with potential future repair work is unknown at this time We will not consider any value adjustment for this deferred maintenance item. Should a cost estimate be determined, the concluded value may be subject to change. VALBRIDGE PROPERTY ADVISORS Hulberg & Associates, Inc.

5 Mr. Terence Medina City of San Jose July 2, As of the date of value, the subject property reportedly has a past due HOA fee amount of $100,000. Additionally, the Santa Clara County Tax Collector s Office indicated a total of $75, in delinquent taxes, is described in the Assessments and Tax Data section of this report. We will not consider any value adjustments for these unpaid amount. Should an impact to value from these delinquencies be determined, we reserve the right to amend the report as the concluded value may be subject to change. Hypothetical Conditions: None Based on the analysis contained in the following report, our value conclusions involving the subject property are summarized as follows: Value Value Value Interest Effective Indicated Type Premise Perspective Appraised Date Value Market Value As Is Current Fee Simple 6/1/2015 $13,000,000 This letter of transmittal is not considered valid if separated from this report, and must be accompanied by all sections of this report as outlined in the Table of Contents, in order for the value opinions set forth above to be valid. Respectfully submitted, Valbridge Property Advisors Hulberg and Associates, Inc. Guido Villanueva Senior Appraiser California License #AG License Expires gvillanueva@valbridge.com Stephen D. Kuhnhoff, MAI, ASA Managing Director California License #AG License Expires skuhnhoff@valbridge.com Eva Poon Trainee Appraiser # Expiration Date: epoon@valbridge.com Norman C. Hulberg, MAI Senior Managing Director California License #AG nhulberg@valbridge.com VALBRIDGE PROPERTY ADVISORS Hulberg & Associates, Inc.

6 TABLE OF CONTENTS Table of Contents Cover Page Letter of Transmittal Table of Contents... i Summary of Salient Facts... ii Aerial and Front Views... iv Introduction... 1 Regional and Market Area Analysis... 8 City and Neighborhood Analysis Site Description Improvements Description Assessment and Tax Data Market Analysis Highest and Best Use Appraisal Methodology Sales Comparison Approach Income Capitalization Approach Reconciliation Certification Glossary Subject Photographs Engagement Letter Basement Leak Assessment Historical Income and Expense Garage Occupancy Data Appraisers Qualifications/Licenses Information on Valbridge Property Advisors Office Locations VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page i

7 SUMMARY OF SALIENT FACTS Summary of Salient Facts Property Name: Address: Central Place Public Parking Garage 88 E San Fernando Street, San Jose, CA, Assessor s Parcel Numbers: & Property Rights Appraised: Zoning: Site Size: Existing Improvements Property Type and Sub-Type: Property Use: Gross Building Area: Rentable Area: Year Built: Number of Levels: Condition: Total Number of Parking Spaces: Monthly Spaces: Transient (Daily) Spaces: Flood Zone: Environmental Assumptions: Extraordinary Assumptions: Hypothetical Conditions: Highest and Best Use As Vacant: As Improved: Fee Simple DC Downtown Core 1.20 acres (52,285 square feet) Parking Structure within Mixed-Use Development Parking Garage 156,855 square feet 156,855 square feet Good Zone D, Community Panel Number 06085C-0234H, dated May 18, Mandatory flood insurance purchase requirements do not apply. None See extraordinary assumptions section. None. Parking Garage Development (that is part of a larger mixed-use project) Existing Improvements Date of Inspection: June 1, 2015 Date of Value: June 1, 2015 Date of Report Preparation: July 2, 2015 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page ii

8 SUMMARY OF SALIENT FACTS VALUE INDICATIONS & CONCLUDED VALUES Value Value Value Interest Effective Indicated Type Premise Perspective Appraised Date Value Market Value As Is Current Fee Simple 6/1/2015 $13,000,000 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page iii

9 AERIAL AND FRONT VIEWS Aerial and Front Views AERIAL VIEW/BIRD S EYE VIEW FRONT VIEW VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page iv

10 INTRODUCTION Introduction Identification of Client The client of this appraisal is the City of San Jose. The intended users of the appraisal and report are the City of San Jose, or its successors and assigns. This appraisal and report are not intended for any other use or any other user. Intended Use and User The intended use is of this report is for internal reporting and planning. The value opinions reported herein are subject to the definitions, assumptions and limiting conditions, and certification contained in this report. Real Estate Identification The subject property is a portion of a mixed-use development commonly known as The 88. The 88 development contains a total of approximately 197 residential condominium units, approximately 31,000 square feet of ground floor retail space, and a three-level subterranean parking garage. This 23 story property is situated on a 57,848 square foot, or acre, site. The subject portion of the overall property consists of the three-level subterranean parking garage. The subject property has been condominium mapped with the parking garage being identified by two parcels: Santa Clara County Assessor s Parcel Numbers and Commonly known as the Central Place Public Parking Garage, the subject parking garage is identified by its address of 88 East San Fernando Street, San Jose, Santa Clara County, California. The parking garage is three levels of parking plus a main entrance on the ground floor. The Central Place Public Parking Garage contains a total of 156,855 square feet as well as a total of 330 parking spaces, distributed across three levels. No personal property is included in this appraisal valuation. Legal Description We have relied on a copy of the Preliminary Title Report, published by First American Title Insurance Company and dated October 31, 2012, for a legal description of the property. This report is also identified as Order Number NCS SC. A copy of this Preliminary Title Report is available for review in the addenda. Real Property Rights Appraised We have appraised the fee simple interest in the subject property. Please see the addenda of this report for a definition of the property interest appraised. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 1

11 INTRODUCTION Type and Definition of Value We developed the following opinions of value for the subject property under the following scenarios: Valuation As Is As Stabilized Upon Completion Insurable Value Completed Yes No No No The purpose of this appraisal is to develop an opinion of the market value of the subject property. Market Value, as used in this appraisal, is defined as the most probable price that 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 are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Buyer and seller are typically motivated. Both parties are well informed or well advised, each acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale. Our appraisal of the property is based on cash-equivalent financial arrangements. The as is value in the subject property is based on the subject in its present condition under market conditions prevalent on the date of our inspection. Please refer to the Glossary in the Addenda section for further definitions of value type(s) employed in this report. Effective Dates of Value The effective dates of value are as follows: Valuation Effective Date As Is Date June 1, 2015 We inspected the subject property on June 1, VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 2

12 INTRODUCTION Date of Report The date of this report is July 2, 2015, which is the same as the letter of transmittal. Scope of Work The scope of work includes all steps taken in the development of the appraisal. These include 1) the extent to which the subject property is identified, 2) the extent to which the subject property is inspected, 3) the type and extent of data researched, 4) the type and extent of analysis applied, and the type of appraisal report prepared. These items are discussed as follows: Extent to Which the Property Was Identified Legal Characteristics The subject was legally identified by a parcel number, preliminary title report, plat map, address, and legal description. Economic Characteristics Economic characteristics of the subject property were identified by historical income and expense statements, as well as a comparison to properties with similar locational and physical characteristics. Physical Characteristics The subject was physically identified by our inspection of the property and documents submitted for our review. Extent to Which the Property Was Inspected We inspected the subject on June 1, We did not physically measure the buildings or site area. Unit, building and land sizes are based on documents submitted for our review. Type and Extent of Data Researched 1) The subject property was inspected and photographed most recently on June 1, At the time of inspection, we observed the existing improvements. 2) Regional, city, neighborhood and market data were compiled based on our neighborhood inspection, information from local governments, local market knowledge, and Valbridge Property Advisors Hulberg & Associates' appraisal database. A source list is available upon request. 3) Information on title, zoning, General Plan, flood hazard, and other pertinent governmental restrictions were obtained from appropriate sources. 4) In developing the approaches to value, the market data used was collected and verified. Sources included Valbridge Property Advisors Hulberg & Associates' data files, brokers and agents, property owners, and other knowledgeable market participants. Data is believed reliable but not guaranteed. 5) In forming an opinion of highest and best use, we considered the information obtained in Steps 1-4 above, with emphasis on market conditions and trends. 6) After assembling and analyzing the data outlined above, a final estimate of value was made. Personal Property/FF&E Unless otherwise stated in the report, all furniture, fixtures, and equipment (FF&E) or any other personal property has been excluded from our analysis. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 3

13 INTRODUCTION Type and Extent of Analysis Applied The subject site has improvements that contribute to an overall value that exceeds the land value. There is no proposed development or expansion involving the subject site. Thus, an intensive feasibility analysis is not warranted. We observed surrounding land use trends, the condition of the improvements, demand for the subject property, and relative legal limitations in concluding a highest and best use. With the problem defined and the data collected and analyzed, the property value is typically estimated by three traditional approaches to value: Cost Approach, Sales Comparison Approach, and Income Approach. The Cost Approach is not considered to be a necessary approach in the appraisal of older parking garages. However, the subject was built in 2008, giving it an effective age of approximately seven years. While not truly considered an older parking garage, the fact that the subject improvements are seven years old warrants that the results of the cost approach are still inadequate and cannot be relied upon. Additionally, buyers of parking garage structures rarely, if ever, estimate the value of potential purchases utilizing the depreciated cost method. Even for projects in the age range of the subject, this method is rarely relied upon. Buyers of similar properties typically consider only the Sales Comparison and Income Approaches. When the Cost Approach is used, it is typically used to ascertain the feasibility of a new project. Thus, the Cost Approach is not considered necessary in order to arrive at a credible opinion of value for the subject property. As such, only two of the three traditionally accepted approaches to value have been employed in this appraisal: the Sales Comparison Approach, and Income Approach. These approaches to value are reconciled to arrive at a final opinion of value. All the data and analysis used to value the property are clearly presented and discussed in the body of this report. We observed surrounding land use trends, the condition of the improvements, demand for the subject property, and relative legal limitations in concluding a highest and best use. We then valued the subject based on the highest and best use conclusion, relying on the Sales Comparison and Income approaches. Appraisal Report Type This is an Appraisal Report as defined by the Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2a. Please see the Scope of Work above for a description of the level of research completed. Appraisal Conformity We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Interagency Appraisal and Evaluation Guidelines; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them. Use of Real Estate as of the Effective Date of Value The subject property consists of the 330-space subterranean parking garage portion of The 88 mixed-use project. Known as the Central Place Parking Garage, the subject property is utilized as a public parking structure containing two types of parking: monthly parking and transient (or daily) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 4

14 INTRODUCTION parking. These two types of parking will be discussed in greater detail in the Income Approach Section. Use of Real Estate as of the Date of this Report Same as above. Ownership and Sales History A Preliminary Title Report was provided by the client for our review. Published by First American Title Insurance Company and dated October 31, 2014, this report indicates that title to the subject property s two parcels is vested in: CITY OF SAN JOSE REDV AGENCY/SETH BLAND Public records indicate that there have been no sales or owner transfers of the subject property within the past three years. According to public records, title in the subject property was last transferred on August 24, This change in ownership was recorded on August 27, 2009, and it was recorded in Document Number: No further information about this owner transfer is known. It is our understanding that the subject is not currently listed on the market for sale or under contract for sale. As of the effective date of this appraisal we are not aware of any offers to purchase the property. We have considered and analyzed the known history of the subject in the development of our opinions and conclusions. List of Items Requested but Not Provided We requested, but were not provided with any Environmental Report. Our value assumes that the subject property is not affected by any contamination or environmental site issues. Should this not be the case, we reserve the right to amend our appraisal. Assumptions and Conditions of the Appraisal If there are extraordinary assumptions and/or hypothetical conditions used in this report, the use of these extraordinary assumptions and hypothetical conditions might have an effect on the assignment results. The extraordinary assumptions and hypothetical conditions are as follows: Extraordinary Assumptions: Several extraordinary assumptions will be utilized in this appraisal report. These extraordinary assumptions are as follows: 1. We were provided with site plans, drawings and dimensions for the subject property. However, some information, especially in regards to building sizes, was inconsistent. We assume that the submitted information regarding the subject, which we have incorporated in our analysis, is accurate for the purposes of this appraisal. Should this be proven incorrect, we reserve the right to amend this appraisal report. 2. At the request of the client, the appraisers are to "assume that the property will be sold to a private party and that, as a result of such sale, the Property Use and Parking Agreement VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 5

15 INTRODUCTION between Safeway and the former Redevelopment Agency of the City of San Jose dated September 3, 2009 will be terminated." We note that the aforementioned lease between Safeway and the former Redevelopment Agency of the City of San Jose, dated September 3, 2009, was still in place at the time of our inspection. Thus, it is an extraordinary assumption of this report is that this lease can be terminated upon sale to a private party. 3. According to a project site plan and from our physical count of the striped parking, the parking garage consists of 339 garage units with levels P2 and P3 having 127 and 122 spaces, respectively. However, according to the client, the parking garage has 330 parking spaces as 9 spaces are reserved spaces which are not allocated to the city. It is an assumption of this report that the parking count provided by the client is accurate. Should the actual parking count differ, there could be an impact on the subject's income which, in turn, impacts the overall value of the subject property. 4. While we were provided information regarding the number of monthly parking spaces versus the number of transient parking spaces and validations, we were not provided with the exact amount of each. As such, we have calculated the number of monthly and transient parking spaces, based on the income received for each of these types of parking spaces. As noted in our Income Approach analysis, based on our analysis, the subject property contains approximately 123 monthly parking spaces and approximately 207 transient parking spaces. It is an extraordinary assumption of this report that this breakdown of monthly versus transient parking spaces is correct. Should either the actual number of monthly or transient parking spaces differ from this estimate, this could have an impact on the subject's income which, in turn, impacts the overall value of the subject property. 5. A draft Basement Leak Assessment report for the Central Place Garage published by Allana Buick & Bers, Inc., dated January 15, 2009, indicates that the subject property s below-ground basement is exhibiting some active basement leaks. A copy of this report can be found in the Addenda. This report was solicited by the Agency and completed as a result of identified water intrusion prior to the completion/opening of the garage. A "Targeted Leak Injection" remediation was completed by the developer/contractor prior to the opening of the garage at a cost unknown to the Agency. It is anticipated that over time, additional targeted leak injection remediation would be necessary. However, the extent of any future water intrusion is unknown, and remediation costs and scope associated with potential future repair work is unknown at this time We will not consider any value adjustment for this deferred maintenance item. Should a cost estimate be determined, the concluded value may be subject to change. 6. As of the date of value, the subject property reportedly has a past due HOA fee amount of $100,000. Additionally, the Santa Clara County Tax Collector s Office indicated a total of $75, in delinquent taxes, which is inclusive of all penalties, interest and fees, as described in the Assessments and Tax Data section of this report. We will not consider any value adjustments for these unpaid amounts, as our subject property is appraised free and clear of liens and unpaid amounts. Should an impact to value from these delinquencies be determined, we reserve the right to amend the report as the concluded value may be subject to change. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 6

16 INTRODUCTION Hypothetical Conditions: None. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 7

17 REGIONAL & MARKET AREA ANALYSIS Regional and Market Area Analysis REGIONAL MAP Overview The subject property is located in the San Francisco Bay Region, an area which is comprised of the nine counties bordering the San Francisco Bay. According to the State of California Department of Finance, the area has a combined population of approximately 7.5 million as of January 1, In addition, the Department of Finance characterizes the San Francisco Bay Area by a moderate climate, diversified economy and one of the highest standards of living in the United States. Population According to the California Department of Finance, Santa Clara County is the most populous of the nine counties comprising the San Francisco Bay Region, with 1,867,405 residents as of January 1, San Jose is the largest city in the county and the third largest in California, recently surpassing San Francisco. POPULATION Area % Change Projected 2020 California 37,253,956 38,371, % 39,802, % Santa Clara County 1,781,642 1,867, % 1,975, % Source: Site to do Business Online Annual % Change Transportation Excellent transportation routes and linkages to all major cities within the region and throughout the state are primary reasons for the advancement of business activity in the Bay Area, including Santa Clara County. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 8

18 REGIONAL & MARKET AREA ANALYSIS Air service in the area is provided by Norman Y. Mineta San Jose International Airport, which accommodated approximately 9.4 million passengers in San Francisco and Oakland airports are also within an hour s drive from most portions of the county. Since completion of an extensive renovation project earlier this decade, the airport is expected to be able to handle approximately 14.4 million passengers per year. The area has a well-developed freeway system although traffic congestion is unquestionably one of the negative aspects. The county s transportation network also includes a number of expressways, which provide streamlined access to most interior locations. Lawrence Expressway, San Tomas Expressway and Foothill Expressway run north-south, while Central Expressway and Montague Expressway run roughly east-west. Employment High-technology employment and a skilled workforce translate into relatively high-income levels, and Santa Clara County is one of the most affluent metropolitan regions in the nation. Silicon Valley s economy is stable, although its narrow range of driving industries has kept recent growth very slow. Significant employment sectors within Santa Clara County include manufacturing; professional, scientific, and technical services, health care; retail; and educational services. Some of the largest employers are associated with the computer industry such as Adobe, Apple, AMD, and Hewlett- Packard, hospitals such as the VA Medical Center, Kaiser Permanente, and the San Jose Medical Center, space and aerotech including NASA and Lockheed Martin, and educational facilities such as San Jose State University and Stanford University School of Medicine. California is one of the states experiencing a dramatic decline in its unemployment. At 6.5% for the month of March 2015, the California unemployment rate is higher than the U.S. unemployment rate of 5.5% in the same period. Despite this, California has been one of the bright spots in the U.S. employment picture. California's employment growth has been consistently in the Top 10 of states over the past four years, since the end of the recent recession. While the increase in California jobs has been widespread, the economy's strength lies in the state's technology and knowledge-laden sectors, which use technology and information more heavily, accounting for more than half the job growth in the state. For the State of California, Jerry Nickelsburg, Senior Economist, reported that the outlook for California is positive but essentially the same when forecasting for 2015 and Employment growth is expected to be 2.1% in 2015 while 2.2% is expected for Personal income growth, in the state is expected to be 4.5% for both years. Santa Clara County s economy, with its heavy concentration in the high technology and information industries, is leading the state in terms of employment. Within Santa Clara County the unemployment rate was 4.1% as of March 2015, down from 4.3% recorded in February Significant employment sectors within Santa Clara County include manufacturing; professional, scientific, and technical services, health care; retail; and educational services. Some of the largest employers are associated with the computer industry such as Adobe, Apple, AMD, and Hewlett- Packard, hospitals such as the VA Medical Center, Kaiser Permanente, and the San Jose Medical VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 9

19 REGIONAL & MARKET AREA ANALYSIS Center, space and aerotech including NASA and Lockheed Martin, and educational facilities such as San Jose State University and Stanford University School of Medicine. EMPLOYMENT BY SECTOR Category Percent Manufacturing 25% Professional Services 15% Retail Stores 12% Health Care 11% Public Admin and Education 9% Administrative and Support 9% Construction 6% Wholesale 6% Services 6% Source: Econovue Silicon Valley Snapshot Economic and Political Forces While the unemployment rate was affected by the most recent recession, it has recovered significantly in recent years, particularly in the Bay Area. Santa Clara County s rate as of March 2015 is less than the rates of the state and nation at only 4.1%, which is down from February As of March 2015 the state of California had a 6.5% unemployment rate, while the nation, as a whole, stood at 5.5%. The Silicon Valley area has one of the lowest unemployment rates in the nation. With the economy on a sustainable path to recover from the Great Recession, economists now begin to focus their efforts on the forecast for the future. According to the Fourth Quarter 2014, UCLA Anderson Forecast, the national economy is out of the doldrums with the economy expected to grow at a 3% pace as opposed to a 2% pace seen in recent years. The forecast has reported that lower oil prices, higher wages and aggressive corporate spending figures will fuel stronger growth in the coming years. For the State of California, Jerry Nickelsburg, Senior Economist, reported that the outlook for California is positive but essentially the same when forecasting for 2015 and Employment growth is expected to be 2.1% in 2015 while 2.2% is expected for Personal income growth, in the state is expected to be 4.5% for both years. There has been increased optimism in many sectors over the past two years, and that can be tied to job growth in California, especially along the coast, where jobs are being generated at a rate faster than the national average. The current expansion of employment is expected to continue into VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 10

20 REGIONAL & MARKET AREA ANALYSIS The health of the economy, and the real estate industry, is not only closely linked to the unemployment levels, but also to the ability to procure financing. During the recession and in the few years immediately after, the Federal Reserve (Fed) continued to hold the Federal Funds Rate at historically low levels. The rate then was between 0% and 0.25%, as it had been since December of The Fed said it will hold the Federal Funds Rate at its current level until national unemployment drops below 6.5% or inflation exceeds 2.5% a year, in order to support continued progress toward maximum employment and price stability. Notably, the Fed s previous forecast projected the jobless rate at 6.8% to 7.3% by the end of 2014, and 6.0% to 6.6% by the end of However, the Fed anticipates that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens, hence the long period in which interest rates will remain low, even after unemployment rates start falling back to more historically acceptable levels. All that said, a recent analysis by the Wall Street Journal looked at the issues the Fed will have raising the rate when the time comes. In the past, the Fed raised rates by selling bonds, thereby withdrawing reserves from the banking system. However, due to the Treasury and mortgage-buying programs the Fed created during the recent financial crisis, bank reserves in excess of what they re required to have swelled to more than $2.5 trillion. This means that setting a target for the federal funds rate and using the open-market operations to adjust reserves to meet that target, isn t tenantable. This apparently led to speculation that the Fed might target a different short-term rate. One possible rate was the interest the Fed pays on reserves banks keep at the Fed. Another potential option was use of the reserve-repurchase facility the Fed has been testing since last year, through which it lends bonds for cash. However, minutes from the Fed s June meeting, released July 9, show that for now policy makers believe the federal funds rate should continue to play a role. This may be because the Fed doesn t want to complicate the process, as well as the fact that the federal funds rate is deeply embedded in financial markets, with trillions of dollars in instruments tied to it. While the economic climate for real estate has begun to recover, new concerns must be addressed in order for the current growth to be sustainable. The unemployment rate has decreased and GDP growth is expected to continue over the next couple of years. However, a more detailed analysis of the current situation reveals that not all sectors of the commercial real estate market are experiencing the same benefits from the recovery. Median Household Income Santa Clara County also ranks high in terms of median household income, for major metropolitan areas. According to the American community Survey, the estimated median household income in Santa Clara County in 2015 was $95,787, compared to the estimated median household income of $60,382 for the State of California in the same time period. Total median household income for the region is presented in the following table. Overall, the subject county compares favorably to the state and the country. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 11

21 REGIONAL & MARKET AREA ANALYSIS Median Household Income Estimated Projected Annual % Change Area United States $53,217 $60, % California $60,382 $71, % Santa Clara County, CA $95,787 $105, % San Jose City, CA $86,753 $98, % Source: Site-to-Do-Business (STDB Online) High-technology employment and a skilled workforce translate into relatively high-income levels, and Santa Clara County is one of the most affluent metropolitan regions in the nation. Silicon Valley s economy is stable, and like most of the country, growing. Conclusion Santa Clara County is the largest county in the San Francisco Bay Area in terms of population and accounts for almost 28 percent of the region s total employment. Santa Clara County has a moderate climate, diversified economy and one of the highest standards of living in the United States. Excellent transportation routes and linkages to all major cities within the region and throughout the state are primary reasons for the advancement of business activity in the Bay Area, including Santa Clara County. The Bay Area and Santa Clara County are experiencing growth in their economies and declines in unemployment levels. Population levels are expected to continue to grow at a similar rate compared to the nation and median household incomes are expected to remain well above the state and national averages. Overall, Santa Clara County and the Bay Area will continue to be a desirable place to live and work. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 12

22 CITY AND NEIGHBORHOOD ANALYSIS City and Neighborhood Analysis NEIGHBORHOOD MAP City Overview The subject is located in the City of San Jose. The city s population as of January 1, 2015 was 1,016,479, which represents a 1.4% increase from January 1, San Jose is located in the heart of Silicon Valley, in the central portion of Santa Clara County. San Jose is bordered by the City of Santa Clara and the San Francisco Bay to the north, the City of Morgan Hill to the south, the Cities of Campbell, Saratoga and Cupertino to the west, and the city of Milpitas to the east. San Jose has excellent access to the local and regional transportation networks. Interstate 280 runs within the central region of the city in an east-west direction and provides access to the San Mateo peninsula and San Francisco to the northwest. Interstate 280 turns into Interstate 680, east of its intersection with Highway 101. Further east, it veers northeast toward the East Bay and Tri-Valley areas of Alameda County. San Jose s core urban submarket area is its Downtown Area. The San Jose downtown core has undergone major renovation and revitalization over the last 15 years. Improvements to the freeway system, as well as construction of the new light rail system, have significantly improved access to the downtown core from other areas of the city and county. Other major downtown public projects include the Children s Discovery Museum, the new San Jose Convention Center, as well as the SAP Center, home of the San Jose Sharks of the National Hockey League. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 13

