Certified Commercial Real Estate Appraisal€¦ · RE: Certified Commercial Real Estate Appraisal of mixed-use property including the Tumbleweed Hotel located at 6333 E Cave Creek

APPRAISAL SERVICES NATIONWIDE FOR ALL

REAL ESTATE|MACHINERY/EQUIPMENT|VEHICLES|BOATS|AIRCRAFT

Certified Commercial Real Estate Appraisalof

A mixed-use property including the Tumbleweed Hotel

Located at: 6333 E Cave Creek Rd, Cave Creek, AZ 85331

As of: June 21, 2018

For: Jeri Rust

Tumbleweed Hotel 6333 E Cave Creek Rd Cave Creek, AZ 85331

By: John K Wyatt

Certified General Real Estate Appraiser

877-285-1186 direct | 888/285-1288 fax

Page No. 2

June 26, 2018

Jeri Rust

Tumbleweed Hotel

6333 E Cave Creek Rd

Cave Creek, AZ 85331

RE: Certified Commercial Real Estate Appraisal of mixed-use property including theTumbleweed Hotel located at 6333 E Cave Creek Rd, Cave Creek, AZ85331

Ms. Rust,

Per your request for professional appraisal services, I have prepared a Real Estate Appraisal Report for the above-identified property.

As such, the report presents a summary discussion of the data, reasoning, and analyses that were used in the appraisal process to develop the opinion(s) of value contained within this report.

In preparing this appraisal, it has been my intent to comply with the reporting requirements set forth under: (1) Standards Rule 2-2 of the Uniform Standards of Professional Appraisal Practice (USPAP2018-2019), as established by the Appraisal Foundation, (2) Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) (12 U.S.C. 3331 et seq.) as amended June 7, 1994. It is also intended to comply with the appraisal guidelines of the intended client defined as Jeri Rust.

It is my understanding that the intended use of this appraisal report is to assist the intended client in finance decisions and is not intended for any other use or users. The client makes no warranties or representations regarding this document or the conclusions contained herein.

The appraiser is not responsible for any unauthorized use of this report.

The purpose of this assignment has been to develop an opinion of market value for the subject property under the following premise:

888-285-1088 | 888-285-1288 | FidelityAppraisals.comREAL ESTATE | MACHINERY/EQUIPMENT | VEHICLES | BOATS | AIRCRAFT

Page No. 3

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Premise "As-Is" Market Value

The Subject Reflects: A Mixed-Use Hospitality Property

Subject Building Size (Gross S.F.): 15,376

Site Size (Gross S.F.): 123,711

Property Rights Reflected: Fee Simple

Property Condition: The actual condition of the subject property as of the effective (current) date of value

Date of Value June 21, 2018

Opinion of Market Value $5,065,000

Opinion of Market Value (text) Five Million Sixty -Five Thousand Dollars

The value opinion is based an exposure period of twelve months reflecting current market conditions and the historical marketing periods of competing properties. Additionally, no material amount of personal property items are included or reflected within the above opinion of market value.

The market value definition used in this report is promulgated by the Office of the Comptroller of the Currency under 12 CFR, Part 34, Sub-part C.

This transmittal letter, by itself, is not intended to serve as an appraisal report, nor should it be considered as such. Please refer to the attached appraisal report for a summarized recapitulation of the data, analyses and conclusions that were used in the appraisal process to develop the appraiser’s opinion of value.

The valuation is based upon the assumptions and limiting conditions that are contained within the attached appraisal report. This includes the understanding that I have no control over the use to which the report may be by a subsequent reader of this report.

The opportunity to assist you has been appreciated. Respectfully submitted,

________________________________

John K. Wyatt Certified General R. E. Appraiser No. 31598 Exp. 01/31/2020 [email protected]

Table of Contents

Fidelity Appraisals

Certification.................................................................................................................................1

Scope of the Assignment ............................................................................................................2

Summary of Important Information ...........................................................................................4

Report Introduction ....................................................................................................................9

Phoenix Regional Map ..............................................................................................................11

Regional Description .................................................................................................................12

Market and Area Analysis .........................................................................................................29

Subject Site and Improvement Description ..............................................................................34

Subject Photographs .................................................................................................................49

Highest and Best Use Analysis ..................................................................................................56

Valuation Process ......................................................................................................................60

Sales Comparison Approach .....................................................................................................61

Income Capitalization Approach ...............................................................................................82

Reconciliation and Final Value Opinion ....................................................................................99

Assumptions and Limiting Conditions ................................................................................... 103

Addendum

State of Arizona Appraisal Certificate

Fidelity Appraisals 1

Certification

I certify that, to the best of my knowledge and belief:

• I have not provided prior appraisal services to the client on the subject property.•

• The statements of fact contained in this report are true and correct.

• The appraiser has the knowledge and experience, or will take all necessary or appropriatesteps required, to complete the assignment competently.

• The reported analyses, opinions, and conclusions are limited only by the reportedassumptions and limiting conditions and are my personal, impartial, and unbiasedprofessional analyses, opinions, and conclusions.

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

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

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

• My compensation for completing this assignment is not contingent upon the developmentor reporting of a predetermined value or direction in value that favors the cause of theclient, the amount of the value opinion, the attainment of a stipulated result, or theoccurrence of a subsequent event directly related to the intended use of this appraisal.

• My analysis, opinions, and conclusions were developed, and this report has been prepared,in conformity with Uniform Standards of Professional Appraisal Practice.

• On the effective date of this report John Wyatt made a personal inspection of the subject ofthis report.

• No one provided significant real property appraisal assistance to the person signing thiscertification.

•

• I have not performed any professional services regarding the property that is the subject ofthis report within the three-year period immediately preceding acceptance of thisassignment.

_______________________________

John K. Wyatt Certified General R. E. Appraiser No. 31598 Exp. 01/31/2020


Scope of the Assignment

Identification of the Assignment

The purpose of this assignment has been to develop an opinion of market value for the subject property under the following premise:


The Subject Reflects: A Mixed-Use Hospitality Property

Subject Building Size (Gross S.F.): 15,376

Site Size (Gross S.F.): 123,711

Property Rights Reflected: Fee Simple

Property Condition: The actual condition of the subject property as of the effective (current) date of value



Opinion of Market Value (text) Five Million Sixty -Five Thousand Dollars

Market Factors Affecting this Assignment

None.

Defined Client

The intended client for this appraisal assignment is defined as the owner, Jeri Rust.

Intended Use/User

The function or intended use of this appraisal report is to assist the intended client and intended user in financial and/or lending decisions. This report is not to be relied upon for other reasons, nor is it appropriate for use by other entities. The intended user makes no warranties or representations regarding this document or the conclusions contained herein.

Appraiser Intentions

It is the intent of the appraiser to comply with the reporting requirements established under Standards Rule 2-2 of the 2018-2019 Uniform Standards of Professional Appraisal Practice for a Real Estate Appraisal Report. The scope of work for this assignment included the following:

Reading of the request for appraisal services and related attachments;

Defining the assignment or appraisal “problem”

Physical inspection of the subject property and its market area;

Scope of the Assignment


Research public records, CoStar, MLS, Xceligent, or other sources deemed reliable, for allinformation relative to the subject;

Inspect and catalog salient attributes of the subject property;

Research public records, CoStar, MLS, Xceligent or other sources deemed reliable and whenapplicable for construction costs, sales, rents, cap and yield rates, legal, and otherinformation relative to comparable properties;

When possible, confirm data with persons directly involved in the transactions includingbuyers, sellers, brokers and agents;

Gather information on appropriate listings or properties found through observation duringappraiser’s data collection process;

Investigate and analyze any pertinent easements or restriction, on the fee simple ownershipof the subject property. It is the client’s responsibility to supply the appraiser with a titlereport. If a title report is not available, appraiser will rely on a visual inspection and identifyany readily apparent easements or restrictions;

Analyzed the data and apply using one or more of the following approaches to value 1) cost,2) sales comparison, 3) income capitalization approach.

Will complete the appraisal report in compliance with appraiser’s interpretation of theUniform Standards of Professional Appraisal Practice as promulgated by the AppraisalFoundation and the Code of Professional Ethics;

Will not be responsible for ascertaining the existence of any toxic waste or othercontamination present on or off the site. Appraiser will, however, report any indications oftoxic waste or contaminants that may affect value if they are readily apparent to us duringappraiser’s investigations. Appraiser cautions the user of the report that appraiser is notexpert in such matters and that appraiser may overlook contamination that might be readilyapparent to others.

Present the results in this Real Estate Appraisal including photographs of the subjectproperty, descriptions of the subject community, the site, the improvements, a descriptionof the zoning, a highest and best use analysis, a summary of the most important sales and/orleases used in the appraiser’s valuation, a reconciliation and conclusion, a map illustratingthe sales in relationship to the subject property, and other data deemed by the appraiser tobe relevant to the report. Pertinent data and analyses not included in the report may beretained in appraiser’s files.


Summary of Important Information

Appraisal Information

Purposed/Intended Use: Provide an opinion of market value as defined by the Office of the Comptroller of the Currency under 12 CFR, part 34, Sub-part C, for the purpose of assisting the client in selling and/or financial decisions.

Intended User: Jeri Rust

Report Type: Appraisal

Report Completion Date: June 26, 2018

Buyer/Borrower: None

Property Identification

Property Name Tumbleweed Hotel

Property Type Mixed-use Hospitality and Retail

Property Description The subject improvements include a retail store, a 16-unit 2-story hotel, an 8-unit 2-building casita complex, and common area pool

Location on the south side of Cave Creek Rd just west of N School House Rd Avenue

Address 6333 E Cave Creek Rd, Cave Creek, AZ 85331

Assessor Tax ID(s) 211-10-002-D, 025

Property Rights Appraised Fee Simple

Final Value Opinion




Est Marketing and Exposure Time 12 Months or less

Comments (See Scope of the Assignment for contingencies, recommendations, and appraiser comments.)

Report Introduction


Property History & Parcel and Tax Information (Two parcels, one improved - one vacant lot)

Report Introduction


The Art Gallery building included above of 3,024 SF in size is no longer a part of the subject. Total

building size of the subject is 15,376 SF.

Report Introduction


Report Introduction


Report Introduction


Report Introduction

Report Type

In developing the reported opinion(s) of value, the appraiser performed a Real Estate Appraisal process as defined by the Uniform Standards of Professional Appraisal Practice.

This Appraisal Report is a summary recapitulation of the appraiser’s data, analyses, and conclusions. It is the goal of this appraisal report to present a summary disclosure of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. To this end, the format of this Real Estate, Appraisal Report places reliance upon the use of visual graphics, charts, and tables in order to convey data to the reader in a concise manner.

