Date of Valuation: August 5, 2017 - City of Phoenix, AZ · 25,981+ SQUARE FOOT SITE LOCATED AT 30 NORTH FIRST STREET PHOENIX, ARIZONA 85004 Date of Valuation: August 5, 2017 Prepared

AN APPRAISAL REPORT OF A 25,981+ SQUARE FOOT SITE

LOCATED AT 30 NORTH FIRST STREET PHOENIX, ARIZONA 85004

Date of Valuation: August 5, 2017

Prepared for: Mr. Steve Laney SR/WA Review Appraiser City of Phoenix 251 W. Washington Street

Phoenix, AZ 85003 Prepared by:

Brekan Nava Allen Group 4450 S. Rural Road, Bldg. E-225 Tempe, Arizona 85282 BNAG #17-04-13B

August 31, 2017 Ms. Steve Laney SR/WA Review Appraiser City of Phoenix 251 W. Washington Street Phoenix, AZ 85003 RE: A narrative appraisal report in a summary format of a 25,981± square foot site located at

30 North 1st Street, Phoenix, Maricopa County, Arizona (BNAG #17-04-13B) Dear Mr. Laney: In accordance with your request, I have personally inspected the above referenced property for the purpose of estimating the “As Is” Market Value of the Fee Simple Interest in the parcel, in accordance with Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) (12 USC 3331 et seq.); the regulations adopted by the Office of the Comptroller of the Currency pursuant to Title XI, including, without limitation, the appendix thereto consisting of excerpts from the Uniform Standard of Professional Appraisal Practice adopted by the Appraisal Foundation (12 CFR Part 34, Subpart C); the Federal Interagency Appraisal Guidelines and City of Phoenix appraisal guidelines. Market Value is defined as:

“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 knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in the definition is the consummation of a sale of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated;

2. Both parties are well informed or well advised, and acting in what they consider their own best interest;

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

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

5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.1

1Office of the Comptroller of the Currency under 12 CFR, Part 34, Subpart C-Appraisals, 34.42 Definitions [g]

Mr. Steve Laney, SR/WA BNAG #17-04-13B August 31, 2017 Page 2

Your attention is directed to the accompanying report and to its Certification, Assumptions and Limiting Conditions sections. Acceptance of and/or use of this appraisal report constitutes acceptance of these conditions. This appraisal has been performed in accordance with the reporting requirements as set forth by the Appraisal Institute. The subject consists of approximately 25,981± square feet of vacant land located at 30 North 1st Street, Phoenix, Arizona. The subject is paved and utilized as a surface parking lot. All utilities and services are available to the site, and there are curbs, gutters, sidewalks along all street frontages. The subject parcel is subject to cross-easements with the remainder of the Phelps Dodge Tower re-subdivision for pedestrian use and utilities. Additionally:

Along the southern property line of the adjacent parcel, APN 112-28-130, there is an Easement Agreement that allows this adjacent parcel access for service and support of the Hanny’s Building.

In addition, the only entry and exit driveway for subject is off 1st Street and there is an easement agreement allowing the adjacent property, APN 112-28-130, occupied by the historic Hanny’s Building to utilize the drive along its southern boundary, approximating 2,402 square feet.

There are two utility easements along the southern property line of the subject that are approximately 8 feet wide extending the full length from 1st Street to Central Avenue. Nothing can be constructed at ground level within 3 feet of these two easements.

Finally, there is a 4’ x 53’ (212 SF) unrecorded right-of-way for a bus stop/shelter fronting Central Avenue. It is this unrecorded right-of-way that reduces the overall site from 26,193 square feet to 25,981 square feet since this unrecorded right-of-way does not convey with the land.

Thus, this site has significant easement issues that will be addressed in the Valuation Section of this report. Based upon all the information, data, and analyses contained in the following report, it is our opinion that the market value of the Fee Simple Interest in the subject property is as follows:

“As Is” Market Value (August 5, 2017)

TWO MILLION SEVEN HUNDRED THIRTY THOUSAND DOLLARS

$2,730,000

Mr. Steve Laney, SR/WA BNAG #17-04-13B August 31, 2017 Page 3

The marketing and exposure time of 12 months or less has been estimated for the subject property at the value estimated herein. Your attention is directed to the attached report which presents the analyses we have performed in deriving our value conclusions. We appreciate this opportunity to have been of service and look forward to working with you again. Sincerely, BREKAN NAVA ALLEN GROUP

Albert Nava, MAI, SGA President Arizona Certified General Real Estate Appraiser No. 30806

T A B L E O F C O N T E N T S Summary of Salient Facts and Conclusions ........................................................................... 1

Property Identification ............................................................................................................ 2

Brief Legal Description .......................................................................................................... 2

Valuation Date ........................................................................................................................ 2

Date of the Report ................................................................................................................... 2

Purpose and Intended Use of the Appraisal/Client ................................................................. 2

Market Value Definition ......................................................................................................... 2

Other Pertinent Definitions ..................................................................................................... 3

Property Rights Appraised ...................................................................................................... 3

Property Ownership & History ............................................................................................... 3

Marketing/Exposure Period .................................................................................................... 3

Scope of Work ........................................................................................................................ 4

The Appraisal Process ............................................................................................................. 5

Phoenix MSA Summary ......................................................................................................... 7

Neighborhood Description ..................................................................................................... 15

Site Analysis ........................................................................................................................... 26

Property Assessment and Taxes.............................................................................................. 39

Subject Photographs................................................................................................................ 41

Market Overviews ................................................................................................................... 43

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

Sales Comparison Approach ................................................................................................... 59

Certification ............................................................................................................................ 79

Contingent and Limiting Conditions ...................................................................................... 81

Qualifications of the Appraiser ............................................................................................... 83

ADDENDA

Letter of Engagement ........................................................................................... Exhibit A Appraiser’s License / Certification ...................................................................... Exhibit B

AERIAL OF SUBJECT PROPERTY

CENTRAL AVENUE

1ST STREET

ADAMS STREET

WASHINGTON STREET

ONE NORTH CENTRAL

HANNY’S

Introduction

Brekan Nava Allen Group 17-04-13B 1

SUMMARY OF SALIENT FACTS AND CONCLUSIONS

Identification Map Page: 148 LU/164

Project: Vacant land commercially-zoned land parcel

Address: 30 North 1st Street, Phoenix, Arizona 85004

Location: South side of Adams Street between 1st Street and Central Avenue

Owner of Record: City of Phoenix Property Data Site Size/Description: 26,193 SF; 0.6013 acres (per Maricopa County Records) NOTE: There is a 212 SF unrecorded right-of-way

easement along Central Avenue that reduces the size of the overall site square footage to 25,981 SF; 0.5964± acres

Zoning: DTC-BCORE, Downtown Code, Business Core per City of Phoenix

Flood Zone: Zone "X500" Areas of minimal flooding. FEMA Map No. 04013C2205L, dated October 16, 2013.

Current Site Improvements: 32 space asphalt paved parking lot

Assessor’s Parcel Number: 112-28-131

Highest and Best Use: As Vacant: Hold for future development in-line with zoning

Real Estate Taxes: 2016 Property Taxes: N/A – tax exempt Interest Appraised and Dates Property Interest Appraised: Fee Simple

Date of Inspection: August 5, 2017

Effective Date of Value: August 5, 2017

Date of the Report: August 31, 2017

Final Value Conclusion “As Is” Value: $2,730,000 Exposure/Marketing Time: 12 months or less

Introduction


PROPERTY IDENTIFICATION

The subject property is composed of one legal parcel of land located on the south side of Adams

Street between 1st Street and Central Avenue, Phoenix, Arizona. The parcel has an address of 30

North 1st Street. It can be further identified as Maricopa County Assessor’s Tax Parcel Number

112-28-131.

BRIEF LEGAL DESCRIPTION

The following legal description was taken from the recorded plat of the property in public

records:

Lot 2; PHELPS DODGE TOWER (MCR 556-26)

VALUATION DATE

The effective valuation date for this appraisal is August 5, 2017.

DATE OF REPORT

The date of the report is August 9, 2017.