23 CITY AND NEIGHBORHOOD ANALYSIS Today, San Jose s revitalized Downtown Core has evolved into a financial, office, cultural and entertainment center. Outside the Downtown Core Area, commercial development exists in the form of neighborhood and community commercial centers, strip commercial developments along arterial streets, and regional shopping centers. Transportation Routes San Jose has excellent access to local and regional transportation networks. Highway 280 runs within the central region of the city, in an east-west direction, and provides access to the San Mateo peninsula and San Francisco to the north. Highway 280 eventually turns into Highway 680, when it crosses east of Highway 101. The Bayshore Freeway, Highway 101, traverses the city in a generally east-west direction and also links the San Jose to the San Mateo Peninsula as well as to San Francisco in the north. The Stevens Creek Freeway, Highway 85, runs along the western boundary of the city and links the two major east-west routes. Highway 85 was recently extended from Highway 280 south to the southern portions of San Jose, Los Gatos, and Saratoga. This extension has dramatically improved access to these desirable residential areas with the northern employment centers in Mountain View. Similarly, Highway 237 runs in a northeasterly direction through Mountain View and links the westerly portions of the county with Milpitas and Southern Alameda County to the east. Highway 87 is a north-south connector that extends from Highway 85 in the south to Highway 101 in the north. It provides a direct link from the southern communities in San Jose to the employment centers in the northern part of the city. The Santa Clara Valley Transportation Authority (VTA) operates a light rail system consisting of 42 miles of track which has improved access to downtown. There are 62 light rail transit stations in operation on three lines. The light rail opened in 1987 and has gradually expanded since that time. The light rail runs from south San Jose to Mountain View with extensions serving Campbell (Vasona Corridor) and Alum Rock/Eastridge. The hub is a circular loop in downtown San Jose known as the Transit Mall. Completion of the southerly portion of Highway 87 and the light rail system improved access to the downtown area. One of the major drawbacks of locating downtown has, in the past, been the difficulty of access and problems with parking. With freeways becoming increasingly clogged, the light rail is expected to be for some an attractive alternative to commuting. An additional benefit of the Transit Mall is that improvements include sidewalk treatments and landscaping, which improve the appearance of the immediate neighborhood. Major travel and commuter routes within the area of the subject include State Route 87, Interstate 280, Interstate 680, Highway 101 and Interstate 880, as well as the primary arterials in the downtown core area. Within the immediate area of the subject transportation access helps define the character of its development. Access to the area is considered good. Valley Transportation Authority (VTA) provides bus and light rail service while CalTrain offers commuter trains daily from three San Jose stations. The Altamont Commuter Express also provides daily commuter service from Stockton to San Jose. The Capitol Corridor Service is a passenger train service connecting San Jose to Oakland, Sacramento, and Auburn. Norman Y. Mineta San Jose International Airport is situated in the city s central section while San Francisco International Airport is 36 miles northwest. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 14

24 CITY AND NEIGHBORHOOD ANALYSIS Demographics The following table depicts the area demographics in San Jose within a 1, 3, and 5 mile radius from the subject. NEIGHBORHOOD DEMOGRAPHICS Mile Radius Population 34,827 36,578 38,786 Households 9,565 10,048 10,675 Owner Occupied Housing Units 3,712 3,707 3,873 Renter Occupied Housing Units 5,863 6,368 6,806 Median Household Income N/A $51,248 $59,869 Per Capita Income N/A $18,740 $21,287 3-Mile Radius Population 275, , ,527 Households 76,892 81,392 86,807 Owner Occupied Housing Units 38,556 38,919 41,204 Renter Occupied Housing Units 38,394 42,433 45,599 Median Household Income N/A $67,999 $79,199 Per Capita Income N/A $24,283 $27,623 5-Mile Radius Population 520, , ,311 Households 152, , ,655 Owner Occupied Housing Units 81,513 81,513 86,071 Renter Occupied Housing Units 79,492 79,492 85,532 Median Household Income N/A $75,467 $85,086 Per Capita Income N/A $27,723 $31,547 Source: Site to Do Business San Jose residents have a high level of educational attainment. According to the U.S. Census Bureau s 2013 American Community Survey (most recent), 11.4% of the population has obtained a Bachelor's degree. Of those 25 years of age or older, 14.1% have obtained a graduate or professional degree. The majority of the population, 43%, is employed in management, business, science, and arts occupations. According to the U.S. Census Bureau s 2013 American Community Survey, 21.2% of residents are employed in sales and office occupations while 13.1% work in services. San Jose is home to numerous recreational and cultural opportunities. Parks within the city include Almaden Lake, Alum Rock, Guadalupe River, and Kelly according to the City of San Jose. The city also offers a number of community centers, libraries, gardens, and a zoo. Its numerous arts and cultural venues include Children s Discovery Museum, City Lights Theatre, Tech Museum of Innovation, San VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 15

25 CITY AND NEIGHBORHOOD ANALYSIS Jose Museum of Art, Rosicrucian Egyptian Museum, and Montgomery Theatre to name a few. Annual events include Christmas in the Park, Veteran s Day Parade, and the Cinco de Mayo Festival. Named for the principal material used in semiconductors, Silicon Valley was formed out of a vast concentration of technology-based businesses. These new companies replaced the once dominant agriculture-related industries. Today, San Jose is home to some of the world s largest and wellknown high-technology companies including Cisco Systems, IBM, ebay, Hitachi, and Adobe Systems. The table on the following page, which was obtained from the San Jose Economic Development Department, shows major private/public and high technology employers as of 2013 (most recent). The city is viewed as a positive place to do business and San Jose is expected to add a significant number of jobs (139,370) between 2015 and 2025 according to the Association of Bay Area Governments (ABAG). The health, educational and recreational service industries are expected to add 40,340 jobs representing the largest increase while the manufacturing, wholesale and transportation industries will provide 31,420 new jobs. San Jose s unemployment rate continues to decrease due to the improving economy. As of April 2015, the city s unemployment rate was 4.3% which is somewhat higher than the county at 3.8%. According to the U.S. Census Bureau, the average household income is $91,100, which is anticipated to increase to $95,500 by 2020, $99,800 by 2025, $104,800 by 2030, and $110,000 by Household income is expected to increase steadily. Projected Mean Household Income City of San Jose $ 91,100 $ 95,500 $ 99,800 $104,800 $110,000 Santa Clara County $108,700 $114,600 $120,900 $127,600 $134,600 Bay Area $102,000 $107,600 $113,600 $119,800 $126,400 Source: Association of Bay Area Governments (ABAG) Projections 2009 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 16

26 CITY AND NEIGHBORHOOD ANALYSIS Local Economy According to the State of California, Employment Development Department, the unemployment rate in San Jose was 4.4 percent in May 2015, up slightly from the 4.3 percent reported in April Additionally, the current unemployment rate is significantly below the year-ago estimate of 5.6 percent and represents an overall downward trend. This compares with an unemployment rate of 6.2 percent for California and 5.5 percent for the nation during the same period. San Jose ranks as the highest out of the nine Bay Area counties in terms of household income. According to the Census Bureau, the median household income in San Jose in 2013 (most recent) was $81,829, which compares favorably to the median household income of California, which was $61,094 for the same time period. Neighborhood Land Use The subject neighborhood is located in an area with a mix of office, retail, residential and commercial land uses. An approximate breakdown of the development in the area is as follows: Use LAND USES Percent Built up: 90.0% Residential: 20.0% Retail: 30.0% Office: 30.0% Industrial: 0.0% Civic/Public: 10.0% Vacant/Redevelop: 10.0% Neighborhood Location and Boundaries The subject is located within the eastern peripheral of San Jose s Downtown Core. It is situated along the southern side of San Fernando Street, between S Second and S Third Streets, as depicted in the diagram below. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 17

27 CITY AND NEIGHBORHOOD ANALYSIS San Fernando Street, known west of North First Street as West San Fernando Street and east of North First Street as East San Fernando Street, is considered a primary east-west arterial through Downtown San Jose. Uses along San Fernando Street are primarily mixed in nature, with retailcommercial land uses on the ground floor and office, hotel or residential land uses above. Notable land uses and attractions situated along San Fernando Street include San Jose State University and the San Jose Museum of Art. We also note that the subject property is two city blocks away from San Jose City Hall, adjacent to the Hammer Theatre Center, one block away from San Jose State University, and four blocks away from the San Jose Convention Center, all of which are major parking demand generators in the immediate area. Additionally, the subject property benefits from good vehicular access. It is not only situated along a major arterial, but it is also less than a half mile east of State Route 87 as well as less than a half mile north of Interstate 280. The Valley Transit Authority (VTA) operates a bus line that runs through the immediate area, with a stop at the intersection of E San Fernando and S 3rd Streets. Thus, the subject has good access to local and regional transportation networks. The subject s immediate neighborhood boundaries are approximated by Santa Clara Street to the north, San Carlos Street to the south, 4th Street to the east and Almaden Boulevard to the west. Major neighborhood arterials include Santa Clara Street, Saint James Street, Julian Street, and San Fernando Street in the east-west directions, and First Street, Fourth Street, Seventh Street, Tenth Street, and Market Street in the north-south directions. Immediate Environs As previously mentioned, the subject is located within San Jose s Downtown Core. The immediate neighborhood generally consists of a mixture of residential, community and commercial land uses, as typical of downtown core areas. Also as previously discussed many of the immediate land uses represent major attractions as well as other intensive and parking-demanding commercial land uses. As previously mentioned, the subject property is situated on the south side of San Fernando Street, between S Second and S Third Streets. Please refer to the map on the following page. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 18

28 CITY AND NEIGHBORHOOD ANALYSIS To the north of the subject property and across San Fernando Street are several one- to four-story mixed use buildings containing residential or office land uses over ground floor retail. Retailers in this area include several restaurants. Unlike the subject property, the two-story buildings on this block of San Fernando Street are older. The exception to this is the four-story building situated on the corner and containing the Fahrenheit Lounge, which was built in Further north, the mixed land uses continue with a mix of residential and office land uses over ground floor retail. The office of the San Jose Mercury News, the Trinity Cathedral and Saint James Park are all situated in this area, north of the subject property. As previously mentioned, San Jose s City Hall is situated approximately one city block northeast of the subject property. East of the subject, and across S Third Street, is a five-story, mixed-use building containing four stories of residences over ground floor commercial. This condominium building is adjacent to VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 19

29 CITY AND NEIGHBORHOOD ANALYSIS another five-story residential condominium building, with both of these properties, like the subject, represent newer and more intensive land uses than the older properties in the immediate area. Further east and across S Fourth Street is San Jose State University. San Jose State University is a comprehensive public university that was the founding school in the California State University System and is the oldest public institution of higher education on the West Coast of the United States, having been established in San Jose State University s campus consists of several buildings, including the Dr. Martin Luther King Jr Library, which is situated in the northwestern corner of the university, most proximate to the subject property. Adjacent to the south of the subject property is a surface parking lot utilized by the San Jose Repertory Theatre, otherwise known as the Hammer Theatre. This theatre is a live-performance entertainment venue in San Jose s Downtown. Further south is an office building followed by a fourstory parking structure with ground floor retail land uses. Retail situated in this area include the Camera 3 movie theater, TechShop San Jose (a retailer) and FedEx Office (printing shop). The mix of retail, office and parking land uses continues further south. West of the subject property and across South Second Street is a surface parking lot and the Pavilion Parking Garage, which will be discussed in greater detail in the Income Section of this report. The Pavilion Parking Garage is part of a mixed-use property that includes ground floor retail and subterranean parking land uses. Further west is the aforementioned San Jose Museum of Art, as well as the Plaza de Cesar Chavez Park. Several hotels, including the Fairmont, Four Points Sheraton and Hilton are all situated southwest of the subject property, proximate to the San Jose Convention Center, which is situated approximately 3,000 feet southwest of the subject property. Despite the parking lot and garage competition in the immediate downtown area, the subject is well situated for its parking garage use. Between the offices and retailers of the immediate area and the local attractions, such as the San Jose Convention Center, we expect parking demand to be strong in Downtown San Jose. Conclusions Overall, the property is located in an area in transition on the eastern peripheral of downtown San Jose. Downtown San Jose is not only known for its variety of commercial and retail land uses, but is also a major employment and demand generator. Offices in downtown serve as local employment generators while attractions such as the San Jose Convention Center attract visitors. The subject benefits from its good access to local and regional transportation. It is proximate to many major freeways, including State Route 87 and Highway 101 as well as Interstates 280, 680 and 880. Its current use as a parking garage benefits from its proximity to both centers of employment as well as major attractions. We believe the long-term outlook for the subject property continues to be good. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 20

30 SITE DESCRIPTION Site Description The following description is based on our inspection, assessor records, and information provided by the client, owner, property manager, and/or broker. As previously noted, the subject property is the public parking garage portion of the overall The 88 mixed-use development. The entire The 88 mixed-use complex has been condominium mapped, with each condominium unit having a separate parcel number. For the subject s three-level public parking garage, the corresponding Assessor s Parcel Numbers (APNs) are A-001 and A- 002, as depicted in the map below. PLAT MAP General Data Street Address: 88 E San Fernando Street, San Jose, CA, Assessor Parcel Number: & Adjacent Land Uses North: South: West: East: Mixed use buildings with residential/office over retail San Jose Repertory Theater and a mix of retail and office uses Pavilion Parking Garage, mixed-use properties and attractions Mixed-use and residential properties; San Jose State University Physical Characteristics Site Area: 52,285 square feet Shape: Rectangular VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 21

31 SITE DESCRIPTION Topography: Parcel Type: Parcel Location: Access Street Name: Street Type: Frontage: Curb Cuts: Alley Access: At Signalized Intersection: Freeway: Overall Visibility: Site Improvements Off-Site Improvements: Utilities: Generally level but below street grade Double corner lot Double corner East San Fernando, South Second and South Third Streets Primary Arterial and Secondary Streets Approximately 209 feet along South Second Street Approximately 256 feet along East San Fernando Approximately 189 feet along South Third Street One large curb cut that can accommodate one vehicle entering and one vehicle exiting simultaneously off of S Second Street None Yes, the subject occupies the corners of South Second and East San Fernando Streets, as well as South Third and East San Fernando Streets Access to/from State Route 87 - less than 0.5 mile west Access to/from Interstate 280 less than 0.5 mile south Good. The subject has a double corner location with visibility from East San Fernando, South Second and South Third Streets. East San Fernando, South Second and South Third Streets are fully improved asphalt-paved roadways with concrete curbs, gutters, sidewalks, and streetlights. East San Fernando Street is a primary arterial containing two lanes of traffic each in the east and west directions. South Second Street is a bi-directional street with one lane traveling in each direction. South Third Street is bi-directional with one lane traveling in each direction. All utilities including electricity, sewer, gas, water and telephone services are available to the site. On-Site Improvements: The site is improved with a mixed-use project known as The 88. We note that the subject of this appraisal is the public parking garage portion of The 88. Known as the Central Place Parking Garage, this property contains three subterranean levels of parking, for a total of 330 parking spaces. Please refer to the Description of Improvements section for a description of the proposed improvements. Traffic Circulation: Traffic circulation within the project is considered adequate. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 22

32 SITE DESCRIPTION Landscaping: Nominal Flood Zone Data Flood Map Panel/Number: 06085C H Flood Map Date: May 18, 2009 Flood Zone: Zone D, are areas of undetermined, but possible, annual chance flood plain. Other Site Conditions Soils: Environmental Issues: Easements/Encroachments: Earthquake Zone: Site Ratings Access: Location: Exposure: Site Improvements: Overall Site: We were not provided any soils, geotechnical, or environmental reports. Appraisers are not experts with regard to soils, geotechnical, or environmental issues. For purposes of this appraisal, we assume that a current report would reveal no soils, geotechnical, or environmental conditions that would impact the value and marketability of the property. We make no warranties or representations as to soil toxicity matters. A Phase I Environmental Site Assessment was not provided to the appraisers for review. As real estate appraisers, we are not qualified to determine if the soil or ground water is contaminated or if there are onsite or offsite sources of contamination. However, a physical inspection indicated no signs of detrimental site contamination. For the purpose of this appraisal, it is assumed the site is environmentally clean. We were been provided with a Preliminary Title Report for the subject published by First American Title Company and dated October 31, This report did not identify any unusual easements or encumbrances. A copy of this report is provided in the addenda. This appraisal assumes that there are no easements, restrictions, liens, defects, and/or encumbrances that may affect the marketability and/or value of the property. Should any exist and be presented to us, we reserve the right to amend our appraisal report. The subject property is not located within Alquist-Priolo Special Study Zone for active earthquake faults. Nevertheless, earthquakes are common in the area and there are a number of faults located within one hundred miles of the subject property. Average Above Average (downtown location) Above Average (visibility from three streets) Good Average VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 23

33 SITE DESCRIPTION Zoning Designation Zoning Jurisdiction: Zoning Code/Category: General Plan Designation: Permitted Uses: Zoning Comments: City of San Jose DC, Downtown Core DT - Downtown Medium density residential uses are allowed. The subject property is zoned DC, Downtown Core. Additionally, the subject property has a General Plan Land Use designation of DT - Downtown, which is compatible with the subject s zoning designation of DC. The DC, Downtown Core, zoning designation applies to the downtown area bounded by Julian Street, North Fourth Street, East St. John Street, 7 th Street, East San Fernando Street, South 4 th Street, Interstate 280, the Union Pacific Railroad line, Stockton Avenue, Taylor Street and Coleman Avenue, which is sometimes referred to as the downtown zoning area. Permitted uses in this area include automatic teller machines, business support uses, financial institutions, financial services, office, business and administrative uses, research and development, retail sales, goods and merchandise, seasonal sales, day care centers, post-secondary schools, trade and vocational schools, personal enrichment instructional art, movie theater, recreation commercial/indoor, private club or lodge, banquet facilities, caterers, drinking establishments, public eating establishments, bed and breakfast inns, hotel/motel, personal services, church/religious assembly, museums, libraries, parks, playgrounds or community centers, residential multiple dwellings and off-street parking establishments. According to the zoning and General Plan Land Use designations, the subject property appears to represent a legal and conforming land use. Analysis/Comments on Site The subject site consists of two condominium interest parcels, situated in the area bounded by South Second, East San Fernando and South Third Streets. The site area allocated to the subject's public parking garage condominium units is estimated to be approximately 52,285 square feet, or approximately 1.20 acres. (This is calculated as 189 feet along S Third Street multiplied by 256 feet along East San Fernando Street.) The site is level at street grade but below grade. However, all utilities are available to the subject site. The subject has a double corner location with good visibility and adequate access. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 24

34 SITE DESCRIPTION The property is zoned DC which allows for a wide variety of downtown commercial land uses. We are unaware of and assume that the property does not have any on-site contamination, clouds on title; or any other factor that would affect the utility, marketability and/or value of the subject property. Overall, the site is well suited for its current parking garage use. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 25

35 IMPROVEMENT DESCRIPTION Improvements Description The following description is based on our inspection, assessor records, and information provided by the client and owner. The subject property is part of the overall 23-story mixed-use development known as The 88. The 88 contains a total of approximately 197 residential condominium units, approximately 31,000 rentable square feet of ground floor retail space and three levels of subterranean parking on an approximately gross acre site. The subject property is a public parking garage known as the Central Place Public Parking Garage. Because the subject property only consists of the three-level subterranean parking garage, the following description of improvements will similarly only refer to this subject portion of the overall project. We note that according to a project site plan (presented on the following pages) and from our physical count of the striped parking, the parking garage consists of 339 garage units with levels P2 and P3 having 127 and 122 spaces, respectively. However, according to the client, the parking garage has 330 parking spaces as 9 spaces are reserved spaces which are not allocated to the city. It is an assumption of this report that the parking count provided by the client is accurate. Should the actual parking count differ, there could be an impact on the subject s income and in turn, impact the overall value of the subject property. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 26

36 IMPROVEMENT DESCRIPTION VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 27

37 IMPROVEMENT DESCRIPTION VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 28

38 IMPROVEMENT DESCRIPTION VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 29

39 IMPROVEMENT DESCRIPTION General Data Property Type: Parking Structure in Mixed-Use Development Property Subtype: Subterranean Parking Garage Number of Levels: 3 Total Number of Parking Spaces: 330 Number of Monthly Pkg Spaces: 123 (estimated) Number of Transient Pkg Spaces: 207 (estimated) Building Areas Gross Building Area (GBA): Rentable Area (NRA): Floor Area Ratio (FAR): 156,855 square feet of gross building area (GBA) 156,855 square feet of net rentable area (NRA) The building has a floor area ratio (FAR) of 300% of the entire site area. Age / Life Year Built: 2008 Actual Age: 7 years Effective Age: 5 years Typical Building Life: years Remaining Economic Life: 55 years Exterior Construction Class: Foundation: Frame/Walls: Roof Structure: Exterior Wall Finish: Windows: Exterior Lighting: Landscaping: Interior Floors: Walls: Ceiling Finish: Light Fixtures: Furniture, Fixtures & Equipment: Subject Layout: B - Concrete Frame per Marshall Valuation Service Concrete slab Steel frame The roof structure for the building is flat in design and composed of built up tar and paper. We did not make a detailed inspection of the mechanical systems or roof. Concrete None One wall-mounted incandescent bulb lights the interior of the entrance and exit of the Central Place Parking Garage Minimal Finished concrete Painted concrete Concrete exposed ceilings A mix of ceiling-mounted halogen and fluorescent lighting None (see below) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 30

40 IMPROVEMENT DESCRIPTION CENTRAL PLACE PUBLIC PARKING GARAGE, 88 E SAN FERNANDO, SAN JOSE, CA Total No. Floor % of Floor Level APN Parking Spaces Size (S.F.) bldg Area P , % P , % P , % Grand Totals , % Mechanical Systems Electrical: Plumbing: HVAC: Stairwells: Fire Protection: Legal, Conforming Status Legally Permitted Use: Conforms to Parking: Conformity Conclusion: Improvement Ratings Quality: Condition: Functional Utility: Deferred Maintenance: Overall Rating: Assumed adequate Reportedly adequate None Interior stairs with metal railing and steps The building is not fire sprinkler protected, but there are ample smoke alarms throughout the building. Yes Yes The subject property represents a legal conforming land use. Average to Good Average to Good Average A draft Basement Leak Assessment report for the Central Place Garage published by Allana Buick & Bers, Inc., dated January 15, 2009, indicates that the subject property s below-ground basement is exhibiting some active basement leaks. Although the cost to remediate this deferred maintenance is not clear, the owner is advised to review this report, which can be found in the Addenda. We will not consider any value adjustment for this deferred maintenance item. Should a cost estimate be determined, the concluded value may be subject to change. Average to Good Homeowner Association Fee According to the client, under the terms of The 88 Common Area Budget, the subject owner is required to pay a share of the HOA fee. The current annualized HOA fee is reported to be $20,737 monthly or an annual amount of $248,844. This represents an approximate 2.2% increase over the VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 31

41 IMPROVEMENT DESCRIPTION 2014 annual HOA costs. It is anticipated that the HOA fees will increase over time in proportion to the increase in common area maintenance and management activities. We will utilize the reported monthly fee of $20,737 in our Income analysis. Operations According to the client, the parking garage is managed by ABM under a standard parking management contract with The Successor Agency where gross revenues are received/banked by the operator and all direct operating expenses are deducted from the gross income. Net revenues, if any, are paid to the Successor Agency. Analysis/Comments on Improvements The subject is a public parking garage building with a gross and net rentable building area of 156,855 square feet. The layout and design of the building is considered to be adequate and functional, consistent with market standards for similar age projects. The building and net interiors are of overall average to good construction quality. The subject property originally built in 2008 and, as such exhibits an overall average to good condition. However, a draft Basement Leak Assessment report published by Allana Buick & Bers, Inc. on January 15, 2009 indicated that the subject property was exhibiting some active basement leaks. However, the like-new condition of the subject property offsets this deferred maintenance somewhat. Thus, the subject's improvements were in average to good condition as of the date of inspection. Aside from the previously mentioned deferred maintenance, no renovation or additional maintenance costs other than typical on-going maintenance was noted or planned for the property. We will not consider any value adjustment for this deferred maintenance item. Should a cost estimate be determined, the concluded value may be subject to change. Chronologically, as of the date of value, the building is 7 years old. The economic life of a typical mixed-use or parking garage is reported to be 50 to 90 years and we have estimated a total economic life of 60 years. In the subject's current condition, the effective age is estimated at 5 years, with a remaining economic life of about 55 years. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 32

