PARAMOUNT PROPERTY ANALYSTS A DIVISION OF PARAMOUNT ANALYSTS LLC

Transcription

1 PARAMOUNT PROPERTY ANALYSTS A DIVISION OF PARAMOUNT ANALYSTS LLC 2402 Broadmoor, Bldg D-2, Suite 117 Bryan, Texas Phone: (979) Fax: (979) INVOICE # March 11, 2008 ATTN: Edward S. Casseb Prosperity Bank San Antonio Loan Production Office US Hwy 281 North San Antonio, TX Ph. (210) Reference: Appraisal of a Mobile Home Park & 40 unit Mini Storage Facility located at 100 Blackjack Street in Jewett, Leon County, Texas FOR PROFESSIONAL SERVICES RENDERED Fee $2, Retainer Paid $ 0.00 Balance Due $2, Please remit to: Paramount Property Analysts, A Division of Paramount Analysts LLC Attn: Brian M. Stephen, TX G 2402 Broadmoor, Bldg D-2, Suite 117 Bryan, Texas Tax ID#: PAYABLE UPON RECEIPT 1

2 An Appraisal of Real Property In a Summary Report OF Appraisal of a Mobile Home Park & 40 unit Mini Storage Facility Located at 100 Blackjack Street, Jewett, Leon County, Texas FOR Edward S. Casseb Prosperity Bank San Antonio Loan Production Office US Hwy 291 North San Antonio, TX Ph. (210) BY PARAMOUNT PROPERTY ANALYSTS A DIVISION OF PARAMOUNT ANALYSTS LLC 2402 Broadmoor, Bldg D-2, Suite 117 Bryan, Texas BASED ON MARKET CONDITIONS AS OF February 21, 2008 REPORTED ON March 11,

3 PARAMOUNT PROPERTY ANALYSTS A DIVISION OF PARAMOUNT ANALYSTS LLC 2402 Broadmoor, Bldg D-2, Suite 117 Bryan, Texas Phone: (979) Fax: (979) March 11, 2008 ATTN: Edward S. Casseb Prosperity Bank San Antonio Loan Production Office US Hwy 281 North San Antonio, Texas Ph. (210) Reference: Appraisal of a Mobile Home Park & 40 unit Mini Storage Facility located at 100 Blackjack Street in Jewett, Leon County, Texas Dear Mr. Casseb, As requested, we are providing a summary appraisal of the above referenced property. As requested by our client, the purpose of this appraisal is to provide an opinion of the As Is Market Value of the subject property. It is our opinion that the requested "As Is" Market Value estimate is as follows: Effective Date "As Is" Market Value of Subject Property: $450,000 February 21, 2008 Market value, as used herein, is defined as, "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 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 each acting in what he considers his own best interest; c) a reasonable time is allowed for exposure in the open market; d) payment is made in terms of cash in U.S. 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. (source:12 CFR 34.42(g)) Unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, polychlorinated biphenyls petroleum leakage, and agricultural chemicals, which may or may not be present on the property, or other environmental conditions, were not called to the 3

4 attention of nor did the appraiser become aware of the existence of such materials on or in the property unless otherwise stated. The appraiser, however, is not qualified to test such substances or conditions. The presence of such substances, such as asbestos, urea formaldehyde foam insulation, or other hazardous substances or environmental conditions, may affect the value of the property, and the value herein would be invalid. The value estimated is predicted on the assumption that there is no such condition on or in the property or in such proximity thereto that it should cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. It should be noted that the value estimates are based on a Reasonable Exposure period of twelve months or less, which is based on an analysis of market transactions and on our interpretation of market participants in Leon County and surrounding area. The appraisal has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) and The Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. The appraisal is not based on a requested minimum valuation, a specific valuation, or loan approval. Yours truly, PARAMOUNT PROPERTY ANALYSTS A DIVISION OF PARAMOUNT ANALYSTS LLC Brian M. Stephen, MAI State Certification TX G Timothy T. Mayfield State License TX L 4

5 TABLE OF CONTENTS Summary of Salient Facts and Conclusions...6 Preface...16 Date and Purpose of the Appraisal, Market Value Definitions...17 Real Estate, Fee Simple Estate, Property Description, Marketing Period...18 Scope of Appraisal, Hazardous Material Disclosure, Americans with Disabilities Act...19 USPAP Competency Provision Compliance...20 History of the Subject Property, Ad Valorem Tax Assessment Analysis...21 Leon County...22 Neighborhood Data...25 Site Data...28 Improvement Data...31 Highest and Best Use Analysis...33 The Appraisal Process...36 Sales Comparison Approach...37 Value Via Sales Comparison Approach...59 Income Approach to Value, Discussion of Market Rent...60 Reconciliation and Final Estimate...76 Certificate and Final Value Estimate...77 Assumptions and Limiting Conditions...79 Addenda

6 SUMMARY OF SALIENT FACTS AND CONCLUSIONS 1) Location: 100 Blackjack Street on the west side of US Highway 79 in Jewett, Leon County, Texas 2) Purpose of Appraisal: Estimate As Is Market Value 3) Effective Date of Valuation: February 21, ) Property Rights Appraised: Fee Simple Estate 5) Zoning: Not Zoned 6) Flood Zone: The site does not appear to be situated in the 100-year flood plain according to available information from the Leon County Appraisal District. 7) Hazardous Substances: None Noted 8) Land Size: acres or 344,690 square feet 9) Improvements: 23 space Mobile Home Park spaces and Mini Storage with a 40 rentable self storage units Year Built: Mid 1980s, refurbished 2006 Conditions of Improvements: Average 10) Highest and Best Use: Mini Storage Facility/Mobile Home Park 11) Real Property Value Indication: Sales Comparison Approach: $440,000 Income Capitalization Approach: $455,000 Estimated Market Value: $450,000 22) Estimated Exposure Period: 12 months or less, which is based on an analysis of market transactions and on an interpretation of market participants in Leon County and surrounding area. 6