Major Definitions

Market value is defined by the Office of the Comptroller of the Currency under 12 CFR, Part 34, Sub-part C-Appraisals, 34.42 Definitions (f), as follows:

Market Value means 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 knowledgeable, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as 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, and acting in what they consider their ownbest interests;

• a reasonable time is allowed for exposure in the open market;

• payment is made in terms of cash in US dollars or in terms of financial arrangementscompatible thereto; and

• the price represents the normal consideration for the property sold unaffected by special orcreative financing or sales concessions granted by any associated with the sale.

Exposure is defined as the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market.

Marketing time is defined as the estimated length of time it might take to sell a property interest in real estate at the market value opinion-level during the period immediately after the effective date of an appraisal.

Report Introduction


The key factor in marketing time is that it is presumed to have occurred after the valuation date. Exposure and marketing time differ according to market conditions before and after the valuation date. Property value may not remain constant during the marketing time. Both marketing and exposure times are influenced by asking price.

Definition of fee simple estate where the fee simple estate represents “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.”

Leased fee estate is where the leased fee estate represents “an ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others; the rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease”.

Hypothetical Market Value - An opinion of market value that is based upon a hypothetical condition-that which is contrary to what exists but is supposed for the purpose of analysis, e.g., a value opinion(s) assuming that proposed construction is either completed and/or stabilized as of the effective date of value(s).

Prospective Market Value Upon Completion of Construction: A forecast of a market value expected at a specific future date, a Prospective value estimate is most frequently sought in connection with real estate projects that are proposed, under construction, or under conversion to a new use, or those that have not achieved sellout or a stabilized level of long-term occupancy at the time the appraisal report is written. The value presented is made under the extraordinary assumption that all proposed construction, conversion, or rehabilitation is completed, or under other specified extraordinary assumptions, as of the future date when such construction completion is projected to occur. If anticipated market conditions indicate that stabilized physical and economic occupancies are not likely as of the date of completion, the estimate shall reflect the market value of the property in its ''as-is'' state (i.e., future cash flows must reflect lease-up costs, including tenant improvements and leasing commissions for all areas not leased). For properties where individual units are to be sold over a period of time, the value should represent that point in time when all construction and development costs have been expended for that phase, or those phases, under valuation. Prospective appraisals (effective date of the appraisal subsequent to the date of the report) may be required for valuations of property interests related to proposed developments as the basis for value at the end of a cash flow projection and for other reasons.


Phoenix Regional Map

Maricopa Association of Governments 2010 Urban Population Projections Map

Subject


Regional Description

Introduction

This regional analysis focuses on those factors that are material to this appraisal. Therefore, a detailed general description of the Phoenix metropolitan area has been omitted from this analysis. More specifically, this overview will focus on the region’s growth trends, economic base and structural changes that have a significant effect upon real estate markets.

The national real estate cycles differ for the same property type across individual market areas. It also means that within a specific location, such as Metro Phoenix, the cycle for each property type can be in a different phase at any given time. Metro Phoenix is in the recovery phase. The four phases of the real estate cycle are defined as follows:

Contraction: The phase following the market peak, characterized by softening market conditions and a shift in the supply/demand balance leading to increasing vacancy rates, slowing rental growth, and rising overall cap rates. Expansion: The phase following recovery, characterized by strong demand and increasingly tight market conditions leading to low vacancy rates, robust rental growth, and decreasing overall cap rates. Recession: The phase following contraction, characterized by very low demand and high levels of supply that were added during the previous two phases. Typically involves high vacancies, negative rental growth, and high overall cap rates. Recovery: The phase following the market bottom, characterized by tightening market conditions and a shift in supply/demand balance leading to reduced vacancy rates, more balanced rental growth, and a stabilization of overall cap rates.

The graphs on the right are a PWC 1Q2013 Barometer.

Real Estate Development Cycle

Over the long-term, the supply and demand of real estate does move toward equilibrium, hence the real estate development cycle. Nevertheless, market equilibrium is seldom achieved for any length of time. Thus, the development cycle of commercial real estate is comprised of three basic phases:

Regional Descr iption


• The development boom phase occurs when an increasing shortage of available space hasdriven rents upward, pushing up the prices of existing properties and the potentialprofitability of new projects.

• The development cycle then moves into the over-built phase when overall vacancies risebecause of lower demand and/or an excess inventory of new product on the market. Hence,rents stabilize or decline, as do the values of existing properties. The potential profitability ofnew projects plummets.

• This launches the gradual absorption phase, in which vacancies gradually decline and rentsand property values stabilize or begin to rise.

National Data

The Chart below reports a 2.1% first quarter 2017 GDP growth rate:

The US economy advanced an annualized 2.1 percent on quarter in the fourth quarter of 2016, higher than 1.9 percent in the previous estimates, final figures showed. Personal consumption expenditures (PCE) increased more than previously estimated. The increase in real GDP in the fourth quarter reflected positive contributions from PCE, private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. GDP Growth Rate in the United States averaged 3.22 percent from 1947 until 2016, reaching an all-time high of 16.90 percent in the first quarter of 1950 and a record low of -10 percent in the first quarter of 1958.

The S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas in the US rose 5.7 percent year-on-year in January of 2017, following a downwardly revised 5.5 percent increase in the



previous month. It is the biggest gain since July of 2017, beating market expectations of a 5.6 percent gain. Prices in Seattle rose the most (11.3 percent), followed by Portland (9.7 percent) and Denver (9.2 percent). On a monthly basis, prices increased 0.2 percent, easing from a 0.3 percent rise in December. Meanwhile, the national index, covering all nine US census divisions jumped 5.9 percent from the previous year and 0.2 percent on the month. Case Shiller Home Price Index in the United States averaged 158.09 Index Points from 2000 until 2017, reaching an all-time high of 206.52 Index Points in July of 2006 and a record low of 100 Index Points in January of 2000:

Metropolitan Phoenix Data

U of A’s Eller College of Management Economic and Business Research Center Data Services says that the Phoenix-Mesa-Scottsdale MSA market continues a three year trend towards an increasing economy and real estate market. The charts below highlights a few metrics that impact real estate values.







Land

The land market has been revived as the Arizona economy continues to improve at a heathy rate luring investors back into the state. New home and commercial development is beginning throughout the metro area.

Market Recap: By Elliot Pollack

The graph on the next page reflects metro Phoenix home trends by Elliot D. Pollack:



Consensus Forecast Charts By: Elliott Pollack:



Metro Phoenix Retail Real Estate Markets (CoStar & ASU Forecast):

The Phoenix retail market experienced a slight improvement



in market conditions in the first quarter 2018. The vacancy rate went from 7.8% in the previous quarter to 7.5% in the current quarter. Net absorption was positive 827,456 square feet, and vacant sublease space decreased by (44,145) square feet. Quoted rental rates increased from fourth quarter 2017 levels, ending at $15.33 per square foot per year. A total of 21 retail buildings with 253,885 square feet of retail space were delivered to the market in the quarter, with 1,206,731 square feet still under construction at the end of the quarter. Summary charts are as follows:

Rates are increasing, rates for General retail is $18.12 PSF, for Mall retail is $17.22 PSF, for Power Center retail is $18.44 PSF, for shopping center retail is $14.33 PSF, and for total retail is $15.33 PSF. Total retail vacancy is 7.5% indicating the market is stable and has been for a few years. Tallying retail building sales of 15,000 square feet or larger, Phoenix retail sales figures rose during the fourth quarter 2017 in terms of dollar volume compared to the third quarter of 2017. In the fourth quarter, 33 retail transactions closed with a total volume of $182,778,203. The 33 buildings totaled 1,720,875 square feet and the average price per square foot equated to



$106.21 per square foot. That compares to 22 transactions totaling $180,871,500 in the third quarter 2017. The total square footage in the third quarter was 1,075,843 square feet for an average price per square foot of $168.12. Total retail center sales activity in 2017 was down compared to 2016. In the twelve months of 2017, the market saw 114 retail sales transactions with a total volume of $718,550,838. The price per square foot averaged $123.45. In the same twelve months of 2016, the market posted 138 transactions with a total volume of $1,275,504,387. The price per square foot averaged $158.70. Cap rates have been higher in 2017, averaging 7.13% compared to the same period in 2016 when they averaged 6.98%.:

Pollack’s Phoenix Blue Chip Consensus Forecast of the retail market shows improvement in 2014 and again in 2016-2017:

Pollack’s Phoenix Blue Chip Consensus Forecast:



Metro Phoenix Office Markets (CoStar & ASU Forecast):

The Phoenix Office market ended the first quarter 2018 with a vacancy rate of 14.3%. The vacancy rate was up over the previous quarter, with net absorption totaling positive 248,547 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 1,762,261 square feet. Rental rates ended the first quarter at $25.00, an increase over the previous quarter. A total of five buildings delivered to the market in the quarter totaling 391,456 square feet, with 2,918,300 square feet still under construction at the end of the quarter.

Summary charts are provided below:

Tallying office building sales of 15,000 square feet or larger, Phoenix office sales figures rose during the fourth quarter 2017 in terms of dollar volume compared to the third quarter of 2017. In the fourth quarter, 30 office transactions closed with a total volume of $1,324,946,835. The 30 buildings totaled 4,203,630 square feet and the average price per square foot equated to $315.19 per square foot. That compares to 20 transactions totaling $127,784,888 in the third quarter 2017. The total square footage in the third quarter was 1,036,558 square feet for an average price per square foot of $123.28. Total office building sales activity in 2017 was up compared to 2016. In the twelve months of 2017, the market saw 111 office sales transactions with a total volume of $2,270,758,120. The price per square foot averaged $221.79. In the same twelve months of 2016, the market posted 129 transactions with a total volume of $1,368,022,988. The price per square foot averaged $163.12. Cap rates have been lower in 2017, averaging 7.61% compared to the same period in 2016



when they averaged 7.64%. Below and on the next page are summary office price and cap rate trend and other charts relating to the office real estate market:

Rental rates for Class A office is $30.16 PSF, for Class B office is $22.95 PSF, and for total office is $25.00 PSF. Total retail vacancy is 14.3% indicating the market is not yet completely stable.



Pollack’s blue chip consensus forecast of the office market shows signs of improvement in 2016-2017:

Pollack’s Phoenix Blue Chip Consensus Forecast Quoted:

Metro Phoenix Industrial Market (CoStar Report & ASU Forecast):

The Phoenix Industrial market ended the first quarter 2018 with a vacancy rate of 7.2%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,323,625 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 811,726 square feet. Rental rates ended the first quarter at $7.28, an increase over the previous quarter. A total of 12 buildings delivered to the market in the quarter totaling 746,200 square feet, with 6,630,296 square feet still under construction at the end of the quarter.