42 ASSESSMENT AND TAX DATA Assessment and Tax Data Assessment Methodology The State of California has provided for a unified system to assess real estate for property taxes. Assessment Districts are established on a county basis to assess real estate within the county. The appraised property falls under the taxing jurisdiction of Santa Clara County and is subject to both general taxes and direct assessments. However, the subject property is owned by a public entity. As such, limited assessed values and annual tax amounts apply to the subject. Should the subject property be sold, however, from a public entity to a private entity, a tax bill may be triggered as a result of such a sale. Assessed Values and Property Taxes The subject s assessed values, applicable tax rates and total taxes including direct assessments are shown in the following table: 2014/2015 Taxes and Assessments Total Assessed Value: Land: $0 $0 $0 Improvements: $0 $0 $0 Personal property $0 $0 $0 Total Assessed Value: $0 $0 $0 MOSQUITO ASMT #2 $0.00 $0.00 $0.00 S.J. LIBRARY ASSMT. $0.00 $0.00 $0.00 SCCO VECTOR CONTRO $0.00 $0.00 $0.00 SCCOSA ASMT DIST 1 $0.00 $0.00 $0.00 SCVWD FLOOD CONTR $0.00 $0.00 $0.00 SCVWD Safe, Clean Water $0.00 $0.00 $0.00 SJ DOWNTOWN PBID $0.00 $0.00 $0.00 Direct Assessments: $0.00 $0.00 $0.00 Annual Tax: $0.00 $0.00 $0.00 Total Taxes Due: $0.00 $0.00 $0.00 Delinquencies $0.00 $75, $75, Total Taxes Dues $0.00 $75, $75, Tax Area Code: Tax Rate: % % % General Taxes The amount of General Taxes due is quantified by multiplying the assessed value by the tax rate. In the State of California, real estate is assessed at 100% of market value as determined by the County VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 33

43 ASSESSMENT AND TAX DATA Assessor s Office. The tax rate consists of a base rate of 1% plus any bonds or fees approved by the voters. The County Tax Rate for the subject property is %. Direct Assessments Direct assessments are tax levies that are not dependent upon the assessed value of the property. They are levied regardless of assessment. According to the Santa Clara County Tax Collector s Office, there are no direct assessments for the subject property due to the fact that it is currently owned by a public entity. Current and Future Taxes Proposition 13 was passed by voters in June 1978 and substantially changed the taxation of real estate in California. This constitutional amendment rolled back the base year for assessment purposes to the tax year Annual increases in assessed value are limited to 2 percent per year, regardless of the rate of inflation. Real estate is subject to re-appraisal to current market value upon a change in ownership or new construction. Property assessments in years subsequent to a change of ownership or new construction are referred to as factored base values. Proposition 8, which passed in 1979, states that the Assessor shall lower tax roll values to fair market value whenever the assessed value exceeds fair market value. It mandates that the lower of fair market value or factored base value be placed on the assessment roll. When fair market values are enrolled, the Assessor reassesses the property annually until such time as fair market value again equals or exceeds the factored base year value. For properties that have been owned for several years, the assessed value may not reflect the current fair market value. Furthermore, due to adjustments following a Prop 8 reduction, increases in assessed value can increase substantially more than 2% per year until the assessment again matches the factored base year value. Delinquent Taxes and Fees According to the Santa Clara County Tax Assessor s Office, the subject property taxes on the parcel is current as of the date of value. However, according to Mr. Tom Catalano with the Santa Clara County Tax Collector s Office noted that the subject property s APN parcel has delinquent real estate taxes from the tax year. Mr. Catalano reported a delinquent total amount of $75,650.15, which is inclusive of all penalties, interest and fees. This amount is in redemption, which indicates that monthly interest and other fees will continue to accrue until the amount is cancelled or paid off. However, according to Linda Kenney with the Santa Clara Tax Collector s Office, a notice of cancellation, to cancel the tax bill, was received and is still in process. We are uncertain as to what impact to value these delinquencies may have at this point in time given that the subject property is indeed owned by the City of San Jose Redevelopment Agency and the Tax Collector has indicated that it is most likely that the notice of cancellation will be approved shortly. For our analysis, we will not consider these delinquencies. Please refer to the extraordinary assumptions regarding any delinquent taxes and fees. Conclusions As previously mentioned, the Santa Clara County Tax Assessors Office indicates that taxes on the subject s property parcel is current as of the date of value. However, there are some delinquent taxes on the subject property s from the tax year. Please see the previous above for the delinquent taxes and other unpaid amounts, as well as instructions on how to make the taxes on the -002 parcel current. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 34

44 MARKET ANALYSIS Market Analysis MARKET AREA MAP Overview The subject is located in the San Jose s Downtown Core, bordered by Saint James Street to the north, State Route 87 to the west, Eighth Street to the east and Reed Street to the south. As identified in the Description of Improvements section, the subject consists of a three-level multi-tenant subterranean parking garage. In analyzing the market we will provide an overview of the parking garage market. However, we note that market reports regarding parking garages or lots are very limited. Even when available, these reports are typically older and/or on a national basis. Thus, we will provide some parking garage and lot information from a national level, as well as provide a discussion of the parking market in the subject s immediate neighborhood. Excerpts from an article published in Parking Today magazine, the City of San Jose s Department of Transportation reports and an article published in Pando Daily entitled The future of the $100 billion parking industry, are cited below. Types of Parking According to the article entitled The future of the $100 billion parking industry, the parking industry is separated into two types: on-street parking and off-street parking. On-street parking refers to all parking that occurs on the street, typically in parking metered or otherwise designated street parking spaces. This type of parking represents about one-third of all parking-related revenue in the United States and is typically controlled by cities and municipalities. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 35

45 MARKET ANALYSIS Off-street parking refers to all private and non-street parking. This type of parking is typically found in garages and surface lots, which may represent fee parking or free parking. Off-street parking represents about two-thirds of all parking-related revenue in the United States. This type of parking is largely owned by private enterprises. The subject property represents off-street parking, despite the fact that it is owned by a public entity. Off-street parking is a multi-layered ecosystem with many different players. In the United States, there are more than 40,000 garages and surface parking lots. Owners of these facilities rarely manage them, instead relying on parking operators and equipment providers (that provide access and revenue control solutions) to maximize parking revenue. The result is a web of gatekeepers that control the parking supply regionally. Further, the parking market is divided into three types, depending on the length of parking stay: hourly parking, daily parking and monthly parking. As the name implies, hourly parking is parking where the parking rate is determined by the number of hours parked; daily parking is parking where the parking rate is charged on a daily basis; and monthly parking which allows the motorist to pay a flat fee for one month of parking, with in- and out-privileges during that time period. Historically, daily and monthly off-street parking have made up nearly half of all parking revenue in the United States. National Parking Market Overview According to an article published in Parking Today magazine, the National Parking Association (NPA) recently published five major studies on parking rates, market size, technology and purchasing trends. We will discuss two of these reports, which are the most pertinent to appraisal of the subject property. These related studies also provided an economic forecast for parking, which will also be discussed. The NPA s Parking Demand Research Report reports that the parking industry is expected to grow from $18 billion in 2013 to more than $22.25 billion by (This information was derived from the first edition of this study, which was released in early 2013 and utilizes information from A second edition is anticipated to be released in late 2015.) The growth of the parking industry can be attributed to four main factors: the fundamental growth of the US population, ongoing urbanization, growth in vehicle ownership and a steadily growing trend of a preference for driving and parking. These factors also suggest a strong demand for parking in the coming years. Additionally, the NPA s Parking in America: 2013 Annual Rate Survey is the fifth annual review of parking rates in North America. The 2013 edition examined parking industry data from 2012, but these trends are likely similar to the ones seen today. This study examined hourly, daily and monthly parking rates within a wide range of parking segments. The report explored parking trends throughout the Central Business Districts (CBDs) and specialty parking facilities-public and privatethat operate both in cities and suburban areas throughout the US. This report found that more than 40% of all survey respondents reported an increased demand for parking services. In the 2012 survey, 50% of respondents reported an increase. Despite the slight decline from the previous year, this level is indicative of a larger trend, showing an improving economy playing a compounding role in annually strengthening the parking industry. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 36

46 MARKET ANALYSIS National Parking Garage Sale Price Trends During the course of our research, we also surveyed national parking garages for sale information. The following information was obtained from CoStar Analytics and describes sale price trends within the national parking garage market. Our research found that since January 1, 2014 to the date of this report, a total of 160 parking garages have sold. The sale prices of these parking garages range from approximately $50 to $250 per square foot, depending on factors such as location and size. The average sale price over this time period, however, was approximately $110 per square foot. The sale price trend over time is depicted in the table below. As the reader can see, parking garage sale prices, on a per square foot basis, fell in mid However, it increased rapidly in 2014, to peak in Q Generally, however, national parking garage sale prices were fairly consistent over the past year. Average sale price per square foot of parking garage mostly remained between $50 and $200 per square foot over the past 12 months. In terms of sales volume, sales volume has generally increased since its low of $22 million in the third quarter of The sales volume of parking garages peaked at over $200 million in late From this point, it has fallen to the current sales volume of approximately $100 million. This is depicted in the graphic below. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 37

47 MARKET ANALYSIS Generally speaking, the sales volume within the past year stood between $100 to $200 million, with exceptions in only two of the past six quarters. We also note the capitalization (cap) rates of parking garages since January 1, Of the 160 total aforementioned parking garage sales, several cap rates were derived. The cap rates for these sales ranged from 5.0% to 10.0%, with an average of approximately 6.7%. The cap rates over time are depicted on the following page. As depicted in the table above, capitalization (cap) rates increased in early 2014, before peaking in Q From there, it has fallen and somewhat stabilized. The current cap rate is standing at approximately 6.50%. National Parking Garage Sale Price Trends We note that parking garage rates and occupancies are heavily dependent on local market conditions. Highly urban core areas, like major metropolitan downtowns, or areas with major attractions, such as colleges and universities, can contain parking garages with much higher parking rates and higher occupancies than similar garages in less urban areas or areas that lack major attractions. For this reason, there is very little information on national parking garage rates and occupancy trends. Thus, in order to determine parking garage rates and occupancy trends, we have utilized information pertaining to the City of San Jose s overall parking garage rates and occupancy trends. Because the City of San Jose contains a wide variety of submarkets, including some more suburban areas, our analysis will focus on the Downtown San Jose area, in which many of San Jose s parking garages are situated. Downtown San Jose Parking Trends Downtown San Jose contains 66 different parking lots and garages, which offer a total of approximately 25,120 parking spaces. The table on the following page depicts a survey of these 66 parking garages and lots situated within downtown San Jose. This survey was performed by the City of San Jose Department of Transportation and the survey includes the subject property. According to the City of San Jose s website, the City of San Jose itself operates and maintains eight parking garages and nine surface lots with a combined total of approximately 7,500 public parking VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 38

48 MARKET ANALYSIS spaces, located primarily downtown. We note that the subject property is one of the eight parking garages operated and maintained by the City of San Jose. Patrons of downtown businesses and special events can find parking in city facilities daily. Validated parking is available from many downtown businesses, including The Tech Museum of Innovation and Camera 12 Cinemas. Additionally, monthly parking permits are available at many of the city s downtown facilities. Monthly parking for San Jose State University students and residents are available at designated facilities. The City s parking operator, Central Parking System, operates these facilities. Downtown San Jose Parking Rates The client has submitted a survey of downtown San Jose Parking rates, which we have included in the addenda section of this report. The hourly parking rates presented in those tables present a range from $3.00 to $7.00 per hour, with an average of $5.00 per hour. However, we note that many downtown parking garages do not offer hourly parking: of the 66 parking garages and lots surveyed, only 32, or approximately half, offered hourly parking as an option. Thus, our focus will be on daily and monthly parking rates. The daily parking rates range from $3.00 to $25.00 per space per day, with an average of $ The typical daily maximum rate is $20 per space per day. The monthly parking rates range from $30.00 to $ per space per month, with an average of $ For further support of the aforementioned parking rates, in the Income Approach of this report, we have also conducted our own parking survey. As depicted in the Income Approach, average daily parking rates range from $15 to $25 per space per day with an average of $19 per space per day. Average monthly parking rates range from $100 to $135 per space per month with an average of $113 per space per month. This amounts are generally consistent with the daily and monthly parking rate range reported in the City of San Jose Department of Transportation survey. Overall vacancy rates for parking garages similar to the subject property range from 5% to 30% with an average of 18%. Conversely, overall occupancy ranges from 70% to 95% of the overall parking spaces. Downtown San Jose Occupancy In addition to the above information, we were also provided with the occupancy data for the subject property by hour, and per day, since January 1, A summary table of the subject s average occupancy by hour is presented in the graph below. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 39

49 12:00 AM 1:00 AM 2:00 AM 3:00 AM 4:00 AM 5:00 AM 6:00 AM 7:00 AM 8:00 AM 9:00 AM 10:00 AM 11:00 AM 12:00 PM 1:00 PM 2:00 PM 3:00 PM 4:00 PM 5:00 PM 6:00 PM 7:00 PM 8:00 PM 9:00 PM 10:00 PM 11:00 PM Occupancy Count (330 Space Garage) 88 SAN FERNANDO GARAGE MARKET ANALYSIS CENTRAL PLACE GARAGE Average Peak Occupancy by Hour (January March 2015) Time of Day On an hourly basis, the peak hours for parking were from approximately 8am to about 6pm, following a typical office employee s work schedule, which is from 9am to about 5pm. During this time period, the average number of occupied daily parking spaces ranged from 79 to 143 parking spaces occupied. As a percentage of the subject s total of 330 parking spaces, the occupancy from 8am to 6pm ranges from 26.33% to 43.33%. This compares to the from midnight to 5am period when an average of 70 to 93 daily parking spaces are occupied, indicating an overall occupancy of 21.21% to 28.18%, as well as from 7pm to 11pm, when an average of 102 to 120 daily parking spaces are occupied, indicating an overall occupancy of 30.91% to 36.36%. The parking lot operators also indicated that average occupancy is higher at night than in the morning due to the presence of many restaurants, bars and nightclubs in the immediate area, which attract many visitors to the immediate area even after 6pm. On a daily basis, average occupancy throughout the day ranged from 77 to 166 daily occupied parking spaces, or an occupancy of 23.33% to 50.30%, with an average of 108 daily occupied parking spaces, or 32.73%. Market Participant Interviews Further, we have also surveyed several parking garage and lot operators as part of the course of our research. The parking lot operators we spoke to generally agreed that occupancy for daily parking can fluctuate greatly, depending on several factors including time of day (parking tends to have two occupancy spikes throughout the day: from approximately 7am to about 6pm, following a typical employees work schedule) and major events occurring in Downtown San Jose, such as graduations or festivals (higher daily occupancy during days when major events occur). However, many of the VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 40

50 MARKET ANALYSIS parking lot operators we spoke to generally agreed that outside of these special events, daily occupancy rates typically ranges from 10% to 50% of a property s overall parking spaces dedicated to daily parking. The market participants we surveyed also agreed that monthly parking occupancies are more stable. Occupancy for monthly parking typically ranges from 20% to 70%, with monthly occupancy rates impacted more by the overall economic trends (more monthly parking for employees when the local office businesses are prospering) and the time of year (higher monthly parking occupancies during the school year and lower monthly parking occupancies during the summer). Conclusion Over the past two years, the San Jose real estate market, like most of the Bay Area, has been one of modest to strong growth. The market fundamentals, which had been flat from 2010 and into early 2011, are currently showing signs of growth. Due to the strong market conditions for office, retail and residential, there has been a strong push to convert older buildings and vacant sites into mixed use projects that include residential and commercial uses. The subject benefits from its location within the San Jose s Downtown Core, and its proximity to local amenities as well as access to local and regional transportation. Short and long term demand for land like the subject continues to be good. The market for parking garages in San Jose has seen improvement over the past two years and appears to be currently stable. San Jose is one of the core urban markets in Silicon Valley and commands rental rates that are one of the highest in the entire nation. Proximity to several major downtown demand generators, such as the San Jose Convention Center, generate a large demand for parking within the immediate area. In the long-term, we believe that investor demand for parking garage properties like the subject will continue to be good. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 41

51 HIGHEST & BEST USE Highest and Best Use The Highest and Best Use of a property is the reasonably probable and legal use of vacant land or an improved property that is: physically possible, appropriately supported, financially feasible, and that results in the highest value. It is necessary to determine the highest and best use of a subject property both As If Vacant and As Improved. Improved properties may have a highest and best use that is different than the existing use. The existing use will generally continue however, until land value exceeds the total value of the property in its existing use plus demolition costs. Analysis of Highest and Best Use as if Vacant In determining the highest and best use of the property as though vacant, we focus on: 1) the existing use, 2) a projected development, 3) a subdivision, 4) an assemblage, or 5) holding the land as an investment. These criteria are usually considered sequentially: a use may be financially feasible, but this is irrelevant if it is physically impossible or legally prohibited. Only when there is a reasonable possibility that one of the prior, unacceptable conditions can be changed is it appropriate to proceed with the next step in the analysis. Legally Permissible The appraised site is zoned DC, Downtown Core. Permitted uses under this zoning regulation include a wide variety of commercial uses, including various retail, office, high-density residential and parking garage land uses. Additionally, the probability of the site s current use changing is unlikely. Physically Possible The appraised site is rectangular in shape and contains 52,285 square feet. The site is generally level and at street grade. All public utilities are available to the site. The site has average to good visibility and access, as it is situated in a double corner location. The subject property does not appear to be situated in a flood area and mandatory flood insurance does not apply. Soil types on the site are not known. We have not been provided with a Phase I Site Assessment on the subject property. However, a physical inspection indicated no signs of detrimental site contamination. Physically possible uses of the site include mixed uses. Financially Feasible After determining the uses that are physically possible and legally permissible, an appraiser considers the uses that are likely to produce an adequate return on investment based on a cost/benefit analysis or through direct market observation. The market demand for the development of the appraised site is considered strong, when considering the undersupply of similar properties. Therefore, feasibility of developing the site in current market conditions is strong. As mentioned earlier, the demand for commercial properties in Santa Clara County remain strong, as exhibited in both the low vacancy rate and the high rental rates for commercial properties in this county. The lack of developable land in Santa Clara County, combined with the growing demand for parking in the downtown and immediate area, leads us to believe that mixed use development in the form of either residential or commercial with VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 42

52 HIGHEST & BEST USE subterranean parking is financially feasible at this point in time. Alternatively, given the demand for parking in the downtown area, a freestanding parking garage is also feasible at this time. Maximally Productive Among the financially feasible uses, the use that results in the highest value (the maximally productive use) is the highest and best use. Considering these factors, the maximally productive use of the site as is vacant is for development of a parking garage property of the maximum size and height allowable under existing zoning regulations. Conclusion of Highest and Best Use As if Vacant The conclusion of the highest and best use as if vacant is for development of a parking garage property of the maximum size and height allowable under existing zoning regulations. Analysis of Highest and Best Use as Improved In determining the highest and best use of the property as improved, the focus is on three possibilities for the property: 1) continuation of the existing use, 2) modification of the existing use, or 3) demolition and redevelopment of the land. The improvements are in average to good condition, and the property can continue to support the existing improvements well into the future. The property meets the current market expectations for the submarket in which it competes. Modification of the property will permit rental rates to increase and/or vacancy and expenses to decrease sufficiently to make modifications financially feasible. However, we do note that the subject property has some deferred maintenance in the form of active basement leaking. It is our opinion, that with the exception of curing this deferred maintenance, further modification of the subject property will not permit rental rates to increase and/or vacancy and expenses to decrease sufficiently to make modifications financially feasible. As discussed within the previous pages, new commercial development is financially feasible as market rental rates are high enough to support construction costs. However, our final opinion of market value plus demolition costs does not exceed the value of the underlying land. The current use does not represent an interim use. The property does not have any excess land. Conclusion of Highest and Best Use As Improved Overall, we conclude that the highest and best use of the subject, as improved, is represented by the existing improvements. Most Probable Buyer/User As of the date of value, the most probable buyer of the subject property is an investor and the most probable user would be tenants. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 43

53 APPRAISAL METHODOLOGY Appraisal Methodology Three Approaches to Value There are three traditional approaches typically available to develop indications of real property value: the cost, sales comparison, and income capitalization approaches. Cost Approach The cost approach is based upon the principle of substitution, which states that a prudent purchaser would not pay more for a property than the amount required to purchase a similar site and construct similar improvements without undue delay, producing a property of equal desirability and utility. This approach is particularly applicable when the improvements being appraised are relatively new or proposed, or when the improvements are so specialized that there is little or no sales data from comparable properties. Sales Comparison Approach The sales comparison approach involves the direct comparison of sales and listings of similar properties, adjusting for differences between the subject property and the comparable properties. This method can be useful for valuing general purpose properties or vacant land. For improved properties, it is particularly applicable when there is an active sales market for the property type being appraised either by owner-users or investors. Income Capitalization Approach The income capitalization approach is based on the principle of anticipation, or the assumption that value is created by the expectation of benefits to be derived in the future, such as expected future income flows including the reversion, or future re-sale of the property appraised. Its premise is that a prudent investor will pay no more for the property than he or she would for another investment of similar risk and cash flow characteristics. The income capitalization approach is widely used and relied upon in appraising income-producing properties, especially those for which there is an active investment sales market. Subject Valuation As previously noted, the Cost Approach is not considered to be a necessary approach in the appraisal of older parking garages. However, the subject was built in 2008, giving it an effective age of approximately seven years. While not truly considered an older parking garage, the fact that the subject improvements are seven years old coupled with the subject property representing a condominium portion of a larger mixed use residential and commercial development, warrants that the results of the cost approach as inconclusive given the various shared costs that would be incorporated in such a development. Additionally, buyers of parking garage structures rarely, if ever, estimate the value of potential purchases utilizing the depreciated cost method. Even for projects in the age range of the subject, this method is rarely relied upon. Buyers of similar properties typically consider only the Sales Comparison and Income Approaches. When the Cost Approach is used, it is typically used to ascertain the feasibility of a new project. Thus, the Cost Approach is not considered necessary in order to arrive at a credible opinion of value for the subject property. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 44

54 APPRAISAL METHODOLOGY As such, we will be presenting the reader with two approaches to value: the Sales Comparison Approach and Income Approach. The values indicated by the valuation approaches applied in this appraisal will then be reconciled into a final opinion of value. In the reconciliation, the relevancy of each approach is considered with regard to the type of property being appraised and the adequacy and reliability of the data analyzed. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 45

55 SALES COMPARISON APPROACH Sales Comparison Approach Methodology One method of valuing improved parking garage properties, such as the subject property, is by utilizing the Sales Comparison Approach. This approach is based on the premise that a buyer would pay no more for a specific property than the cost of obtaining a property with the same quality, utility, and perceived benefits of ownership. It is based on the principles of supply and demand, balance, substitution and externalities. In the sales comparison approach, an indication of market value is developed by analyzing closed sales, listings, or pending sales of properties similar to the subject property, using the most relevant units of comparison. The comparative analysis focuses on the difference between the comparable sales and the subject property using all appropriate elements of comparison. A systematic procedure for applying the sales comparison approach includes the following steps: (1) researching and verifying transactional data, (2) selecting relevant units of comparison, (3) analyzing and adjusting the comparable sales for differences in various elements of comparison, and (4) reconciling the adjusted sales into a value indication for the subject. Unit of Comparison The primary unit of comparison selected depends on the appraisal problem and nature of the property. The primary unit of comparison in the market for parking garage properties is price per parking space or stall. As such, we have used the price per space as the appropriate unit of comparison for the subject property. Elements of Comparison Elements of comparison are the characteristics or attributes of properties and transactions that cause the prices of real estate to vary. The main elements of comparison that should be considered in sales comparison analysis are as follows: (1) real property rights conveyed, (2) financing terms, (3) conditions of sale, (4) expenditures made immediately after purchase, (5) market conditions, (6) location, (7) physical characteristics, and (8) economic characteristics. Comparable Sales Data A search of data sources and public records, a field survey, and interviews with knowledgeable real estate professionals in the area was conducted to obtain and verify parking garage properties comparable to the subject property that have sold or been listed recently in the competitive market. Our search for recently sold or listed parking garages in the competitive market only yielded two results: the sale of the Fountain Alley Parking Lot, a 155 space surface parking lot at 35 S. Second Street and the sale of a former surface parking lot at 51 S 6 th Street, San Jose. We note that both of the above properties were surface parking lots which is significantly different from the subject. Thus, we have not included these two sales in our analysis. Due to the dearth of parking garage sales in Santa Clara County, we have expanded our scope to include all sales of parking garages in California since January 1, This search revealed several comparable parking garage sales. However, excluding Sale 2, all of the California sales have been in VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 46