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8 PHOTOS OF SUBJECT PROPERTY Looking North at the Entrance to the Subject Property from Cottonwood Road Looking North at the Entrance of Subject Property 8

9 Looking North at Mobile Home Sites within the Subject Property Looking Northwest at Mobile Home sites on the western side of the Subject Property 9

10 Looking Northeast at Mobile Home sites on the eastern side of the Subject Property Looking West along the northern boundary of the Subject Property 10

11 Looking South at Mobile Home sites on the eastern side of the Subject Property Looking South at Mobile Home sites on the western side of the Subject Property 11

12 Looking West at a Mobile Home site within the Subject Property Looking West at Mobile Home sites within the Subject Property 12

13 Looking East along the northern boundary of the Subject Property Looking North at the northern boundary of the Subject Property 13

14 Looking Northeast at the westernmost Storage Unit Building Alternate view of one Storage Unit Building 14

15 Interior view of Storage Unit 15

16 PREFACE An appraisal is a type of research into the law of probabilities with respect to real estate valuation. Through appraiser's education, training, experience, knowledge, and integrity, he is able to project sellers' and buyers' activities into a forecast of real estate values. Because of the individuality and uniqueness of each property, comparisons of like properties often entail adjustments in arriving at a conclusion. Financial consideration for similar properties sometimes reflect sentiment, compassion, sympathy, bias, politics, specific needs, lack of understanding and other factors not considered by the impartial appraiser. The appraiser is an advocate of the property being appraised. His judgment and opinion cannot be altered by principals of the transaction, the lender, seller, purchaser, or broker. An appraisal cannot be guaranteed; cannot be proved. However, the opinion of value can be substantiated and justified and the final opinion of value is the result of professional analysis of a considerable quantity of physical and economic facts. An appraisal must not be considered absolute but should be used as a basis of negotiation between parties involved in the property, whatever their interests. With the foregoing in mind, the reader is invited to review the following report, which sets forth the data and reasoning leading to the estimate of value of the property under appraisement. This is a Summary Appraisal, which is intended to comply with the reporting requirements set forth under Standard 2-2(b) of the Uniform Standards of Professional Appraisal for a Summary Appraisal. As such, it presents a complete discussion of the opinion of the value; and supporting documentation concerning the data, reasoning, and analyses is included in this report. The analyses and conclusions contained in this report are specific to the needs of the client and for the intended use as stated as follows: The appraiser is not responsible for any unauthorized use of this appraisal report. 16

17 DATE AND PURPOSE OF THE APPRAISAL The purpose of this appraisal is to estimate the "As Is" Market Value of the subject property based on market conditions as of February 21, MARKET VALUE DEFINITIONS Market Value is defined as the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised, and each acting in what he considers his own best interest; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Source: Uniform Standards of Professional Appraisal Practice, The Appraisal Foundation. Dec Page B-7. 17

18 REAL ESTATE An identified parcel or tract of land including improvements, if any. 1 FEE SIMPLE ESTATE Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government. 2 LEGAL DESCRIPTION acre tract, A591, J McGrew, Turner Edition Tract 19, Leon County, Texas MARKETING PERIOD An attempt was made to locate comparable sales and listings that are similar to the subject property in order to determine the marketing time for the subject property. In confirming these sales and listings, marketing information was not available for each of the sale properties. However, a typical marketing period for property such as the subject generally extends from 6 to 18 months. The listing price is a main determinant of how long it takes a property to sell. Based on the most similar sales in the subject market, it is our opinion that the subject property should have a marketing time of approximately twelve months if prudently managed and aggressively marketed at the herein appraised value. INTENDED USER No other users are permitted outside the intended user of this report which is the addressee, Prosperity Bank. PROPERTY RIGHTS APPRAISED The value estimate contained herein is based on the fee simple interest of the subject property based on market conditions as of February 21, FUNCTION OF THE REPORT The function of this appraisal report is to provide an estimate of "As Is" Market Value for the subject property for loan underwriting purposes. 1 The Dictionary of Real Estate Appraisal, 2 nd edition, American Institute of Real Estate Appraisers, Page The Dictionary of Real Estate Appraisal, 2 nd edition, American Institute of Real Estate Appraisers, Page

19 SCOPE OF THE APPRAISAL The term "scope of the appraisal" is defined as the extent of the process of collecting, confirming, and reporting the pertinent data contained in an appraisal report. In this appraisal, an attempt was made to collect and verify all relevant general and specific data pertaining to the subject property and the subject market area. Information was obtained from real estate and economic publications, the appraiser s own files, as well as contacts with other appraisers, brokers, developers, and other knowledgeable people in the subject market area. The information obtained from these sources was verified by more than one source and is felt to be reliable, but is not guaranteed. The valuation of the subject property involved the following steps: 1) an inspection of the subject property and surrounding neighborhood to observe physical conditions, amenities, and available services; 2) a detailed highest and best use analysis to determine the most profitable use for the subject property; 3) an estimate of market value of the subject property by the Cost, Income and Sales Comparison Approaches. HAZARDOUS MATERIAL DISCLOSURE The existence of potentially hazardous material, which may or may not be present on the property, was not observed during the site visit, nor is there any knowledge of the existence of such materials on or in the property. Various construction materials may contain items that have been or could in the future be determined to be hazardous (toxic) or undesirable, and may need to be specifically treated or removed. For example, some properties have transformers and other electrical components contain PCB s, and asbestos is sometimes used in components such as fireproofing, heating and cooling systems, air duct insulation, spray-on and tile acoustical materials, linoleum floor tiles, roofing, drywall and plaster. There may be hazardous or undesirable metals, minerals, chemicals, hydrocarbons, and biological and/or radioactive items (including electric and magnetic fields) in the soils, water, building components, above or below-ground containers or elsewhere in areas that may or may not be accessible or noticeable. Such items may leak or otherwise be released. Real estate appraisers have no expertise in the direction or correction of hazardous or undesirable items. Expert inspections are necessary and are advised. Current or future laws may require cleanup or correction by past, present, and/or future owners and/or operators. It is the responsibility of the client to retain qualified experts to detect and correct such matters and to consult with legal counsel of their choice to determine what provisions, if any, they may wish to include in transaction documents regarding the subject property. 19