PURPOSE AND INTENDED USE OF THE APPRAISAL/CLIENT

The purpose of this appraisal is to provide an opinion of the market value opinion of the Fee

Simple Interest in the subject property. The intended use of this appraisal is as an aid in the

client’s internal decisions. The client and intended user is the City of Phoenix.

MARKET VALUE DEFINED

Market value, as used by the Comptroller of the Currency of the United States and as used

herein, is defined 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 knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

Introduction


1. buyer and seller are typically motivated;

2. both parties are well informed or well advised, and acting in what they consider their own best interests;

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

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

5. the price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.2

OTHER PERTINENT DEFINITIONS

"As Is" value on the appraisal date means an estimate of the market value of a property in the condition observed upon inspection and as it typically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date the appraisal is prepared.

PROPERTY RIGHTS APPRAISED The property interest appraised is the fee simple estate. A fee simple estate is defined as follows:

An 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.”3

PROPERTY HISTORY Ownership of the subject property is currently vested in the name of the City of Phoenix. To the

best of our knowledge, there have not been any other transfers of the property in the preceding

three years.

EXPOSURE/MARKETING PERIOD

Three of the comparable sales indicated a marketing period. Conversations with several brokers

spoken to during the course of this and other recent assignments revealed that the marketing time

for downtown development is relatively short as there are multiple bidders for most potential

2 Federal Register, Vol. 55, No. 165, Friday, August 24, 1990, Rule and Regulations, 12 CFR Part 34.42(f).

3The Dictionary of Real Estate Appraisal, 5th ed. (Chicago; Appraisal Institute)

Introduction


transactions and considering the current increasing market demand for vacant land, an exposure

period of 12 months or less has been estimated for the subject at an asking price in line with the

estimate of Market Value in this report. It should be recognized that the exposure period does

not include the due diligence and financing periods (typically from 30 to 90 days) associated

with land sales.

SCOPE OF WORK It is the intent of the appraisers to comply with the reporting requirements established under the

2016-2017 Uniform Standards of Professional Appraisal Practice (USPAP) for a Narrative

Appraisal Report. As such, it presents information sufficient enough to enable the client and

other intended users, as identified, to understand it properly. The depth of discussion contained

within this report is specific to the needs of the client and for the intended use stated above. The

scope of this analysis included the following:

Physical inspection of the subject took place on August 5, 2017 by Rockne L. Taylor. Mr. Albert Nava, MAI, SGA inspected the subject on a subsequent date. These inspections should be taken as intended, a physical observation of the property as the appraiser is not a certified property inspector;

The State of Arizona, Arizona Department of Transportation, and Maricopa County were used as sources for background economic data and information such as demographic analyses and forecasts, current and projected employment, economic growth indicators, etc.;

Property-specific data was obtained from the offices of the Maricopa County Assessor and Treasurer and the City of Phoenix, which provided property assessment, real estate tax, and zoning information, respectively. Utility companies, or the local municipality, furnished information concerning their services;

Relied on information specific to the subject property including a Final Plat for Phelps Dodge Tower, Easement Agreements and other documentation concerning the subject property. However, neither a geotechnical nor a Phase I assessment was provided for this analysis.

Investigated and analyzed any pertinent easements or restrictions, on the fee simple

ownership of the subject property. It is the client’s responsibility to supply the appraiser with a title report. If a title report is not available, appraiser will rely on a visual inspection and identify any readily apparent easements or restrictions;

Researched public records, CoStar, LoopNet, or other sources deemed reliable, for sales

of comparable properties; and data relative to comparable rental properties;

Introduction


When possible, confirmed data with persons directly involved in the transactions including buyers, sellers, brokers and agents;

Gathered information on appropriate listings or properties found through observation during appraiser’s data collection process;

Prepared a narrative appraisal report consistent with the request of the client.

The value opinions and judgment contained herein reflect the appraiser’s opinion as a

disinterested third party. The reader is referred to the Certification section of the report wherein

the conditions are stated under which the report has been prepared. The Contingent and Limiting

Conditions section of the report presents pertinent caveats.

THE APPRAISAL PROCESS

An appraisal is not an exact science, but rather an opinion based upon research and judgment.

An estimate of the market value of a property requires an analysis of the factors which influence

it. These factors consider the four major forces at work in our economy: physical, legal-

political, social, and economic. Sections in which these factors are considered comprise the first

half of the report. They include: Metropolitan Data and Information, Neighborhood Description

and Analysis, Site Description and Analysis, Improvement Description and Analysis, and

Highest and Best Use. The highest and best use of a property is the basis upon which market

value is estimated.

The second half of the report contains the Sales Comparison Approach to Value. Since the

subject is being valued as vacant land, the traditional Income and Cost Approaches to value have

not been utilized.

The Sales Comparison Approach contemplates consideration of the actions and attitudes of

purchasers and sellers in the current market. Comparison of recent sales of similar properties,

known as "comparables," together with consideration of the degree of their similarity to the

subject allow the inference of market value through direct sales comparison. The number of

these comparable sales and the degree of their similarity to the subject property will determine

the reliability of this approach to the final value estimate.

Area Analysis


PHOENIX METRO AREA MAP

SUBJECT

♦

Area Analysis


PHOENIX METROPOLITAN AREA SUMMARY

The subject property is located in downtown Phoenix, Maricopa County. The metropolitan

Phoenix area has emerged as one of the largest population and trade centers in the Southwest,

having experienced substantial growth over the past two decades. This growth has been the

result of Phoenix’s centralized location, favorable climate and advantageous business

environment. The Phoenix-Mesa-Glendale MSA (Metropolitan Statistical Area) includes

virtually all of central and eastern Maricopa County and a small portion of Pinal County. Pinal

County is sparsely populated except those areas adjacent to Maricopa County. The City of

Phoenix forms the nucleus of the metropolitan area, surrounded by 22 incorporated cities and

towns.

Population

According to the 2000 U.S. Census, the population estimate for Maricopa County was 3,033,798

persons, up 43 percent from the 1990 census total of 2,122,101 persons and reflecting an average

annual compound growth rate of 3.6 percent. The U.S Census estimated county population at

3,758,168 as of April 1, 2010, an increase of 24 percent over 2000. The 2010 number reflected

the drop in county population over the preceding two years due to the economic downturn of the

latter part of the decade.

According to demographic data from STDBonline, the estimated 2017 population of the

Phoenix-Mesa-Scottsdale MSA (includes Pinal County) is 4,732,910 persons and it is projected

to increase to 5,168,956 persons by 2022, reflecting a 9.2 percent increase over the coming five

years.

Employment Trends

The national recession of the early 2000s negatively affected the metro area as employment

growth dropped from over 67,000 jobs during 1998 and 1999 to about 38,000 to 40,000 jobs

from 2002 to 2004. However, employment increased by about 84,700 jobs in 2006, surpassing

levels of 1998 and 1999, then dropped annually and was negative in 2008. Year-end 2011

employment figures showed a positive trend for the first time in three years which continued to

improve through 2015. 2010 and 2011 figures were down in terms of total workforce and total

employed and 2009 and 2010 reflected the high unemployment rate of the recent recession.

Area Analysis


The average seasonally adjusted unemployment rate had historically been low, capping out at 5.6

percent in 2002 with the softening economy of that period. However, strong growth during the

middle of the decade helped drop unemployment below 4.0 percent through 2007. The poor

economy in the latter part of the decade hit the MSA hard as unemployment more than doubled

from 2007 to 2009, remaining high at 9.2 percent in 2010. Unemployment has trended steadily

downward since 2010 and was at its lowest level in many years in 2016 and second quarter 2017.

As outlined in the following table, the Phoenix area economy is currently led by the Wholesale

& Retail Trade and Professional & Business Services employment sectors.

The metro area’s population growth has historically been spurred by the employment

opportunities available to its residents. Most employment sectors took a hit from 2006 to 2010

with the most significant drop in the Construction sector. In 2015, Wholesale & Retail Trade,

along with Professional & Business Services, accounted for the largest employment sectors with

over 16 and 17 percent of total jobs, respectively. This continued into 2016 as these sectors

dominated employment at 16.3 and 17.0 percent of total jobs. Educational & Health Services

and Leisure & Hospitality showed the largest percentage increase from year to year of 5 percent.