56 SALES COMPARISON APPROACH San Francisco. To add further support, we expanded our scope, this time to include the sale of any parking garage over 100 spaces that have sold since January 1, 2014 in the United States. Of these sales uncovered, we selected eight sales that were considered to be the most comparable to the subject property. Three sales are outside the Bay Area and five sales are within the Bay Area. These sales are summarized on the following page, followed by a location map and individual sale detail sheets. As shown on the following table, the sales indicate a price per space range from $36,119 to $58,333 per unit. The sales sold from February 2011 through December We have also included one listing. We have analyzed the comparables on a price per space basis. Because of the difficulty in adjusting the comparables to the subject property, we have included an Adjustment Grid following the Location Map. The grid is not a scientific method in adjusting the comparable sales in comparison to the subject property. It is merely presented as an explanation to help the reader follow the appraiser s judgment in the adjustment process. While the amounts of individual adjustments can be argued, they do help provide an order of magnitude and an adjustment direction based on the market data presented. Primarily, consideration was given to conditions of sale, time, location, density, age/condition, average unit size, amenities, income potential and project size of the comparable properties as they relate to the subject. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 47

57 SALES COMPARISON APPROACH Sale No. Location Outside of SF Bay Area Bldg Area Stalls/SF No Stalls Year Blt Lot Size FAR Sale Date Sale Price Price/S.F. Price/Stall Annual NOI/stall 1 33 W Ontario Street 167, ,441 Dec-14 $16,900,000 $ $46,175 $3, % Chicago, IL % BUILDING SALES SUMMARY Cap Rate Comments Ohio Ontario Self Park; 60-story mixed use structure with 366 spaces; part of the Millenium Centre; located on floors 3-8 of bldg; investor purchase S Broadway 106, ,156 May-13 $14,000,000 $ $58,333 N/A N/A Los Angeles, CA % Seven-story mixed-use parking structure with 240 striped spaces and 12,000 square feet of ground floor retail; monthly & transient parking available S Casino Center Boulevard 126, ,422 Listing $21,500,000 $ $50,234 N/A N/A Las Vegas, NV % Casino Center Parking Plaza; 7-story freestanding parking structure with 428 spaces & 18,000 sf ground floor retail. Within SF Bay Area O'Farrell Street 36, ,808 Oct-13 $4,987,500 $ $41,912 N/A N/A San Francisco % Two-story, above-ground parking structure with 119 parking stalls; 100% leased to Hertz Rent-A-Car; investor purchase but no financial information was disclosed Van Ness Avenue 151, ,840 Oct-13 $22,800,000 $ $54,545 $2, % San Francisco, CA % Seven-story, parking structure with 418 parking stalls; state-of-the-art facility; built-in income stream from onsite AMC Theaters, restaurants & offices within bldg; rd Street 117, ,941 Feb-12 $12,750,000 $ $36,119 $1, % San Francisco % Three-story underground garage with 353 spaces; investor purchase; 100% fee simple condo interest; Parking include both valet and individual stalls Post Street 42, ,906 Jun-11 $8,050,000 $ $43,514 $2, % San Francisco % Three-story parking structure with 185 spaces; situated on a steep slope, with varying floor sizes. Parking includes primarily valet use Mission Street 164, ,021 Feb-11 $19,230,000 $ $52,830 $2, % San Francisco, CA % 20-story mixed use structure with 364 parking spaces; residential condos over 3 stories of parking condos; parking includes both valet and individual stall use; Subject 88 E San Fernando 156, ,285 $1,935 San Jose % Per Inc Approach The subject consists of a three level subterranean parking structure with 330 spaces; located within downtown San Jose. Parking includes primarily self park use. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 48

58 SALES COMPARISON APPROACH COMPARABLE SALES MAP* VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 49

59 SALES COMPARISON APPROACH *(PLEASE NOTE THAT THIS MAP ONLY DEPICTS SALE COMPARABLES 4 8 IN BAY AREA) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 50

60 SAN FERNANDO GARAGE SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 1 Property Identification Property/Sale ID / Property Type Parking Facility Property Name Ohio Ontario Self Park Address 33 W Ontario Street City, State Zip Chicago, Illinois County Cook Tax ID Transaction Data Sale Date December 22, 2014 Sale Status Recorded Grantor Millennium Garage Holdings LLC Property Description Gross Building SF 167,267 Net Rentable SF 167,267 Year Built 2003 Parking Spaces 366 Financial Data & Indicators (Actual) OAR 6.7 Physical Indicators $/SF GBA $ $/SF NRA $ Grantee LIPT Ontario Street LLC Recording Number Sale Price $16,900,000 Adjusted Price $16,900,000 Pkg/1,000 SF GBA 2.2 Pkg/1,000 SF NRA 2.2 Gross Acres 0.86 Flr. Area Ratio (FAR) 4.47 $/Parking Space $46,175 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 51

61 SALES COMPARISON APPROACH Remarks X The property involved in this transaction consists of a parking garage situated along W Ontario Street in Chicago, IL. The parking garage is part of the 60-story mixed-use complex, known as the Millennium Centre. This condominium complex was built in 2003 and contains ground floor retail, upper floor residential condominium units and above grade parking. Known as the Ohio Ontario Self Park, the parking garage portion of this property is situated on floors 3 through 8 and contains a total of 366 parking spaces. The parking garage has 167,267 rentable square feet and 366 parking space indicating an average of 457 square feet per stall. The Millennium Centre is situated adjacent to a 567-room Embassy Suites hotel and has entrances on both W. Ontario as well as W. Ohio Streets. At the time of sale, the reported capitalization (cap) rate for this property was 6.70%, indicating a net operating income (NOI) of $1,132,300. The property sold on December 22, 2014, with a total sale price of $16,900,000. The property was listed on the market for 4 months, with no sale price, prior to this sale. The seller had reportedly spent $100,000 on improvements for this property since they acquired the property in June However, this amount was already factored into the sale price. The buyer acquired the property in order to diversify their portfolio and because they felt the property had strong financials. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 52

62 SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 2 Property Identification Property/Sale ID / Property Type Parking Facility Address 700 S Broadway City, State Zip Los Angeles, California County Los Angeles Tax ID Transaction Data Sale Date May 28, 2013 Sale Status Recorded Grantor 700 SO Broadway BLDG LLC Property Description Gross Building SF 106,156 Net Rentable SF 106,156 Year Built 1992 Parking Spaces 240 Physical Indicators $/SF GBA $ $/SF NRA $ Grantee Delijani Square Parking LLC Recording Number Sale Price $14,000,000 Adjusted Price $14,000,000 Pkg/1,000 SF GBA 2.3 Pkg/1,000 SF NRA 2.3 Gross Acres 0.37 Flr. Area Ratio (FAR) 6.57 $/Parking Space $58,333 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 53

63 SALES COMPARISON APPROACH Remarks X The property involved in this transaction is a seven-story mixed-use structure situated along S Broadway in Los Angeles, CA. Built in 1992, this property contains a mix of ground floor retail with six stories of parking. In total, there are 240 striped parking spaces and 12,000 square feet of ground floor retail space. Both transient/daily parking and monthly parking are available at this parking garage. The parking garage has 106,156 rentable square feet and 240 parking space indicating an average of 442 square feet per stall. The eight-tenant ground floor retail component of this property was fully leased at the time of sale. Although the buyer could not recall the exact capitalization (cap) rate for this property, he did indicate that the cap rate for this sale was low. He reported that market cap rate for parking properties in the immediate area was approximately 4% to 5%. This property sold on May 28, 2013, with a total sale price of $14,000,000. Although the property was not listed for sale and the seller approached the buyer directly with an offer, this reportedly had a very nominal impact on the sale price. The motivation for the seller was a good price offered by the buyer and the motivation for the buyer was to utilize as parking for their employees, as the buyer was a company doing business in a building proximate to this parking garage. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 54

64 SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 3 Property Identification Property/Sale ID / Property Type Parking Facility Address 321 S Casino Center Boulevard City, State Zip Las Vegas, Nevada County Clark Tax ID Transaction Data Sale Date June 1, 2015 Sale Status Listing Grantor COUNTY OF CLARK ADMINISTRATIVE/COUNTY Property Description Gross Building SF 126,000 Net Rentable SF 126,000 Year Built 2007 Parking Spaces 428 Physical Indicators $/SF GBA $ $/SF NRA $ OF CLARK METRO LEASE Grantee Listing Sale Price $21,500,000 Adjusted Price $21,500,000 Pkg/1,000 SF GBA 3.4 Pkg/1,000 SF NRA 3.4 Gross Acres 3.04 Flr. Area Ratio (FAR) 0.95 $/Parking Space $50,234 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 55

65 SALES COMPARISON APPROACH Remarks X The property involved in this transaction consists of a seven-story freestanding mixed-use property situated along S Casino Center Boulevard in Las Vegas, NV. Known as the Casino Center Parking Plaza, this property was built in It contains a total of 428 parking spaces as well as 18,000 square feet of ground floor retail space. This property had originally been built as a correctional facility, but was converted to a parking structure in The parking garage has 126,000 rentable square feet and 428 parking space indicating an average of 294 square feet per stall. As of June 1, 2015, this property was still listed for sale. The owner and seller of this property is Clark County, a public entity. This property was listed with an asking price of $21,500,000. As of June 1, 2015, there was some interest but no serious offers yet. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 56

66 SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 4 Property Identification Property/Sale ID / Property Type Parking Facility Address 550 O'Farrell Street City, State Zip San Francisco, California County San Francisco Tax ID Transaction Data Sale Date October 4, 2013 Sale Status Recorded Grantor LWSC LLC Grantee Sandhill Ofarrell LLC Property Description Gross Building SF 36,712 Net Rentable SF 36,712 Year Built 1924 Parking Spaces 119 Physical Indicators $/SF GBA $ $/SF NRA $ Recording Number L Sale Price $4,987,500 Adjusted Price $4,987,500 Pkg/1,000 SF GBA 3.2 Pkg/1,000 SF NRA 3.2 Gross Acres 0.27 Flr. Area Ratio (FAR) 3.11 $/Parking Space $41,912 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 57

67 SALES COMPARISON APPROACH Remarks X The property involved in this transaction is a two-story, above-ground parking structure situated along O'Farrell Street in San Francisco, CA. Built in 1924, this property contains a total of 119 parking spaces. It contains a total of 36,719 square feet and 119 parking spaces indicating an average of 309 square feet per stall. At the time of sale, this property was reportedly 100% leased to Hertz-Rent-A-Car. However, the buyer would not disclose any financial information. The property sold on October 4, 2013, with a total sale price of $4,987,500. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 58

68 SAN FERNANDO GARAGE SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 5 Property Identification Property/Sale ID / Property Type Parking Facility Address 1000 Van Ness Avenue City, State Zip San Francisco, California County San Francisco Tax ID Transaction Data Sale Date October 11, 2013 Sale Status Recorded Grantor 1000 VM Garage LLC/Next Van Ness Garrage LLC Property Description Gross Building SF 154,056 Net Rentable SF 151,200 Year Built 1998 Parking Spaces 418 Financial Data & Indicators (Actual) OAR 4.6 Physical Indicators $/SF GBA $ $/SF NRA $ Grantee Not Avail from County Recording Number L Sale Price $22,800,000 Pkg/1,000 SF GBA 2.8 Pkg/1,000 SF NRA 2.8 Gross Acres 0.48 Flr. Area Ratio (FAR) 7.26 $/Parking Space $54,545 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 59

69 SALES COMPARISON APPROACH Remarks X This is the pending sale of a seven-story parking structure located adjacent to the 1000 Van Ness AMC movie theater in San Francisco. The parking structure has an address of 1000 Van Ness Avenue in San Francisco, in addition to an alternate address of 900 O'Farrell Street in San Francisco. The property was built in 1998 and in good to average condition at the time of sale. The parking garage is situated on a 20,840 square foot lot, indicating a floor area ratio (FAR) of 726%. The parking garage has 151,200 rentable square feet and 418 parking space indicating an average of 362 square feet per stall. The parking garage improvements consist of four stories of an above-ground parking structure as well as three subterranean parking levels. This sale is for a condominium interest that is part of a larger mixed-use residential and retail development. The garage portion contains 418 parking spaces, indicating an average parking density of 362 spaces per square feet. At the time of sale, the net operating income (NOI) was reported at $1,039,500, indicating a capitalization (cap) rate of 4.56% and a NOI per square foot of $6.88. The property sold on October 11, 2013, with a total sale price of $22,800,000. This sale price indicates a price per stall of $54,545 and represents an approximately 1.29% decline from the original list price of $23,100,000. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 60

70 SAN FERNANDO GARAGE SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 6 Property Identification Property/Sale ID 15165/ Property Type Parking Facility Address 300 3rd Street City, State Zip San Francisco, California County San Francisco Tax ID Transaction Data Sale Date February 10, 2012 Sale Status Recorded Grantor NASON FAMILY TRUST Property Description Gross Building SF 117,961 Net Rentable SF 117,961 Year Built 1990 Parking Spaces 353 Financial Data & Indicators (Actual) OAR 5.5 Physical Indicators $/SF GBA $ $/SF NRA $ Grantee UGP-MUSEUM PARC LLC Sale Price $12,750,000 Adjusted Price $12,750,000 Pkg/1,000 SF GBA 3.0 Pkg/1,000 SF NRA 3.0 Gross Acres 1.12 Flr. Area Ratio (FAR) 2.41 $/Parking Space $36,119 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 61

71 Remarks 88 SAN FERNANDO GARAGE SALES COMPARISON APPROACH This is the sale of a three-story parking garage that is situated within the Museum Parc condominium development located at the southwest corner of Third and Folsom Streets in San Francisco. It is located in the South of Market area, across the street from Yerba Buena Gardens and Mosconi Convention Center. The garage sold for $ per square foot, or $36,119 per stall and did not include the land. The improvements were built in 1990 and consist of 117,961 square feet and a total of 353 parking stalls. This indicates an average size per parking stall of 334 square feet. The improvements are located on the ground and one subterranean level. The parking includes valet and individual stalls. The capitalization (cap) rate was reportedly 5.50%, indicating a net operating income (NOI) of $701,411 and a NOI per parking space of $1,987. This property sold on February 10, 2012, with a sale price of $12,750,000. Reportedly, an agent knowledgeable with the transaction reports the sale was between members of a partnership and is below market. This sale is of the 100% Fee Simple Condominium (condo) Interest in the parking garage portion of the mixed-use building that sold along with residential and commercial condos. X VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 62

72 SAN FERNANDO GARAGE SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 7 Property Identification Property/Sale ID / Property Type Parking Facility Address 490 Post Street City, State Zip San Francisco, California County San Francisco Tax ID , -016, -017, Transaction Data Sale Date June 16, 2011 Sale Status Closed Grantor 33 Grant LLC Grantee 490 Tanzanite LLC Property Description Gross Building SF 42,539 Net Rentable SF 42,539 Year Built 1925 Parking Spaces 185 Financial Data & Indicators (Actual) OAR 6.5 Physical Indicators $/SF GBA $ $/SF NRA $ Recording Number K Sale Price $8,050,000 Adjusted Price $8,050,000 Pkg/1,000 SF GBA 4.4 Pkg/1,000 SF NRA 4.4 Gross Acres 0.43 Flr. Area Ratio (FAR) 2.25 $/Parking Space $43,514 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 63

73 Remarks X 88 SAN FERNANDO GARAGE SALES COMPARISON APPROACH This is the sale of a three-story parking structure located along Post Street in San Francisco. The structure was built on a very steep hill, causing the building floor print to have various sizes. The property was in average condition at the time of sale. The parking garage portion of the building contains 42,539 square feet while the site contains 18,906 square feet, indicating a FAR of about 225%. The parking garage improvements consist of three stories of subterranean parking garage containing 185 stalls. Based on the garage size of 42,539 square feet, an average stall size of 230 square feet per stall is noted. Parking includes primarily valet use. The building was purchased by an investor who only bought the parking condo portion of the greater complex, which contains parking as well as residential condos. The overall capitalization rate at the time of sale was reported to be 6.5%. The property sold in June of 2011, with a sale price of $8,050,000. The price per parking space of this sale was $43, The listing broker indicated that the sale price was not affected by any other factor and that it is about market for a property such as this. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 64

74 SAN FERNANDO GARAGE SALES COMPARISON APPROACH PARKING GARAGE COMPARABLE 8 Property Identification Property/Sale ID / Property Type Parking Facility Property Name SOMA Grand Garage Address 1160 Mission Street City, State Zip San Francisco, California County San Francisco Tax ID Transaction Data Sale Date February 11, 2011 Sale Status Closed Grantor 1160 Mission Associates LLC Property Description Gross Building SF 164,000 Net Rentable SF 164,000 Year Built 2008 Parking Spaces 364 Financial Data & Indicators (Actual) OAR 4.8 Physical Indicators $/SF GBA $ $/SF NRA $ Grantee 1160 GSM LLC Recording Number K Sale Price $19,230,000 Adjusted Price $19,230,000 Pkg/1,000 SF GBA 2.2 Pkg/1,000 SF NRA 2.2 Gross Acres 0.55 Flr. Area Ratio (FAR) 6.83 $/Parking Space $52,830 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 65

75 SALES COMPARISON APPROACH Remarks X This is the sale of the SOMA Grand Garage in San Francisco. The SOMA Grand is a 20-story mixed use project consisting of residential and parking condominium complex. The improvements were built in 2008 and appeared to be in average to good condition. The underlying site measures 24,021 square feet, indicating a floor area ratio (FAR) of approximately 683%. The parking garage improvements consist of three stories of subterranean parking garage containing 364 stalls within an area comprised of 164,000 square feet. This equates to an average stall size of 451 square feet per stall. Parking includes both valet and individual stall use. This was an investor purchase. The entire mixed use building was broken out as condominium units. Several of the parking spaces were planned to be sold off as part of the residential condominium sales. The sale of this comparable is for the entire 364 parking space parking garage. The broker, Mr. Seth McKinnon reported a sale price of $19,230,000 based on an NOI of approximately $2,509 per month and an overall rate of 4.75%. The property sold on February 11, The price per stall was $52,830. As of the date of sale, over 40% of the parking spaces in the overall project have been purchased. In 2008, the sale price for a one parking space unit was $65,000, and the owners were renting the spaces during the day with a $93 per month valet or a $73 per month non-valet maintenance fee. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 66

76 SALES COMPARISON APPROACH Sales Comparison Analysis All of the sales are analyzed, and adjustments are made for differences in the various elements of comparison including market conditions, location, size, and other relevant factors. If the comparable sale is considered superior to the subject, we applied a negative adjustment to the comparable sale. A positive adjustment to the comparable property is applied if it is considered inferior to the subject. A summary of the elements of comparison follow. Transaction Adjustments Transaction adjustments include 1) real property rights conveyed, 2) financing terms, 3) conditions of sale and 4) expenditures made immediately after purchase. These items are applied prior to the application of the market conditions and the property adjustments, and are discussed as follows: 1. Real Property Rights Conveyed 2. Financing Terms 3. Conditions of Sale 4. Expenditures Made Immediately After Purchase 5. Market Conditions The adjustments are discussed as follows: Real Property Rights Conveyed Before a comparable sale property can be used in the Sales Comparison Approach, we must first ensure that the sale price of the comparable property applies to property rights that are similar to those being appraised. In the case of the subject property, a fee simple interest is being appraised. The comparables all reflect similar real property rights and no adjustments were required. Financing Terms The transaction price of one property may differ from that of an identical property due to different financial arrangements. Sales involving financing terms that are not at or near market terms require adjustments for cash equivalency to reflect typical market terms. A cash equivalency procedure discounts the atypical mortgage terms to provide an indication of value at cash equivalent terms. No adjustments for financing terms were warranted. Conditions of Sale When the conditions of sale are atypical, the result may be a price that is higher or lower than that of a normal transaction. Adjustments for conditions of sale usually reflect the motivations of either a buyer or a seller who is under duress to complete the transaction. Another more typical condition of sale involves the downward adjustment required to a comparable property s for-sale listing price, which usually reflects the upper limit of value. With the exception of Comparable Sale 3, all of the comparables are closed sales that reflect market conditions of sale, with no adjustments for conditions of sale merited. Sale 3 represents a listing; a downward adjustment has been applied to this sale to reflect its listing status. We have relied on the adjustments noted by the brokers for our adjustments of conditions of sale. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 67

77 SALES COMPARISON APPROACH Expenditures Made Immediately After Purchase A knowledgeable buyer considers expenditures that will have to be made upon purchase of a property because these costs affect the price the buyer agrees to pay. Such expenditures may include any costs to cure deferred maintenance and any costs to upgrade or modernize the property being sold. The relevant figure is not the actual cost incurred but the cost that was anticipated by both the buyer and seller. Unless the sales involved expenditures anticipated upon the purchase date, no adjustments to the comparable sales are required for this element of comparison. Market Conditions Market conditions may change between the time of sale of a comparable property and the date of the appraisal of the subject property. Changes in market conditions may be caused by inflation, deflation, fluctuations in supply and demand, or other factors. Market conditions that change over time create the need for an adjustment. If market conditions have changed, an adjustment would be required for this element of comparison. In terms of market conditions, as noted in the market overview section of this report, most market participants agree that parking garage sale prices, as well as deal velocity, have remained relatively stable since 2014, but have increased since mid These market participants have noted that property values have increased 5% to 15% over the past three years. The national surveys that we have reviewed have noted similar market value increases ranging from 5% to 20% since Thus, we applied upward adjustments to the comparables that sold from 2011 through 2013 to account for the improving market conditions. We have relied on the adjustments noted by the brokers for our adjustments of market conditions. Property Adjustments Property adjustments are usually expressed quantitatively as percentages that reflect the increase or decrease in value attributable to the various characteristics of the property. In some instances, however, qualitative adjustments are utilized. Property adjustments are applied after the application of transaction adjustments, and include: 1. Locational Characteristics 2. Physical Characteristics 3. Economic Characteristics The following is a narration of the property adjustments made to each of the sale comparables. The discussion will analyze each adjustment category deemed applicable to the subject property. Location/Access Location adjustments may be required when the locational characteristics of a comparable property are different from those of the subject property. These include, but are not limited to, general neighborhood characteristics, freeway accessibility, street exposure, corner versus interior lot location, neighboring properties, view amenities, and other factors. The subject is located in San Jose. All of the comparables are also located within relatively similar central locations with relatively similar demand generators and no adjustments are necessary for location. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 68

78 SALES COMPARISON APPROACH Size (No. of Parking Spaces) As previously indicated, the subject property is a 330-space parking garage. The comparable parking garages range in stall size from 119 to 428 parking spaces each. Brokers surveyed are split as to adjustments for number of parking spaces. According to Chris Gandy of HFF, who has sold Comparable 5 (1000 Van Ness, SF) as well as Ghirardelli Square ( Northpoint, SF), properties with 200 to 500 spaces are generally consistent and merit no adjustments and that smaller properties could be considered nominally inferior. We have applied minor upward adjustments for the smaller properties with less than 200 units (Sales 5 and 7) consistent with broker opinion. Quality/Appeal The subject and comparables feature relatively similar quality appeal characteristics and adjustments for quality/appeal were not needed. Age/Condition The subject property was constructed in 2008 and is generally considered to be in average to good condition. As noted in the Description of Improvements, we have estimate effective age to be 5 years. With the exception of Comparable Sales 3 and 6, all of the comparables were built in 2003 or before, representing older parking garages. These older garages warrant upward adjustments. We have relied on the nominal upward adjustments noted by the brokers for our adjustments of age/condition. Sales 3 and 6 was built in 2007 and 2008, respectively. This indicates a similar overall age as compared to the subject and merits no adjustments for age or condition. Valet/Individual Use A parking garage can have a significant difference in utility if it were valet parked as opposed to individual parking. Typically, valet parking can allow a parking garage to accommodate many more vehicles than individual parking can. However, valet parking also comes with the downside of additional management costs. Nonetheless, parking garages that are valet parked versus individual parked can have a significant difference in overall sale price. Excluding Sales 6, 7 and 8, neither the subject nor the comparable properties had a significant amount of valet parking. Thus, no adjustments for valet versus individual use were merited. Sales 6, 7 and 8 included valet parking and we have adjusted these sales downward to account for their valet parking. Parking/FAR Adjustments for parking or floor area ratio (FAR) for the subject and the comparables are typically captured in number of parking spaces. However, significant differences in average space size do often merit adjustments for average space size in addition to the adjustments for number of parking spaces. The subject property has an average space size of 475 square feet. We note that the comparable properties all have average space sizes that range from 230 to 451 square feet per space. Although this range is slightly smaller than the subject s average square foot per space size, according to various parking lot owners, this range in average space size is generally considered typical and is similar to the subject in terms of average square foot per space. Thus, no adjustment for average size per space is merited. Income Potential We note that although many parking garages are purchased by investors for their income, parking garage incomes are not always disclosed. In order to derive an adjustment, we have considered the VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 69