20 AMERICANS WITH DISABILITIES ACT DISCLOSURE The United States Congress has recently enacted the Americans With Disabilities Act (ADA), which among other things is intended to make many business establishments equally accessible to persons with a variety of disabilities. The requirements of ADA may or may not require modifications to the subject property, which could include the installation of or modifications to access ramps, door widths, public restrooms, etc. State and local laws also may mandate changes to the subject improvements. Real estate appraisers are not qualified to advise the client what, if any, changes may be required now, or in the future. Owners and tenants should consult the attorneys and qualified designated professionals of their choice for information regarding these matters. Real estate appraisers also cannot determine which attorneys and/or designated professionals have expertise in this area. USPAP COMPETENCY PROVISION COMPLIANCE According to the competency provision of the Uniform Standards of Professional Appraisal Practice (USPAP), "an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently...". 3 This assignment involves the appraisal of a mini-storage facility and a mobile home park. The appraisers involved in this assignment have adequate knowledge and experience in the appraisal of a mobile home park and mini storage facility. The appraisers involved in this assignment have adequate knowledge and experience in the appraisal of this type of commercial property within this particular market area; therefore, no further steps were taken to comply with the competency provision of USPAP. 3 Uniform Standards of Professional Appraisal Practice; page B-4; The Appraisal Foundation, December 1990; Washington, D.C. 20

21 HISTORY OF THE SUBJECT PROPERTY According to the information provided this office Raymond E. Gillen purchased the subject property from John R. Murff on April 28, 2006 for an undisclosed amount. John R. Murff owned the property for a period exceeding three years. AD VALOREM TAX ASSESSMENT ANALYSIS Properties in the State of Texas are currently being assessed at 100% of market value, with some exceptions in rural, agricultural areas. The subject property currently falls under the jurisdiction of three different taxing authorities: Leon County, Leon Independent School District and the City of Jewett. Account: R00591 Ownership: Raymond E. Gillen Subject Address: 100 Blackjack Street, Jewett, Leon County, Texas Assessed Value: Land $ 7,910 Improvements $28,780 Total $36,690 ABBREVIATIONS UTILIZED IN APPRAISAL REPORT RR Railroad NRA Net Rentable Area NOI Net Operating Income IH Interstate Highway GBA Gross Building Area GIM Gross Income Multiplier US United States EGIM Effective Gross Income FM Farm-to-Market SF Square Foot Multiplier ROW Right of Way FF Front Foot OAR Overall Rate SH State Highway LF Linear Foot CR County Road 21

22 LEON COUNTY Leon County is east of Waco on Interstate 45 in the Claypan area of eastern Central Texas. It is bounded on the north by Limestone and Freestone counties, on the east by Anderson and Houston counties, on the south by Madison County, and on the west by Robertson County. Buffalo, located near the Freestone county line, is the largest community. Centerville is the county set. Population Population growth in the Leon County MSA grew about 31% between 1990 and The MSA grew by about 3,873 people since Leon County had a 2006 population of 16,538, according to the U.S. Census Bureau. Leon County MSA Population Year Population , , , , , , , , , , , , , , , , ,538 Leon County MSA Projected Population Texas State Texas Water Year Data Center Development Board ,813 16, , , , ,482 -

23 Leon County had an estimated 2004 per capita income of $24,595, according to the U.S. Bureau of Economic Analysis. The state average in 2004 was $30,732. Employment Employment (2000 U.S. Census Bureau) Percent Number Population 16 years and over 12, In labor force 6, Employed 6, Unemployed Armed Forces Not in labor force 5, Occupations Management, Professional 1, Service Occupations 1, Sales and Office Occupations 1, Farming, Fishing, and Forestry Construction, Extraction and Maintenance Production, Transportation, and Material Moving Employment Growth by Leon County Industry MSA Texas Employment growth 2006 (in percent) Unemployment rate (in percent) New jobs in ,706 Leon County s total employment increased 0.6 percent in 2006, to a total employment of 7,430 jobs, according to the U.S. Bureau of Labor Statistics. Unemployment has remained around 5.5 percent for the past three years. This is slightly lower than the unemployment rate in Texas for the past several years which has been around 6 percent. According to the 2000 Census, the area had 4,155 employees who were private wage and salary workers representing 69.1 percent of all workers. The region had another 1,017 persons who were government workers or 16.9 percent, 787 who were self employed workers or 13.1 percent and 53 who were unpaid family workers representing 0.9 percent. This compares to the Texas statewide distribution of 78.0 percent for private wage and salary workers, 14.6 percent for government workers, 7.1 percent for self employed, and 0.3 for unpaid family workers. 23