According to an article appearing in the December 1, 2016 issue of Arizona’s Economy, a

publication of the Eller College of Management of The University of Arizona, “The Arizona

Avg. Avg. 2014 vs. Avg. 2015 vs.Category 2014 % 2015 % 2015 2016 % 2016

Manufacturing 116.5 6.1% 117.9 6.0% 1.2% 120.3 6.0% 2.0%Mining & Construction 94.1 4.9% 107.3 5.5% 14.0% 110.3 5.5% 2.8%Wholesale & Retail Trade 312.8 16.4% 317.1 16.1% 1.4% 327.7 16.3% 3.3%Transportation, Warehousing, Utilities 68.2 3.6% 73.3 3.7% 7.5% 73.2 3.6% -0.1%Information 34.6 1.8% 36.9 1.9% 6.6% 38.1 1.9% 3.3%Finance, Insurance and Real Estate 168.6 8.8% 171.8 8.7% 1.9% 176.2 8.8% 2.6%Professional & Business Services 323.8 16.9% 338.5 17.2% 4.5% 342.7 17.0% 1.2%Educational & Health Services 283.5 14.8% 287.1 14.6% 1.3% 301.5 15.0% 5.0%Leisure & Hospitality 201.5 10.5% 208.6 10.6% 3.5% 219.1 10.9% 5.0%Government 242.4 12.7% 241.0 12.2% -0.6% 240.0 11.9% -0.4%Other Services 66.5 3.5% 68.3 3.5% 2.7% 63.1 3.1% -7.6%NON-FARM EMPLOYMENT 1,912.5 100.0% 1,967.8 100.0% 2.9% 2,012.2 100.0% 2.3%

TOTAL CIVILIAN LABOR FORCE 2,127.0 2,007.3 -5.6% 2,251.9 12.2%TOTAL EMPLOYMENT 2,007.1 1,904.2 -5.1% 2,160.3 13.4%TOTAL UNEMPLOYMENT 119.9 103.0 -14.1% 91.6 -11.1%UNEMPLOYMENT RATE 5.6% 5.1% -9.0% 4.1% -20.7%

Note: Columns may not total due to rounding.Source: U.S. Department of Labor

PHOENIX-MESA-GLENDALE MSALABOR FORCE & UNEMPLOYMENT (000s)

Area Analysis


economy slowed during the summer, with job growth falling back to the national rate. Further,

new personal income estimates suggest slower growth early in the year. While Arizona

continues to expand at a solid pace, 2016 no longer appears to be the breakout year.

Nonetheless, the odds still favor continued growth in the U.S. and Arizona economies this year

and next.

The outlook for Arizona calls for solid gains in jobs, income, and population. While growth

rates are expected to far exceed the nation, they are not headed back to historical averages. Job

gains will likely be concentrated in service-providing industries, like professional and business

services; education and health services; trade, transportation, and utilities; and leisure and

hospitality.

Arizona’s two largest metropolitan areas have also experienced a summer lull, but are expected

to rebound in 2017. As usual, the Phoenix MSA is forecast to expand at a rapid pace. The

Tucson MSA is expected to capitalize on recent announcements of new jobs in the aerospace

sector to generate improved gains during the forecast.

“The Arizona economy continued to add jobs during the summer, although the pace slowed.

Over the year, Arizona added 44,400 jobs for a 1.7% growth rate. That matched the national

rate, but fell short of the pace set in the second quarter of 2.1%.

“The Arizona outlook depends in part on the national economy. IHS Economics projects that

U.S. real GDP growth will hit just 1.4% in 2016, down from 2.6% last year. Gains accelerate

next year to 2.2% and hold steady at that rate through 2019. Sluggish growth in 2016 reflects an

inventory draw down, slower consumption spending, weak nonresidential fixed investment

(especially in the energy sector), slower gains in residential investment (housing), and weak

export performance. Slightly stronger gains are expected in 2017, as rising oil prices spur

renewed investment in the energy sector and a gradually falling dollar spurs stronger export

gains.”

Income Trends

According to STDBonline, the 2017 estimated average household income is $77,596 for the

MSA, up about 28 percent from $58,886 in 2000, while the per capita income was estimated to

be $28,544.

Area Analysis


REAL ESTATE INVENTORIES

Residential/Commercial Land

The real estate market is currently in transition as land sales had slowed down and prices for land

had been declining. The credit crunch and meltdown of the financial markets in late 2008 further

exacerbated the problem. Demand for vacant land became almost non-existent except for

investors looking for long-term hold situations as all segments of the real estate market have felt

the economic decline. However, as the local economy continues its recovery, land sales are once

again occurring. After a number of years of record low prices with most land speculators

expecting long-term holds, the land market appears to be rebounding as user sales are occurring

metro wide.

Single and Multifamily Residential

According to the Phoenix Metro Housing Study (PMHS), new residential building permits

increased steadily from 2000 to 2004 as the market responded to the area’s growing population.

Additionally, out-of-state investors purchased heavily in this market in 2004 and early 2005,

driving up demand and the median price of housing at an almost exponential rate. With the crash

in the residential market in 2006, the number of permits issued annually dropped significantly in

subsequent years as did single-family home sales and values. The PMHS is no longer published;

thus, new statistics are taken from an ASU Department of Real Estate study of the residential

market and The Phoenix Housing Market Letter published by R.L. Brown.

Year

Single-Family Permits

Change

New SFR Home Sales

Median New Home Price *

Change

2012 2013 2014 2015 2016

2017 1q 2017 2q

9,245 12,771 11,711 16,614 18,049 4,643 5,325

47.1%38.1% (8.3%) 41.9% 8.6%

-- --

9,38110,817

9,704 11,416 15,864

3,995 4,838

$251,463 $308,704 $350,410 $298,082 $315,157 --

--

13.4%22.8% 13.5%

-14.9% 5.7% -- --

*As of December in each year and into second quarter 2017. Source: ASU Department of Real Estate (2012-2015) and R. L. Brown Reports.(2016-2017)

According to an analysis by Ryan Konig published in the Arizona Republic in May 2016, most

valley zip codes showed an increase in the median sales price of single-family houses from 2014

to 2015, many substantially. The following chart shows median overall new and existing homes

Area Analysis


sales data for 2015 compared to the same time period in 2014 for selected zip codes around the

metro area. More current data is not yet available from this source.

As the flood of investors opted for other markets in the latter half of 2005 placing substantial

inventory on the market, a substantial reduction in new building permits resulted with the drop in

demand. This drop in demand continued into 2007, 2008 and 2009 as year-end 2009 figures

showed only 6,355 building permits and 8,314 new sales for the year. Based on current figures,

this trend is reversing and new home building and sales are up from the previous few years. The

Arizona Republic article reports that a large percentage of the region’s zip codes saw home

values climb from 2014 to 2015 and many zip codes metro wide have posted jumps in median

price of more than 10 percent over the past year. Housing prices have not yet returned to the

boom-period highs, but it is reported than in some areas, prices have recovered to levels not seen

since 2003.

Real Data, Inc.’s Apartment Insights reports that after several years of moderate increases, rental

rates declined from 2007 to 2009. However, more recently trends have been positive as vacancy

continues to drop overall and rental rates are steadily increasing. In response to positive trends

Median Change Median Change2015 2014-2015 2015 2014-2015

Avondale Peoria85323 $177,000 14.9% 85383 $316,420 0.6%85392 $198,000 13.1% Phoenix

Buckeye 85023 $209,250 -0.4%85396 $245,000 -2.0% 85024 $265,000 12.5%

Chandler 85041 $165,000 11.5%85249 $363,865 7.5% 85083 $291,500 -8.7%85286 $340,000 10.3% 85085 $348,000 6.2%

Gilbert Queen Creek85296 $255,000 -1.7% 85142 $280,631 14.4%85297 $266,000 -3.5% Sun City85298 $332,105 -0.8% 85373 $195,000 12.6%

Goodyear Surprise85338 $219,836 4.7% 85388 $223,000 11.6%85395 $324,696 8.2% 85379 $205,000 7.9%

Laveen 85387 $269,000 8.5%85339 $200,000 14.4% Tolleson

Mesa 85353 $181,000 13.1%85207 $262,810 -13.7% Waddell85212 $281,638 0.9% 85355 $227,490 -8.5%

Zip Code Zip Code

BY SELECTED ZIP CODES 2014 v. 2015

Source: The Information Market - 1st Qtr 2016. The Arizona Republic, May 2016.