79 SALES COMPARISON APPROACH net operating income per stall (NOI/stall) of each comparable that has reported such value versus the NOI/stall of the subject property as indicated in the Income Approach. Of the comparables that did disclose their financial information, the indicated annual net operating income (NOI) per stall ranges from $1,987 to $3,094 per space per year. This range adequately brackets the subject s NOI per stall estimate of $1,935 as noted in our Income Approach. A 50% scalar was then applied to this difference to minimize its overall impact on value. No adjustments were applied for the sales that did not report any NOI/stall. Summary of Adjustments Based on the preceding comparative analysis, we have summarized adjustments to the comparable sales in the following table. We completed a qualitative/quantitative analysis. These adjustments are based on our market research, best judgment, and experience in the appraisal of similar properties. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 70

80 SALES COMPARISON APPROACH BUILDING SALE ADJUSTMENT GRID COMPARABLE SALES DATE OF SALE Dec-14 May-13 Listing Oct-13 Oct-13 Feb-12 Jun-11 Feb-11 SALE PRICE $16,900,000 $14,000,000 $21,500,000 $4,987,500 $22,800,000 $12,750,000 $8,050,000 $19,230,000 NO OF SPACES RENTABLE BLDG (SQ FT) 167, , ,000 36, , ,961 42, ,000 SIZE PER STALL (SF) AGE NOI/Stall $3,094 $0 N/A N/A $2,487 $1,987 $2,828 $2,509 PRICE/SPACE $46,175 $58,333 $50,234 $41,912 $54,545 $36,119 $43,514 $52,830 PRICE/SQ FT $ $ $ $ $ $ $ $ ADJUSTMENTS Property Rights 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Financing 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Conditions of Sale 0.0% 0.0% -20.0% 0.0% 0.0% 0.0% 0.0% 0.0% Dollar Adjustment $0 $0 ($4,300,000) $0 $0 $0 $0 $0 NORMAL SALE PRICE $16,900,000 $14,000,000 $17,200,000 $4,987,500 $22,800,000 $12,750,000 $8,050,000 $19,230,000 TIME ADJUSTMENT Months Since Sale Total Adjustment 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Dollar Adjustment $0 $0 $0 $0 $0 $0 $0 $0 TIME ADJ PRICE $16,900,000 $14,000,000 $17,200,000 $4,987,500 $22,800,000 $12,750,000 $8,050,000 $19,230,000 LOCATION/ ACCESS 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SIZE (NO. PARKING SPS) 0.0% 0.0% 0.0% -5.0% 0.0% 0.0% -5.0% 0.0% QUALITY/APPEAL 0.0% 0.0% 0.0% 0.0% -10.0% 0.0% 0.0% 0.0% AGE/ CONDITION 2.5% -2.5% 0.0% 2.5% 2.5% -2.5% 5.0% 0.0% VALET/INDIVIDUAL USE 0.0% 0.0% 0.0% 0.0% 0.0% -5.0% -10.0% -5.0% PARKING/FAR 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% INCOME POTENTIAL -18.7% 0.0% 0.0% 0.0% -11.1% -1.3% -15.8% 4.8% TOTAL % ADJUSTMENT -16.2% -2.5% 0.0% -2.5% -18.6% -8.8% -25.8% -0.3% ($2,743,070) ($350,000) $0 ($124,688) ($4,240,512) ($1,122,504) ($2,076,721) ($48,075) INDICATED VALUE $14,156,930 $13,650,000 $17,200,000 $4,862,813 $18,559,488 $11,627,496 $5,973,279 $19,181,925 INDICATED PRICE/ SPACE $38,680 $56,875 $40,187 $40,864 $44,401 $32,939 $32,288 $52,698 CONCLUDED PRICE/ SPACE $41,000 /Space Or $13,530,000 Rounded $13,530,000 Minimum Adjusted Sale Price (/Space $32,288 Maximum Adjusted Sale Price (/Spac $56,875 Median Adjusted Sale Price (/Space) $40,525 Mean Adjusted Sale Price (/Space) $42,366 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 71

81 SALES COMPARISON APPROACH Sales Comparison Approach Value Indication From the market data available, relevant parking garage sales were selected as most comparable to the subject. The unadjusted sale prices for the comparable sales ranged from $36,119 to $58,333 per space, with an average of $47,958 per space. We have adjusted the comparable sales based on pertinent elements of comparison as discussed earlier and summarized the adjustments in the preceding grid. The final adjusted sale prices reflected a range from $32,288 to $56,285 per space, rounded with an average of $42,366 per space and a median of $40,525 per space. The most proximate sales, represented by Comparables 4, 5, 6, 7 and 8, present an average of $40,638 per space. Based on these factors, with additional consideration given to the sales adjusted average price per space, we have concluded to a market value of $41,000 per space for the subject property. As previously noted, the subject property contains a total of 330 parking spaces. Thus, the fee simple value of the subject property, as indicated by the Sales Comparison Approach, is summarized as follows: Sales Comparison Approach Value Indication Indicated Reasonable Value Range 330 stalls x $32,000 = $10,560, stalls x $55,000 = $18,150,000 Fee Simple Value Indication 330 stalls x $41,000 = $13,530,000 Overall, we conclude that the Sales Comparison Approach value indication of $13,530,000. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 72

82 INCOME CAPITALIZATION APPROACH Income Capitalization Approach Methodology The income approach is developed by converting a forecast of future installments of income into a present value by a capitalization process. There are two types of capitalization: direct capitalization and yield capitalization, also known as discounted cash flow (DCF) analysis. Direct capitalization involves developing a stabilized forecast of income, and capitalizing the income into value using a capitalization rate. Direct capitalization assumes the income forecast and value change will be similar for the subject and comparables analyzed. Yield capitalization requires a forecast of the income stream a property may produce during its remaining useful life or during a specific holding period, and a value reversion (i.e., resale of the property) at the end of the holding period. Yield capitalization allows modeling of an income stream to reflect potential fluctuations over the holding period, and is of particular importance to investors as it enables one to compare the financial return of the subject with alternative investments. Income-producing properties, by nature, are developed and purchased for investment purposes, where earning power, including an income stream and return of investment, are the most critical elements affecting value. The forecast of income and selection of appropriate rate(s) are therefore important aspects of the valuation process. The steps in developing the income approach are as follows: Analysis of Existing Leases Market Rent Analysis Income Analysis Vacancy Analysis Expense Analysis Rate Analysis Application of Methodologies Direct capitalization is most applicable to stabilized properties and those with long-term leases and level income. Yield capitalization recognizes changes in income patterns over a holding period and is most applicable to investment-grade properties, particularly those with multiple tenants, anticipated changes in income patterns and/or anticipated lease turnover. In this appraisal, we employed the direct capitalization method in developing an indication of market value. Analysis of Existing Lease As previously mentioned, the subject contains a total of 330 parking spaces. A portion of these spaces is encumbered by the Property Use and Parking Agreement between Safeway and the former Redevelopment Agency of the City of San Jose, dated September 3, However, the client has requested that the appraisers are to assume that the property will be sold to a private party and that, as a result of such sale, the Property Use and Parking Agreement between Safeway and the former Redevelopment Agency of the City of San Jose dated September 3, 2009 will be terminated. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 73

83 INCOME CAPITALIZATION APPROACH For this reason, we have not placed any consideration on the existing lease or the income generated from this lease. Analysis of Existing Monthly versus Daily Parking Structure As previously mentioned, the subject property contains a total of 330 parking spaces. We were not provided with the exact amount of monthly parking spaces versus the number of transient parking spaces. As such, we will calculate the number of monthly and transient parking spaces, based on the income received for each of these types of parking spaces. In order to calculate the number of monthly versus transient parking spaces, we have considered the respective incomes from each type of parking as a function of total income from parking. We were provided with the annual income from monthly parking, annual income from transient parking and total income from parking in the 2011, 2012, 2013 and 2014 calendar years. These income figures, and the annual income figures as a percentage of total income per year, are presented in the following table Income 2012 Income 2013 Income 2014 Income Annual Amount Percent of Total Annual Amount Percent of Total Annual Amount Percent of Total Annual Amount Percent of Total Annual Income from Monthly Parking $92,750 $154,350 $155,190 $173,090 Monthly Parking Income (/330 spaces/month) $ % $ % $ % $ % Annual Income from Transient Parking $186,700 $242,949 $259,296 $261,361 Annual Income from Validation $0 $0 $0 $0 Total Ann Inc from Transient Parking $186,700 $242,949 $259,296 $261,361 Monthly Parking Income (/330 spaces/month) $ % $ % $ % $ % Total Income from Parking $279,450 $397,299 $414,486 $434,451 Total Parking Income (/space/month) $ % $ % $ % $ % As depicted in the table above, the overall annual income from parking for the total subject property ranges from $279,450 to $434,451 per year. Dividing the annual total income from parking by the total of 330 parking spaces and by the 12 months in a year, indicates an annual income per space per month that ranges from $70.57 to $ On an annual basis, the income generated from the monthly parking portion of the overall property ranges from $92,750 to $173,090 per year. Dividing these annual income numbers from monthly parking by the total of 330 parking spaces and by the 12 months in a year indicates a monthly parking income per space per month that ranges from $23.42 to $ As a percentage of the overall annual income from parking, this indicates a monthly parking percentage range of 33.19% to 39.84%. In order to obtain a more exact number of monthly parking spaces, we have considered the average of the monthly parking percentages, which is calculated to be 37.33%. Thus, approximately 37.33% of the overall total of 330 parking spaces, or 123 parking spaces, is monthly parking spaces. We will utilize this number of monthly parking spaces in our analysis. As previously mentioned, the client has requested that we place no consideration on the existing lease. Thus, the subject property is will be considered to generate no validation income over the three years of our analysis. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 74

84 INCOME CAPITALIZATION APPROACH Additionally, on an annual basis, the income generated from the transient parking portion of the overall property ranges from $186,700 to $261,361 per year. Dividing these annual income numbers from transient parking by the total of 330 parking spaces and by the 12 months in a year indicates a transient parking income per space per month that ranges from $47.15 to $ As a percentage of the overall annual income from parking, this indicates a transient parking percentage range of 60.16% to 66.81%. In order to obtain a more exact number of monthly parking spaces, we have considered the average of the monthly parking percentages, which is calculated to be 62.67%. Thus, approximately 62.67% of the overall total of 330 parking spaces, or 207 parking spaces, is transient (or daily) parking spaces. Using the above annual percentages, the 4 year average percentage of parking is broken out as 37.33% as monthly parking and 62.67% as transient parking. Based on the above percentages, we have estimate the monthly parking to be 123 spaces and the transient parking to be 207 spaces Income 2012 Income 2013 Income 2014 Income 4-Year Percent of Total Percent of Total Percent of Total Percent of Total Average % Parking Sp Annual Income from Monthly Parking Monthly Parking Income (/330 spaces/month) 33.19% 38.85% 37.44% 39.84% 37.33% 123 parking spaces Annual Income from Transient Parking Annual Income from Validation Total Ann Inc from Transient Parking Monthly Parking Income (/330 spaces/month) 66.81% 61.15% 62.56% 60.16% 62.67% 207 parking spaces Total Income from Parking Total Parking Income (/space/month) % % % % 330 parking spaces As noted in the Extraordinary Assumptions section, while we were provided information regarding the number of monthly parking spaces versus the number of transient parking spaces and validations, we were not provided with the exact amount of each. As such, we have calculated the number of monthly and transient parking spaces, based on the income received for each of these types of parking spaces. It is an extraordinary assumption of this report that this breakdown of monthly versus transient parking spaces is correct. Should either the actual number of monthly or transient parking spaces differ from this estimate, this could have an impact on the subject's income which, in turn, impacts the overall value of the subject property. Market Rent Analysis A rental survey was conducted as a basis with which to compare market rent levels to actual contract rents being achieved by the subject, as of June A summary of these comparable rentals is located on the following page, followed by a Location Map, and photographs. Our rent survey includes various parking garages in the subject s market area. The parking garages surveyed are all located within the subject s market area and contain relatively similar proximity to parking demand generators such as the San Jose Convention Center, San Jose State University and downtown San Jose. The parking garages surveyed all offer both daily and monthly parking rates. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 75

85 INCOME CAPITALIZATION APPROACH A common unit of comparison for parking garages is the rental rate per square foot; however, typical tenants do not make their rental decisions on this basis. Rather, the typical tenant will base their decision on location (or distance to destination) and price per parking space. As such, our analysis presents per space rents, either on a price per space per day (transient parking) or a price per space per month (monthly parking). VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 76

86 Subject 88 SAN FERNANDO GARAGE INCOME CAPITALIZATION APPROACH Rent Survey - Central Place Public Parking Garage June 2015 Project Size (s.f.) Spaces Daily Monthly Avg Location Yr Built Rate Rate Occ Comments Central Place Parking Garage 156, $20 88 E San Fernando Street 2008 San Jose The subject consists of a three level subterranean parking structure with 330 spaces; located within downtown San Jose. Parking includes primarily self park use. 1 Classic Pavilion Garage 27, $15 $105 65% to 75% 150 S 2nd Street 1918 San Jose 2 2nd & San Carlos Garage 87, $20 $100 75% to 85% 280 S 2nd Street 1984 San Jose 3 Koll Building Garage 232, $15 $110 90% to 100% 60 S Market Street 1986 San Jose 4 4th Street Garage Undisclosed 743 $20 $100 75% to 85% 44 S 4th Street 1940 San Jose Two-story mixed-use retail/parking building with 264 spaces; subterranean parking; early bird discount; $5 flat rate overnight parking. Three-story mixed-use retail/parking building with 506 spaces; $5 flat rate evening special; $5 flat rate overnight parking. 15-story mixed-use office/parking building with 400 spaces; parking occupancy ranges, with up to 95% on the best days. Seven-story mixed-use retail/parking building with 743 spaces; monthly parking at this garage is reserved for students of San Jose State University with monthly parking available for others at $100 per month at the 2nd & San 5 City View Plaza 73, $25 $135 65% to 80% 115 S Market Street 1970 San Jose Eight-story mixed-use building with 1080 parking spaces; part of the Park Center Plaza mixed-use office/retail/parking complex; approximately 80% of spaces are reserved for 6 AMPCO System Parking 106, $20 $125 85% to 100% 95 S Market Street 1977 San Jose Six-story mixed-use office/parking building with 96 spaces; subterranean parking structure. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 77

87 INCOME CAPITALIZATION APPROACH RENT COMPARABLE MAP VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 78

88 INCOME CAPITALIZATION APPROACH GARAGE RENT COMPARABLE 1 Property Name Address Classic Pavilion Garage 150 South 2 nd Street, San Jose, CA Property Description Project Size (s.f.) Spaces Daily Avg Monthly Vacancy Location Yr Built Rate Daily Rate Rate Rate Classic Pavilion Garage 27, $15 $5 $105 30% 150 S 2nd Street 1918 San Jose Comments Known as the Classic Pavilion Garage, this garage is situated within a two-story, mixed-use retail over parking building in San Jose. In total, this garage contains 264 subterranean parking spaces. This garage offers an early bird discount of $5.50 flat rate parking. Additionally, overnight parking is available at this lot, with a flat rate of $5. Monthly parking is also available at a rate of $105 per space. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 79

89 INCOME CAPITALIZATION APPROACH GARAGE RENT COMPARABLE 2 Property Name Address 2 nd & San Carlos Garage 280 South 2 nd Street, San Jose Property Description Project Size (s.f.) Spaces Daily Avg Monthly Vacancy Location Yr Built Rate Daily Rate Rate Rate 2nd & San Carlos Garage 87, $20 $4 $100 20% 280 S 2nd Street 1984 San Jose Comments Known as the 2 nd & San Carlos Garage, this garage is situated within a 15-story mixed-use office-over-garage building. In total, this garage contains 506 striped parking spaces. This garage offers a $5 flat rate evening special as well as $5 flat rate overnight parking. Monthly parking is at a rate of $100 per space. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 80

90 INCOME CAPITALIZATION APPROACH GARAGE RENT COMPARABLE 3 Property Name Address Koll Building Garage 60 South Market Street, San Jose Property Description Project Size (s.f.) Spaces Daily Avg Monthly Vacancy Location Yr Built Rate Daily Rate Rate Rate Koll Building Garage 232, $15 $1 $110 5% 60 S Market Street 1986 San Jose Comments Known as the Koll Building Garage, this garage is situated within a 15-story mixed-use office-over-retail building. In total, this garage contains 400 parking spaces. The parking operator indicated that vacancy at this property varies, although this garage can get full when there are events going on in the immediate area. However, the parking operator indicated that on a typical day, occupancy does not exceed 95%. The daily rate at this garage is $15 per space. The monthly rate is $110 per space. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 81

91 INCOME CAPITALIZATION APPROACH GARAGE RENT COMPARABLE 4 Property Name Address 4 th Street Garage 44 S 4 th Street, San Jose Property Description Project Size (s.f.) Spaces Daily Avg Monthly Vacancy Location Yr Built Rate Daily Rate Rate Rate 4th Street Garage Undisclosed 743 $20 $4 $100 20% 44 S 4th Street 1940 San Jose Comments Known as the 4 th Street Garage, this garage is part of a seven-story, mixed-use retail and parking building. In total, this building contains 743 parking spaces. The parking operator noted that monthly parking at this property is reserved for students of San Jose State University. Monthly parking for all non-students is available at the 2 nd & San Carlos Garage, where the monthly parking rate is also $100 per space per month. Daily parking is available to the public at a rate of $20 per space. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 82

92 INCOME CAPITALIZATION APPROACH GARAGE RENT COMPARABLE 5 Property Name Address City View Plaza 115 South Market Street, San Jose Property Description Project Size (s.f.) Spaces Daily Avg Monthly Vacancy Location Yr Built Rate Daily Rate Rate Rate City View Plaza 73, $25 $6 $135 25% 115 S Market Street 1970 est Undisclosed San Jose Comments Known as the City View Plaza, this garage is part of an eight-story, mixed-use property called the Park Center Plaza. The Park Center Plaza contains a mix of Class A office space, ground floor retail and parking spaces. In total, the City View Plaza Parking Garage contains 1,080 parking spaces. The parking lot operator indicated that of the total parking spaces, approximately 80% consist of monthly parking spaces. Although this number is higher than typical, the parking lot operator noted the high amount of office and supporting land uses that require parking space in the immediate area. The daily rate at this garage is $25 per space. The monthly rate is $135 per space. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 83

93 INCOME CAPITALIZATION APPROACH GARAGE RENT COMPARABLE 6 Property Name Address AMPCO System Parking 95 South Market Street, San Jose Property Description Project Size (s.f.) Spaces Daily Avg Monthly Vacancy Location Yr Built Rate Daily Rate Rate Rate AMPCO System Parking 106, $20 $2 $125 10% 95 S Market Street 1977 San Jose Comments Commonly known as the AMPCO System Parking, this parking garage is situated within a six-story, mixed-use building containing office land uses over parking. In total, this garage contains 96 subterranean parking spaces. Although this parking garage is closed on weekends, their occupancy during the weekdays is pretty high, with a typical occupancy rate of 90% to 100%. At this garage, the monthly rate is $125 per space, while the daily rate is $20 per space. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 84

94 INCOME CAPITALIZATION APPROACH Market Rent Our rent survey includes various parking garage projects in the subject s market area. Our analysis focuses on both parking garages in similar location to the subject s parking garage as well as parking garages that offer both daily and monthly parking. Our initial survey included several garages in the subject s immediate Downtown San Jose submarket. Overall, we have included six projects in our summarized rent survey. The rental rates quoted were reflective of asking rates as of June These units are leased on monthly or daily basis. Monthly rental rates As depicted in the table above, average monthly parking rates range from $100 to $135 per space per month, with an average of $113 per space per month. The monthly rental rates for Comparables 1, 2 and 4, which are considered to be most proximate, range from $100 to $105 per month. Comparables 3, 5 and 6, situated along Market Street present a higher rental rate range, from $110 to $135 per month. These three latter comparables feature more visibility and are proximate to the San Pedro Square, major office demand generators and the Plaza de Cesar Chavez Park. Overall, these three comparables merit a nominal downward adjustment for location. Overall, we conclude to a market rent of $115 per space per month for the subject s monthly parking spaces, which is consistent with the average of the comparables. Additionally, we have reviewed the subject s historical income as presented by the client. monthly rental income is reported as follows: The Monthly Rental Income $92,750 $154,350 $155,190 $173,090 Monthly Rate per space $62.84 $ $ $ Overall, our concluded estimate of monthly rental income at $115 per space appears to be consistent with historical income reported at the subject property. Based on the above, we estimate the income from monthly parking to be $169,740 (123 spaces x 12 months x $115 per space per month). Daily Rental Rates Average daily parking rates range from $15 to $25 per space per day, with an average of $19 per space per day. The daily rental rates for Comparables 1, 2 and 4, which are considered to be most proximate, range from $15 to $20 per day. Thus, we conclude to a market rent of $20 per space per day for the subject s daily or transient parking spaces, which is consistent with the average of the comparables. Additionally, we have reviewed the subject s historical income as presented by the client. The rental income from transient daily parking is reported as follows: VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 85

95 INCOME CAPITALIZATION APPROACH Transient Rental Income $186,700 $242,949 $259,296 $261,361 Daily Rate per space $2.47 $3.22 $3.43 $3.46 Validation Income $20,400 $20,550 $22,197 $19,434 Daily Rate per space $0.27 $0.27 $0.29 $0.26 As noted above, the transient daily parking reported in the historical income of the subject reflects both transient rental income and validation income from Safeway. As noted in various sections of this report, at the request of the client, the appraisers are to "assume that the property will be sold to a private party and that, as a result of such sale, the Property Use and Parking Agreement between Safeway and the former Redevelopment Agency of the City of San Jose dated September 3, 2009 will be terminated." We note that the aforementioned lease between Safeway and the former Redevelopment Agency of the City of San Jose, dated September 3, 2009, was still in place at the time of our inspection. As such, transient rental income will only come in the form of daily rental income. As noted above, our concluded estimate of daily rental income is $20 per space per day. Based on the above, we estimate the income from daily parking to be $1,511,100 (207 spaces x 365 day x $20 per space per day). These concluded market rates are also generally consistent with the previous daily and monthly parking rates reported in the City of San Jose Department of Transportation survey. Vacancy Analysis The next step is to estimate vacancy and collection loss for the subject property. The historical occupancy at the subject property was reported to range from 70 to 120 spaces daily. Out of the total 330 parking spaces, the occupancy ranges from 21.21% to 36.36%. This is well below market occupancy rates as reported by various market participants. In our market rent survey, 3,089 parking spaces, not including the subject, were considered from the immediate market area. Occupancy for parking garages in the immediate area ranged from 65% to 100%, with an average of approximately 80%. Of the properties in closest proximity to the subject, indicated by Comparables 1, 2 and 4, occupancy ranged from 70% to 80% with an average of 77%. Overall, the true vacancy, which combines both short term and monthly, is relatively stable around 20% to 40% with variances based on proximity to employment and demand generators, positioning with residential or office building basement areas and/or amount of competing parking garages/lots in the immediate area. From the rental comparables, we feel that a stabilized vacancy rate of 25% to 30% is reasonable for leased investments. Additionally, we surveyed various owner of parking garages as well as various assessor offices. According to Jeff Zeisler of Summerhill Apartments, formerly with Carmel Partners, parking garage vacancy rates are generally 25% to 35%. Mr. Zeisler did not differentiate vacancy rates between monthly and daily transient parking and has noted that for their development analyses, the same vacancy rates are generally utilized for each category. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 86