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25 NEIGHBORHOOD DATA NEIGHBORHOOD ANALYSIS A neighborhood is generally part of a larger city, town or community. According to The Appraisal of Real Estate, 10 th edition, a neighborhood is defined as a grouping of complimentary land uses. It is usually considered to be an area with definite boundaries that exhibit fairly high degrees of homogeneity as to use, tenancy and certain other property characteristics. BOUNDARIES North: Leon County Border South: County Road 327/County Road 314 East: Interstate 45 West: County Road 336 LOCATION Northwest Leon County MAJOR THOROUGHFARES The primary thoroughfares throughout the subject neighborhood are U.S. Highway 79 and Interstate 45. ACCESSIBILITY The subject neighborhood has convenient access to employment in Jewett, Centerville, Buffalo, Mexia and various small communities scattered throughout the area. There are several major traffic routes that allow convenient travel throughout the neighborhood. The subject neighborhood is considered to have good accessibility via the above-mentioned thoroughfares. LAND USE The neighborhood is approximately 90%+ comprised of vacant land. Land use patterns currently are not anticipated to change in the near future. There is a possibility of increased population resulting from new industry in the area as discussed in the Conclusions section that follows. This could have an affect on future land use patterns. CONFORMITY The vacant land within the neighborhood is generally of good conformity. 25

26 ZONING The neighborhood does not have zoning. CONCLUSIONS In summary, the neighborhood is located in a rural county with vacant land being used primarily for agricultural or for recreational use. The neighborhood is also positively influenced by convenient accessibility provided by several traffic routes that extend to the immediate area and throughout the Leon County area. Major employers in the area are Nucor Steel Mill, Westmoreland Coal Mine and NRG Power Plant. Also, Twin Oaks Power Plant has had plans to expand and TXU has started construction on a new plant north of Franklin. Jewett is still in the running for a proposed coal power plant being built by FutureGen Industrial Alliance, Inc. which would be located just north of Jewett, along U.S. Highway 79. The above mentioned activity within the area should continue to increase the demand for property in Northwest Leon County. Based on surrounding property influences and recent growth trends, property values should generally remain steady in the near term. 26

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28 SITE DATA: LAND SIZE The site consists of acres or 344,690 square feet according to the Leon County Appraisal District. The following information relates to the site. LOCATION 100 Blackjack Street just east of County Road 337 in Jewett, Leon County, Texas BOUNDARIES North: South: East: West: Vacant Land Vacant Land Vacant Land Blackjack Street SITE CHARACTERISTICS The site is generally level and has an adequate shape to provide it good development potential. SHAPE Irregular TOPOGRAPHY Appears to be level DRAINAGE The majority of the site appears to drain adequately. No evidence of problems due to ponding or standing water was evident. STREET TYPE Blackjack Street is a narrow, dirt road connecting from County Road 337, which is a narrow two-way paved road. FRONTAGE The site has adequate frontage along the east line of Blackjack Street. 28

29 ACCESSIBILITY Average UTILITIES Sewer provided by the City of Jewett. Each mobile home site has a separate water and electric meter. EASEMENTS Typical utility easements no adverse known CURRENT USE Mobile Home Park and Mini Storage facility RESTRICTIONS There are no known land use restrictions imposed on the subject site. ZONING The subject is not zoned. FLOOD PLAIN The site does not appear to be situated in the 100-year flood plain according to information from the Leon County Appraisal District. The appraiser is not qualified to make a specific determination, therefore recommends that a determination be made by a qualified professional. We reserve the right to amend the appraisal if and when this documentation is provided. SOIL AND SUB-SOIL CONDITIONS A soil and subsoil survey has not been provided to this office. However, as evidenced by the surrounding and existing development on the site, the soil content appears to be adequate for most types of construction. OVERALL MARKET APPEAL The site has average visibility and access. ENVIRONMENTAL HAZARDS 29

30 No evidence of toxic or hazardous materials was viewed during the inspection. This appraisal has been prepared under the assumption that the subject property is free and clear of all toxic or hazardous waste contamination, and it is the appraiser's suggestion that the site be inspected by a qualified authority to determine whether or not the subject property is contaminated. The appraiser, however, is not qualified to test such substances or conditions. If the presence of such substances, such as asbestos, urea formaldehyde foam insulation, or other hazardous substances or environmental conditions, may affect the value of the property, the value rendered herein would be invalid. The value estimate is predicated on the assumption that there are no such conditions on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. ANALYSIS/CONCLUSIONS In summary, the site has average visibility and access. It has overall average developmental potential due to its size and utility availability. There are large transmission lines along the north side of the property, inhibiting the potential for expansion. 30

31 IMPROVEMENT DATA TYPE OF IMPROVEMENTS: The property currently has 23 Mobile Home pad sites with sewer provided by the city of Jewett and separate water and electric meters for each unit. All mobile homes are owned and maintained by the tenants. Since early 2006, the number of pad sites has been increased from 12 spaces to 23 spaces, and the gross monthly income has been increased from about $600 to $2,300. The owner also plans on increasing rents in April 2008 due to increase in demand from $100 a month to $120 a month, resulting in a gross monthly income increase to $2,760. The subject property also contains a mini storage facility with a total of 40 rentable self storage units. The storage units have been refurbished with new hardware, locks doors and paint since April MOBILE HOME PARK IMPROVEMENT DATA: NUMBER OF PAD SITES: 23 UTILITIES PROVIDED: QUALITY: OVERALL CONDITION: FUNCTIONAL UTILITY: Sewer if provided by the City of Jewett; Each pad site has an individual water and electric meter Average Average Average MINI STORAGE IMPROVEMENT DATA: EAVE HEIGHT: NO. OF BUILDING: 10 feet Two 3,000 SF Buildings (30 X 100 each) ACTUAL YEAR BUILT: Mid 1980s, refurbished 2006 ESTIMATED EFFECTIVE AGE: UNIT MIX: 10 years 5 units/100 SF (10 X10 ) 30 units/150 SF (10 X15 ) 5 units/200 SF (10 X20 ) 31