Cap rates have been lower in 2017, averaging 6.82%, compared to the first twelve months of last year when they averaged 7.34%

Summary data by market and quarter are as follows:

Industrial Flex asking rates are $12.85 PSF and warehouse is $6.50 PSF with a total average of $7.28 PSF. LoopNet reports asking prices have stabilized in 2016-2018.



Pollack’s Greater Phoenix Real Estate Consensus Forecast of the industrial market shows signs of improvement in 2016-2017:

Pollack’s Phoenix Blue Chip Consensus Forecast:

2017 Forecast Summary



““The Greater Phoenix commercial real estate market is forecast to record another year of steady

growth in 2017. This is a sign of the evolution of Greater Phoenix from a “boom and bust” culture to

a more mature, stable market. Part of this transformation has to do with the pace of new

construction. In previous cycles, there were two dominant unknowns, supply and demand. In the

current climate, new supply has been limited and the only significant market uncertainty is the

degree of new demand growth.

At the macro level, expansion in the commercial real estate market will be driven by the demand

side—employment gains and population growth. During the economic recovery, Greater Phoenix

has consistently ranked among the top-10 markets in the country for job growth, averaging 50,000

net new jobs per year since 2011. Similar additions are forecast for 2017, and we are anticipating

absorption levels in 2017 to be similar to figures from 2016.

At the property segment level, a few trends stand out. Apartments continue to lead the way. There

are several ways of measuring property performance, but the data point that matters most when it

comes to the multifamily market is vacancy. Despite a wave of new units that have come to the

market since 2013, vacancy has remained near 15-year lows. As long as vacancy remains in check,

strong conditions will continue in the multifamily market.

In retail, net absorption is lagging expectations. Retailers are expanding, but the growth is being

concentrated in a few hot spots rather than tracking new housing developments across the Valley.

While housing starts are gaining momentum, current totals are well-below the long-term average.

Any sustained rebound in retail fundamentals will require renewed growth in the housing sector to

drive it.

A steady pace of tenant demand growth will continue to fuel the office market. Growth is coming in

two forms. First, new businesses are establishing operations in the Valley. The second source of

growth is coming from companies that already have a presence here that are expanding because of

the Valley’s talented workforce, large population, amenities and pro-business climate. State Farm

and Northern Trust were examples of this trend in 2016, and ADP’s announcement to add 1,500

workers in the former US Airways facility in Tempe will continue the trend in the years ahead.

The medical office sector has been in flux in recent years, and there could be additional changes in

the years to come. For now, the consolidations in the healthcare industry are causing larger space

requirements. In recent years, the average square footage of lease deals has nearly doubled. The

result has been some functional obsolescence in 1980’s-1990’s-vintage buildings that had been

occupied by solo practices in previous years. It remains to be seen how the medical office market

will adapt to the changing healthcare delivery system.

The industrial market has shown strong tenant demand for space. There has been a mix of tenants

moving into spec space, some owner-user activity and a significant total of build-to-suit



development. Similar to the retail market, a rise in activity in the local housing sector will support

greater demand for local industrial properties.

Looking ahead to 2017, the advice I would give to commercial real estate professionals would be to

keep an eye on the underlying demand drivers. Knowledge of the real estate—the buildings, the

suites, the amenities, etc.—is your bread and butter, but understanding the dynamics that are

driving your client’s real estate decisions will truly set you apart from your competition.””

Retail Overview

The housing bust hit Phoenix especially hard. In the wake of the recession, retail vacancies here

were the highest in the country—at their peak in 2011 they were several hundred basis points

higher than the national average. As of 18Q1, vacancies in this market were still among the highest

in the country. However, Phoenix has also experienced some of the strongest vacancy compression

in the country, with vacancies falling about 500 basis points from 11Q1–18Q1.

A combination of positive demographic trends and muted development activity has bolstered the

recovery of fundamentals. In addition to strong job and wage growth, Phoenix’s population has

expanded at a faster rate than has its retail inventory. In fact, Phoenix only has about 45 SF of retail

space per capita, which is below the national average and one of the lowest concentrations of retail

space among major metros in the Southwest. While construction did tick up in 2016 and 2017, net

deliveries were still well below their historical average.

Appraiser Summary:

As with most Sunbelt cities, the Phoenix-Mesa Metropolitan Area has historically exhibited strong cyclical swings in terms of its population growth and economic development activity. Thus, knowledge of these cyclical trends is fundamental to understanding the base economic factors that directly influence the supply and demand for all types of real estate. Historically, the Metro Phoenix area has had some advantages over other states due to its climate and affordable housing. The appraisers believe real estate value has been pegged once again to jobs, and, foreclosures/ REO owned/Bank owned/distressed real estate have declined to normal levels. Real estate values have stabilized or increased, and prices are back to normal levels supported by cost to construct. Thus Phoenix real estate market continues to improve and is tied to the national economy and to population/job gains. Consumer and broker confidence are also strong in the retail market, the last lagging component in the Metro Phoenix area.


Market and Area Analysis

Market Overview

The subject is situated within the North Scottsdale (Carefree) Retail sub-market as defined by the appraiser below.

CoStar reports that the retail sub-market had 149 surveyed retail buildings comprising 1,812,134 square feet of rentable building area. This sub-market area currently is reporting an average vacancy rate of 11.1% and an average rental rate of $15.38 PSF on a NNN. Rental rates have increased over the past three years and positive absorption over the past three years has had an downward impact on the vacancy rate:

Subject



Area Analysis

Cave Creek is a town in the Sonoran Desert. According to the United States Census Bureau, the town has a total area of 28.2 square miles (73 km2), all land. It is adjacent to the town of Carefree, and shares local landmark Black Mountain with Carefree. There are two notable streams known as Cave Creek in Arizona. One flows through the Town of Cave Creek and into Phoenix. This may be the origin of the Town's name. The other Cave Creek (Cave Creek Canyon) is in the Chiricahua Mountains, 200 miles to the southeast. In 2000, the state of Arizona, Maricopa County, and the town of Cave Creek bought Spur Cross Ranch, owned by Tyler Covell, a 2,154-acre (8.72 km2) tract of Sonoran desert just north of Phoenix, for $21 million. It had unusual cacti, stone formations, and hundreds of pre-history Hohokam Indian tribal artifacts, and is now a Maricopa County park.



General City Map

Area Transportation Infrastructure

N Cave Creek Rd connects the subject with other areas/village communities of Phoenix. Intra-neighborhood transportation relies primarily on section-mile arterials situated within the neighborhood. All of the major arterials serving the subject neighborhood are four-to-six lane roads which exhibit good maintenance levels. Traffic counts near the subject are medium:

Subject



Area Services and Utilities

The subject neighborhood lies entirely within the boundaries of the City of Cave Creek. All levels of local government are generally pro-growth, with no undue regulatory requirements. Additionally, all pertinent utilities and services are readily available within the subject neighborhood at costs commensurate with the metropolitan region as a whole.

Demographics

Area Employment and Economy

The City of Cave Creek has a small employment base. Unemployment is typically ±4-6%. There not are a sufficient number of employment centers located within a normal commuting distance of the subject neighborhood to support new industrial, retail, office, and residential development. The area is very stable.

Overall, the subject neighborhood is not considered to be integrally tied to the overall economic and employment base of the metropolitan Phoenix area. This area is a scenic area for vacation and recreation as well as a suburb of the metro Phoenix area.



Market and Area Analysis and Conclusion

Neighborhood Criteria

Neighborhood Rating Supply/Demand

Property Compatibility ........................ Single-Family ..............

Condition of Properties ....................... Multi-Family ...............

Transportation / Access ....................... Office .........................

Governmental Services ........................ Retail ..........................

Protection from Adverse Factors ......... Industrial ....................

Development Potential ........................ Comm. Land ...............

Property Demand ................................ Industrial Land ...........

A typical development cycle of a small area or neighborhood can be described as an “S - Curve”, indicating that areas which are virtually undeveloped will grow at a fairly slow rate during the first period of growth. As the development in an area increases, the growth accelerates until development approaches saturation and stability, when growth will again slow down. Revitalization occurs after a prolonged period of stability.

Based on my observations of the subject market area, I believe that the subject neighborhood is in the growth and development phase of its life cycle. As the economy continues to grow, development will occur in this area and real estate values should continue to rise.

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Subject Site and Improvement Description

The subject site and building improvements are described in detail below. The first section discusses the subject site in summary and then in more detail site characteristics. The second section summarizes the subject improvements.

Site Overview

Subject Location

General Subject Description/Type The subject improvements include a retail store, a 16-unit 2-story hotel, an 8-unit 2-building casita complex, and common area pool

General Location of the Subject on the south side of Cave Creek Rd just west of N School House Rd Avenue

Street Improvements

Name (Fronting) Cave Creek Road

Street Type Arterial

No. of Traffic Lanes Four

Street Improvements Storm sewers, ingress and egress access

Access to the Subject Access to the subject is open from Cave Creek Road and N School House Rd

Frontage 185' on Cave Creek Rd and 255' on N School House Rd

Economic and Area Influences

Roadside Visibility Average

Surrounding Properties Consists primarily of retail buildings in downtown Cave Creek

To the North Retail

To the East Retail

To the South Residential

To the West Retail

Market Area Cave Creek, Carefree, North Scottsdale markets

Zoning and Site Characteristics

Zoning/Legal Use/General Planning Area

Zoning CC

Zoning City and County Cave Creek, Maricopa County

Zoning Description Commercial

Subject S ite and Improvement Descr iption


Zoning Ordinance (See Zoning Map)

Planning Overlay District None

General Plan Designation Employment

Private Deed Restrictions None known to the appraisers

Potential for Zoning or Use Change Not likely

Apparent Easements Typical utility and access easements

Apparent Encroachments None

Site Characteristics

Gross Site Size (±S.F.) 123,711

Gross Site Size (±Acres) 2.84

Excess or Surplus Land Yes (APN 211-10-025 at 9,48 SF in size)

General Description Platted lot, irregular shape, level topography with adequate drainage, typical soil

Corner Location No (average visibility and access)

Design and Appeal Average

Landscaping Indigenous trees, rocks and shrubbery

Signage Yes (APN 211-10-025 at 9,48 SF in size)

Environmental Hazzards None observed

Flood Hazard Determination Zone "X"

Easements and Encroachments None

Site Utilities

Electric Service Provider APS

Water Service Provider Municipal

Sanitary Sewer Provider Municipal

Site Risk Factors

Flood Zone .............................The subject property is located in Zone “X” as designated by the Federal Emergency Management Agency (FEMA). Zones B, C, and X are the flood insurance rate zones that correspond to areas outside the 1-percent annual chance floodplain, areas of 1-percent annual chance sheet flow flooding where average depths are less than 1 foot, areas of 1-percent annual chance stream flooding where the contributing drainage area is less than 1 square mile, or areas protected from the 1-percent annual chance flood by levees. No Base Flood Elevations or depths are shown within this zone. Insurance purchase is not required in these zones.