96 INCOME CAPITALIZATION APPROACH According to Craig Cooper with the Santa Clara Assessor s Office, parking vacancy rate countywide is approximately 25% to 35%. Mr. Cooper also noted that there was no empirical data to distinguish a different vacancy rate between monthly and daily parking. In the assessor s office, they consider the vacancy rate to be similar for both. According to Mel Ednalaga with Alameda County Assessor s office, parking vacancy rate countywide is approximately 20%. Based on the above surveys, we feel that a vacancy rate of 20% to 30% is reasonable and well supported. As previously noted, the subject currently has low reported occupancy. We feel that the occupancy statistics reported at the subject include a skewed occupancy rate due to the validations associated with Safeway. Our discussions with various market participants reveal that no adverse locational nor utility concerns are merited and that good management and operations should achieve market occupancy at the subject. Overall, we feel that our concluded market vacancy rate of 30%,, at the upper end of the comparable range, for both the subject s monthly and daily (transient) parking, is reasonable and adequately supported. We will consider this rate in our analysis. Other Income Additionally, the subject property receives income from miscellaneous income, broken out as follows: Other/Miscellaneous Income $26,865 $20,738 $22,421 $23,356 Deposit/Refund $140 $720 $1,030 $1,150 Misc. rev $26,732 $19,952 $21,371 $22,174 Cash Over/Short -$7 $66 $20 $32 TotalMisc Inc/330 spaces/mo. $6.78 $5.24 $5.66 $5.90 Total miscellaneous income ranges from $5.24 to $6.78 per unit per month with the most recent years between $5.66 and $5.90 per space per month. We have estimated miscellaneous income to be $6.00 per space per month or $23,760 per year (330 spaces x 12 months x $6.00 per space/mo.) As a result, total annual Effective Gross Income equates to $1,284,390, as depicted in the following table. Potential Gross Rental Income #REF! Income from Monthly Parking 123 spcs x 12 months x $ /sp/mos = $169,740 Less Monthly Parking Allow for Vacancy & Collection Loss 30.00% Vacancy = -$50,922 Effective Gross Income for Monthly Parking $118,818 Income from Transient Parking 207 spcs x 365 days x $20.00 /day = $1,511,100 Less Transient Parking Allow for Vacancy & Collection Loss 30.00% Vacancy = -$453,330 Effective Gross Income for Transient Parking $1,057,770 Income from Validation 0 spcs x 365 days x $0.00 /day = $0 Income from Miscellaneous Income 330 spcs x 12 months x $6.00 /sp/mo = $23,760 Effective Gross Income $1,200,348 VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 87

97 INCOME CAPITALIZATION APPROACH Expense Analysis Operating expenses applicable to the subject property must be deducted to arrive at a net operating income. To estimate stabilized operating expenses, we have reviewed the year end 2011 through 2014 historical income and expenses that were obtained from the client. The subject s year end income and expense information is identified in the following table. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 88

98 INCOME CAPITALIZATION APPROACH Projected Subject Expenses ($/SF) Central Place Public Parking Lot, 88 W San Fernando Street, San Jose, CA YE 2011 YE 2012 YE 2013 YE 2014 Real Estate Taxes $0.00 $0.00 /space $0.00 $0.00 /space $0.00 $0.00 /space $0.00 $0.00 /space Insurance $7, $22.15 /space $7, $22.15 /space $7, $22.15 /space $7, $22.72 /space Utilities $0.00 $0.00 /space $6, $21.19 /space $20, $62.39 /space $26, $79.93 /space Repairs and Maintenance $8, $24.99 /space $17, $52.36 /space $11, $34.81 /space $6, $19.41 /space Janitorial $2, $8.00 /space $5, $18.12 /space $2, $8.50 /space $2, $8.00 /space Security $6, $18.18 /space $6, $18.56 /space $6, $19.09 /space $6, $19.68 /space Administrative $215, $ /space $233, $ /space $232, $ /space $248, $ /space Management $8, $708 /mo $8, $708 /mo $8, $708 /mo $8, $708 /mo HOA Fees $228, $19,056 /mo $228, $19,056 /mo $228, $19,056 /mo $243, $20,283 /mo Reserves $ % % of EGI $ % % of EGI $ % % of EGI $ % % of EGI Total Expenses $477, $514, $517, $549, VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 89

99 INCOME CAPITALIZATION APPROACH Real Estate Taxes are based on the assumption that the ownership of the subject property transfers, as of the valuation date, at which time, the subject will be reassessed, with the transfer value used for real estate tax purposes. Although the real property tax rate for the subject property in the 2014/2015 tax year was %, because the subject property is owned by a public entity, no ad valorem taxes or direct assessments apply. We do note, however, that should the subject property be sold to a private entity, the appropriate real estate taxes at the time of sale would apply. Property Insurance generally varies with the type of use and occupancy but not with percentage of occupancy. The subject historical insurance expense ranged from $22.15 to $22.72 per space per year. Overall, we have concluded that an insurance expense based on $23.00 per rentable space, generally consistent with the historical insurance expense at the subject and inclusive of a slight upward trend to reflect rising insurance costs. Utilities: Expenses include common area electricity, water, sewer, and trash removal service. Utility expenses at the subject property ranged from $21.19 to $79.93 per space. Because of the increasing nature of utility expenses over time, we estimate utility expenses to be $80.00 per space, on the upper end of the range presented by the subject s historical utility expenses. Repair and Maintenance: Expenses include maintenance and repair of the parking structures, landscaping and ground/site maintenance, as well as necessary supplies. The subject property reported an overall maintenance and repair cost ranging from $19.41 to $52.36 per space. We note that this expense can range widely from year to year depending on whether non-recurring renovations and improvements are completed in a given year. The last two years present a much tighter range in expense from approximately $19 to $35 per space. We have concluded that $30.00 per space, consistent with the subject s historical expense. Janitorial: Janitorial expenses typically encompass all expenses paid to a contracted janitorial company that cleans and maintains the cleanliness of a subject property. This includes all janitorial supplies as well as uniforms and labor. The subject property has reported historical janitorial costs that range from $8.00 to $18.12 per space. The two most recent expense years present a relatively stable expense range from $8.00 to $8.50 per space. Thus, we have concluded to a janitorial expense of $8.50 per space, consistent with the subject s historical expense. Security: expenses at the subject property include the cost of installing and maintaining the subject s security system. At the subject property, the historical advertising costs ranged from $18.18 to $19.68 per space per year. We have estimated an advertising expense consistent with the subject s historical range, of $20.00 per space for this expense category moving forward, consistent with the three most recent years along with a consideration for a nominal upward trend in security expenses. Administrative Expense: Our appraisal of the subject property assumes competent professional management. Further, we have demised property management expenses into two categories: on-site management or administrative expense as well as off-site management or management expense. Administrative expenses at the subject property consist of wages, various employee benefits, payroll taxes, workers compensation, signs, licenses and permits, auto-related expenses, telephone, VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 90

100 INCOME CAPITALIZATION APPROACH uniforms, postage, office supplies expenses, printing & form fees, and miscellaneous administrative expenses. The terms of the existing Safeway Validation Agreement has been previously discussed. As noted in the extraordinary assumptions section, at the request of the client, the appraisers are to "assume that the property will be sold to a private party and that, as a result of such sale, the Property Use and Parking Agreement between Safeway and the former Redevelopment Agency of the City of San Jose dated September 3, 2009 will be terminated." This assumption may alter the administrative costs that are broken out as follows: Administrative $215,709 $233,192 $232,112 $248,388 Wages $114,640 $118,494 $119,072 $120,978 Special Wages -$1,184 -$1,261 -$676 -$3,723 Vacation $9,510 $10,027 $10,220 $10,151 Sick $1,190 $1,863 $2,149 $1,663 Payroll Taxes $13,065 $11,473 $8,687 $18,669 Wrks Comp $16,990 $17,201 $17,774 $17,699 Union Benefits $1,338 $1,745 $1,790 $1,835 Health & Welfare $39,443 $45,488 $45,244 $51,078 Signs $225 $928 $0 $0 Licenses & Permits $169 $150 $151 $151 Auto Maintenance $0 $110 $0 $0 Telephone $4,788 $6,081 $6,957 $8,163 Uniforms & Laundry $1,376 $1,097 $1,959 $2,130 Postage $0 $22 $0 $0 Office Supplies $972 $1,907 $2,046 $1,224 Forms & Printing $439 $0 $203 $0 Misc $291 $882 $441 $451 Tickets $3,862 $5,749 $3,845 $4,243 Bank Charges $4,515 $7,156 $7,749 $8,921 Account Fee $3,000 $3,000 $3,000 $3,000 Network Fee $1,080 $1,080 $1,501 $1,755 Despite the assumption that the Safeway validation agreement could be terminated, we note that the various administrative charges would be typical charges that are considered by any parking garage operator. As such, we do not anticipate any impact to our estimate of administrative expenses, as a result of the extraordinary assumption that the Safeway validation agreement has been terminated. Based on the 330 spaces at the subject, the reported historical administrative expenses present a range from $ to $ per space per year. The three most recent expense years present a range from approximately $703 to $753 per space. We have estimated an administrative expense of $ per space for this expense category moving forward. Management Expense: The subject s historical off-site management expenses has been consistently $8,496 per year until 2014, when it dropped to $8,492. The client has confirmed that the fixed VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 91

101 INCOME CAPITALIZATION APPROACH monthly management expense is currently at $ or $8,492. We will utilize this amount in our analysis. HOA Fees: As previously mentioned, the subject is a portion of the overall The 88 mixed-use condominium complex. All units within this complex pay a homeowner s association (HOA) fee. As such, an HOA feet expense applies to the subject property. The historical HOA fee ranges from $228, to $243, per year. Because HOA fees are typically assessed and paid on a monthly basis, we have converted this annual amount to a monthly amount that ranges from $19,056 to approximately $20,283 per month. The client has affirmed that the current annualized HOA fee is $20,737 per month or $248,844 and that this amount represents an approximate 2.2% increase over the 2014 annual HOA costs. It is anticipated that the HOA fees will increase over time in proportion to the increase in common area maintenance and management activities. We will utilize these amounts in our proforma. Reserves for Replacement: Reserves for replacement of short-lived building components are not always reflected on the operating statements of commercial properties as being funded monthly as an expense item, particularly on pro forma operating statements of proposed product. As mentioned previously, our appraisal of the subject project assumes competent professional management of the property. The prospective purchaser of this type of property would include some level of allowance for replacement reserves in their analysis of the property in determining what price they are willing to pay. We have elected to include a separate line item for reserves as indicated in our projected operating statement. There were no historical reserves reported for the subject property since We note that it is likely that the reserves amounts are categorized into the Repairs and Maintenance expense category. According to various owners and property managers, reserves for replacements typically range from 1.0% to 3.0% of Effective Gross Income. Given that the subject was built in 2008 and is generally considered to be in above average overall condition, we estimate reserves for replacement in the lower end of the range, at 1.% of EGI. Total expenses are projected at $561,885, or approximately $1,703 per parking space. The overall operating expense ratio equates to approximately 46.8% of Effective Gross Income (EGI). Overall, the level of expenses forecasted for the subject, as a percentage of Effective Gross Income, is concluded to be reasonable. Net Operating Income As indicated in the Income Approach summary presented below, annual Net Operating Income for the subject property is projected to be $638,463 or $1,935 per space. Capitalization Rate Analysis The next step is to process the projected net income into a value estimate. This is accomplished by determining the capitalization rate. The capitalization rate is the ratio of net income to the sale price (i.e., cap rate = net income sale price). Once a rate is selected for the subject and the net income projected, the same formula can be used to estimate market value. The capitalization rate can be VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 92

102 INCOME CAPITALIZATION APPROACH extracted from market sales if the net income is known or can be reasonably estimated at time of sale. The selection of a capitalization rate depends on such factors as strength of tenancy, type and quality of leases, building age and condition, quality of location, and perhaps most importantly, potential for future change in net operating income, and/or appreciation. For example, a property leased for a long-term basis with little rental increase for inflation adjustments would be expected to have a relatively high capitalization rate. We considered capitalization rate comparable sales, which are presented in the following table: BUILDING SALES SUMMARY Sale No. Location Bldg Area Stalls/SF No Stalls Year Blt Lot Size FAR Sale Date Sale Price Cap Rate 1 33 W Ontario Street 167, ,441 Dec-14 $16,900, % Chicago, IL % Van Ness Avenue 151, ,840 Oct-13 $22,800, % San Francisco, CA % rd Street 117, ,941 Feb-12 $12,750, % San Francisco % Post Street 42, ,906 Jun-11 $8,050, % San Francisco % Mission Street 164, ,021 Feb-11 $19,230, % San Francisco, CA % The capitalization rates presented by the comparable sales form a range of 4.56% to 6.70%. Based on the above, we feel that a reasonable overall rate for a property at market rents would range from 4.50% to 6.75%. We note that published surveys, including RERC (the Real Estate Research Corporation) and Korpacz do not publish capitalization (cap) rate information on parking garages. Instead, we have relied on our own national survey of parking garages. As previously mentioned, the subject property is situated in Downtown San Jose. The parking demand in Downtown San Jose is very strong for parking structure facilities such as the subject. The subject s positioning as part of a mixed use residential condominium and grocery anchored retail VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 93

103 INCOME CAPITALIZATION APPROACH center contributes to its continued success. The subject is a recently built (2008) structure and is in average to good condition. Overall, we feel that an overall rate in the lower end of the overall rate range indicated by the sales is reasonable. Based on the above factors, we feel that a reasonable overall rate for the subject is 5.00%, within the lower to middle end of the capitalization rate range presented by the comparable sales, but still adequately supported by the investor surveys. This overall rate will be applied to the projected net operating income of the subject property. Projected 12 Month Operating Statement Income Summary 12-Month Projection Potential Gross Rental Income #REF! Income from Monthly Parking 123 spcs x 12 months x $ /sp/mos = $169,740 Less Monthly Parking Allow for Vacancy & Collection Loss 30.00% Vacancy = -$50,922 Effective Gross Income for Monthly Parking $118,818 Income from Transient Parking 207 spcs x 365 days x $20.00 /day = $1,511,100 Less Transient Parking Allow for Vacancy & Collection Loss 30.00% Vacancy = -$453,330 Effective Gross Income for Transient Parking $1,057,770 Income from Validation 0 spcs x 365 days x $0.00 /day = $0 Income from Miscellaneous Income 330 spcs x 12 months x $6.00 /sp/mo = $23,760 Effective Gross Income $1,200,348 Less Expenses: Basis for Projection Real Estate Taxes % Current Rate $0 Direct Assessments Current Rate $0 Insurance $23.00 /space Projected $7,590 Utilities $80.00 /space Projected $26,400 Repairs and Maintenance $30.00 /space Projected $9,900 Janitorial $8.50 /space Projected $2,805 Security $20.00 /space Projected $6,600 Administrative $ /space Projected $239,250 Management $ per month Projected $8,492 HOA Fees $20,737 per month Current Rate $248,844 Replacement Reserves 1.00% of EGI Projected $12,003 Total Expenses 46.81% (of EGI $561,885 Net Operating Income $1,935 per stall x 330 stalls = $638,463 NOI per stall $1,935 Divided by Capitalization Rate 5.00% CONCLUDED VALUE VIA INCOME APPROACH $12,769,262 Rounded To: $12,770,000 per space: $38,697 per SF: $81.41 Income Approach Reconciliation For the subject property, the direct capitalization method was developed. The quantity and quality of data is sufficient to result in credible analyses. Based on the techniques developed, we estimate a Market Value, via the Income Approach, to be $12,770,000. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 94

104 SUMMARY OF VALUE INDICATIONS Reconciliation Summary of Value Indications The indicated values from the approaches used and our concluded values for the subject property are summarized in the following table. VALUE INDICATIONS & CONCLUDED VALUE Date of Value: 6/1/2015 Sales Comparison Approach $13,530,000 Income Approach $12,770,000 Concluded Fee Simple Market Value $13,000,000 In order to reach a final opinion of value, we considered the reliability and relevance of each value indication based upon the quality of the data and applicability of the assumptions underlying each approach. The approaches relate fairly well to one another within a pattern characteristic of current market conditions. The Sales Comparison Approach values the subject property based on an analysis of sales and/or listings of similar properties in the subject area. The quality and quantity of data available for use within this approach is concluded to be adequate to arrive at a reliable indication of value. The Income Approach values the property based on the relative ability of the property to generate income. In this approach, a market rent survey was conducted from which it was concluded that the actual average rental for each unit type was consistent with market rent levels. The projected net operating income was capitalized based on a market analysis of capitalization rates indicated by sales of similar properties to arrive at the final opinion of value by this approach. The quality and quantity of data available for use within this approach is also concluded to be adequate to arrive at a reliable indication of value. The most probable price the subject property would bring in the open market is best represented by the value indication of the Income Approach to value, consistent with the actions of the typical buyer in the marketplace. In arriving at a final opinion of value, we have given secondary and supporting consideration to the Sales Comparison Approach to value and have given most consideration to the Income Approach to value. We conclude to a fee simple market value of $13,000,000. To conclude to an As Is market value, we must make deductions for any rent loss associated with market vacancy as compared to current vacancy. Additionally, at the request of the client, the appraisers are to "assume that the property will be sold to a private party and that, as a result of such sale, the Property Use and Parking Agreement between Safeway and the former Redevelopment Agency of the City of San Jose dated September 3, 2009 will be terminated." We note that the aforementioned lease between Safeway and the former Redevelopment Agency of the City of San VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 95

105 SUMMARY OF VALUE INDICATIONS Jose, dated September 3, 2009, was still in place at the time of our inspection. Thus, it is an extraordinary assumption of this report is that this lease can be terminated upon sale to a private party. In discussions with various market participants, we feel that the termination of the Safeway Validation agreement and the marketing of the subject property as a market rate and well managed parking garage would not require any significant re-absorption or rent loss deductions. A parking garage operator may increase transient occupancy in a very short period by adjusting daily rates, providing increased marketing efforts to local businesses or increasing monthly parking occupancies. In discussions with various parking garage operators, no additional deductions are warranted for any rebranding of parking garage operators. Overall, based on our discussions, we will not consider any further deductions for rent loss. Based on the above, we conclude that the fee simple market value of the subject property is $13,000,000 or approximately $39,394 per space. Value Value Value Interest Effective Indicated Type Premise Perspective Appraised Date Value Market Value As Is Current Fee Simple 6/1/2015 $13,000,000 Deductions for Deferred Maintenance, Unpaid Taxes and Fees We note that as of our date of value, the subject property suffers from some deferred maintenance. A draft Basement Leak Assessment report for the Central Place Garage published by Allana Buick & Bers, Inc., dated January 15, 2009, indicates that the subject property s below-ground basement is exhibiting some active basement leaks. Although the cost to remediate this deferred maintenance is not clear, the owner is advised to review this report, which can be found in the Addenda. Thus, we will not consider any value adjustment for this deferred maintenance item. Should a cost estimate be determined, the concluded value may be subject to change. Additionally, our research into the subject s HOA Fee and taxes indicates that, as of the date of value, the subject property does contain some unpaid HOA Fees and back taxes owed. As of the date of value, the subject property reportedly has a past due HOA fee amount of $100,000. Additionally, the Santa Clara County Tax Collector s Office indicated a total of $75, in delinquent taxes, which is inclusive of all penalties, interest and fees, as described in the Assessments and Tax Data section of this report. We will not consider any value adjustments for these unpaid amounts, as our subject property is appraised free and clear of liens and unpaid amounts. Should these costs be incorporated into the final appraised value, the concluded value may be subject to change. Exposure and Marketing Periods 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 appraisal; a retrospective opinion based on an analysis of past events assuming a competitive and open market. Exposure time is always presumed to occur prior to the effective date of the appraisal. The opinion of exposure time may be expressed as a range and can be based on one or more of the following: VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 96

106 SUMMARY OF VALUE INDICATIONS Statistical information about time on market; Information gathered through sales verification; and Interviews of market participants. The reasonable marketing time is an opinion of the amount of time it might take to sell a real property interest at the concluded market value level during the period immediately after the effective date of an appraisal. The marketing time is a function of price, time, use, and anticipated market conditions, such as changes in the cost and availability of funds, and is not an isolated opinion of time alone. It is appropriate to discuss the impact of price/value relationships on marketing time and to contrast different potential prices and their associated marketing times with an appraiser s market value opinion for the subject property. Based on statistical information about time on market, escrow length, and marketing times gathered through national investor surveys, sales verification, and interviews of market participants, marketing and exposure time estimates of 12 months and 12 months, respectively, are considered reasonable and appropriate for the subject property. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 97

107 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS General Assumptions and Limiting Conditions This appraisal is subject to the following limiting conditions: 1. The legal description if furnished to us is assumed to be correct. 2. No responsibility is assumed for legal matters, questions of survey or title, soil or subsoil conditions, engineering, availability or capacity of utilities, or other similar technical matters. The appraisal does not constitute a survey of the property appraised. All existing liens and encumbrances have been disregarded and the property is appraised as though free and clear, under responsible ownership and competent management unless otherwise noted. 3. Unless otherwise noted, the appraisal will value the property as though free of contamination. Valbridge Property Advisors Hulberg and Associates, Inc. will conduct no hazardous materials or contamination inspection of any kind. It is recommended that the client hire an expert if the presence of hazardous materials or contamination poses any concern. 4. The stamps and/or consideration placed on deeds used to indicate sales are in correct relationship to the actual dollar amount of the transaction. 5. Unless otherwise noted, it is assumed there are no encroachments, zoning violations or restrictions existing in the subject property. 6. The appraiser is not required to give testimony or attendance in court by reason of this appraisal, unless previous arrangements have been made. 7. Unless expressly specified in the engagement letter, the fee for this appraisal does not include the attendance or giving of testimony by Appraiser at any court, regulatory, or other proceedings, or any conferences or other work in preparation for such proceeding. If any partner or employee of Valbridge Property Advisors Hulberg and Associates, Inc. is asked or required to appear and/or testify at any deposition, trial, or other proceeding about the preparation, conclusions or any other aspect of this assignment, client shall compensate Appraiser for the time spent by the partner or employee in appearing and/or testifying and in preparing to testify according to the Appraiser s then current hourly rate plus reimbursement of expenses. 8. The values for land and/or improvements, as contained in this report, are constituent parts of the total value reported and neither is (or are) to be used in making a summation appraisal of a combination of values created by another appraiser. Either is invalidated if so used. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 98

108 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 9. The dates of value to which the opinions expressed in this report apply are set forth in this report. We assume no responsibility for economic or physical factors occurring at some point at a later date, which may affect the opinions stated herein. The forecasts, projections, or operating estimates contained herein are based on current market conditions and anticipated short-term supply and demand factors and are subject to change with future conditions. 10. The sketches, maps, plats and exhibits in this report are included to assist the reader in visualizing the property. The appraiser has made no survey of the property and assumed no responsibility in connection with such matters. 11. The information, estimates and opinions, which were obtained from sources outside of this office, are considered reliable. However, no liability for them can be assumed by the appraiser. 12. Possession of this report, or a copy thereof, does not carry with it the right of publication. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to property value, the identity of the appraisers, professional designations, reference to any professional appraisal organization or the firm with which the appraisers are connected), shall be disseminated to the public through advertising, public relations, news, sales, or other media without prior written consent and approval. 13. No claim is intended to be expressed for matters of expertise that would require specialized investigation or knowledge beyond that ordinarily employed by real estate appraisers. We claim no expertise in areas such as, but not limited to, legal, survey, structural, environmental, pest control, mechanical, etc. 14. This appraisal was prepared for the sole and exclusive use of the client for the function outlined herein. Any party who is not the client or intended user identified in the appraisal or engagement letter is not entitled to rely upon the contents of the appraisal without express written consent of Valbridge Property Advisors Hulberg and Associates, Inc. and Client. The Client shall not include partners, affiliates, or relatives of the party addressed herein. The appraiser assumes no obligation, liability or accountability to any third party. 15. Distribution of this report is at the sole discretion of the client, but no third-parties not listed as an intended user on the face of the appraisal or the engagement letter may rely upon the contents of the appraisal. In no event shall client give a third-party a partial copy of the appraisal report. We will make no distribution of the report without the specific direction of the client. 16. This appraisal shall be used only for the function outlined herein, unless expressly authorized by Valbridge Property Advisors Hulberg and Associates, Inc This appraisal shall be considered in its entirety. No part thereof shall be used separately or out of context. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 99