32 EXTERIOR CONSTRUCTION: Foundation: Frame: Exterior Walls: Roof: Concrete Metal Metal Metal INTERIOR CONSTRUCTION: Interior Walls: Insulation: Floor Structure: Ceilings: Electrical/Lighting: Doors: HVAC: QUALITY: OVERALL CONDITION: FUNCTIONAL UTILITY: Metal None Concrete Metal Adequate Aluminum None Average Average Average REMARKS The subject mini storage facility consists of 40 units ranging in size from 100 to 200 square feet with an average square footage of 150. The facility has exterior security lighting and unpaved drives. It is not a climate controlled facility. 32

33 HIGHEST AND BEST USE ANALYSIS A property is an integral part of its neighborhood and cannot be treated as an entity separate and apart from its environment. The value of real property is not intrinsic, but flows into the property from surrounding forces and shares the future with the neighborhood in which it is located. Real Estate is valued in terms of its highest and best use. According to The Appraisal of Real Estate, 10 th edition, highest and best use is defined as the reasonable, probable, and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and that results in the highest value. The highest and best use of the site as if vacant may be different from the highest and best use of the improved property. This will be true when the improvement is not an appropriate use and yet makes a contribution to total property value in excess of the value of the land. The highest and best use of both land as though vacant and property as improved must meet four criteria. The highest and best use must be 1) physically possible; 2) legally permissible; 3) financially feasible; and 4) maximally productive. These criteria are usually considered sequentially. Explanations for each criteria are as follows: 1) Physically Possible Uses Many characteristics of the subject parcel such as size, shape, topography, frontage, depth, ingress, egress, and utility are factors which must be considered when estimating the possible physical uses of the site. Also included are the off-site improvements, such as public utilities, roadway maintenance, infrastructure, and all other physical aspects that might affect the uses to which a site can be developed. 2) Legally Permissible Uses Consideration is given to legally permissible uses such as deed restrictions, zoning districts, building codes, historic district controls, and environmental regulations, as they may preclude or enhance the potential highest and best use. 3) Financially Feasible Uses In determining which uses are physically possible and legally permissible, several uses are eliminated from consideration. Then the uses that meet the first two criteria are analyzed further to determine which are likely to produce an income, or return, equal to or greater than the amount needed to satisfy operating expenses, financial obligations, and capital amortization. All uses that are expected to produce a positive return are regarded as financially feasible. 33

34 4) Maximally Productive Uses Of the financially feasible uses, the use that produces the highest price or value is considered to be the most profitable likely utilization of a property. The opinion of such use may be based on the highest and most profitable continuous use to which the property is adapted and needed, or likely to be in demand in the reasonably near future. It should be noted that the "most profitable use" may take the form of amenities; thus, it cannot always be interpreted strictly in terms of money. The use that produces the greatest return to the property is considered to be the maximally productive use. After satisfying the four criteria of being physically possible, legally permissible, financially feasible, and maximally productive, the remaining use is considered to be the highest and best use of the property. After analyzing the data gathered in the Site Analysis, the following analysis considers the highest and best use of the subject as if vacant. In this analysis, the subject land will be considered for all uses that are physically possible, legally permissible, financially feasible, and maximally productive. Highest and Best Use of the Site (as if Vacant): 1) Physically Possible As previously explained in the report, there are no physical problems associated with topography, easements, or flood plain which would limit development of the subject property. Therefore, the possible uses of the subject tract based on physical characteristics include commercial use. 2) Legal Restrictions No legal restrictions are known to exist on the subject site. 3) Financially Feasible The surrounding properties and land uses are considered when determining feasible uses. The subject property is positioned on a major thoroughfare. Based on current market conditions, excellent visibility and access, and surrounding development trends, the potential use which would be financially feasible and provide a positive return to the land would most likely be for commercial use. 4) Maximally Productive After analyzing all four criteria for highest and best use, it is our opinion that the highest and best use of the subject property, as if vacant, is for commercial use. This represent the most feasible use considering the size, land use pattern (conformity), and convenient access near primary traffic routes the neighborhood. 34

35 Highest and Best Use of Improved Property As Is : In estimating the highest and best use of an improved property, the improvements which contribute to the total property value, and have an effect on its value, are considered. The subject property is improved with a mobile home park and a mini storage facility. 1) Physically Possible The physically possible uses of the property include a mobile home park and mini storage facility. The improvements conform to many of the somewhat older rural mobile home parks and mini storage facilities in terms of appearance, drive-up appeal, and condition. 2) Legally Permissible No legal restrictions are known to exist on the subject site. 3) Financially Feasible The financially feasible uses for the subject include a mobile home park and mini storage facility use. The subject property consists of an average quality constructed mini storage facility and mobile home park, and compares favorably with many of the neighboring properties in terms of construction style, appearance, and condition. Based on the surrounding properties, existing industry, and future anticipated coal plant, the proposed subject property is best suited for above stated use. 4) Maximally Productive After analyzing all four criteria for highest and best use, it is our opinion that the highest and best use of the subject property is for the above-stated mobile home park and mini storage facility use. 35