Environmental ........................No apparent adverse on-site environmental factors were observed during the property inspection.



Site Rating Chart

Site Rating

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N/A

Access

Street Frontage

Visibility

Traffic Pattern

Zoning Density

Traffic Volume

Landscaping

Adequacy of Utilities

Overall Aggregate Utility

Comments ..............................The subject site is suitable for the subject facility.

Improvement Rating Chart

Improvement Rating

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Appeal/Appearance

Floor Plan/Design

Construction Quality

Exterior Condition

Interior Condition

Mechanical Impr

Plumbing

Landscaping

Parking

Comments ..............................The subject improvements are suitable for the subject market.



Improvement Overview

The subject improvements include a retail store, a 16-unit 2-story hotel, an 8-unit 2-building casita complex, and common area pool.

The first floor of the hotel has been remodeled.

Exterior Improvements Description

Number of Buildings Four

Number of Stories One and Two

Number of Units 16 hotel rooms and 8 casita rooms and one retail store

Larger Complex Description Tumbleweed has a western theme for tourists

Gross Subject Building Area (±S.F.) 18,400

Building Condition Class "C" Average

Observed Deferred Maintenance None

Load Bearing Exterior Wall Type Masonry

Roof Flat Built-up

Windows Dual-paned treated glass set in aluminum frame

Doors Hollow and solid wood set in metal frame

Fence Wood picket fences

Amenities External lights, common area pool, stage coach decorations, patios, etc

Aesthetics/Special Features Old west design

Overall Improvements Description

Gross Site Area (±S.F.) 123,711

Gross Site Area (±Acres) 2.84

Subject Bldg Area (±Gross S.F.) 15,376

Land-to-Building Ratio 8.05

Site Coverage % 12.4%

Parking Spaces - Total Open

Parking Ratio (Spaces per 1,000 GBA) Adequate

Year Building Constructed 1971 (Casitas), 1973 (hotel), 1976 (retail)

Total Economic Life (Yrs) 55

Actual Building Age (Yrs) 40

Effective Building Age (±Yrs) 25

Effective Building Age (%) 45.5%

Remaining Economic Life (±Yrs) 30

Interior Improvements Description

Type of Interior Hospitality and Retail

Condition Finished and partially remodeled



Interior Rooms when stabilized Restrooms, storage, retail, reception area, work areas, offices, hallways, hospitality rooms

Partitioning Wood Studs

Wall Surfaces 5/8" Painted Drywall

Floor Coverings Treated concrete, tile, carpet

Power Assumed adequate

A/C Assumed adequate

Quality Build-out Average

ADA Compliance In general, the subject improvements appear to be consistent with comparable properties in terms of ADA compliance.

Asbestos Containing Materials (Refer to Limiting Condition Section of this report.)









Aerial Photo – Subject

Subject



Subject



Subject Site Plan/Building Layout:



Aerial Plat Map

Subject

Subject



Aerial Zoomed Out



Fema Flood Map



Zoning Map

Subject


Subject Photographs

Typical view of the subject Tumbleweed Casitas

Casitas typical living room

Casitas typical kitchen

Subject Photographs


Casitas typical bathroom

Casitas typical rear/patio

Subject Photographs


Tumbleweed Hotel

Tumbleweed Hotel typical dining area

Tumbleweed Hotel typical living room

Subject Photographs


Tumbleweed Hotel typical bedroom

Tumbleweed Hotel typical bathroom

Front view of Tumbleweed retail store

Subject Photographs


Tumbleweed retail store covered walkway

Tumbleweed retail store side view

Tumbleweed retail store interior

Subject Photographs


Tumbleweed retail store interior

Common area pool

Common area park

Subject Photographs


Common area decor

Common area parking/decor


Highest and Best Use Analysis

Highest and Best Use is defined as the reasonably 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 four criteria the highest and best use must meet are:

• Legal permissibility,

• Physical possibility,

• Financial feasibility, and

• Maximum profitability

Although this definition applies specifically to the highest and best use of land, it is to be recognized that in cases where a site has existing improvements, the highest and best use may very well be determined to be different from the existing use. The existing use will continue, however, unless and until the land value in its highest and best use exceeds the total value of the property in its existing use.

Based upon the preceding considerations, a general discussion will follow analyzing the highest and best use of the subject property as though vacant and as improved.

As Though Vacant

Essentially, this highest and best use analysis will consider the three options available to an owner or potential purchaser of the subject site. That is to: (1) leave the property vacant, (2) develop the property, and (3) if development is found to be feasible, determines what use is most profitable.

Legally Permissible

Zoning Classification ......................... CC, Commercial, by the City of Cave Creek, Maricopa County

Allowable Development Type(s) ....... buildings similar to the subject

Potential for Zoning Change ............. Yes No See Comments

Private Development Restrictions ....................................... Yes No See Comments

Comments ......................................... No unusual restrictions were noted during the appraisal process



Physically Possible Yes No Comments

Conforming Site Size None

Conforming Site Shape None

Adequate Topography None

Adequate Ingress and Egress None

Arterial Frontage None

Corner Location None

Adequate Utilities None

Financial Feasibility

Probable Land Use ............................ Buildings similar to the subject

Market Vacancy Level ....................... 11.1% (CoStar retail sub-market, hospitality is 40-50% as well)

Average Rental Rate(s) ...................... $19-20 PSF (CoStar Retail sub-market – NNN lease types) Average Rental Rate(s) ...................... $140-$150 per night (CoStar Hospitality sub-market)

Financial Feasibility Low Med High Comments

Investor Development Activity None

Owner-User Dev. Activity None

Net Absorption Levels None

“Overbuilt” Market Area No Yes None

Maximally Productive

Consideration No. 1 .......................... Does holding the (as-though vacant) subject property as vacant for “investment” and/or future development represent the maximally productive use of the site as of the effective date of value?

Yes No

Consideration No. 2 .......................... Does maximally productive use recognize the potential for near-term development for an owner- user?

Yes No

Consideration No. 3 .......................... Do current market conditions, including rental rates, occupancy levels, and absorption rates support the development of new speculative (for lease) space within the subject’s product type and geographic sub-market?

Yes No



Conclusion - As Though Vacant:

Thus, considering the four “tests” of highest and best use, it is concluded that the highest and best use of the subject property, as though vacant and as of the date of valuation, is to develop the property for investment based on current demand and vacancy levels.

As Though Improved

Essentially, this highest and best use analysis will consider the three options available to an owner or potential purchaser of the improved subject property. That is to: (1) leave the improvements unchanged, (2) modify the improvements or, (3) demolish the improvements if they are found not to be financially feasible.

Physical Considerations

Type of Improvements ...................... buildings similar to the subject Gross Subject Building Area .............. ±18,400 Square feet Year Built ........................................... 1971-1976

Physical Considerations

Yes No

Comments

Conforming Building Size None

Conforming Design / Layout None

Functional Inadequacies None

Functional Superadequacies None

Deferred Maintenance None

Legally Permissible

Zoning Classification ......................... CC, Commercial, by the City of Cave Creek, Maricopa County Private Development Restrictions ....................................... Yes No See Comments Comments ......................................... No unusual restrictions were noted during the appraisal

process Allowable Development Type(s) ............................................... Wide variety of commercial development

Are the current improvements conforming? ...................................... Yes No See Comments Potential for Zoning Change ............. Low High See Comments Financial Feasibility

Current Use ....................................... Mixed-Use Commercial



Market Vacancy Level ....................... 11.1% (CoStar retail sub-market, hospitality is 40-50% as well) Average Rental Rate(s) ...................... $19-20 PSF (CoStar Retail sub-market – NNN lease types) Average Rental Rate(s) ...................... $140-$150 per night (CoStar Hospitality sub-market) Primary appeal .................................. Investor

Maximally Productive

Consideration No. 1 .......................... Is the value of the improved property greater than its underlying site value?

Yes No

Consideration No. 2 .......................... Would the “market” support* a major remodeling effort or change in use of the existing improvements?

Yes No Not Applicable *As evidenced by a higher prospective selling price or rental

rate.

Consideration No. 3 .......................... Are there any deferred maintenance items requiring repair or replacement?

Yes No Conclusion - As Improved

Thus, considering the four “tests” of highest and best use, it is concluded that the highest and best use of the subject property, as improved and as of the date of valuation, is for the continuation of use of the current or similar type operations based on the extent of the subject’s existing improvements.


Valuation Process

Typically, real estate can be valued by applying three approaches, i.e., the cost approach, the sales comparison approach, and the income capitalization approach.

Cost Approach: An indication of value for a property is derived by estimating the current cost to construct a reproduction of or replacement for the existing structures, deducting for all evidence of accrued depreciation from the cost new of the reproduction or replacement structure, and adding the estimated land value plus an entrepreneurial profit. This approach is based on the proposition that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property. It is particularly applicable when the property being appraised involves relatively new improvements that represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which there exist no comparable properties on the market. However the cost approach was not utilized based on the difficulty in estimating depreciation, effective age, and replacement cost for improvements built in the 1970s. Sales Comparison Approach: Traditionally, this is an appraisal procedure in which the market value estimate is predicated upon prices paid in actual market transactions and prices asked in current listings. It is a process of analyzing sales of similar recently sold properties in order to derive an indication of the most probable sales price of the property being appraised. Income (Capitalization) Approach: A value indication for income-producing property may be derived by converting anticipated benefits, cash flows and reversions, into property value. This conversion can be accomplished in two ways: one year's income expectancy or an annual average of several years' income expectancies may be capitalized at a market-derived capitalization rate or a capitalization rate that reflects a specified income pattern, return on investment, and change in the value of the investment; secondly, the annual cash flows may be discounted for a relevant holding period and the reversion at a specified yield rate. In the Reconciliation and Final Value Estimate section of the report the sales comparison and income approaches are evaluated as to their pertinence and reliability to the appraisal problem. This analysis results in a final value estimate for the fee simple interest in the subject property. The following analysis demonstrates the application of the appropriate approaches to value for the subject property.


Sales Comparison Approach

The sales comparison approach produces an estimate of value for real estate by comparing recent sales of similar properties in the surrounding or competing area to the subject property. By analyzing appropriate sales, which qualify as arms-length transactions between willing, knowledgeable buyers and sellers with reasonable market exposure, price trends can be identified from which value parameters may be extracted. The basic steps involved in the application of this approach are as follows:

1. Researching recent relevant property sales, pending sales, and current offerings throughout the competitive market area.

2. Selecting sales of properties most similar to the subject based on their respective locational, physical, and/or economic attributes (nature and type of property). Transaction characteristics, such as financing terms, motivation, and changes in market conditions (time) are also considered.