109 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 18. Unless otherwise noted in the body of this report, this appraisal assumes that the subject property does not fall within the areas where mandatory flood insurance is effective. Unless otherwise noted, we have not completed nor have we contracted to have completed an investigation to identify and/or quantify the presence of non-tidal wetland conditions on the subject property. Because the appraiser is not a surveyor, he or she makes no guarantees, express or implied, regarding this determination. 19. If the appraisal is for mortgage loan purposes 1) we assume satisfactory completion of improvements if construction is not complete, 2) no consideration has been given for rent loss during rent-up unless noted in the body of this report, and 3) occupancy at levels consistent with our Income and Expense Projection are anticipated. 20. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures which would render it more or less valuable. No responsibility is assumed for such conditions or for engineering which may be required to discover them. 21. Our inspection included an observation of the land and improvements thereon only. It was not possible to observe conditions beneath the soil or hidden structural components within the improvements. We inspected the buildings involved, and reported damage (if any) by termites, dry rot, wet rot, or other infestations as a matter of information, and no guarantee of the amount or degree of damage (if any) is implied. Condition of heating, cooling, ventilation, electrical and plumbing equipment is considered to be commensurate with the condition of the balance of the improvements unless otherwise stated. 22. This appraisal does not guarantee compliance with building code and life safety code requirements of the local jurisdiction. It is assumed that all required licenses, consents, certificates of occupancy or other legislative or administrative authority from any local, state or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value conclusion contained in this report is based unless specifically stated to the contrary. 23. When possible, we have relied upon building measurements provided by the client, owner, or associated agents of these parties. In the absence of a detailed rent roll, reliable public records, or as-built plans provided to us, we have relied upon our own measurements of the subject improvements. We follow typical appraisal industry methods; however, we recognize that some factors may limit our ability to obtain accurate measurements including, but not limited to, property access on the day of inspection, basements, fenced/gated areas, grade elevations, greenery/shrubbery, uneven surfaces, multiple story structures, obtuse or acute wall angles, immobile obstructions, etc. Professional building area measurements of the quality, level of detail, or accuracy of professional measurement services are beyond the scope of this appraisal assignment. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 100

110 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 24. We have attempted to reconcile sources of data discovered or provided during the appraisal process, including assessment department data. Ultimately, the measurements that are deemed by us to be the most accurate and/or reliable are used within this report. While the measurements and any accompanying sketches are considered to be reasonably accurate and reliable, we cannot guarantee their accuracy. Should the client desire a greater level of measuring detail, they are urged to retain the measurement services of a qualified professional (space planner, architect or building engineer). We reserve the right to use an alternative source of building size and amend the analysis, narrative and concluded values (at additional cost) should this alternative measurement source reflect or reveal substantial differences with the measurements used within the report. 25. In the absence of being provided with a detailed land survey, we have used assessment department data to ascertain the physical dimensions and acreage of the property. Should a survey prove this information to be inaccurate, we reserve the right to amend this appraisal (at additional cost) if substantial differences are discovered. 26. If only preliminary plans and specifications were available for use in the preparation of this appraisal, then this appraisal is subject to a review of the final plans and specifications when available (at additional cost) and we reserve the right to amend this appraisal if substantial differences are discovered. 27. Unless otherwise stated in this report, the value conclusion is predicated on the assumption that the property is free of contamination, environmental impairment or hazardous materials. Unless otherwise stated, the existence of hazardous material was not observed by the appraiser and 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, or other potentially hazardous materials may affect the value of the property. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required for discovery. The client is urged to retain an expert in this field, if desired. 28. The Americans with Disabilities Act ( ADA ) became effective January 26, We have not made a specific compliance survey of the property to determine if it is in conformity with the various requirements of the ADA. It is possible that a compliance survey of the property, together with an analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of ADA in developing an opinion of value. 29. This appraisal applies to the land and building improvements only. The value of trade fixtures, furnishings, and other equipment, or subsurface rights (minerals, gas, and oil) were not considered in this appraisal unless specifically stated to the contrary. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 101

111 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 30. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated, unless specifically stated to the contrary. 31. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute prediction of future operating results. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance. 32. Any estimate of insurable value, if included within the scope of work and presented herein, is based upon figures developed consistent with industry practices. However, actual local and regional construction costs may vary significantly from our estimate and individual insurance policies and underwriters have varied specifications, exclusions, and non-insurable items. As such, we strongly recommend that the Client obtain estimates from professionals experienced in establishing insurance coverage. This analysis should not be relied upon to determine insurance coverage and we make no warranties regarding the accuracy of this estimate. 33. The data gathered in the course of this assignment (except data furnished by the Client) shall remain the property of the Appraiser. The appraiser will not violate the confidential nature of the appraiser-client relationship by improperly disclosing any confidential information furnished to the appraiser. Notwithstanding the foregoing, the Appraiser is authorized by the client to disclose all or any portion of the appraisal and related appraisal data to appropriate representatives of the Appraisal Institute if such disclosure is required to enable the appraiser to comply with the Bylaws and Regulations of such Institute now or hereafter in effect. 34. You and Valbridge Property Advisors Hulberg and Associates, Inc. both agree that any dispute over matters in excess of $5,000 will be submitted for resolution by arbitration. This includes fee disputes and any claim of malpractice. The arbitrator shall be mutually selected. If Valbridge Property Advisors Hulberg and Associates, Inc. and the client cannot agree on the arbitrator, the presiding head of the Local County Mediation & Arbitration panel shall select the arbitrator. Such arbitration shall be binding and final. In agreeing to arbitration, we both acknowledge that, by agreeing to binding arbitration, each of us is giving up the right to have the dispute decided in a court of law before a judge or jury. In the event that the client, or any other party, makes a claim against Hulberg and Associates, Inc. or any of its employees in connections with or in any way relating to this assignment, the maximum damages recoverable by such claimant shall be the amount actually received by Valbridge Property Advisors Hulberg and Associates, Inc. for this assignment, and under no circumstances shall any claim for consequential damages be made. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 102

112 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 35. Valbridge Property Advisors Hulberg and Associates, Inc. shall have no obligation, liability, or accountability to any third party. Any party who is not the client or intended user identified on the face of the appraisal or in the engagement letter is not entitled to rely upon the contents of the appraisal without the express written consent of Valbridge Property Advisors Hulberg and Associates, Inc.. Client shall not include partners, affiliates, or relatives of the party named in the engagement letter. Client shall hold Valbridge Property Advisors Hulberg and Associates, Inc. and its employees harmless in the event of any lawsuit brought by any third party, lender, partner, or part-owner in any form of ownership or any other party as a result of this assignment. The client also agrees that in case of lawsuit arising from or in any way involving these appraisal services, client will hold Valbridge Property Advisors Hulberg and Associates, Inc. harmless from and against any liability, loss, cost, or expense incurred or suffered by Valbridge Property Advisors Hulberg and Associates, Inc. in such action, regardless of its outcome. 36. The Valbridge Property Advisors office responsible for the preparation of this report is independently owned and operated by Hulberg and Associates, Inc.. Neither Valbridge Property Advisors, Inc., nor any of its affiliates has been engaged to provide this report. Valbridge Property Advisors, Inc. does not provide valuation services, and has taken no part in the preparation of this report. 37. If any claim is filed against any of Valbridge Property Advisors, Inc., a Florida Corporation, its affiliates, officers or employees, or the firm providing this report, in connection with, or in any way arising out of, or relating to, this report, or the engagement of the firm providing this report, then (1) under no circumstances shall such claimant be entitled to consequential, special or other damages, except only for direct compensatory damages, and (2) the maximum amount of such compensatory damages recoverable by such claimant shall be the amount actually received by the firm engaged to provide this report. 38. This report and any associated work files may be subject to evaluation by Valbridge Property Advisors, Inc., or its affiliates, for quality control purposes. 39. Acceptance and/or use of this appraisal report constitutes acceptance of the foregoing general assumptions and limiting conditions. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 103

113 CERTIFICATION Certification We certify that, to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and is our personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. 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. 4. We have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of the appraisal within the three-year period immediately preceding acceptance of this assignment. 5. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 6. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 7. 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 value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 8. Our analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. 9. Guido Villanueva made a personal inspection of the property that is the subject of this report. Stephen D. Kuhnhoff, MAI, ASA and Norman C. Hulberg, MAI did not make a personal inspection of the property that is the subject of this report. 10. Eva Poon provided significant real property appraisal assistance to the people signing this certification. 11. The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. 12. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 104

114 CERTIFICATION 13. As of the date of this report, I, Stephen D. Kuhnhoff, MAI, ASA have completed the continuing education programs for Designated Members of the Appraisal Institute and the American Society of Appraisers. 14. As of the date of this report, I, Guido M. Villanueva have completed the Standards and Ethics Education Requirements for Candidates/Practicing Affiliates of the Appraisal Institute. 15. As of the date of this report, I, Eva Poon, have completed the Standards and Ethics Education Requirements for Candidates/Practicing Affiliates of the Appraisal Institute. 16. As of the date of this report, I, Norman C. Hulberg, MAI have completed the continuing education program for Designated Members of the Appraisal Institute. Stephen D. Kuhnhoff, MAI, ASA Managing Director Certified General Real Estate Appraiser Expiry: State License #AG Guido Villanueva Senior Appraiser Certified General Real Estate Appraiser Expiry: State License # AG Eva Poon Norman C. Hulberg, MAI Trainee Appraiser Senior Managing Appraiser Trainee Appraiser # Certified General Real Estate Appraiser Expiry: Expiry: State License #AG VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 105

115 ADDENDA Addenda VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 106

116 ADDENDA Glossary Definitions are taken from the Dictionary of Real Estate Appraisal, 5 th Edition (Dictionary), the Uniform Standards of Professional Appraisal Practice (USPAP) and Building Owners and Managers Association International (BOMA). Absolute Net Lease A lease in which the tenant pays all expenses including structural maintenance, building reserves, and management; often a long-term lease to a credit tenant. (Dictionary) Additional Rent Any amounts due under a lease that is in addition to base rent. Most common form is operating expense increases. (Dictionary) Amortization The process of retiring a debt or recovering a capital investment, typically though scheduled, systematic repayment of the principal; a program of periodic contributions to a sinking fund or debt retirement fund. (Dictionary) As Is Market Value The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date. (Dictionary) Base (Shell) Building The existing shell condition of a building prior to the installation of tenant improvements. This condition varies from building to building, landlord to landlord, and generally involves the level of finish above the ceiling grid. (Dictionary) Base Rent The minimum rent stipulated in a lease. (Dictionary) Base Year The year on which escalation clauses in a lease are based. (Dictionary) Building Common Area The areas of the building that provide services to building tenants but which are not included in the rentable area of any specific tenant. These areas may include, but shall not be limited to, main and auxiliary lobbies, atrium spaces at the level of the finished floor, concierge areas or security desks, conference rooms, lounges or vending areas food service facilities, health or fitness centers, daycare facilities, locker or shower facilities, mail rooms, fire control rooms, fully enclosed courtyards outside the exterior walls, and building core and service areas such as fully enclosed mechanical or equipment rooms. Specifically excluded from building common areas are; floor common areas, parking spaces, portions of loading docks outside the building line, and major vertical penetrations. (BOMA) Building Rentable Area The sum of all floor rentable areas. Floor rentable area is the result of subtracting from the gross measured area of a floor the major vertical penetrations on that same floor. It is generally fixed for the life of the building and is rarely affected by changes in corridor size or configuration. (BOMA) Certificate of Occupancy (COO) A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied. Common Area (Public) Factor In a lease, the common area (public) factor is the multiplier to a tenant s useable space that accounts for the tenant s proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.). The public factor is usually expressed as a percentage and ranges from a low of 5 percent for a full tenant to as high as 15 percent or more for a multi-tenant floor. Subtracting one (1) from the quotient of the rentable area divided by the useable area yields the load (public) factor. At times confused with the loss factor which is the total rentable area of the full floor less the useable area divided by the rentable area. (BOMA) Common Area Maintenance (CAM) The expense of operating and maintaining common areas; may or may not include management charges and usually does not include capital expenditures on tenant improvements or other improvements to the property. CAM can be a line-item expense for a group of items that can include maintenance of the parking lot and landscaped areas and sometimes the exterior walls of the buildings. CAM can refer to all operating expenses. CAM can refer to the reimbursement by the tenant to the landlord for all expenses reimbursable under the lease. Sometimes reimbursements have what is called an administrative load. An example would be a 15 percent addition to total operating expenses, which are then prorated among tenants. The administrative load, also called an administrative and marketing fee, can be a substitute for or an addition to a management fee. (Dictionary) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 107

117 ADDENDA Condominium A form of ownership in which each owner possesses the exclusive right to use and occupy an allotted unit plus an undivided interest in common areas. A multiunit structure, or a unit within such a structure, with a condominium form of ownership. (Dictionary) Conservation Easement An interest in real property restricting future land use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a rural nature to continue, subject to the easement. In some locations, a conservation easement may be referred to as a conservation restriction. (Dictionary) Contributory Value The change in the value of a property as a whole, whether positive or negative, resulting from the addition or deletion of a property component. Also called deprival value in some countries. (Dictionary) Debt Coverage Ratio (DCR) The ratio of net operating income to annual debt service (DCR = NOI/Im), which measures the relative ability to a property to meet its debt service out of net operating income. Also called Debt Service Coverage Ratio (DSCR). A larger DCR indicates a greater ability for a property to withstand a downturn in revenue, providing an improved safety margin for a lender. (Dictionary) Deed Restriction A provision written into a deed that limits the use of land. Deed restrictions usually remain in effect when title passes to subsequent owners. (Dictionary) Depreciation 1) In appraising, the loss in a property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date. 2) In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method. (Dictionary) Disposition Value The most probable price that a specified interest in real property is likely to bring under the following conditions: Consummation of a sale within a exposure time specified by the client; The property is subjected to market conditions prevailing as of the date of valuation; Both the buyer and seller are acting prudently and knowledgeably; The seller is under compulsion to sell; The buyer is typically motivated; Both parties are acting in what they consider to be their best interests; An adequate marketing effort will be made during the exposure time specified by the client; Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (Dictionary) Easement The right to use another s land for a stated purpose. (Dictionary) EIFS Exterior Insulation Finishing System. This is a type of exterior wall cladding system. Sometimes referred to as dry-vit. Effective Date The date at which the analyses, opinions, and advice in an appraisal, review, or consulting service apply. 2) In a lease document, the date upon which the lease goes into effect. (Dictionary) Effective Gross Income (EGI) The anticipated income from all operations of the real property after an allowance is made for vacancy and collection losses and an addition is made for any other income. (Dictionary) Effective Rent The rental rate net of financial concessions such as periods of no rent during the lease term and above- or below-market tenant improvements (TIs). (Dictionary) EPDM Ethylene Diene Monomer Rubber. A type of synthetic rubber typically used for roof coverings. (Dictionary) Escalation Clause A clause in an agreement that provides for the adjustment of a price or rent based on some event or index. e.g., a provision to increase rent if operating expenses increase; also called an expense recovery clause or stop clause. (Dictionary) Estoppel Certificate A statement of material factors or conditions of which another person can rely because it cannot be denied at a later date. In real estate, a buyer of rental property VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 108

118 ADDENDA typically requests estoppel certificates from existing tenants. Sometimes referred to as an estoppel letter. (Dictionary) Excess Land Land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land may have the potential to be sold separately and is valued separately. (Dictionary) Expense Stop A clause in a lease that limits the landlord s expense obligation, which results in the lessee paying any operating expenses above a stated level or amount. (Dictionary) Exposure Time 1) The time a property remains on the market. 2) 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 on an analysis of past events assuming a competitive and open market. (Dictionary) Extraordinary Assumption An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser s opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property such as market conditions or trends; or about the integrity of data used in an analysis. (Dictionary) Fee Simple Estate Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. (Dictionary) Floor Common Area Areas on a floor such as washrooms, janitorial closets, electrical rooms, telephone rooms, mechanical rooms, elevator lobbies, and public corridors which are available primarily for the use of tenants on that floor. (BOMA) Full Service (Gross) Lease A lease in which the landlord receives stipulated rent and is obligated to pay all of the property s operating and fixed expenses; also called a full service lease. (Dictionary) Going Concern Value The market value of all the tangible and intangible assets of an established and operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of the going concern. The value of an operating business enterprise. Goodwill may be separately measured but is an integral component of going-concern value when it exists and is recognizable. (Dictionary) Gross Building Area The total constructed area of a building. It is generally not used for leasing purposes (BOMA) Gross Measured Area The total area of a building enclosed by the dominant portion (the portion of the inside finished surface of the permanent outer building wall which is 50 percent or more of the vertical floor-to-ceiling dimension, at the given point being measured as one moves horizontally along the wall), excluding parking areas and loading docks (or portions of the same) outside the building line. It is generally not used for leasing purposes and is calculated on a floor by floor basis. (BOMA) Gross Up Method A method of calculating variable operating expense in income-producing properties when less than 100 percent occupancy is assumed. The gross up method approximates the actual expense of providing services to the rentable area of a building given a specified rate of occupancy. (Dictionary) Gross Retail Sellout The sum of the appraised values of the individual units in a subdivision, as if all of the units were completed and available for retail sale, as of the date of the appraisal. The sum of the retail sales includes an allowance for lot premiums, if applicable, but excludes all allowances for carrying costs. (Dictionary) Ground Lease A lease that grants the right to use and occupy land. Improvements made by the ground lessee typically revert to the ground lessor at the end of the lease term. (Dictionary) Ground Rent The rent paid for the right to use and occupy land according to the terms of a ground lease; the portion of the total rent allocated to the underlying land. (Dictionary) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 109

119 ADDENDA HVAC Heating, ventilation, air conditioning. A general term encompassing any system designed to heat and cool a building in its entirety. Highest and Best Use The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are 1) legal permissibility, 2) physical possibility, 3) financial feasibility, and 4) maximally profitability. Alternatively, the probable use of land or improved specific with respect to the user and timing of the use that is adequately supported and results in the highest present value. (Dictionary) Hypothetical Condition That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (Dictionary) Industrial Gross Lease A lease of industrial property in which the landlord and tenant share expenses. The landlord receives stipulated rent and is obligated to pay certain operating expenses, often structural maintenance, insurance and real estate taxes as specified in the lease. There are significant regional and local differences in the use of this term. (Dictionary) Insurable Value A type of value for insurance purposes. (Dictionary) (Typically this includes replacement cost less basement excavation, foundation, underground piping and architect s fees). Investment Value The value of a property interest to a particular investor or class of investors based on the investor s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market. (Dictionary) Just Compensation In condemnation, the amount of loss for which a property owner is compensated when his or her property is taken. Just compensation should put the owner in as good a position as he or she would be if the property had not been taken. (Dictionary) Leased Fee Interest A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease). (Dictionary) Leasehold Interest The tenant s possessory interest created by a lease. (Dictionary) Lessee (Tenant) One who has the right to occupancy and use of the property of another for a period of time according to a lease agreement. (Dictionary) Lessor (Landlord) One who conveys the rights of occupancy and use to others under a lease agreement. (Dictionary) Liquidation Value The most probable price that a specified interest in real property should bring under the following conditions: Consummation of a sale within a short period. The property is subjected to market conditions prevailing as of the date of valuation. Both the buyer and seller are acting prudently and knowledgeably. The seller is under extreme compulsion to sell. The buyer is typically motivated. Both parties are acting in what they consider to be their best interests. A normal marketing effort is not possible due to the brief exposure time. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. 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. (Dictionary) Loan to Value Ratio (LTV) The amount of money borrowed in relation to the total market value of a property. Expressed as a percentage of the loan amount divided by the property value. (Dictionary) Major Vertical Penetrations Stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like, and their enclosing walls. Atria, lightwells and similar penetrations above the finished floor are included in this definition. Not included, however, are vertical penetrations built for the private use of a tenant occupying office areas on more than one floor. Structural columns, openings for vertical electric cable or telephone distribution, and openings for plumbing lines VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 110

120 ADDENDA are not considered to be major vertical penetrations. (BOMA) Market Rent The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement including permitted uses, use restrictions, expense obligations; term, concessions, renewal and purchase options and tenant improvements (TIs). (Dictionary) Market Value 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: a. Buyer and seller are typically motivated; b. Both parties are well informed or well advised, and acting in what they consider their own best interests; c. A reasonable time is allowed for exposure in the open market; d. Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and e. 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. Market Value As If Complete Market value as if complete means the market value of the property with all proposed construction, conversion or rehabilitation hypothetically completed or under other specified hypothetical conditions as of the date of the appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value shall reflect the market value of the property as if complete and prepared for occupancy by tenants. Market Value As If Stabilized Market value as if stabilized means the market value of the property at a current point and time when all improvements have been physically constructed and the property has been leased to its optimum level of long term occupancy. Marketing Time An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of the appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. (Advisory Opinion 7 of the Standards Board of the Appraisal Foundation and Statement on Appraisal Standards No. 6, Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions address the determination of reasonable exposure and marketing time). (Dictionary) Master Lease A lease in which the fee owner leases a part or the entire property to a single entity (the master lease) in return for a stipulated rent. The master lessee then leases the property to multiple tenants. (Dictionary) Modified Gross Lease A lease in which the landlord receives stipulated rent and is obligated to pay some, but not all, of the property s operating and fixed expenses. Since assignment of expenses varies among modified gross leases, expense responsibility must always be specified. In some markets, a modified gross lease may be called a double net lease, net net lease, partial net lease, or semi-gross lease. (Dictionary) Operating Expense Ratio The ratio of total operating expenses to effective gross income (TOE/EGI); the complement of the net income ratio, i.e., OER = 1 NIR (Dictionary) Option A legal contract, typically purchased for a stated consideration, that permits but does not require the holder of the option (known as the optionee) to buy, sell, or lease real property for a stipulated period of time in accordance with specified terms; a unilateral right to exercise a privilege. (Dictionary) Partial Interest Divided or undivided rights in real estate that represent less than the whole (a fractional interest). (Dictionary) Pass Through A tenant s portion of operating expenses that may be composed of common area maintenance (CAM), real estate taxes, property insurance, and any other expenses determined in the lease agreement to be paid by the tenant. (Dictionary) Potential Gross Income (PGI) The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted. (Dictionary) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 111

121 ADDENDA Prospective Future Value Upon Completion Market value upon completion is a prospective future value estimate of a property at a point in time when all of its improvements are fully completed. It assumes all proposed construction, conversion, or rehabilitation is hypothetically complete as of a future date when such effort is projected to occur. The projected completion date and the value estimate must reflect the market value of the property in its projected condition, i.e., completely vacant or partially occupied. The cash flow must reflect lease-up costs, required tenant improvements and leasing commissions on all areas not leased and occupied. Prospective Future Value Upon Stabilization Market value upon stabilization is a prospective future value estimate of a property at a point in time when stabilized occupancy has been achieved. The projected stabilization date and the value estimate must reflect the absorption period required to achieve stabilization. In addition, the cash flows must reflect lease-up costs, required tenant improvements and leasing commissions on all unleased areas. Replacement Cost The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised, using modern materials and current standards, design, and layout. (Dictionary) Reproduction Cost The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all of the deficiencies, super-adequacies, and obsolescence of the subject building. (Dictionary) Retrospective Value Opinion A value opinion effective as of a specified historical date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with this term is appropriate, e.g., retrospective market value opinion. (Dictionary) Sandwich Leasehold Estate The interest held by the original lessee when the property is subleased to another party; a type of leasehold estate. (Dictionary) Sublease An agreement in which the lessee (i.e., the tenant) leases part or all of the property to another party and thereby becomes a lessor. (Dictionary) Subordination A contractual arrangement in which a party with a claim to certain assets agrees to make his or her claim junior, or subordinate, to the claims of another party. (Dictionary) Substantial Completion Generally used in reference to the construction of tenant improvements (TIs). The tenant s premises are typically deemed to be substantially completed when all of the TIs for the premises have been completed in accordance with the plans and specifications previously approved by the tenant. Sometimes used to define the commencement date of a lease. Surplus Land Land that is not currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel. (Dictionary) Triple Net (Net Net Net) Lease A lease in which the tenant assumes all expenses (fixed and variable) of operating a property except that the landlord is responsible for structural maintenance, building reserves, and management. Also called NNN, triple net lease, or fully net lease. (Dictionary) (The market definition of a triple net lease varies; in some cases tenants pay for items such as roof repairs, parking lot repairs, and other similar items.) Usable Area The measured area of an office area, store area or building common area on a floor. The total of all the usable areas or a floor shall equal floor usable area of that same floor. The amount of floor usable area can vary over the life of a building as corridors expand and contract and as floors are remodeled. (BOMA) Value-in-Use The value of a property assuming a specific use, which may or may not be the property s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptually. (Dictionary) VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 112

122 ADDENDA Subject Photographs Subject exterior Entrance Drive entrance Main Entrance Parking Spaces Parking Space VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 113

123 ADDENDA Elevators to main floors Elevators to Main Floors 1 st level parking 1 st to 2 nd level parking Photo of 1 st level from drive ramp Third level parking VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 114

124 ADDENDA Stairwells to main floors Ventilation in lower floors Alley between S 2 nd and S 3 rd Streets S. Second facing south S. 3 rd Street facing south Lobby area in building VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 115

125 ADDENDA Engagement Letter VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 116

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145 ADDENDA Basement Leak Assessments VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 117

146 Allana Buick & Bers, Inc. 990 Commercial Street Palo Alto, CA t (650) f (650) January 15, 2009 Mr. Arian Collen Redevelopment Agency Administration and Parking Division 200 E. Santa Clara Street 14 th Floor Tower San Jose, California Re: Basement Leak Assessment DRAFT Central Place Garage 88 East San Fernando Street San Jose, California JN: Dear Mr. Collen, Allana Buick & Bers, Inc. (ABB) is pleased to present the City of San Jose Redevelopment Agency (SJRA) with our initial basement leak assessment findings for your Central Place Garage project located at 88 East San Fernando Street in San Jose, California. Background The Central Place project is a 18 story post tensioned concrete framed residential tower constructed over a seven story reinforced concrete parking podium. Three above grade levels are assigned as resident parking, the ground level consists of building access with some light retail and the lower three below grade levels are designated for public parking access. To assist ABB in preparing our findings, you provided us with the original project drawings identified as Building Permit Submittal and dated and the Project Manual identified as Issued for Construction and dated 23 October No other project construction documents, geotechnical reports, construction submittals or other reports documenting the history of the project construction were provided to ABB for this findings report. The provided documents identified HKS Architects, Inc. of Beverly Hills, California as the architect of record for this project. The provided documents also noted the project Geotechnical Engineer as Treadwell and Rollo of Oakland, California and the project Structural Engineer as Magnusson Klemencic Associates of Seattle, Washington. The project Waterproofing Consultant is listed as Simpson Gumpertz & Heger, Inc. of San Francisco, California. We have been informed by the SJRA that the project was constructed by Webcor Builders, Inc. No information on the project foundation contractor, below grade waterproofing contractor or podium structural concrete contractor was available to ABB for this initial findings report. The October 2006 Project Manual identifies two types of below grade waterproofing. Section Heavy Duty Impermeability Concrete Admixture identifies that Cementaid Everdure Caltite was specified as a concrete waterproofing admixture. Section Bentonite Waterproofing identifies three potential bentonite based waterproofing systems; CETCO Voltex, Mameco International Paraseal, Nicolon/Mirifi Group Miraclay. At this time of this writing, the actually installed waterproofing system(s) is/are unknown to ABB.