MEDIAN HOME SALES PRICES

Area Analysis


in this real estate segment, several Class A projects are under construction Valley wide. The

following chart summarizes recent years’ apartment statistics for projects of 50+ units.

Year Inventory

(Units) Vacancy Avg. Rent

2012 2013 2014 2015 2016

2017 1q 2017 2q

260,454264,299 270,650 277,454 285,472 287,133 289,562

8.30%7.27% 6.12% 5.68% 5.96% 5.57% 5.84%

$769 $781 $813 $865 $924 $941 $968

Source: Real Data, Inc.’s Apartment Insights

Retail

CoStar reported that as of second quarter 2017, the metro Phoenix retail inventory totaled

approximately 224.9 million square feet. Vacancy was reported at 8.8 percent, down from 8.9

percent reported as of first quarter 2017. CoStar reported negative absorption numbers in 2009

and 2010, but absorption rebounded in 2011, 2012 and 2013, posting positive figures for the first

time in three years. 2012 and 2013 absorption was roughly four and five times that of 2011.

Absorption averaged about 2.0 million square feet from 2014 to 2016. Roughly 855,115 square

feet was under construction as of second quarter 2017. The following table summarizes retail

market statistics through second quarter 2017 from CoStar.

Year

Base SF

Vacant SF

Net Absorption

Vacancy

Avg. Rent/SF

2012 2013 2014 2015 2016

2017 1q 2017 2q

219,977,678 221,055,182 221,116,426 221,685,893 223,151,353 223,588,765 224,880,509

25,166,64623,478,442 21,655,635 20,474,481 19,671,151 19,912,225 19,729,881

2,695,0222,765,708 1,884,051 1,750,621 2,268,790 196,338 538,689

11.4% 10.6% 9.8% 9.2% 8.8% 8.9% 8.8%

$14.29 $13.85 $13.86 $14.27 $14.50 $14.69 $15.38

Source: CoStar Office

CoStar reported that as of first quarter 2017, the metro area office market contained about 172.7

million square feet, with an overall vacancy rate of 15.0 percent. This is lower than the first

quarter 2017 vacancy rate of 15.2 percent. After good absorption during 2007, absorption was

Area Analysis


negative the following two years. Absorption has rebounded the past five years, peaking in 2015

and 2016. The following chart summarizes office market statistics provided by CoStar.

As of second quarter 2017, some 1,013,705 square feet of office space was under construction

throughout the valley. Most of this was in owner-occupied or pre-leased product as the new

speculative construction market is still weak. CoStar reports that the overall average rental rate

dropped over 23 percent from 2007 to 2012. The average rental rate has actually improved

annually since 2012 to its second quarter 2017 high.

Industrial

CoStar reported that as of second quarter 2017, the metro Phoenix industrial market had roughly

319.7 million square feet of industrial space. Of that total, about 29.3 million square feet was

available, indicating an overall vacancy rate of 9.2 percent, down from first quarter 2017. As

with other segments of the real estate market, rental rates declined in response to high vacancy

from 2009 to 2010, but have trended upward annually since 2011 as vacancy has steadily

dropped over the past few years. The following table summarizes industrial market statistics.

Year

Existing SF

Vacant SF

NetAbsorption

Vacancy

Avg. Rent/SF

2012 2013 2014 2015 2016

2017 1q 2017 2q

295,978,670 301,583,559 308,417,684 312,755,088 316,658,791 318,899,546 319,740,700

34,661,86436,212,388 35,466,712 32,066,035 30,084,001 30,693,024 29,364,764

6,194,8434,054,365 7,579,801 7,737,259 5,886,559 3,097,359 1,117,870

11.7%12.0% 11.5% 10.3% 9.5% 9.6% 9.2%

$6.13 $6.38 $6.39 $6.68 $6.87 $6.93 $7.05

Source: CoStar

Year

Existing SF

Vacant SF

Net Absorption

Vacancy

Avg. Rent/SF

2012 2013 2014 2015 2016

2017 1q 2017 2q

165,303,179 165,222,319 165,954,328 169,005,878 171,367,678 172,367,678 172,707,655

31,818,69230,051,604 27,925,366 27,331,906 26,025,073 26,471,235 25,920,860

3,180,0731,686,228 2,858,247 3,645,010 3,627,063 595,408 590,275

19.2% 18.2% 16.8% 16.2% 15.2% 15.4% 15.0%

$19.77 $20.06 $20.95 $21.98 $23.37 $23.55 $23.86

Source: CoStar

Area Analysis


Positive absorption over the past seven years has resulted in a drop in vacancy of 6.7 percent

since 2009 when vacancy was reported at 16.3 percent. Absorption almost doubled from 2013 to

2014 as more than 4.3 million square feet was absorbed in the second quarter alone. Flex

projects reported a vacancy rate of 13.2 percent as of second quarter 2017 while warehouse

projects reported a vacancy rate of 8.7 percent. Net absorption, paced by the Southwest

submarket, continued to do well.

Conclusions

The Phoenix metropolitan area has historically possessed a favorable climate and pro-business

environment, in response to which the area has experienced explosive growth since the mid-

1980s, with annual population gains of 4 to 5 percent and employment gains of 2 to 5 percent.

Employment and population growth slowed during the early part of the decade, as the national

recession of 2001 and 2002 was felt in Phoenix as well. A recovery that started in March 2003

continued through roughly mid-2006 as population growth remained strong and employment

continued to grow. However, consistent with the national economy, the local economy turned in

the latter half of 2006 as the residential market crashed.

After several years of phenomenal growth, the residential market began its decline in the latter

months of 2006 as out-of-state investors, which drove the exponential growth of the market in

2004 and much of 2005, opted for other markets. This resulted in an extraordinary number of

existing homes being put on the market for sale. Permitting consistently declined from 2006

through 2010, which led to a precipitous decline in the average price of housing as builders now

work to sell unsold inventory. After experiencing years of strong growth from 2003 to 2006, the

multifamily, office, retail and industrial markets also experienced increasing vacancy rates and

dropping rental rates in response to the economic downturn. However, more recent statistics

show the local economy in recovery since 2011 which continues into 2017.

Neighborhood Description


NEIGHBORHOOD MAP

SUBJECT



NEIGHBORHOOD AERIAL

SUBJECT

Phoenix Downtown CDB



NEIGHBORHOOD DESCRIPTION A neighborhood is defined as:

A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises 4

A property is an integral part of its neighborhood and normally cannot be treated as an entity

separate and apart from its environment. The subject property is located within the central core

more commonly known as the Downtown Phoenix Business Improvement District (formerly

Copper Square). The Downtown Phoenix Business Improvement District is the metropolitan

area's business address, government center, cultural center, and sports destination. It is the

center of economic activity with 26,000 employees in government, banking, and finance, legal,

service and non-profit organizations. Served by every major freeway and only five minutes from

Sky Harbor International Airport, this area is easily accessible from all parts of the Valley. It is

also serviced regularly by the local mass transit system and will serve as the hub of the future

light rail transit office.

The Central Phoenix Committee agency and the Planning Department of the City of Phoenix

refer to this area as Downtown Phoenix, as distinguished from Midtown Phoenix that generally

extends along the Central Avenue corridor north of McDowell Road and Uptown Phoenix north

of Campbell Avenue.

Neighborhood Boundaries

The subject neighborhood encompasses approximately 1.5 square miles and contains the original

town site of Phoenix that has remained as the downtown core of the city. Neighborhood

boundaries are identified as:

Interstate 10 to the north

7th Avenue to the west

Lincoln Street to the south

7th Street to the east

Central Avenue bisects this core, extending north/south into the bordering mountains, as a

significant corridor for development. This corridor consists of three distinct neighborhoods. 4 Dictionary of Real Estate Appraisal, Appraisal Institute, 5th ed., 2010, p. 133.



Valley Center, or downtown, forms the lower or southern extreme for high-rise development.

The Midtown neighborhood extends from McDowell Road north to Campbell Avenue. The

Uptown neighborhood begins at Campbell Avenue and extends north to Glendale Avenue.