3. Reducing the sales price to common units of comparison (i.e., price per square foot of gross building area or per room, etc.).

4. Completing a comparative process using a combination of qualitative and/or quantitative techniques to analyze and compare the comparable sales with the subject property. This particular valuation procedure will emphasize qualitative analysis techniques that compare the aggregate or overall utility of the subject property with the observed utilities of the respective comparable sales. Following the discussion of the comparable properties, a quantitative adjustment chart will be presented based upon the value influencing factors discussed.

The final step of the sales comparison approach involves interpreting the resulting comparative data and drawing valid value conclusion(s). All comparables are selected from the subjects CMA. For the purpose of maintaining brevity, each comparable will be summarized in a single page form following a map identifying the location of the comparable sales in relationship to the subject. The subject is mixed-use and one set of 5 comps is selected for each type of building, one for retail, one for hotel, and one for the casitas with corresponding adjustment grids and value conclusions.



Map of the Improved Comparable Sales - Retail

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Map of the Improved Comparable Sales - Hospitality

Subject

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Hospitality:

Comparable Identification Locational and Site Description

Property Type: Hospitality Hotel CoStar Sub-Market: Scottsdale South

Address: 3701 N Marshall Way Gross Site Area (SF): 12,628

City/State/Zip: AZ Scottsdale 0 Zoning: C-C

APN: 130-13-013A 130-13-014 Lot Dimension: Irregular

Map: N/Av Arterial: No

Data Source: CoStar, MLS, Brokers Property Name: None

Source Doc. No.: 3892972 Frontage: Good

Transaction Information Improvements Description

Sales Date: May 5, 2017 Gross Bldg Area (SF): 6,602

Sales Price: $3,950,000 Land-to-Building Ratio: 1.91:1

Bldg Price (PSF): $598.30 No. of Bldgs: 1

Land Price PSF: $312.80 No. of Stories: 2

Reported Cap Rate: N/Ap No. of Units: 4

Gross Income: N/Av Percent Office: 0

Total Expenses: N/Ap Parking Spaces: In Common/Open

Net Operating Income: N/Ap Parking Ratio: Adequate

Down Payment: $966,500 Construction Material: Masonry

1st Trust Deed Bal*: $0 Year Built: 2013

1st Lender: All Cash Condition: Average

Conditions of Sale: Normal Vacancy Percent: 0

Recording Date: May 5, 2017 Occupant: Will be overnight rented

Recorder Doc. No.: 328361 Fire Sprinklers: 0

Mkt. Period (days): 224 Loading Docks: None

Prior Sale No./Doc No.: None Drive-In Doors: 0

Truss Height: 8-9'

Buyer: Undisclosed Reat Estate Interest: Fee Simple

Seller: Ivy Court Llc Tenants: Stabilized

Legal: Lots 4 & 5 blk 1 Matlock Place bk 32

pg 50

Comments: * If the sale price less down payment does not equal the 1st Trust Deed Balance, there is a 2nd Deed involved.

Improved Comparable No. 1

The 6,602 SF Class B Hospitality Building located at 3701 N Marshall Way in Scottsdale, AZ was sold on 5/5/2017 to Bespoke Land,

LLC for $3,950,000. The transaction was in escrow for approximately 30 days. Kelsey Young (Listing Broker) confirmed the sale price,




Property Type: Retail Art Gallery CoStar Sub-Market: Scottsdale South

Address: 7101 E Lincoln Dr Gross Site Area (SF): 217,800

City/State/Zip: AZ Paradise Valley 0 Zoning: RT

APN: 174-64-003A Lot Dimension: Irregular


Data Source: CoStar, MLS, Brokers Property Name: Smoke Tree Resort & Bungalows

Source Doc. No.: 4199859 Frontage: Adequate


Sales Date: April 3, 2018 Gross Bldg Area (SF): 26,395


Unit Price (PSF): $386.44 No. of Bldgs: 1

Land Price (PSF): $46.83 No. of Stories: 1

Reported Cap Rate: N/Av No. of Units: 26


Total Expenses: N/Av Parking Spaces: 125

Net Operating Income: N/Av Parking Ratio: 4.51:1

Down Payment: $1,200,000 Construction Material: Masonry

1st Trust Deed Bal: $9,000,000 Year Built: 1954

1st Lender: Seller Condition: Average

Conditions of Sale: Redevelopment Project Vacancy Percent: 0

Recording Date: April 3, 2018 Occupant: Overnight Tenant(s)


Mkt. Period (days): N/Av Loading Docks: None


Truss Height: 8-9'

Buyer: Geneva Holdings, LLC Reat Estate Interest: Fee Simple

Seller: Smoke Tree Resort Llc Tenants: Stabilized

Legal: N2 NW4 (and N2 S2) NE4 SE4 Sec10

T2N R4E Gila & Salt River B&M EXC E

200'



The Smoke Tree Resort & Bungalows sold for $10.2 million. The 26-room hotel is located on a 4.88-acre parcel and has been in operation

since the 1950s. Reportedly, the sale was not based on in-place operations or income. It had been marketed off-and-on for several years

as a redevelopment opportunity before it sold in what was described as an off-market deal. (The seller had also listed the property for

sale, both as a hotel for redevelopment and as a land site, in LoopNet with the most recent asking price of $10.6 million.) There are no in-

place approvals for redevelopment or additional construction, and, the buyer reported, future plans for what was described as the

revitalization of the property have not yet been determined. It was noted that the Paradise Valley approval process may take some time,

though the in-place zoning for a resort will not need to be changed. (A published report had stated that the buyer planned to construct 30

condos on the site; the buyer stated that this was not accurate.) The seller took back a $9 million loan. Contract time was reported by

different parties at 3 months and at 6 months; we are not certain of the cause of the discrepancy.




Property Type: Hospitality Hotel CoStar Sub-Market: Tempe

Address: 951 E Playa Del Norte Dr

Gross Site Area (SF): 117,176

City/State/Zip: AZ Tempe 0 Zoning: MU-4, Tempe

APN: 132-31-152 Lot Dimension: Irregular

Map: 149-173LW Arterial: Yes

Data Source: CoStar, MLS, Brokers Property Name: Aloft Hotel



Sales Date: July 24, 2017 Gross Bldg Area (SF): 68,000







Net Operating Income: $1,251,000 Parking Ratio: 0.58:1

Down Payment: N/Av Construction Material: Reinforced Concrete

1st Trust Deed Bal: $13,545,000 Year Built: 2009

1st Lender: Parkway Bank & Trust Condition: Average


Recording Date: Unk Occupant: Overnight Tenant occupied




Truss Height: 8-9'

Buyer: Peachtree Hotel Group Reat Estate Interest: Fee Simple

Seller: Triyar Tempe, LLC Tenant at time of sale: Stabilized

Legal: Lot 1 Playa Six subdiv BOM 962 pg 27



In 2010, this building was awarded LEED certification by the U.S. Green Building Council.

The Aloft Hotel Tempe sold for $19.25 million or $141,544 per key for the 136-room hotel. The property is on a GPLET (Government

Property Lease Excise Tax). As such, the property conveyed by an assignment of the leasehold interest, but the fee interest will revert to

the owner of the building when the GPLET agreement burns off. Reportedly, there was no impact on the price and, since it would be

incorrect to use this as a comparable for a true leasehold asset, we are not flagging this as a ground lease / leasehold sale. Note,

however, that no affidavit was filed as part of the transaction. The hotel opened in 2009. It was described as being in good condition. The

brand Property Improvement Plan was reported at $1.91 million / $14,044 per key. The PIP was described as typical Reportedly, on

trailing twelve-month operations, average occupancy was 59% with an ADR of $130, or RevPAR of approximately $77. The cap rate on

trailing twelve month operations was reported at 6.5%, or NOI of approximately $1.251 million. (Another party reported RevPar just under

$80, with ADR of approximately $137 on trailing twelve month as of May.) RevPAR penetration was reported to be approximately 90%

and had been trending downward. A lower cap rate was also reported, approximately 5.4%, We are unable to explain the discrepancy

between the reported cap rates. The property was reported to be not a core asset for the seller, who had not invested heavily in marketing

the property. It was reported that there is significant upside potential, which was reflected in the relatively low cap rate. All parties agreed

that the purchase was not based on in-place operations but on the considerable future upside from improving the asset's performance

through more aggressive management and marketing. The buyer owns 33 hotels in the southeast US; this is their first acquisition in

Arizona. There were no unusual conditions reported to the sale. It was noted that the buyer secured the property by coming in all cash,

though financing was secured prior to close, and closing quickly on the asset.




Property Type: Hospitality Motel CoStar Sub-Market: Tempe

Address: 1461 E Apache Blvd Gross Site Area (SF): 38,951

City/State/Zip: AZ Tempe 0 Zoning: C-G

APN: 133-08-058A 133-08-059A Lot Dimension: Irregular

Map: 149-173LX Arterial: No




Sales Date: September 19, 2017 Gross Bldg Area (SF): 10,690






Total Expenses: $18,815 Parking Spaces: 39


Down Payment: N/Av Construction Material: Wood Frame

1st Trust Deed Bal: $0 Year Built: 1988


Conditions of Sale: Debt Assumption Vacancy Percent: 0

Recording Date: September 19, 2017 Occupant: Will be tenant/owner occupied




Truss Height: 8-9'

Buyer: Undisclosed Reat Estate Interest: Fee simple

Seller: M & L Arizona #1 LP Tenants: Seller

Legal: 0



We tried several times to reach the parties involved in this transcation but to no avail. Please note that all of the information on this

comparable is from public records. Accordint to a report, the Tempe town council approved the conversation onf this vacant motel into an

apartment.




Property Type: Hospitality Motel CoStar Sub-Market: Piestewa Peak Corridor

Address: 1615 E Northern Ave Gross Site Area (SF): 129,808

City/State/Zip: AZ Phoenix 0 Zoning: M-H

APN: 165-21-180 165-21-192 Lot Dimension: Irregular

Map: N/Av Arterial: Yes




Sales Date: February 15, 2017 Gross Bldg Area (SF): 41,760






Total Expenses: $92 Parking Spaces: In Common/Open

Net Operating Income: N/Av Parking Ratio: Adequate

Down Payment: $2,820,000 Construction Material: 0


1st Lender: New Loan Condition: Average

Conditions of Sale: 1031 Exchange Vacancy Percent: 0

Recording Date: February 15, 2017 Occupant: Overnight tenant occupied




Truss Height: 8'


Seller: Phoenix Northern Resort LLC Tenant at time of sale: Stabilzed

Legal: Lengthy Legal - Refer to Deed


The Best Western Inn Suites is located in the Squaw Peak Mountain Preserve, close to the prestigious Biltmore area and near corporate

centers, sporting and concert venues and other local attractions in the Phoenix area.