147 History The SJRA informed ABB that the concrete podium and basement parking area were completed approximately 24 months ago and reportedly sustained leakage through the lower level floor slab and perimeter walls soon after site dewatering was terminated. The project contractor has attempted several extensive remedial repairs with limited success. You have informed us that plastic foam grout has been injected into the perimeter foundation walls to mitigate leaks. Subsequent to the grout injection, the interior basement walls also received a water resistant coating believed to be ThoroSeal by BASF. Investigation Representatives of ABB visited the project site on December 9 th and 10 th to document observable leaks in the basement parking area of 88 East San Fernando Street. Our staff visually reviewed and documented accessible areas of the perimeter foundation wall and lower floor areas. We also used digital infrared imaging to identify areas that were potentially damp and/or wet which may not have been apparent using only standard visual clues. In general we observed three indications of present or past leakage. Firstly, we observed active damp or wet areas. These are primarily located at the lowest basement areas. Secondly, we identified staining of the foundation wall interior which was believed to be related to prior leaks. Lastly, we observed rust colored staining of the wall located at the top of the lower basement level wall where it touches the floor above. Documentation of our findings can be found in the first Appendix of this report. Figure 1. Typical active leak in B3 level DRAFT Basement Leak Assessment Central Place Garage 88 East San Fernando Street January 15, 2009 Page 2 of 6

148 Figure 2. Typical wall stain in B3 level Figure 3. Typical rust stain in ceiling/floor between parking levels B2 and B3 DRAFT Basement Leak Assessment Central Place Garage 88 East San Fernando Street January 15, 2009 Page 3 of 6

149 Discussion As previously noted, ABB observed active leaking into the basement area. The majority of basement leaks are located at the lower B3 level between Elevation 70 and 79. While we also observed isolated active leaking on parking levels B1 and B2, these locations were significantly fewer in number and extent than those located on level B3. Evidence of staining on the exterior walls was found throughout levels B3 and B2. Only isolated staining was observed on level B1. The stains appeared as surface discolorations in localized areas. Some of the stained areas also had some possible efflorescence present along with the surface discoloration. We believe these stains represent areas where prior active leaks were present. At this time we can not identify these areas as activly leaking, however, we believe that they represent areas where leakage may reappear in the future. Extensive areas of rust color stains are present at the floor level of B2 and the ceiling level of B3. These rust stains are more pronounced on the west, north and south elevations. We did not find this rust color staining between the B1 and B2 levels. We are of the opinion that these stains are the result of water present within the shotcrete foundation walls located between the B3 and B2 levels. We believe the stains result when water weeps or is drawn out of the shotcrete foundation wall where the white ThoroSeal product is discontinuous. Since the ThoroSeal is not applied to the ceiling or the floor, the stains are present where the coating is not present (or not sufficiently resistant to the water pushing from the positive side). We surmise that the foundation excavation was established using conventional steel soldier piles (vertical steel I beams placed at 8 to 12 foot intervals around the excavation) and soil retained between the soldier piles using pressure treated wood lagging. Project drawings (Sheet A6.03 Section 01 and Detail 03) indicate that bentonite waterproofing was to be placed between the foundation shoring system and the concrete building structure. The drawings also depict a perimeter drain located at the base of the vertical wall. The drawings make no mention of the waterproofing admix specified in the Project Manual. Lastly, we understand that the structural foundation wall was constructed from spray applied structural concrete (shotcrete). As of this writing, ABB does not have sufficient information to confirm the type of sheet applied waterproofing, whether waterproofing concrete admixture was used in the shotcrete walls or if a perimeter drainage system was installed. However, the observed pattern of active leaks and water staining is consistent with a failure of either a sheet applied waterproofing or waterproofing admixture. Recommendations Based on our current understanding of the observed basement leakage and review of available construction documents and reports, we believe that the project contractor is responsible to perform such repairs as necessary to result in a permanently dry basement. At this time we believe the SJRA take the following steps: Obtain the project geotechnical report and forward to ABB for review. Obtain the approved project below grade waterproofing related submittals, correspondence and other reports and forward to ABB for review. DRAFT Basement Leak Assessment Central Place Garage 88 East San Fernando Street January 15, 2009 Page 4 of 6

150 Perform monthly visual reviews of the basement area to document the ongoing basement leakage. Repeat the visual and infrared reviews using the same protocol and recording methodology presented in this report to document seasonal changes in the number, location and extent of basement leaks. This review can also be used to document the success of remedial repairs installed by the project contractor. Present the findings of this report to the project Contractor for review and comment. Request the contractor prepare a remedial repair plan for the failed waterproofing system. The remedial repair plan should include recommendations from the waterproofing system manufacturer identifying what repair materials and procedure are to be used to repair the leaks. The plan should also identify what contractor will install the repairs, when the repairs will be installed and how the waterproofing system manufacturer and contractor intend to document and supervise the remedial repair process. Meet with ABB to review the proposed remedial repair protocol and discuss further appropriate steps. Estimated Remedial Repair Costs For the purposes of this report we have evaluated three potential solutions and have broadly estimated the cost to implement each. Option I Reinstall Vertical Waterproofing Membrane $ 1.4 $2.2M Option I includes removal of perimeter hardscaping/landscaping, installing perimeter shoring system and excavating to down to the lowest basement level. Once the basement wall has been exposed, the failed waterproofing system is removed and replaced with two layers of self adhering modified bitumen membrane (similar to Grace Bituthene 4000), a perimeter sheet drain and collection with sump system installed then the basement wall is backfilled and associated hardscaping/landscaping restored. Leaks in the lowest level floor slab would be repaired by injecting plastic foam grout into currently weeping cracks. We believe that this approach will have an excellent opportunity for success and could be considered a permanent solution Option II Plastic Foam Grout Wall Matt Injection $ 400 $ 600k Option II consists of injecting a blanket of plastic foam grout between the installed waterproofing and the abandoned soil retention system. Holes will be drilled through all perimeter walls on a 24 to 36-inch grid pattern and plastic foam grout is injected. The grout injection is advanced until grout appears at adjacent injection sites then progresses from one hole until the next. Injecting grout in this manner will create a mat of grout which becomes a remedial waterproofing system. Leaks in the lowest level floor slab are repaired by injecting with plastic foam grout into currently weeping cracks. Interior finishes will require repair after each round of injection. Some areas may require repeated injection over two to three years to complete the repair. Once completed, the repair may be substantially leak free with only isolated leaks appearing throughout the structure s service life. DRAFT Basement Leak Assessment Central Place Garage 88 East San Fernando Street January 15, 2009 Page 5 of 6

151 Option III Targeted Leak Injection $ 200 $ 750k Option III provides for injecting plastic foam grout only into actively leaking locations. Based on the number and location of observed leaks, and our current understanding of the building basement construction, we estimate that this effort will take between four and six years to achieve satisfactory performance. Repairs to interior finishes will need to be performed after each round of grout injection. We anticipate that on a seasonal basis, previously injected leaks will reoccur and new leaks locations will appear. These old and new leaks will need to be injected on a seasonal basis. Furthermore, the project will require basement leak monitoring throughout its service life. This method of remedial repair can be considered a maintenance program and not a complete permanent solution. Our opinion on appropriate remedial repair options and associated estimated repair costs will likely change as we obtain additional background information on the remedial work performed to date and what waterproofing system and assemblies were actually installed. Thank you for this opportunity to be of service to the San Jose Redevelopment Agency. Please call us if you have any questions regarding this letter report or our attached information. Sincerely, Gerson S. Bers, LEED-AP Principal DRAFT Basement Leak Assessment Central Place Garage 88 East San Fernando Street January 15, 2009 Page 6 of 6

152 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Slab on grade leaks: Partial B3 Plan: Allana + Buick + Bers P1

153 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 1 Rust and water stains Cold spots indicating the presence of water Allana + Buick + Bers P2

154 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 2 Allana + Buick + Bers P3

155 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 2B Allana + Buick + Bers P4

156 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 3B Litmus paper color change indicates the presence of water Allana + Buick + Bers P5

157 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 3 Allana + Buick + Bers P6

158 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 6 Allana + Buick + Bers P7

159 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 1C Allana + Buick + Bers P8

160 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 14 Allana + Buick + Bers P9

161 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 19 Allana + Buick + Bers P10

162 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 30 Allana + Buick + Bers P11

163 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 38 Active Leak Hot spot indicates the presence of water. Allana + Buick + Bers P12

164 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 40 Active Leak Allana + Buick + Bers P13

165 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 42 Water stains Allana + Buick + Bers P14

166 Basement Garage Wall Survey Central Place Garage 88 East San Fernando Basement Consultation Job # January 15, 2009 Bay 68 Ponding water Active Leak Allana + Buick + Bers P15

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172 ADDENDA Historical Income and Expenses VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 118

173 Total Avg/Mo Total Avg/Mo Total Avg/Mo Total Avg/Mo Revenue Monthly $ 92,750 $ 7,729 $ 154,350 $ 12,863 $ 155,190 $ 12,933 $ 173,090 $ 14,424 Transient $ 186,700 $ 15,558 $ 242,949 $ 20,246 $ 259,296 $ 21,608 $ 261,361 $ 21,780 Validation $ 20,400 $ 1,700 $ 20,550 $ 1,712 $ 22,197 $ 1,850 $ 19,434 $ 1,619 Deposit/Refund $ 140 $ 12 $ 720 $ 60 $ 1,030 $ 86 $ 1,150 $ 96 Misc. Rev $ 26,732 $ 2,228 $ 19,952 $ 1,663 $ 21,371 $ 1,781 $ 22,174 $ 1,848 Cash Over/Short $ (7) $ (1) $ 66 $ 6 $ 20 $ 2 $ 32 $ 3 Total Revenue $ 326,715 $ 27,226 $ 438,587 $ 36,549 $ 459,104 $ 38,259 $ 477,240 $ 39,770 Direct Costs Wages $ 114,640 $ 9,553 $ 118,494 $ 9,874 $ 119,072 $ 9,923 $ 120,978 $ 10,082 Wages - Special $ (1,184) $ (99) $ (1,261) $ (105) $ (676) $ (56) $ (3,723) $ (310) Vacation $ 9,510 $ 793 $ 10,027 $ 836 $ 10,220 $ 852 $ 10,151 $ 846 Sick $ 1,190 $ 99 $ 1,863 $ 155 $ 2,149 $ 179 $ 1,663 $ 139 Total Direct Costs $ 124,156 $ 10,346 $ 129,122 $ 10,760 $ 130,765 $ 10,897 $ 129,069 $ 10,756 Payroll Taxes & Burden Payroll Taxes $ 13,065 $ 1,089 $ 11,473 $ 956 $ 8,687 $ 724 $ 18,669 $ 1,556 Wrks Comp $ 16,990 $ 1,416 $ 17,201 $ 1,433 $ 17,774 $ 1,481 $ 17,699 $ 1,475 Union Benefits $ 1,338 $ 112 $ 1,745 $ 145 $ 1,790 $ 149 $ 1,835 $ 153 Health & Welfare $ 39,443 $ 3,287 $ 45,488 $ 3,791 $ 45,244 $ 3,770 $ 51,078 $ 4,256 Total Payroll Taxes & Burden $ 70,836 $ 5,903 $ 75,908 $ 6,326 $ 73,495 $ 6,125 $ 89,280 $ 7,440 Insurance Insurance - PLPD $ 7,308 $ 609 $ 7,308 $ 609 $ 7,308 $ 609 $ 7,498 $ 625 Total Insurance $ 7,308 $ 609 $ 7,308 $ 609 $ 7,308 $ 609 $ 7,498 $ 625 Operating Expenses Materials & Supplies $ 2,168 $ 181 $ 3,743 $ 312 $ 2,801 $ 233 $ 3,015 $ 251 Signs $ 225 $ 19 $ 928 $ 77 $ - $ - $ - $ - Licenses & Permits $ 169 $ 14 $ 150 $ 13 $ 151 $ 13 $ 151 $ 13 Auto Maintenance $ - $ - $ 110 $ 9 $ - $ - $ - $ - Repairs & Maintenance $ 6,080 $ 507 $ 13,535 $ 1,128 $ 8,685 $ 724 $ 3,391 $ 283 Telephone $ 4,788 $ 399 $ 6,081 $ 507 $ 6,957 $ 580 $ 8,163 $ 680 Uniforms & Laundry $ 1,376 $ 115 $ 1,097 $ 91 $ 1,959 $ 163 $ 2,130 $ 178 Rubbish (Sweeping) $ 2,640 $ 220 $ 5,980 $ 498 $ 2,805 $ 234 $ 2,640 $ 220 Postage $ - $ - $ 22 $ 2 $ - $ - $ - $ - Office Supplies $ 972 $ 81 $ 1,907 $ 159 $ 2,046 $ 171 $ 1,224 $ 102 Forms & Printing $ 439 $ 37 $ - $ - $ 203 $ 17 $ - $ - Misc $ 291 $ 24 $ 882 $ 74 $ 441 $ 37 $ 451 $ 38 Tickets $ 3,862 $ 322 $ 5,749 $ 479 $ 3,845 $ 320 $ 4,243 $ 354 Management Fee $ 8,496 $ 708 $ 8,496 $ 708 $ 8,496 $ 708 $ 8,492 $ 708 Bank Charges $ 4,515 $ 376 $ 7,156 $ 596 $ 7,749 $ 646 $ 8,921 $ 743 Security $ 6,000 $ 500 $ 6,125 $ 510 $ 6,300 $ 525 $ 6,496 $ 541 Accounting Fee $ 3,000 $ 250 $ 3,000 $ 250 $ 3,000 $ 250 $ 3,000 $ 250 Network Fee $ 1,080 $ 90 $ 1,080 $ 90 $ 1,501 $ 125 $ 1,755 $ 146 PG&E (Utilities) $ - $ - $ 6,992 $ 583 $ 20,588 $ 1,716 $ 26,377 $ 2,198 HOA Fee (Est) $ 228,672 $ 19,056 $ 228,672 $ 19,056 $ 228,672 $ 19,056 $ 243,393 $ 20,283 Total Operating Expenses $ 274,773 $ 22,898 $ 301,704 $ 25,142 $ 306,198 $ 25,517 $ 323,843 $ 26,987 $ - Total Expenses $ 477,073 $ 39,756 $ 514,042 $ 42,837 $ 517,766 $ 43,147 $ 549,690 $ 45,807 Net Revenue $ (150,358) $ (12,530) $ (75,454) $ (6,288) $ (58,663) $ (4,889) $ (72,450) $ (6,037)

174 ADDENDA Garage Occupancy Data VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 119

175 Occupancy Count (330 Space Garage) 12:00 AM 1:00 AM 2:00 AM 3:00 AM 4:00 AM 5:00 AM 6:00 AM 7:00 AM 8:00 AM 9:00 AM 10:00 AM 11:00 AM 12:00 PM 1:00 PM 2:00 PM 3:00 PM 4:00 PM 5:00 PM 6:00 PM 7:00 PM 8:00 PM 9:00 PM 10:00 PM 11:00 PM CENTRAL PLACE GARAGE Average Peak Occupancy by Hour (January March 2015) Time of Day

176 ADDENDA Qualifications/Licenses VALBRIDGE PROPERTY ADVISORS Hulberg and Associates, Inc. Page 120

177 Qualifications of Guido M. Villanueva Senior Appraiser Valbridge Property Advisors Hulberg & Associates, Inc. Independent Valuations for a Variable World State Certifications Certified General State of California Education Bachelor of Arts Mathematics/Industrial Engineering- Operations Research University of California, Berkeley Contact Details ext (p) (f) gvillanueva@valbridge.com (e) Membership/Affiliations Associate Member: Appraisal Institute Appraisal Institute & Related Courses Appraisal Institute: Real Estate Principles Basic Appraisal Procedures Capitalization Theory (Parts A & B) Sales Comparison and Cost Approach Valuation Analysis Uniform Standards of Professional Practice (Parts A and B) Advanced Income Capitalization Easement Valuation Highest and Best Use Advanced Applications Litigation Appraisal Argus DCF Analysis Federal Laws and Regulations. Valbridge Property Advisors Hulberg & Associates, Inc Crow Canyon Place #245 San Ramon, CA Department of Real Estate: Law Finance Principles Fair Housing Trust Funds Ethics and Agency Managing for Profit Environmental Issues Residential Real Estate Awards 2010 Winner George and Alberta Strauss Scholarship 2012 Workshop Chairperson Appraisal Institute Northern California Chapter

178 Experience Senior Appraiser Valbridge Property Advisors Hulberg & Associates, Inc. (2013-Present) Senior Appraiser Hulberg & Associates, Inc. ( ) Brokerage, Land Development, Consulting Villanueva Realty Advisors (1997 to 2011) Regional Manager Coast Federal Bank Commercial Property Appraisal Group, ( ) Senior Appraiser AVP - Bank of America/Security Pacific Bank ( ) Fee Appraiser Urban Land Research and Smith Denton Associates ( ) Asset Analyst Bank of America Investment Real Estate ( ) Commercial: Retail shopping centers, medical and professional office buildings, regional mall, cinemas, vacant and leased land. Industrial: Warehouses, manufacturing, R&D, biotech, lumberyards, data centers, airport hangers, business parks, auto repair and vacant and leased land. Residential: Apartments, condominium development, subdivision analysis, vacant land, mixed use apartments over commercial, feasibility studies, rent comparability studies. Special Purpose : Post Office buildings, historic buildings, athletic clubs, hospitals, medical clinics, nursing homes, marinas, motels/hotels, mini storage, mobile home parks, land development and auto dealerships. Other specialties include minority interest valuation, condemnation, expert witness and litigation support, estate planning, tax appeal, easement arbitrations and review appraisals.

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180 Qualifications of Stephen D. Kuhnhoff, MAI, ASA Managing Director Valbridge Property Advisors Hulberg & Associates, Inc. Independent Valuations for a Variable World State Certifications Certified General State of California Education Bachelor of Arts and Secondary Education Credential Mathematics Sonoma State University Contact Details ext (p) (f) skuhnhoff@valbridge.com (e) Valbridge Property Advisors Hulberg & Associates, Inc Crow Canyon Place #245 San Ramon, CA Membership/Affiliations Member: Appraisal Institute MAI Designation Senior Member: American Society of Appraisers (ASA) designated in Machinery/Technical Valuation and Real Property Urban Experience Managing Director Valbridge Property Advisors Hulberg & Associates, Inc. (2013-Present) Senior Vice President/Branch Manager Hulberg & Associates, Inc. ( ) Senior Appraiser Hulberg & Associates, Inc. ( ) Manager, Real Estate, Machinery & Equipment Appraisal Arthur Andersen & Company ( ) Commercial Real Estate, Machinery & Equipment Appraiser Marshall & Stevens, Inc. ( ) Appraisal/valuation and consulting assignments include: Commercial: Industrial: Retail shopping centers, medical and professional office buildings, vacant land. Self storage, warehouses, manufacturing, R&D, biotech, vacant land. Residential: Single family, apartments, vacant land Special Purpose: Athletic clubs, hospitals, medical clinics, assisted living, convalescent hospitals, nursing homes, marinas, hotels, motels. Other: Minority interest valuation, condemnation, litigation support, arbitrations and review appraisals. Qualified as expert witness in Alameda, Contra Costa, Monterey, San Mateo, and Santa Clara Counties and State of Utah.

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182 Qualifications of Eva Poon Analyst Valbridge Property Advisors Hulberg & Associates, Inc. Independent Valuations for a Variable World State Certifications State of California Appraisal Trainee License (in progress) State of California Broker s License (in progress) Education Bachelor of Arts Economics University of California, Los Angeles Contact Details Membership/Affiliations Member: Appraisal Institute Practicing Affiliate Appraisal Institute & Related Courses Appraisal Institute: Real Estate Appraisal Principles Real Estate Appraisal Practice Real Estate Appraisal Report Writing Market Analysis and Highest and Best Use Site Valuation and Cost Approach Sales Comparison and Income Approach Experience Analyst Valbridge Property Advisors Hulberg & Associates, Inc. (2013-Present) ext (p) (f) epoon@valbridge.com (e) Valbridge Property Advisors Hulberg & Associates, Inc Crow Canyon Place #245 San Ramon, CA Analyst Hulberg & Associates, Inc. ( ) Appraisal/valuation and consulting assignments include: professional office buildings, schools, vacant land, health clubs, recreational facilities, wineries, warehouses, manufacturing, light industrial, research and development, condominiums, agricultural land, tax appeals, and special use facilities.

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184 Qualifications of Norman C. Hulberg, MAI Senior Managing Director Valbridge Property Advisors Hulberg & Associates, Inc. Independent Valuations for a Variable World State Certifications Membership/Affiliations Certified General State of California Education Master s Degree Business Administration San Jose State University Bachelor of Science Real Estate San Jose State University Member: Member: Member: Member: Appraisal Institute MAI Designation Association of Independent Office Parks Rotary Club of San Jose/Board of Directors San Jose Silicon Valley Chamber of Commerce Appraisal Institute & Related Courses Continuing education courses taken through the Appraisal Institute and other real estate organizations. Experience Senior Managing Director Valbridge Property Advisors Hulberg & Associates, Inc. (2013-Present) Valbridge Property Advisors, Inc. Board of Directors Contact Details ext (p) (f) nhulberg@valbridge.com (e) Valbridge Property Advisors Hulberg & Associates, Inc. One North Market Street San Jose, CA President Hulberg & Associates, Inc. ( ) Appraisal/valuation and consulting assignments include: Single-family, condominium, apartments, land, mobile home parks. Office buildings, hotels/motels, service stations, retail, vacant land. Industrial plants, research and development, warehouses, vacant land. Fractional interest valuations, contaminated properties, special purpose properties, feasibility studies, market studies, condemnation, construction defects, litigation support, mediations, arbitrations and review appraisals. Mr. Hulberg has provided valuation services in a wide variety of complex civil litigation including real estate, land use cases, condemnation, estate matters, property taxation, contract disputes, partnership and corporate disputes, environmental lawsuits, professional negligence cases, construction defect, and bankruptcy/creditors matters. He is a frequent speaker on valuation topics. Qualified as an expert witness in most counties in the San Francisco and Monterey Bay and Central Valley areas, as well as and in the U.S. Tax Court in the U.S. District Courts in San Jose, San Francisco, Oakland, and Las Vegas. He is a highly experienced forensic appraiser, having provided testimony on over 300 occasions. This includes over 100 jury trials in state and federal courts in addition to numerous court trials. He has also testified in major arbitrations and before state and federal courts, as well as private arbitrations.

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