36 THE APPRAISAL PROCESS There are three basic approaches that may be used by appraisers in the estimation of market value. These three approaches provide market data from three different sources when all are available. One is known as the Cost Approach, which involves an estimate of reproduction cost new and of accrued depreciation as of the date of the value estimate, plus an estimate of the value of the site based upon the sales of similar or comparable sites. The second approach is the Direct Sales Comparison Approach which has as its premise a comparison of the subject property with others of similar design, utility and use, that sold in the recent past. The third approach is the Income Approach which involves translating net income which, when capitalized in a manner that in commensurate with the risk and the life expectancy of the improvements, will indicate the present value of the income stream. Normally, these three approaches will each indicate a different value. The best possible judgment must be exercised to estimate what value the ownership interests being appraised are worth under the market conditions or standards specified in the appraisal problem. That is why alternative techniques for approaching a professionally acceptable and reliable valuation conclusion are used. The appraiser, in applying the tools of analysis at his disposal to the problem in question, seeks to simulate the thought process of the most probable decision maker rather than a particular one with specified individual interests. The various approaches to valuation are merely simulations of these alternative courses of action potentially open to the decision maker. The appraiser s judgments concern the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. Thus, depending upon the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may furnish a more reliable indication of value for the subject property. In other instances, because of the inadequacy or unavailability of data, one or two of the approaches may be accorded little weight in the final value estimate. The value indications developed via the Cost Approach, Sales Comparison Approach and the Income Approach follow in subsequent sections of this report. The conclusions obtained by analyzing the property by each of the approaches utilized are then correlated into a final estimate of value. Due to the older age of the improvements the Cost Approach was not utilized in this appraisal. 36

37 SALES COMPARISON APPROACH TO VALUE The Sales Comparison Approach is a method of estimating market value whereby a subject property is compared with comparable properties that have sold recently. One premise of the Sales Comparison Approach is that the market will determine a price of the property being appraised in the same manner that it determines the prices of comparable, competitive properties. In this approach, the comparison is applied to the unique characteristics of real estate that cause its prices to vary. Following are the comparable improved sales utilized and conclusion via this approach. 37

38 SALES COMPARISON APPROACH TO VALUE MINI STORAGE FACILITY MINI STORAGE COMPARABLE SALE NUMBER 1 Name: Location: Grantor: Grantee: National Self Storage 104 Holleman Drive, College Station, Texas Jerry D. Etheridge SGMP Synott Limited Partners Sale Price: $1,087,000 Sale Date: February 10, 2004 Recording Data: Vol 5867, Pg 137 Site Size: 2.30 Acres Year Built 1994, 1997 Net Rentable Area: 27,060 Units: 353 Price Per Unit/Price Per SF: $3,079 $40.17 Land to Building Ratio: 3.70 Stabilized Occupancy: 84% Overall Rate: N/A 38

39 MINI STORAGE COMPARABLE SALE NUMBER 2 Name: Location: Grantor: Grantee: Diamond T Storage 3262 Rock Prairie Road West, College Station, Texas Diamond T Storage LLC Diamond T Real Estate Holdings LP Sale Price: $650,000 Sale Date: November 1, 2005 Recording Data: Vol 7009, Pg 255 Site Size: Acres Year Built 2001 Net Rentable Area: 18,600 Units: 104 Price Per Unit/Price Per SF: $6,250 $34.95 Land to Building Ratio: 2.62 Stabilized Occupancy: Overall Rate: 67% (sold during lease up of second phase) N/A 39

40 MINI STORAGE COMPARABLE SALE NUMBER 3 Name: Location: Grantor: Grantee: Self Storage 2201 S. Pleasant Valley, Austin, Texas Don Valk Maven, Mel, Miriam Austin Storage LLC, Terrapin Austin Investors LLC, 537 Austin Storage LLC, Sherman Austin Storage LLC Sale Price: $5,200,000 Sale Date: December 1, 2006 Recording Data: Doc# Site Size: Acres Year Built 2004 Net Rentable Area: 62,717 Units: 751 Price Per Unit/Price Per SF: $6,924 $82.91 Land to Building Ratio: 2.26 Stabilized Occupancy: 89% Estimated Effective Gross Income: $530,484 Less Expenses: $130,685 Net Operating Income: $399,799 Overall Rate: 7.69% 40

41 MINI STORAGE COMPARABLE SALE NUMBER 4 Name: Location: Grantor: Grantee: ABC Storage 853 Airport Boulevard, Austin, Texas Ivan Williams Midbar Investment Co. LLC Sale Price: $520,000 Sale Date: October 10, 2006 Recording Data: Document Site Size: Acres Year Built 1973 Net Rentable Area: 17,900 Units: 159 Price Per Unit/Price Per SF: $3,270 $29.05 Land to Building Ratio: 4.29 Stabilized Occupancy: 75% Estimated Effective Gross Income: $58,132 Less Expenses: $14,533 Net Operating Income: $43,599 Overall Rate: 8.38% 41

42 MINI STORAGE COMPARABLE SALE NUMBER 5 Name: Location: Grantor: Grantee: All-Star Self Storage 3601 W Stan Schlueter Loop, Killeen, Texas Central Texas All Star Development LP Killeen Texas All Star Storage LLC Sale Price: $2,600,000 Sale Date: October 14, 2006 Recording Data: Vol. 6239, Page 461 Site Size: 2.25 Acres Year Built 2004 Net Rentable Area: 51,500 Units: 320 Price Per Unit/Price Per SF: $8,125 $50.49 Land to Building Ratio: 1.90 Stabilized Occupancy: 95% Estimated Effective Gross Income: $356,635 Less Expenses: $124,822 Net Operating Income: $231,813 Overall Rate: 8.92% 42