The property was sold for $9,400,000 and a cap rate of 9% as confirmed by the listing broker who also represented the buyers. This was

the buyer's upleg in a 1031 exchange. The sellers had owned the proeprty since it was built and thought it was time to sellit. The seller

also noted that the price per room was excellent.



Retail:


Property Type: Retail Freestanding CoStar Sub-Market:

Anthem Ret

Address: 31414 N Cave Creek Rd Gross Site Area (SF): 92,434

City/State/Zip: AZ Cave Creek 0 Zoning: C-2, Phoenix

APN: 211-35-005H Lot Dimension: Irregular

Map: 66-169KW Arterial: No


Source Doc. No.: 3923987 Frontage: 34000 feet on Cave Creek


Sales Date: June 8, 2017 Gross Bldg Area (SF): 7,255




Reported Cap Rate: N/Ap No. of Units: 1


Total Expenses: N/Ap Parking Spaces: 65

Net Operating Income: N/Ap Parking Ratio: 9.30:1

Down Payment: N/Av Construction Material: Masonry

1st Trust Deed Bal*: $0 Year Built: 2000


Conditions of Sale: High Vacancy Property Vacancy Percent: 0

Recording Date: June 8, 2017 Occupant: Will be leased




Truss Height: Multi

Buyer: Nirav Patel Reat Estate Interest: Fee Simple

Seller: Glendora Medical Investment Co Tenants: N/Ap

Legal: S2 EX S 40F & W 10F OF THAT PT OF

S2 S2 SE4 LY BET NW LN OF R/W

OF CAVE CREEK - CAMP CREEK RD



Delivered vacant. Owner intends to lease out the remainder.

02/05: Glendora Medical Investment Company, LLC purchased the company from MJKL Enterprises, LLC. Please reference Comps

#PXC-36655 for more information. Excellent curb appeal. Building houses both the convenent store and Burger King on about a 50-50

split of space. Texaco has 6/single-hose blender MPDs with CR/DB-card heads covered by 40'x105' canopy. 2/20k gal. double-walled




Property Type: Retail Art Gallery CoStar Sub-Market: Carefree Ret

Address: 6333 E Cave Creek Rd Gross Site Area (SF): 32,670

City/State/Zip: AZ Cave Creek 0 Zoning: CC

APN: 211-10-002B Lot Dimension: Irregular


Data Source: CoStar, MLS, Brokers Property Name: The Spur Cross Gallery Building

Source Doc. No.: 3861904 Frontage: 200' Cave Creek


Sales Date: March 22, 2017 Gross Bldg Area (SF): 3,800


Unit Price (PSF): $339.47 No. of Bldgs: 1

Land Price (PSF): $39.49 No. of Stories: 1



Total Expenses: N/Av Parking Spaces: In Common/Open


Down Payment: $0 Construction Material: Masonry




Recording Date: March 22, 2017 Occupant: Tenant(s)




Truss Height: Various

Buyer: Richard Kuebler Reat Estate Interest: Fee Simple

Seller: Ebenezer LLC Tenants: Art Gallery

Legal: Por E2 SE4 Sec 28 T6N R4E aka Lot 2

Lot Line Adjustment bk 1313 pg 23



The 3,800 SF Class B General Retail Building located at 6333 E Cave Creek Rd in Cave Creek, AZ was sold on 3/22/2017 to Blue Cactus

Properties, LLC for $1,290,000. We spoke with Jeri Rust (True Seller) and she confirmed that this property sold, but she wouldn't disclose

any further details regarding this transaction. Multiple attempts were made on our end to reach the true buyer, but we weren't able to

reach them in order to confirm any additional information on this sale. The details regarding this transaction were verified by the True

Seller, Special Warranty Deed and Affidavit.

The subject property is the Spur Cross Gallery a +/- 4,000 square foot building at the Tumbleweed Hotel in Cave Creek, AZ.




Property Type: Retail (Neighborhood Center) CoStar Sub-Market: Carefree Ret

Address: 29455 N Cave Creek Rd (Part of Multi-

Property Sale) Gross Site Area (SF): 84,162

City/State/Zip: AZ Cave Creek 0 Zoning: C-C

APN: Lot Dimension: Irregular

Map: N/Av Arterial: Yes

Data Source: CoStar, MLS, Brokers Property Name: Shops D

Source Doc. No.: 3918660 Frontage: 86 feet on N Cave Creek Rd













Conditions of Sale: 1031 Exchange Vacancy Percent: 0

Recording Date: Unk Occupant: Will be owner-User




Truss Height: Multi

Buyer: A & C Properties, Inc. Reat Estate Interest: Fee Simple

Seller: FS Tatum Plaza LLC Tenant at time of sale: Ambient LLC

Legal: N/Av



Tatum Plaza, a retail center anchored by Fryâ€™s Food & Drugs, sold for $9.45 million. Westwood Financial sold the 29,460 square foot

retail center to Phoenix-based A & C Properties, Inc. At the time of sale, Tatum Plaza was approximately 97% leased to several tenants

including: the UPS Store, Baskin-Robbins, Babbo Italian Eatery, Great Clips, and Hi-Health Supermart. The transaction served as

Westwood â€˜s downleg in a 1031 exchange; the sellers were in the process of identifying a replacement asset. Located near the

intersection of Cave Creek Road and Tatum Boulevard, this property is in the heart of Tatum Ranch master planned community.




Property Type: Retail Storefront Retail/Office CoStar Sub-Market: Anthem Ret

Address: 39422 N Daisy Mountain Dr Gross Site Area (SF): 70,567

City/State/Zip: AZ Anthem 0 Zoning: C-2




Source Doc. No.: 4267580 Frontage: Set back










Down Payment: N/Av Construction Material: Wood Frame




Recording Date: May 17, 2018 Occupant: Will be tenant/owner occupied




Truss Height: Various

Buyer: WNDG, LLC Reat Estate Interest: Fee simple

Seller: Wells Fargo Bank N.A. Tenants:

Seller

Legal: Par 2, Anthem South Side Mixed Use

Unit 3, bk 704 pg 19.



Friday, June 17th the previous Wells Fargo Bank Branch at 39422 N Daisy Moutain Dr was bought by Diversified Partners LLC.




Property Type: Retail Freestanding CoStar Sub-Market: Carefree Ret

Address: 6049 E Cave Creek Rd Gross Site Area (SF): 5,902

City/State/Zip: AZ Cave Creek 0 Zoning: C-N




Source Doc. No.: 4232728 Frontage: 112 feet on Cave Creek Road


Sales Date: April 12, 2018 Gross Bldg Area (SF): 1,565

Sales Price: $425,000 Land-to-Building Ratio: 3.77:1





Total Expenses: N/Av Parking Spaces: In Common/Open






Recording Date: April 12, 2018 Occupant: Will be likely be owner-user




Truss Height: 8'


Seller: Moran Julie E Tenant at time of sale: Was owner-user

Legal: N/Av





Qualitative/Quantitative Analysis

Although this analysis relies primarily on a qualitative comparative process, it is still necessary to consider if quantitative adjustments are indicated for any of the comparable sales prior to use of the ranking analysis. More specifically, consideration is given to the appropriateness of dollar and/or percentage adjustments for the following transaction characteristics: ✓ Property Rights Conveyed ✓ Financing Terms

✓ Conditions of Sale ✓ Market Conditions (Time) ✓ Location ✓ Age ✓ Physical Characteristics

Individual Adjustments:

The selected sales comparables reflect the transfer of fee simple interests (owner-users) or leased fee interests (tenant occupancy). No adjustments for property rights conveyed are indicated as part of this comparative process. All of the sales comparables reflect normal financing terms of sale. More specifically, the transactions were financed with new loans or the purchaser paid cash for the property. All of the selected sales comparables reflect normal conditions of sale with no unusual circumstances that materially influence the negotiated purchase price, therefore, no adjustment is indicated. Consideration was given to changes in market conditions for the time-period between the comparable date of sale and the effective date of this appraisal in the reconciliation process, and prices do not appear to be changing thus, adjustments for changes in market conditions are made within this comparative analysis. Group Adjustments: Comparables are adjusted for locational attributes, physical attributes, and amenities when applicable. Adjustment grids accounting for all the factors noted above for the selected sale comparables and the subject is included on the next page, one for retail, one for hotel, and one for casitas.

Improved Sales Adjustment Grid


Presentation of the Improvement Sales Comparables - Retail

Subject

Retail

130,680

Yes

Description Adj +/(-) Description Adj +/(-) Description Adj +/(-) Description Adj +/(-) Description Adj +/(-)

Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Leased Fee 0%

All Cash 0% All Cash 0% All Cash 0% All Cash 0% All Cash 0%

Normal 0% Normal 0% Normal 0% Normal 0% Normal 0%

Stable 0% Stable 0% Stable 0% Stable 0% Stable 0%

R1-8 C-2, Phoenix 0% CC 0% C-C 0% C-2 0% C-N 0%

Average Similar 0% Similar 0% Similar 0% Similar 0% Similar 0%

25 18 -5% 47 10% 11 -5% 11 -5% 28 0%


3,570 7,255 5% 3,800 0% 15,220 10% 5,085 0% 1,565 -5%

Church w/Day Care Similar 0% Inferior 5% Similar 0% Inferior 5% Similar 0%


Adequate Similar 0% Similar 0% Similar 0% Similar 0% Similar 0%

12.08 12.74:1 0% 8.60:1 5% 5.53:1 10% 13.88:1 0% 3.77:1 15%

0% 20% 15% 0% 10%

AZ Cave Creek 0

6333 E Cave Creek

Rd, Cave Creek

Comparable 4 Comparable 5

Property Name / Type Retail Retail

Address 31414 N Cave Creek 6333 E Cave Creek 29455 N Cave Creek

Retail Retail Retail

39422 N Daisy 6049 E Cave Creek Rd

Improved Sales Comparason Chart

Characteristic Comparable 1 Comparable 2 Comparable 3

March 22, 2017 May 26, 2017

AZ Cave Creek 0 AZ Cave Creek 0 AZ Anthem 0 AZ Cave Creek 0

May 17, 2018 April 12, 2018

Sales Price $2,550,000 $1,290,000 $4,882,179 $1,400,000 $425,000

Sales Date June 8, 2017

Sales Price PSF $351.48 $339.47 $320.77 $275.32 $271.57

Costar/Public Records Costar/Public Records Costar/Public Records

Site SF

Costar/Public Records Costar/Public Records

None None None

County Recording No. 418433 203492

Prior Sale Last 3 Years

Arterial

Individual Adjs:

Property Rights Conveyed

Financing Terms

379029 2777390

84,162 70,567

None

Conditions of Sale

Market Conditions

Adjusted Sales Value

$351.48

Data Source

5,902

$1,400,000 $425,000

Adjusted Bldg $PSF

YesYes No

92,434 32,670

None

Yes Yes

$2,550,000 $1,290,000 $4,882,179

$320.77$339.47

Zoning

$271.57$275.32

Build-Out

Gross Building Size

Group Adjustments:

Location

Eff Age (# of Years)

Quality/Construction

Parking Ratio

Amenities

$5,614,506 $1,400,000 $467,500$1,548,000

Net Adjustment (%)

Adjusted Sales $Value

LTB Ratio :1

$2,550,000

Adjusted Sales $PSF $351.48 $275.32 $298.73$407.36 $368.89

Improved Sales Adjustment Grid


Presentation of the Improvement Sales Comparables – Hospitality

Subject

Hospitality

130,680

Yes

Description Adj +/(-) Description Adj +/(-) Description Adj +/(-) Description Adj +/(-) Description Adj +/(-)

Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Leased Fee 0%

All Cash 0% New Loan 0% New Loan 0% All Cash 0% All Cash 0%

Normal 0% Redevelopment Project0% Normal 0% Debt Assumption0% 1031 Exchange 0%

Stable 0% Stable 0% Stable 0% Stable 0% Stable 0%

CC C-C 0% RT 0% MU-4, Tempe 5% C-G 0% M-H 10%

Average Superior -15% Superior -15% Similar 0% Inferior 30% Similar 0%

25 5 -15% 64 0% 9 0% 30 0% 38 0%

Average Similar 0% Similar 0% Superior -15% Similar 0% Similar 0%

11,806 6,602 -10% 26,395 10% 68,000 15% 10,690 0% 41,760 10%

Hospitality Similar 0% Similar 0% Superior -5% Inferior 0% Similar 0%


Good Similar 0% Similar 0% Similar 0% Similar 0% Similar 0%

12.08 1.91:1 15% 8.25:1 0% 1.72:1 15% 3.64:1 15% 3.11:1 15%

-25% -5% 15% 45% 35%

$203.06 $303.89$367.12 $325.55

Net Adjustment (%)

Adjusted Sales $Value

LTB Ratio :1

$2,962,500

Adjusted Sales $PSF $448.73

Parking Ratio

Amenities

$22,137,500 $2,170,650 $12,690,000$9,690,000

Build-Out

Gross Building Size

Group Adjustments:

Location

Eff Age (# of Years)

Quality/Construction

Zoning

$225.10$140.04

$10,200,000 $19,250,000

$283.09$386.44

No No

$3,950,000

YesYes No

12,628 217,800

None

Data Source

129,808

$1,497,000 $9,400,000

Adjusted Bldg $PSF

Conditions of Sale

Market Conditions

Adjusted Sales Value

$598.30

Arterial

Individual Adjs:

Property Rights Conveyed

Financing Terms

689908 111856539970

117,176 38,951

None None None

County Recording No. 328361 248085

Prior Sale Last 3 Years

Site SF

Costar/Public Records Costar/Public Records

None

Costar/Public Records Costar/Public Records Costar/Public Records

$140.04 $225.10Sales Price PSF $598.30 $386.44 $283.09

May 5, 2017

AZ Phoenix 0

September 19, 2017 February 15, 2017

Sales Price $3,950,000 $10,200,000 $19,250,000 $1,497,000 $9,400,000

Sales Date

Improved Sales Comparason Chart

Characteristic Comparable 1 Comparable 2 Comparable 3

April 3, 2018 July 24, 2017

AZ Paradise Valley 0 AZ Tempe 0 AZ Tempe 0

7101 E Lincoln Dr 951 E Playa Del Norte

Hospitality Hospitality Hospitality

1461 E Apache Blvd 1615 E Northern Ave

AZ Scottsdale 0

6333 E Cave Creek

Rd, Cave Creek

Comparable 4 Comparable 5

Property Name / Type Hospitality Hospitality

Address 3701 N Marshall Way



Three current Listings on LoopNet at $1,495,000 is priced at $300,000 per room (similar):



And at $1,350,000 is priced at $193,000 per room (inferior):



And at $1,549,000 is priced at $194,000 per room (inferior):



Subject Value Conclusion and Indication – Sales Approach

The sales comparables presented represents a comparative sample of relevant sales that have occurred within the subject’s competitive market area. The subject retail and hotel fall in the mid to upper unit-price range of the sales comparables ($ value PSF) due to location attributes or at $367.00 PSF. While the Casitas fall in the low to mid unit-price range or say $275.00 PSF. These values are based on the preceding sales comparison approach which is based on a review of the comparable sales most similar to the subject. The subjects concluded individual retain market values as of the effective date of value are stated as follows: Premise – “As-Is” Stabilized Casitas:

Hotel:

Concluded Value ($PSF).….….. $275.00

Bldg Size (±Gross SF)……..…. 5,336

Date of Valuation……………… June 21, 2018

Value Conclusion ($PSF x SF).. $1,467,400

Value Conclusion Rounded….. $1,465,000

One Million Four Hundred Sixty-Five Thousand Dollars

$1,465,000






Two Million Three Hundred Seventy-Five Thousand Dollars

$2,375,000



Retail:

The above value indications are based on the fee simple interest and an exposure period of 12 months or less and excludes the value of FF&E.






One Million Three Hundred Ten Thousand Dollars

$1,310,000


Income Capitalization Approach

Introduction

The income capitalization approach is a procedure in appraisal analysis whereby anticipated economic benefits to be derived from property ownership are converted into a value estimate through a capitalization process. In this valuation analysis, direct capitalization is used to process net income into an indication of value for the subject property. This technique is based on an overall rate (Ro) that is extracted directly from market sales in which the net income is known or can be closely approximated. More specifically, the income capitalization approach of this appraisal report is composed of four major sub-sections:

1. Market rent survey

2. Income and expense estimates (current or first year stabilized NOI) 3. Derivation of the overall direct capitalization rate 4. Capitalization of the projected stabilized net operating income estimate based on the following

formula:

Value = Net Operating Income

Overall Capitalization Rate

This technique is based on an overall rate (Ro) that is extracted directly from market sales in which the net income is known or can be closely approximated. A discounted cash flow is required for certain property types. The subject does not require a DCF.

Market Rent Analysis

A rental rate survey taken from the subject’s CMA was completed as part of this analysis. A map and summary of the findings in narrative format is presented on the following pages.


Map/Details of the Retail Rent Comparables

The subject retail building falls in the mid-range or say $20.00 PSF NNN. Details are also provided for five overnight hotel accommodations in the area .

Subject



Rent Comparable No. 1



The confirmed hotel comparable rates indicate a range of $144 to $169 per room per night. The subject property is comprised of two types of hospitality suites, casitas and motel, with a rentable building areas of ±5,400 SF (8 rooms) and ±6,470 SF (16 rooms). The subject is currently in good condition and stabilized. Owner Pro-Formas The Casitas 5-year cash flow reports the NOI at about $125,000 annually. This amount appears low for the type of units and for the potential for higher nightly rentals (including AirBNB potential). The appraiser will utilize a higher nightly rental amount for purposes of valuation. The other two components of this appraisal, the retail and hotel, appear to be in-line with market rents and the appraiser utilizes amounts similar to the owner’s pro formas.









Retail:



Income Capital ization Approach


Conclusion to the Market Rental Rate Analysis

Hotels are reporting an actual lease rate of $140 to $169 per room per night for the subject’s submarket area. Casitas rents would be at the high end. The subject hotel is estimated to place within the mid portion of the range of the comparables or at or say $140 per night based on themed location and $150 for the Casitas. Subject pro forma rents are the same (see above).

Vacancy Factor Analysis

www.statista.com › Travel, Tourism & Hospitality › Accommodation - This statistic shows the hospitality occupancy rate of the U.S. hotel lodging industry from 2000 to 2017. In 2017, the hospitality occupancy rate was at 65.9 percent including full service locations. The subject is not full service and is estimated to have a typical annual 50% occupancy rate due to its remote location on a pro forma basis assuming good management and a low $140 per night rate. Costar reports retail vacancy at 11.1% in this area. However, a lower number will be used in the capitalization of income process as the retail building will be occupied by the owner; thus, a 5% percent vacancy factor will be used. This vacancy figure also reflects the potential for collection losses due to early lease terminations and/or non-payment of rents.

For example, the Effective Gross Revenue for the retail building is as follows:

Expense Analysis

According to market information, leases for the subject’s product type are written on a NNN basis. The tenant is responsible for all real estate taxes, insurance, utilities, routine interior maintenance, etc. The landlord or owner expenses typically include: building reserves for the replacement of short-lived items and structural repairs, management, miscellaneous expenses including legal and audit fees and costs associated with vacancy. Thus, landlord expenses for the subject property are estimated as follows based on a percentage of effective gross income “EGI.” Operating expenses have been estimated utilizing common benchmark expense rates.

Totals

Building SF………………………….. 3,570

Potential Rental Rate/Night…………. 20.00$

Potential Rental Revenue…………………………… 71,400$

Other Income @ 0% of GPR…………….…. -

Adj Potential Gross Revenue……...………. -$ 71,400

Less Vacancy Losses @…...…………………………………….5.0% 3,570

Effective Gross Revenue……..……..……...… 67,830$



The pro forma operating expenses that are presented within the income analysis portion of this report reflect market benchmarks for the subject’s product type, location, and age reflecting a NNN lease basis.

Discussion of Expenses

Property Taxes/Insurance/Utilities/CAM: Based on owner’s actual history and pro forma amounts. These amounts are included in FS leases. The subject retail NOI is calculated on a NNN basis therefore these expense items are excluded. For the hospitality buildings a full service rate is applied to the nightly $140 per night rent for the hotel and $150 per night for the casitas. Miscellaneous Expenses – N/Ap. Management - Management expenses are provided by the owner at $54,000 for both hospitality suites. The hotel at 16 units is allocated 66% and the Casitas at 33% of this amount. Building Reserves – The landlord is responsible for all structural building repairs, including the roof and major mechanical systems. More specifically, this expense item reflects a sinking fund or money allocated for the periodic replacement of short-lived items. A building reserves expense of $0.28 PSF of building size is estimated for the subject property.