Downtown is distinctly defined by the zoning ordinance that designates this General Plan area as

the Downtown Code (DTC)

district. In 2006, the Downtown

Urban Form was initiated as an

implementation step for Downtown

Phoenix: A Strategic Vision and

Blueprint for the Future, adopted

by the City Council in December

2004. The Urban Form Project

includes an area of 1,500 acres

which is approximately one mile

wide and two miles long. As part

of this Urban Form, new character

areas were identified which are

reflections of existing downtown

neighborhoods. In some cases, due

to distinctive features, such as the

ASU Campus, sub-areas have been

identified, but remain a part of the

larger character areas. Character

areas are further based on existing

land use, zoning, circulation, parcel

configuration, building footprints, landscaping, site dimensions, and opportunity sites. As shown

on the above map, the subject lots are within the Business Core character area, bordering the

developing Phoenix Biomedical Character Area. This project has a14-year history and has

shown strong growth during this period, affecting surrounding Character Areas.

In May 2002, the International Genomics Consortium announced that Phoenix is the “first and

preferred choice” for its headquarters. Genomics is the study of how genes affect disease. A

SUBJECT



groundbreaking ceremony for the construction of the first building in the new Phoenix

Bioscience Center at Copper Square was held on June 13, 2003 and the complex has since been

completed and is the home of the Translational Genomics Research Institute (TGen), the

International Genomics Consortium and other cutting edge projects. The City of Phoenix

donated land at 7th Street and Van Buren for the TGen/IGC facility, which is now a 6-story,

173,000-square foot building. The building reportedly cost $46 million and employs

approximately 250 people.

Another public project related to this area is the recently built, 2-story, 52,000 square foot

building for the Phoenix Union Bioscience High School, and remodeling of the Historic

McKinley School building. This project referred to as the “Phoenix Bioscience High School

Campus” consists of a total of 2+- acres at the southwest corner of Garfield and 6th Streets. It

currently has an enrollment of 289 students in grades 9-12, after opening for the 2006 school

year.

Building upon this foundation, the Phoenix downtown is also the site of several collaborations

among Arizona’s three universities. The Arizona Biomedical Collaborative (ABC) between the

University of Arizona and Arizona State University will include three new bioscience and

clinical research buildings on city-owned property and the renovation of three historic Phoenix

Union High School buildings. The first building, with 4 stories and 85,000 square feet of gross

building area has been completed and provides world-class biomedical research facilities shared

by both UA and ASU.

The metro area’s first full-fledged medical school, University of Arizona College of Public

Health, opened in 2012 in the Health Science Education Building within the PBC. It also houses

Northern Arizona University’s physician assistant, physical therapy and occupational therapy

programs. It has been estimated that in 2013, 9,355 jobs were created by the academic center,

directly and indirectly, with a $961 million impact on the economy. The impact is expected to

reach $3.1 billion by 2025. The overall impact of the PBC in 2013 was estimated at $1.3

billion.

Currently, the new Arizona Cancer Center, a 220,000 square foot facility opened at the northeast

corner of 7th and Fillmore Streets in the PBC. It is both an outpatient and research facility

affiliated with the UA College of Public Health and will support approximately 1,500 jobs at full

operation.



In addition, the 8-story, 1,200-space PBC Garage parking structure was recently completed at the

southwest corner of 5th and Fillmore Streets. It is on a leased land parcel, and it provides

dedicated spaces to all of the existing and planned buildings in the main section of the PBC, as

well as the Arizona Cancer Center.

Finally, the 10-story, 245,000 square foot Biosciences Partnership Building is under construction

on a ground-leased parcel of land just north of the Health Sciences Education Building in the

PBC. This research building is expected to create 500 construction jobs initially and another 360

permanent positions at full build-out. It is being funded by and will be owned by the University

of Arizona.

Arizona State University Campus

The downtown campus of ASU is located on the south side of Van Buren Street, across from the

PBC. It will be potentially larger in student population than Boston College, Notre Dame, or

Syracuse Universities, with an expected 15,000 student campus. The Walter Cronkite School of

Journalism facility opened in August 2008, and the College of Nursing moved there in 2006.

Fall 2014 enrollment at the Downtown ASU campus was reported to be 11,277 students. When

fully developed, 15,000 students, 1,800 faculty and staff, and 4,000 student housing beds are

projected. The academics will include the College of Public Programs, Cronkite School of

Journalism and Mass Communications, KAET, College of Nursing, and School Health

Management and Policy. The undergraduate experience will be at University College. ASU

Phoenix is expected to create 7,700 jobs and generate more than $500 million a year is spending

and $7 million a year in revenues to the city.

Other Development

In the past 15 years, great strides have been made to revitalize the downtown core area with an

estimated $3 billion in private and public capital spent. It was once an area that was all but

deserted after the 9am-5pm traditional work hours. Recent redevelopment efforts have

transcended this region, adding diverse land uses to create a balance between commerce,

cultural, governmental, recreational, and even to a small extent residential land uses.



The $600 million expansion of the Phoenix Civic Plaza and Convention Center tripled the

amount of rentable space, positioning Phoenix as a top destination for 80 percent of all

conventions and elevating if from the 67th largest convention center in the United States into the

top 20. Fairly recently completed (December 2008), the Phoenix Convention Center provides a

spacious, high-tech and client-friendly facility with approximately 900,000 square feet of

rentable space and more than 2 million square feet total.

The Arizona Center is a 1,070,000 square foot, retail/office project at the northeast corner of 3rd

and Van Buren Streets. There are two, 3-story retail buildings with approximately 76,939 square

feet of retail and restaurant space, a 24-screen AMC movie theater, 118,985 square feet of office

space in a 3-story garden building, 782,315 square feet of high rise office in two towers (19 and

20 stories) and a 7-story parking garage.

Joining the redeveloped sites of the Phoenix Civic Plaza and the Hyatt Regency are numerous

premiere signature projects. Some of the more prominent facilities completed in the past eight to

ten years include the Arizona Museum of Science and Technology, and the Arizona Museum,

included near the existing Heritage Square. Other major additions to cultural activities in the

downtown Phoenix area include the Herberger Theater Center located south of Van Buren

between 2nd and 3rd Streets; a two-theater complex including 827-seat and 379-seat facilities; the

45,000-seat retractable domed Chase Field (formerly Bank One Ballpark), the home of the

Arizona Diamondbacks; the Talking Stick Resort Arena (formerly US Airways Center), a

22,500-seat multipurpose facility and home of the NBA’s Phoenix Suns and the WNBA’s

Phoenix Mercury.

Adjacent to the subject is the Phelps Dodge Center with the address of One North Central

Avenue. Construction of this Class A 440,000 square foot high-rise building began in 2000 and

was completed one year later. It has 20 floors above ground, is 289 feet tall and has an

underground parking garage with 1,000 parking spaces. Its architectural style is considered

postmodernism and reportedly cost $78 million dollars to build.

Another large project completed in the last 10 years is the 1,000-room Sheraton Hotel located

west and across 3rd Street from the Arizona Center. This 31-story facility was completed in

2008, and is the largest hotel in the state.



In October 2008, construction began on Cityscape, a multi-use development in the center of

downtown Phoenix just south of the subject. Bounded by 1st Avenue on the west, 1st Street on

the east, Washington Street on the north, and Jefferson Street on the south, this $500 million

development contains approximately 1.2 million square feet of space in two towers, including

224 residential apartments, office space, retail and hotel uses (250-room Kimpton Hotel

Palomar).

Finally, construction for the new Arizona State University Center for Law and Society, a $129

million law school building for the Sandra Day O’Connor College of Law, was begun in

November 2014 and opened its doors in August 2016. The six-story, 280,000 square foot

building will also include 2 levels of underground parking. The City of Phoenix donated the

land and provided $12,000,000 in construction bonds. This project was named by the Phoenix

Business Journal as the top construction project begun in 2014 in the Phoenix metro area in

terms of total budget.

Housing Projects

A number of multifamily housing projects have been completed within the downtown area

within the past several years. Alta Phoenix Lofts, Park at Arizona Center and Roosevelt Square

are three Class A apartment projects. Both the Alta Phoenix Lofts and Roosevelt Square projects

offer unique loft-style units in an urban living setting with rental rents at the top of the market. In

addition, comparatively older multi-story office buildings (Class B) are converting to residential

loft developments.