43 Mini Storage Comparable Sale No. 1 Mini Storage Comparable Sale No. 2 43

44 Mini Storage Comparable Sale No. 3 Mini Storage Comparable Sale No. 4 44

45 Mini Storage Comparable Sale No. 5 45

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47 IMPROVED SALES ANALYSIS Comparable Market Data Numbers 1-5 overall provided a good indication as to the subject property's estimated value via the Sales Comparison Approach. The primary difference is found in the location, construction quality, average unit size, and condition of improvements. Market Condition A market condition adjustment is utilized when there is evidence that the buyer and/or seller involved in a transaction are non-typically motivated. All the comparables were transactions that occurred under normal circumstances and transferred under typical market conditions. Location All the comparables are superior to the subject property because they are located in larger cities on major thoroughfares. Construction Quality All the comparables were considered superior in construction quality when compared to the subject property because they have concrete drives and security fencing. Average Unit Size Comparables One, Three, and four had smaller average unit sizes when compared to the subject property and therefore were adjusted upwards. Condition of Improvements The subject property was originally built in the mid 1980s but refurbished in Therefore we have estimated an effective age of 10 years. Comparables Three and Four are superior both being built in Comparable Four is inferior in condition being built in

48 IMPROVED SALES ADJUSTMENT CHART Market Market Market Market Market Item Data 1 Data 2 Data 3 Data 4 Data 5 Unadjusted Price/Unit $3,079 $6,250 $6,924 $3,270 $8,125 Condition of Sale 0% 0% 0% 0% 0% Location -20% -20% -20% -20% -20% Construction Superior Superior Superior Superior Superior Quality -20% -20% -20% -20% -20% Average Unit Smaller Similar Smaller Smaller Similar Size Subject +20% 0% +20% +10% 0% (150 SF) (76.66 SF) (179 SF) (83.51 SF) ( SF) ( SF) DOC/Condition 1994, of Improvements Similar Similar Superior Inferior Superior 0% 0% -10% +20% -10% Adjusted Price/Unit $2,463 $3,750 $4,847 $2,943 $4,063 Mean/Unit: $3,613 Median/Unit: $3,750 Conclusion/Unit: $3,750 X 40 units = $150,000 48

49 SALES COMPARISON APPROACH TO VALUE MOBILE HOME PARK MOBILE HOME PARK COMPARABLE SALE NO. 1 Location: Red River Royal Mobile Home Park, 2905 Red River Road, Victoria, TX Grantor: Grantee: 2905 RRR Land Trust Tawnya Falkner Effective Consideration: $750,000 Sale Date: August 29, 2007 Financing: Cash to Seller Year Built: 1981 Number of Spaces: 24 Actual Occupancy: 100% Price per space: $31,250 Effective Gross Income: $69,120 Less Expenses: $18,923 Net Operating Income: $51,061 Indicated EGIM: Indicated OAR: 6.81% 49

50 MOBILE HOME PARK COMPARABLE SALE NO. 2 Location: Country Oaks Arbor, 3318 County Road 89, Pearland, Texas Grantor: Grantee: OFI Investments Ira W. Hubbard & mark C. Royce Effective Consideration : $1,366,000 Sale Date: February 2007 Financing: Cash to Seller Year Built: 1992 Number of Spaces: 48 Actual Occupancy: 93.8% Price per space: $28,458 Effective Gross Income: $147,744 Less Expenses: $41,819 Net Operating Income: $105,925 Indicated EGIM: 9.25 Indicated OAR: 7.75% 50

51 MOBILE HOME PARK COMPARABLE SALE NO. 3 Location: Grantor: Grantee: Cactus Rose Mobile Home Park, 500 Bastrop Highway, Austin, TX Joleewu Ltd Jimmy Nassour Effective Consideration: $683,825 Sale Date: March 2006 Financing: Cash to Seller Year Built: 1947 Number of Spaces: 34 Actual Occupancy: 9% Price per space: $20,113 Effective Gross Income: $70,043 Less Expenses: $21,013 Net Operating Income: $49,030 Indicated EGIM: 9.8 Indicated OAR: 7.17% 51

52 MOBILE HOME PARK COMPARABLE SALE NO. 4 Location: Grantor: Grantee: Meadows at Carson Creek Mobile Home Park, 9400 Carson Creek Blvd., Del Valle, TX Meadows of Carson Creek Corp Affordable Home Communities Effective Consideration: $3,900,000 Sale Date: June 2005 Financing: Cash to Seller Year Built: 1993 Number of Spaces: 151 Actual Occupancy: 91% Price per space: $25,828 Effective Gross Income: $388,094 Less Expenses: $ 99,951 Net Operating Income: $288,143 Indicated EGIM: 10.0 Indicated OAR: 7.39% 52

53 MOBILE HOME PARK COMPARABLE SALE NO. 5 Location: Doublewide Estates Mobile Home Park, 6415 FM 439, Belton, Bell County, Texas Grantor: Grantee: Gary Michael & Tina Marie Oosse Michael McDougal Effective Consideration: $220,000 Sale Date: January 2008 Financing: Year Built: Number of Spaces: Cash to Seller Individual Mobile Homes are owned by tenants 16 half-acre spaces Actual Occupancy: 100% Price per space: $13,750 Effective Gross Income: $33,980 Less Expenses: $10,993 Net Operating Income: $22,980 Indicated EGIM: 6.5 Indicated OAR: 10.45% 53

54 MOBILE HOME PARK COMPARABLE SALE NO. 1 MOBILE HOME PARK COMPARABLE SALE NO. 2 54

55 MOBILE HOME PARK COMPARABLE SALE NO. 3 MOBILE HOME PARK COMPARABLE NO. 4 55

56 MOBILE HOME PARK COMPARABLE NO. 5 56

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58 MOBILE HOME PARK SALES ANALYSIS Comparable Market Data Numbers 1-5 overall provided a good indication as to the subject property's estimated value via the Market Approach. The primary difference is found in the location, date of construction, and effective gross income per mobile home pad site. Market Condition A market condition adjustment is utilized when there is evidence that the buyer and/or seller involved in a transaction are non-typically motivated. All of the Comparable Sales utilized are transactions that occurred under normal circumstances and transferred under typical market conditions. Location Comparables One, Two, Three, and Four were all considered superior in location being located in major cities with larger populations. Condition of Improvements All the comparables were considered superior in condition of improvements because they had paved roads throughout the mobile home parks. Effective Gross Income per Mobile Home Pad Site All the comparables were superior in effective gross income per mobile home pad site when compared to the subject property at $1,368. Your attention is directed to the following adjustment chart which sets out the adjustments to each comparable: 58