Estimation of Net Operating Income

The next step of the income capitalization process is the estimation of net operating income for the capitalization process (based on the previous analysis of the subject’s income generating potential



and costs of operations). The following is a pro forma income and expense statement for the subject property and includes all the assumptions (and any actuals) mentioned previously. Casitas:

Pro Forma Income Statement 2018

Totals Ratio

No. of Rooms………………………….. 8

Potential Rental Rate PSF…………. 150.00$






Prop Taxes (Actual) ..……………………………………… 3,600$

Insurance PSF……………....…..….………….…. 6,000$

Utilities PSF…………….…………………………. 22,000$

Bldg/Grounds Maint/Jan PSF………………………….. 6,000$

Misc (% EGR)………………………………………………………4,400$

Managemnt/Office (% EGR) ............................... 17,820$

Bldg Reserves ($PSF)……...………….. 5% 10,950$

Tot Operating Expenses………….……..….…….… 70,770$ 32.3%

Net Operating Income…………...…………… $148,230 67.7%

Pro Forma Expenses:



Hotel:

Retail:


Totals Ratio

No. of Rooms………………………….. 16

Potential Rental Rate PSF…………. 140.00$






Prop Taxes (Actual) ..……………………………………… 7,200$

Insurance PSF……………....…..….………….…. 16,500$

Utilities PSF…………….…………………………. 44,160$

Bldg/Grounds Maint/Jan PSF………………………….. 26,400$

Misc (% EGR)………………………………………………………5,700$

Managemnt/Office (% EGR) ............................... 35,640$

Bldg Reserves ($PSF)……...………….. 3% 12,264$



Pro Forma Expenses:


Totals

Building SF………………………….. 3,570

Potential Rental Rate/Night…………. 20.00$






Prop Taxes (Actual) ..……………………………………… -$

Insurance PSF……………....…..….………….….-$ -$

Managemnt/Office (% EGR) ...............................3.0% 2,035$

Bldg Reserves ($PSF)……...…………..0.28$ 1,000$



Pro Forma Expenses:



Capitalization of Net Operating Income

In this valuation analysis, direct capitalization is used to process the subject’s net income estimate into an indication of value for the subject property. This technique is based on an overall rate (Ro) that is extracted directly from market sales in which the net income is known or can be closely approximated. However, Direct Capitalization does not require explicit estimates of future income as long as the capitalization rate is extracted from comparable sales that reflect similar expectations for changes in income and property value. With ample and closely comparable market data, the rate needed to capitalize income is easily estimated. This technique is very market oriented and stresses the analysis of market data by inferring the assumptions and behavior of buyers and sellers. However, direct capitalization does not explicitly differentiate between the return on and return of capital because investor assumptions are not specified. Instead, it is implied that the selected rate will satisfy a typical buyer and that the likelihood for future monetary gains, over and above the amount originally invested is sufficient to attract investor interest.

Additionally, in this market, buyers are making their purchase decisions based upon a direct capitalization of existing or proposed income at the time of sale (or their perception of achievable stabilized income after a short facility “turnaround” period). Therefore, this capitalization technique is considered to be most appropriate for the valuation of the subject property, as leased, as it best reflects the actions of buyers and sellers in this sub-market. Overall rates (Ro) are derived using the following formula:

Overall Capitalization Rate Support

Costar’s actual average hospitality cap rate for the Metro Phoenix Market area is 8.9% in 2017 and 2018. Costar Cap Rates:

Value =Net Operating Income


ValueRate (Ro) =

Net Operating Income



Based upon the age and tenant occupancy of the subject with a stable long-term occupancy arrangement in place, an overall capitalization rate of 10% to 11% is considered to be most appropriate for the Casitas, 8.50% to 9.0% is considered to be most appropriate for the subject hotel, and 5.5% to 6.0% for the retail building.

Application:

Or;

Casitas:

Hotel:

Retail:

Value =

Net Operating Income


10.00%

$1,482,300

$1,480,000 (rounded)

10.50%

$1,411,714

$1,410,000 (rounded)

Net Operating Income…..…..……. $148,230

÷ Low Overall Cap Rate…………....

= Maximum Market Value……….…

Value Conclusion Rounded………..

To

÷ High Overall Cap Rate……….....

= Minimum Market Value……...…


8.50%

$3,069,835

$3,070,000 (rounded)

9.00%

$2,899,289

$2,900,000 (rounded)

Net Operating Income…..…..……. $260,936




To






Subject Value Conclusion and Indication – Income Approach

Thus an indication of market value using the income capitalization approach for the subject properties individually as of the effective date in the “as-is” condition is concluded as follows: Casitas:

Hotel:

Retail:

5.50%

$1,178,091

$1,180,000 (rounded)

6.00%

$1,079,917

$1,080,000 (rounded)Value Conclusion Rounded………..





To

$64,795Net Operating Income…..…..…….


Date of Valuation………………


June 21, 2018

One Million Four Hundred Fifty Thousand Dollars

$1,450,000



June 21, 2018

Two Million Nine Hundred Fifty Thousand Dollars

$2,950,000



June 21, 2018

One Million One Hundred Fifty Thousand Dollars

$1,150,000



These market value indicators are based on the fee simple interest and an exposure period of 12 months or less based on current sales activity within the subject property’s competitive market area (CMA).


Reconciliation and Final Value Opinion

Overview

Reconciliation is the process where the appraiser evaluates and selects from among alternative conclusions or indications for the purpose of forming a single and final conclusion of value for each value premise. An important part of this process involves the re-examination of the specific data, valuation procedures, and value estimates contained within the appraisal report. Additionally, various “tests of reasonableness” are also integrated into the reconciliation process for the purpose of increasing the overall reliability of the appraisal’s final value conclusions.

Indications of Value

The primary strength of the cost approach is its explicit analysis of the subject’s construction. This approach or procedure is most applicable when the subject improvements are new or proposed and represent the most appropriate use (highest and best use) of the site. It is also useful in measuring the feasibility of the subject. Not completed due to the age of the subject buildings. The sales comparison approach used a physical unit of comparison (quantitative technique) based upon price per square foot of gross building area and per room. This approach to value is very reflective of current sales activity and market trends within the subject market. The primary strength of the income capitalization approach is the quality and quantity of market rental data. More specifically, this approach to value is very reflective of current rental activity and market trends within the competitive market. In the final analysis, primary emphasis is given to the income approach to value due to current tenant occupancy of the subject property and buyer expectations in the current real estate market and the quality of the data.

"As-Is" Market Value Value Indication

Cost Approach N/Ap

Sales Comparison Approach $5,150,000

Income Approach $5,550,000

Combined Sum of the Individual Retail Values

Reconci l iat ion and Final Value Opinion


Final Opinion of Value(s)

An opinion of market value in the subject improved property in the “as-is” bulk condition is reconciled as follows:

Combined Bulk Value The combined sum of the individual retails values for all three mixed-use subject properties is $5,550,000 ($1,450,000 for Casitas, $2,950,000 for the hotel, and $1,150,000 for the retail). The bulk sale of all three properties is estimated to be discounted 10% to a potential bulk buyer. Therefore the net value of the combined properties in bulk is estimated to be $4,995,000 ($5,550,000 * .9) stated as follows:

This market value opinion is based on the fee simple interest and an exposure period of 12 months or less based on current sales activity within the subject property’s competitive market area (CMA).

Subject Value Including Excess Lot

Costar Land sales:



June 21, 2018

Four Million Nine Hundred Ninety-Five Thousand Dollars

$4,995,000





The subjects excess land on the southwest corner of the property falls at the low end of the range due to locational attributes (set back from arterial) is valued at $7.8 PSF based on three recent sales of similar lots. The excess lot is 9,148 SF in size and therefore valued at $70,000 rounded ($7.8 * 9,148 SF). An opinion of market value in the subject improved property in the “as-is” bulk condition is including the excess lot is reconciled at $5,065,000 ($4,995,000 improvements + $70,000 lot) as follows:

This market value opinion is based on the fee simple interest and an exposure period of 12 months or less based on current sales activity within the subject property’s competitive market area (CMA).

Date of Final Valuation..…..……

Final Value Opinion Value..….... $5,065,000

Five Million Sixty -Five Thousand Dollars

$5,065,000

June 21, 2018


Assumptions and Limiting Conditions

1. The appraiser was not furnished with an A.L.T.A. site survey during the preparation of this report.

2. Title to the property is marketable, free, and clear of all liens.

3. I assume that the heating and air conditioning systems (HVAC) and insulation and plumbing materials within the existing improvements are adequate for the normal use of the subject property. We also assume that electrical services are sufficient to meet the needs of a typical property similar to the subject.

4. The fee simple or leased fee interest in the property contains the sum of all fractional interests that may exist.

5. It is assumed that the subject will be tenant occupied, and that market lease rates on the comparable properties are at stabilized occupancy.

6. The subject property is appraised as owned in fee simple interest without adverse encumbrances.

7. Responsible ownership and competent management exist for the subject property.

8. The appraiser is not responsible for the accuracy of the opinions furnished by others and contained in this report, nor am I responsible for the reliability of government data utilized in the report.

9. Compensation for appraisal services rendered is dependent only upon the production of this report and are not contingent upon the values estimated.

10. This report considers nothing of a legal character and the appraiser assumes no responsibility for matters of a legal nature.

11. Testimony or attendance in court is not required by reason of this appraisal, unless arrangements are previously made.

12. Hidden defects within the materials of any structures, or defects which are inaccessible to normal inspection are not the responsibility of the appraisers.

13. Information furnished by the property owner, lender, agent, or management is correct as received.

Assumptions and L imit ing Condit ions


14. Neither this report, nor any of its contents, may be used for the sale of shares or similar units ofownership in the nature of securities, without specific prior approval of the appraiser. That nopart of this appraisal may be reproduced without the permission of the appraiser.

15. The appraiser cannot predict or evaluate the possible effects of future wage price controlactions of the government upon rental income or financing of the subject property; hence, it isassumed that no control will apply which would nullify contractual agreements, therebychanging property values.

16. The subject property is not, nor will it be, in violation of the National Environmental Policy Act,the State Environmental or Clean Air Act, or any and all similar government regulations or lawspertaining to the environment.

17. This report is the confidential and private property of the specified client and the appraiser. Anypersons other than the appraiser or the client(s) who obtains and/or uses this report or itscontents for any purpose not so authorized by the appraiser or the client is hereby forewarnedthat all legal means to obtain redress may be employed against them.

18. The purpose of this report is to estimate the market value(s) of the fee simple estate. Theintended use/user(s) of this appraisal report is to assist the specified client in financial and/orloan underwriting decisions.

19. This report may not be used for any other reason nor, is it intended for use by any entity otherthan the party for which it was prepared.

20. Utility services are available, as detailed in this report, for the subject property and they willcontinue to be so in the foreseeable future.

21. I am not qualified to ascertain the subject’s level of compliance with the requirements of theAmericans With Disabilities Act. Therefore, the client should retain the services of specialists inthis field to answer questions regarding ADA compliance issues.

ADDENDUM


Documents

Certified Commercial Real Estate Appraisal€¦ · RE: Certified Commercial Real Estate Appraisal of mixed-use property including the Tumbleweed Hotel located at 6333 E Cave Creek