In the area of the Arizona Center, there are two newer projects. Roosevelt Point, a 326-unit, 7

story student housing project located at 888 N. 4th Street was built in 2013. Skyline Lofts, a 332-

unit, 8-story luxury apartment project at 600 N. 4th Street, was built in 2009.

Two major high-rise developments have also been completed in Downtown Phoenix within

recent years. The first, located at the corner of Monroe and 1st Avenue is 44 Monroe which is 34

stories (8 stories of parking) and contains 202 residences and the second, located at 4th Street and

Jackson Street is The Summit at Copper Square which is 23 stories and contains 167 units. 44

Monroe was completed in the fall of 2008 while The Summit at Copper Square was completed in

late 2007.



Population Characteristics

In order to analyze the character of the neighborhood population, we have employed a report by

Site To Do Business, STDB, for the defined neighborhood (see map at the beginning of this

section, approximately 1.33 square miles). The following chart summarizes some of the key

statistics plus comparative figures for the Phoenix MSA.

NEIGHBORHOOD VERSUS PHOENIX METRO AREA DEMOGRAPHICS

Defined Neighborhood Phoenix MSA 2010

Census 2017

Estimate 2022

Projection2010

Census 2017

Estimate 2022

Projection Total Population Total Households Persons/HH

6,607 2,779 1.40

8,1413,539 1.41

8,8714,051 1.41

4,192,8871,537,173

2.68

4,732,910 1,718,173

2.70

5,168,9561,870,719

2.72Median Age 27.0 28.0 29.5 34.7 35.8 36.1Median HH Income Avg HH Income

Not Avail Not Avail

$27,136$49,688

$29,258$58,899

Not AvailNot Avail

$56,081 $77,596

$61,705$87,502

Source: STDB Online: Site Reports

The population within the subject neighborhood showed noticeable growth between 2010 and

2017 of 23.22%, or a total of 1,534 people. This was almost twice the metro growth rate of

12.87% for the same time frame and is a result of significant in-fill development and

redevelopment of existing properties for high density residential property uses. Looking ahead,

over the next five years, the subject neighborhood is expected to realize a growth of 8.97% as

compared to 9.21% metro wide.

The subject neighborhood population has a much lower count of persons per household and a

lower median age to the metro area as a whole. This indicates a young, single demographic for

the area as a result of the high-amenity and high density residential character.

In terms of the household income, the subject neighborhood currently has an median income that

is less than half of the metro area, coupled with a much lower household count, the average

household income is 56% below the metro area. These comparisons are expected to continue

for the next five years.

Employment

According to the Site-To-Do-Business, employment within the defined neighborhood totals

56,222 persons, well above the 7,236 persons who live in the area. This is a result of the dense

employment found in the mid to high-rise buildings typical of the downtown area. The largest

employment group is Government, with 20,161 employees, 14% above the next highest group,



Services, which includes Legal, Health and Education services, 17,642 employees. The next

highest group is Retail/Trade, which includes restaurants and food and apparel stores. The

indication is that this defined area, with 1.35 square miles approximately, has one of the highest

employment densities in the metro area, at 41,646 persons per square mile.

Transportation

Access to and through the defined neighborhood is good. Major east/west arterial streets include

Roosevelt, Van Buren, Washington and Jefferson Streets. Major north/south arterial streets

include 7th and 3rd Streets and Central, 3rd and 7th Avenues. Arterial streets are asphalt paved,

and most are at least four lanes wide with adequate sidewalks for pedestrian traffic and storm

drains for surface water disposal.

Completed in December 2008, the Valley Metro Rail system runs down Central Avenue in the

neighborhood, between Camelback Road and Washington Street. From Camelback Road on the

north, the line extends west to 19th Avenue where it turns north again to Bethany Home Road. It

is currently under construction further north to Dunlap Avenue. From Washington Street, it

extends east through Tempe and into Mesa. The 57-mile Valley Metro Rail system has enabled

much better access to Downtown Phoenix, with linkage between ASU-Tempe, Sky Harbor

International Airport and the North Central Avenue Corridor.

Valley Metro also provides bus transportation into and out of the area with numerous routes and

regular time intervals. The neighborhood is also only two miles west of Sky Harbor

International Airport and lies between Interstates 10 and 17.

Neighborhood Services

The neighborhood is served with electricity from Arizona Public Service Company, gas from

Southwest Gas Company, and water/sewer and police/fire from the City of Phoenix.

Neighborhood Summary

The neighborhood includes the downtown central core of the City of Phoenix. Redevelopment

efforts of the downtown core district are successfully revitalizing the neighborhood. There are

on-going ventures and future plans to diversify the land uses in this area to provide an assortment

of choices to attract employers, residents, and visitors to congregate in this neighborhood. As a

result, the trend for the area is positive in terms of activity and land values. The aerial on a

preceding page shows the subject property in relationship to surrounding development and

roadways.



PHOENIX DOWNTOWN CORE CHARACTER AREA MAP

SUBJECT

Site Description And Analysis


AERIAL OF SUBJECT PROPERTY (subject is outlined in red – for illustrative purposes only)



FINAL PLAT FOR PHELPS DODGE TOWER – PAGE ONE



FINAL PLAT FOR PHELPS DODGE TOWER – PAGE TWO

(subject is outlined in red – for illustrative purposes only)



MARICOPA COUNTY ASSESSOR PARCEL PLAT

SUBJECT



MARICOPA COUNTY ASSESSOR SUBJECT PLATS

(subject outlined in red)



SITE ANALYSIS

The following description is based on a personal observation of the subject property by the

appraisers, as well as the recorded plat map, the tax parcel map and records of the Maricopa

County Assessor’s Office.

Location: The subject property has the situs address of 30 North 1st Street, Phoenix,

Arizona, and is situated on the south side of Adams Street between 1st Street and Central Avenue.

Size/Shape: The subject is an irregular shaped parcel totaling 25,981 square feet or

0.5964 net acres according to Maricopa County records net of the 212 square foot unrecorded right-of-way taking for the bus stop.

Access/Frontage: The subject has approximately 46 linear feet of frontage along the east side

of 1st Street, approximately 200 linear feet of frontage along the south side of Adams Street and approximately 97 linear feet of frontage along the west side of Central Avenue.

The subject is accessed from 1st Street only.

Central Avenue; major arterial, four lanes divided, one-way northbound, asphalt-paved, full infrastructure with concrete curbs, gutters and sidewalks and street lights, no street parking, average condition. Adams Street; neighborhood unstriped street, two lanes, asphalt-paved, full infrastructure with concrete curbs, gutters and sidewalks and street lights, street parking along the subject side, average condition. 1st Street; neighborhood street, two lanes, asphalt-paved, full infrastructure with concrete curbs, gutters and sidewalks and street lights, street parking, average condition.

Two of the streets are for two-way traffic, with the exception of Central Avenue, which is one-way, northbound.

Topography/ Drainage: The site is essentially level and at street grade. Drainage appears to be

adequate. Soil Conditions: No soils report was available for review by the appraisers. We assume that

the soil and sub-soil conditions support the proposed improvements. If at a later date it is determined that adverse soil and subsoil conditions exist, the value conclusions reported herein will be rendered invalid.

Easements/ Restrictions: A current ALTA and title report were not provided for the subject property.

However, the appraisers had access to the recorded Final Plat of the parcel



in public records. The subject parcel is subject to cross-easements with the remainder of the Phelps Dodge Tower re-subdivision for pedestrian use and utilities.

Additionally:

Along the southern property line of the adjacent parcel, APN 112-28-130, there is an Easement Agreement that allows this adjacent parcel access for service and support of the Hanny’s Building.

In addition, the only entry and exit driveway for subject is off 1st Street and there is an easement agreement allowing the adjacent property, APN 112-28-130, occupied by the historic Hanny’s Building to utilize the drive along its southern boundary, approximating 2,402 square feet.

There are two utility easements along the southern property line of the subject that are approximately 8 feet wide extending the full length from 1st Street to Central Avenue. Nothing can be constructed at ground level within 3 feet of these two easements.