59 IMPROVED SALES ADJUSTMENT CHART Market Market Market Market Market Item Data 1 Data 2 Data 3 Data 4 Data 5 Price/Space $31,250 $28,458 $20,113 $25,828 $13,750 Market 9/07 2/07 3/06 6/05 1/08 Condition Location -20% -20% -20% -20% 0% *DOC/ Superior Superior Superior Superior Superior Condition of -15% -15% -15% -15% -5% Improvements Eff Gross $3,078 $3,192 $2,060 $2,570 $2,124 Income/Space Superior Superior Superior Superior Superior ($1,368) -20% -20% -10% -15% -10% Adjusted Price/Space $14,063 $12,806 $11,062 $12,914 $11,688 *DOC = Date of Construction Overall Mean/Space: $12,507 Median/Space: $12,806 Conclusion/Space: $12,600 X 23 spaces = $289,800 Rounded to: $290,000 TOTAL VALUE VIA SALES COMPARISON APPROACH Value of Mini Storage Facility: $150,000 Value of Mobile Home Park: $290,000 Total Indicated Value via Sales Comparison Approach: $440,000 59

60 INCOME APPROACH TO VALUE The Income Approach to value is predicted on the assumption that there is definite relationship between the amount of income a property will earn and its value. The gross income estimate is obtained by estimating market rental for the property. Then gross annual expenses incurred in producing this annual gross income are deducted. The expense estimate has taken into consideration provisions for anticipated expense items, and when these expenses are deducted from the gross annual income, an indication of the net annual income is produced. Following is a discussion of market rents, comparable rental data and the computation used in estimating the net annual income of the subject property. DISCUSSION OF MARKET RENT Market rent is defined as, "The rental income that a property would most probably command on the open market as indicated by current rentals being paid for comparable space as of the effective date of the appraisal." In more precise terms, however, it refers to the amount of money a property should produce based on the actual rentals being received from similar properties with like amenities in the same and/or similar location, as of the effective date of this appraisal. 60

61 RENTAL ANALYSIS AND GROSS INCOME ESTIMATED MINI STORAGE FACILITY COMPARABLE RENTAL NUMBER ONE Name: Location: Red Barn Realty Storage 313 S Main, Jewett, Texas Unit Size Unit Area Rent/Mo 10 X SF $40 10 X SF $45 10 X SF $75 COMPARABLE RENTAL NUMBER TWO Name: Location: Security Storage 2003 Crockett Road, Palestine, Texas Unit Size Unit Area Rent/Mo 10 X SF $53 10 X SF $65 10 X SF $75 COMPARABLE RENTAL NUMBER THREE Name: Location: ABC Storage 107 E US Highway 84, Fairfield, Texas Unit Size Unit Area Rent/Mo 10 X SF $40 10 X SF $50 10 X SF $75 61

62 COMPARABLE RENTAL NUMBER FOUR Name: Location: D & G Self Storage 444 W Commerce St., Fairfield, Texas Unit Size Unit Area Rent/Mo 10 X SF $40 10 X SF $50 10 X SF $60 62

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64 CONCLUSION OF MARKET RENT ESTIMATE MINI STORAGE FACILITY The subject property has 40 units. The rent comparables are all located in areas similar to the location of the subject property. Therefore we have estimated within the comparables range for all the unit sizes of the subject property. Estimated Gross Potential Monthly Rental Income: Unit Sizes Est. Rent # Units 10 X 10 $40 X 5 Units = $ X 15 $50 X 30 Units = $1, X 20 $65 X 5 Units = $325 Estimated Gross Potential Monthly Rental Income: $2,025 Estimated Gross Potential Annual Rental Income: $24,300 64

65 RENTAL ANALYSIS AND GROSS INCOME ESTIMATED MOBILE HOME PARK Based upon the information available to our office, the factors reported to significantly affect the rental rate of properties of this type including building location and condition. The reported terms of the leases varied, but the majority of the leases for properties of this type are reported to have the lessees responsible for utilities. This type of lease has been assumed for our analysis. The typical unit of comparison for properties of the subject's type is rental per space per month, and as such this unit of comparison has been utilized in this analysis. The following is a description of the comparable rentals utilized in this analysis: 65

66 SUMMARY OF RENT COMPARABLES Number Quality/ Pad Provided No. Property/Address of spaces Appeal Occupancy Rent/Mo. Utilities 1 Twin Oaks Mobile Home Park 25 Average/ 96% $125 Water, 305 N. Harrell Average Sewer Madisonville, Texas 2 Country Estates 77 Average/ 90% $160 Water, Groesbeck, Texas Average Sewer 3 Carter Trailer Park 10 Average/ 100% $100 Water, 706 E. Magnolia Average Sewer Madisonville, Texas 4 Gilbert Trailer Park 5 Average/ 100% $100 Water, 405 Bacon Average Sewer Madisonville, Texas The rental rates are considered to be indicative of the very diverse physical and locational characteristics of the available data. However, the data utilized is considered the best available, and is considered indicative of current market trends. The mobile home park data indicated a range of $100-$160 per space per month. The subject property has a current average lot rent of $100 but has started to charge $120 per month due to the increase in demand. Therefore we have estimated a lot rent of $120 per month. 66

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