Finally, there is a 4’ x 53’ (212 SF) unrecorded right-of-way for a bus stop/shelter fronting Central Avenue. It is this unrecorded right-of-way that reduces the overall site from 26,193 square feet to 25,981 square feet since this unrecorded right-of-way does not convey with the land.

Thus, this site has significant easement issues that will be addressed in the Valuation Section of this report.

Environmental Observations: We were not provided a Phase I environmental site assessment. Our

observation did not reveal any obvious environmental hazards, however, it should be noted that the appraisers are not qualified to assess environmental issues; therefore, we reserve the right to alter this valuation estimate if any evidence indicates environmental issues relative to the site. We have assumed for purposes of this analysis that the property is free of any environmental contamination that could have an impact of value.

Flood Plain: Zone “X500” ” defined as “areas of minimal flooding”, according to FEMA

Map No. 04013C1740L Maricopa County, Arizona, dated October 16, 2013.

Zoning: Zoning: The subject is in the Business Core, BC, area of the

Downtown Phoenix Plan, or Code, DTC. The purpose of the DTC, according to the City of Phoenix zoning ordinance, “…is to implement the vision, goals and policies of the Downtown Phoenix Plan and provide the



physical environment necessary to create a pedestrian-oriented, dynamic urban center with an authentic sense of place.” The DTC applies to all land uses, subdivisions and development within the boundary generally between McDowell Road on the north, 7th Street on the east, Buckeye Road on the south and 7th Avenue on the west. Each structure and land use shall be established, constructed, reconstructed, enlarged, altered, moved or replaced in compliance with the requirements of the Use Matrix for the Character Area in which the property is located.

The subject property is in the Business Core area. According to the city of

Phoenix Zoning Ordinance, “…the Business Core should function as a strong regional center for employment, entertainment, conventions, tourism and cultural institutions, drawing visitors from around the country and attracting residents from throughout the region. … The greatest development intensity within the region should be located within this Character Area.”

According to the City maps regarding height limitations, the subject parcel

is in a zone allowing a 425-foot maximum height. In addition, the subject is in a development density zone with no maximum density of dwelling units per acre. (See Height and Density maps following this section).

Restrictions: Each parcel will be required to meet zoning guidelines for required set-

backs, on-site parking, ingress/egress and drainage in the Business Core. According to the City of Phoenix Zoning Ordinance, the following

development standards apply: 1) Maximum height: unlimited height up to the airport height

zoning limits). 2) Maximum density: unlimited density 3) Maximum lot coverage: 100%. 4) Minimum side and rear setbacks. a) Primary building. i) Side: Zero feet. ii) Rear: Zero feet.

Parking requirements are lenient in the BC character area, with no requirement for non-residential uses and a minimum of one space per unit on-site for residential uses. It should be noted however, that for ground level parking garages, there is a requirement that 50% of the non-driveway frontage in a parking garage be in active uses, such as retail and day-care. Further, Central Avenue and Adams Street are designated Pedestrian Streets by the City of Phoenix, adding additional building front requirements, mostly pertaining to an enhanced level of pedestrian amenities such as benches, lighting, trees and shade structures. In addition, blank walls should not occupy more than 70% of the ground floor frontage of a



building. These restrictions will add to the cost of any structure built on the site. Additionally, the city does not allow ingress/egress onto a pedestrian street if there is access via a side street. Finally, the subject has several additional restrictions to development that have already been discussed. These are significant and unusual and will have an adverse impact on the utility of the parcel, and it’s Market Value.

Utilities: All utilities and services necessary to facilitate development of the parcels for a variety of uses are available as summarized below.

Domestic Water: City of Phoenix Sanitary Sewer: City of Phoenix Electricity: Arizona Public Service, APS Telephone: Century Link Communications Solid Waste: City of Phoenix Police: City of Phoenix Fire Protection: City of Phoenix

Site Improvements: The subject is an asphalt paved 32 space parking lot with curbing, parking islands and pole lighting. Additionally, along the two pedestrian streets, Central Avenue and Adams Street, there are landscaped buffers between the street and the parking lot portion of the subject. The improvements are considered to be in average condition.

Surrounding Land Uses : North – High-rise hotel East – Office South – High-rise –Phelps Dodge Center West – Commercial properties across Central Avenue behind Light Rail Conclusion: The subject site is a vacant land parcel that is level, at-grade, has all utilities

and is conducive to many types of land uses, constrained only by size, zoning, easements and the City of Phoenix Business Core (BC) Character Area requirements. It is suitable for a variety of uses including high-density office, retail and hotel development, or a mix of these. The following pages include property exhibits and current property photographs.



PHOENIX ZONING MAP

SUBJECT

ASU School of Law

Phoenix Biomed Campus

Phoenix CBD



MAXIMUM HEIGHT ALLOWANCE MAP

SUBJECT



MAXIMUM DENSITY OF DEVELOPMENT MAP

SUBJECT



FEMA FLOOD MAP

SUBJECT

Property Assessment and Taxes


PROPERTY ASSESSMENT AND TAXES

Assessor’s Parcel Number (APN)

According to the Maricopa County Assessor’s Office, the subject property is identified as APN

112-28-131.

Assessed Value and Real Estate Taxes

In 2012, Arizona voters approved Proposition 117, an amendment to the state constitution that

went into effect this year and provides the most significant change to Arizona’s property tax

system in decades.

First, prior January 1, 2015, Arizona had two values (“full cash” and “limited”) and two tax rates

(“primary” and “secondary”) for determining a property’s tax liability. Now, property taxes are

calculated only on the limited property value. The full cash value (i.e., market value) will

continue to appear on the notice of value cards mailed to taxpayers, but it is no longer used to

calculate the amount of property tax owed.

Second, Proposition 117 capped the growth of a property’s limited property value at no more

than 5% per year.

With Proposition 117 going into effect January 1, 2015 and the commercial real estate market in

Arizona still slowly recovering from its height in 2007, tax year 2015 presents a unique

opportunity for taxpayers. A reduction in the 2015 tax year value will limit increases in value for

tax years 2016 and beyond as commercial property values begin to appreciate.

It is important to note that, while Proposition 117 imposes a 5 percent cap on the limited property

value, there are exceptions. For example, Proposition 117 does not apply to properties that have

new construction, changes in use, significant tenant improvements, demolition, parcel splits or

combinations.

Thus, in summary:

Beginning in 2015 tax year: A. The LPV of property for property taxation purposes is the LPV of the property

in the preceding valuation year plus five percent of that value. B. The current LPV of a parcel of property shall not exceed its current FCV.

Property Assessment and Taxes


The subject property is located in Tax Area Code 011301, but is exempt from property taxes,

being owned by the City of Phoenix.

Assessed Values

2014 2014 2015 2015 2016 2016 2017 2017 2017-

Parcel Full Cash Limited Full Cash Limited Full Cash Limited Full Cash Limited 2016 LV

No. Value Value Value Value Value Value Value Value Change

112-28-131 $1,242,500 $1,242,500 $1,180,300 $1,180,300 $1,215,700 $1,215,700 $1,300,900 $1,276,485 5.0%

Subject Photographs


SUBJECT PHOTOGRAPHS

Looking north along 1st Street – Subject’s Driveway/access on left

Looking west towards Subject’s access off 1st Street

Looking towards Subject from Adams St. & Central Ave.

Looking south along Central Avenue – Subject on left

SUBJECT SUBJECT

SUBJECT

Subject Photographs


SUBJECT PHOTOGRAPHS

Looking north along Central Avenue – Subject on right

Looking east across Central Avenue towards Subject

Looking west across Subject towards Central Avenue

Looking southwest across Adams Street towards Subject

SUBJECT

Apartment and Office Market Overviews


APARTMENT AND OFFICE MARKET OVERVIEWS

For the analysis, the most likely uses of the subject site, based upon current DTC development

trends, would be multi-family and commercial uses. The following analysis considers the metro

area market for multi-family and office uses in order to estimate the potential for each type of

use.

APARTMENT MARKET OVERVIEW

Metro Area Multi-Family Residential Market Analysis

Our analysis of the multifamily market is presented in this section. The appraisers have relied on

market information for both the metro-wide and subject submarkets, utilizing RealData’s

Apartment Insights, 2nd Quarter 2017 for projects having 50+ units to provide a general

overview of the apartment market.

Supply and Demand Conditions

Vacancy Rates

The following chart lists the occupancy rates of stabilized units for each quarter from 1st Quarter

2011 through the 2nd Quarter 2017, as reported in Apartment Insights.

Average Vacancy by Quarter (2011 Q1 – 2017 Q2)

Time Period

2011 Vacancy

2012 Vacancy

2013 Vacancy

2014 Vacancy

2015 Vacancy

2016 Vacancy

2017 Vacancy

Q1 Q2 Q3 Q4

12.12% 11.67% 10.33% 11.11%

10.79% 10.69%

9.80% 8.78%

7.69% 7.67% 7.41% 7.27%

6.52% 6.84% 6.47% 6.12%

5.67% 6.07% 5.70% 5.68%

5.18% 5.85% 5.64% 5.96%

5.76% 5.84%

NA NA

Source: RealData’s Apartment Insights

With exception of three quarters, vacancy rates continued a steady decline from a high of

12.12% in the 1st quarter of 2011 to the current 5.84% in the 2nd Quarter of 2017. The current

rate is one of the lowest rate in the past 5 years, and less than half of the rate in the 1st Quarter of

2011. The continued decline in vacancy rates is attributed to strong demand for rental housing

for millennials and retirees, as well as the past poor economic conditions which displaced many

home owners into the rental market.

As of the 2nd Quarter 2017, the highest submarket vacancy rate of 8.62% was posted in

submarket 11, Central Phoenix/Encanto. This is above the last 4 quarter average of 7.19% for

this submarket. Overall this submarket has remained above the metro area average for the past

several quarters. Submarket 22W, West Maricopa County, had the lowest vacancy rate at

2.04%, followed by submarket 18N, E Mesa/Apache Jct, at 4.66%.



Absorption

Overall occupancy in Metropolitan Phoenix apartment market is a positive 538 during the second

quarter. The largest quarterly decline in occupancy of 539 units occurred in N Tempe, with the

largest increase of 307 units realized in S Gilbert/Queen Creek. This makes the last four quarter

total a positive 6,753 units, with S Gilbert/Queen Creek experiencing the largest increase of 864

units. The highest decrease of 91 units occurred in S Paradise Valley.

Rental Rates

The following table illustrates the average rental rates and percentage changes from year-end

2010 through 2nd Qtr 2017 for stabilized projects that are unfurnished with no utilities provided.

Average Rental Rates by Quarter (2010 through 2nd Quarter 2017)

Time Period

Average Rent/Unit

Change

Average Rent/SF

Change

2010 Q4 $776 +0.6% $0.92 0.0% 2011 Q4 $764 -1.5% $0.91 -1.1% 2012 Q4 $769 +0.6% $0.91 0.0% 2013 Q4 $781 +0.3% $0.93 +2.1% 2014 Q4 $813 +1.6% $0.96 +3.2% 2015 Q4 $865 +6.4% $1.02 +6.2% 2016 Q4 $924 +6.8% $1.09 +6.9% 2017 Q1 $941 +1.8% $1.11 +1.8% 2017 Q2 $968 +2.9% $1.14 +2.7%

Source: RealData’s Apartment Insights

With the exception of 2011, average monthly rental rates have increased annually since 2010

with the largest gains coming in the most recent 24 months as rents have increased a total of 17.6

percent since Q4 2014 to the present. After having dissipated in most submarkets, concessions

are now finding their way back into the market. This is especially true among new construction

as developers work to increase absorption. Concessions can still be found in certain projects

among certain unit types which are hard to lease or in areas with substantial new construction.

For instance, concessions can range from free rent to low move-in costs to discounted rents.

These factors suggest that effective rental rates may actually be lower in some submarkets and

lower than what is indicated by the preceding chart.

Apartment Sales

Apartment Insights reports that 47 arms-length sales of properties with 50 or more units occurred

in the 2nd quarter 2017 (10,187 collective units). The average price of $125,694 per unit

represents an increase of $16,821 per unit (15%) from one year prior (Q2 2016) when the

average selling price was $108,873 per unit. This reflects an increase from Q2 2014 of 36.9



percent or $87,481 per unit. One must be cautious when interpreting this data as averages are

highly susceptible to fluctuations due to the type of projects, the number of projects and the

physical characteristics of projects sold in a given period, but the trend is generally quite

positive.

Under Construction

RealData reports that there were 12,290 units under construction in the 2nd Quarter of 2017, with

2,317 units added in this quarter. There were 8,535 units added for all of 2016 and 7,232 units

added for all of 2015. There are also 17,275 units planned (entered or satisfactorily completed

the design/development review process).

Colliers International Multi-Family Q2 2017 report states:

Rents Spike, Brightening the Second-Half Outlook:

The Greater Phoenix multifamily market has posted strong results in the first half of 2017, and the outlook for the remainder of the year is bright. Vacancy is forecast to remain near current ranges even in an active development climate, and rents are forecast to top $1,000 per month by the end of the year.

Vacancy rose 30 basis points, ending the second quarter at 5.9 percent. The vacancy rate often inches higher in the second quarter, as part-year residents leave the market for the summer months. Vacancy has increased during the second quarter in each of the past seven years.

Asking rents spiked by 3 percent in the second quarter, and are up 5 percent year to date. Current asking rents are $977 per month, up 6.3 percent from one year ago.

Sales velocity rose in the second quarter, and the sale of newer properties drove the median price higher. The median price in the second quarter reached $116,000 per unit, and year-to-date the median price is over $102,000 per unit. Cap rates are averaging in the mid-5 percent range.

Metro-wide Apartment Market Conclusions

The metro-wide apartment market (50+ units) has experienced declining vacancy rates and

increasing rental rates since the beginning of 2011. While there is a large supply of new units

under construction, these will typically have higher rents than older projects and a different

tenant profile. Thus, the upward rental rate trends are expected to continue for the foreseeable

future, although vacancy rates will likely not decline much further due to the large number of

planned and under/construction units.

Submarket Analysis (District 14–Central City/Sky Harbor)

RealData’s Apartment Insights divides the metropolitan Phoenix apartment market into 32

submarkets, as highlighted in the map on the second following page. The subject lies in the

Central City/Sky Harbor District, 14, which includes the downtown central business district.



Apartment Insights reports that as of the 2nd Quarter of 2017, District 14 totaled 6,064 units in 39

complexes of 50+ units. This is an average of 155 units per project, well below the metro area

average of 208 units per project. This total is approximately 2.08% of the metro area total units.

Of the total inventory in this submarket, 1,834 units have been constructed since 2010, and

2,838, or 47% of the total, have been built since the beginning of 2006. This represents one of

the strongest growth trends in the metro area over this period.

Vacancy

Apartment Insights reported that as of the 2nd Quarter of 2017, the District 14 submarket had a

vacancy rate of 7.28% for projects of 50+ units, compared to the metro average of 5.84%. In the

case of the subject submarket, this is a slight increase of 27 basis points from the previous

quarter, and 9 basis points from the 4 quarter average. For the last 5 quarters the vacancy rate

has averaged between 4.99% and 5.84%, with a 4 quarter average of 5.88%. Thus, the strong

construction in this submarket has kept vacancy rates from declining, but overall, it is still

consistent with the metro area.

Rental Rates

Overall, rental rates for the submarket for stabilized projects, unfurnished units with no utilities

provided averaged $1,275 per unit per month as of the 2nd Quarter 2017, compared to the metro

average of $968 per unit per month, or roughly 32% higher. The higher rents are a result of the

district’s large inventory of newer apartment units, most of which are luxury, Class A units. The

2nd Quarter average rate was a slight increase of $27 from the 1st Quarter of 2017, and $15, or

2%, above one year prior. This slight increase in rental rates in the submarket appears to signal

the submarket is holding steady despite strong new construction.

It should be noted that the average rent for Lease-Up projects, recently completed submarket

projects, was $1,477 per month in the 2nd Quarter of 2017, above the overall average. It is

slightly above the metro area average for Lease-Up projects of $1,399, reflecting the strong

demand for new apartment units in this market area.



The following table presents the average overall rental rate and unit size for stabilized projects,

unfurnished units with no utilities within the subject’s submarket in the 2nd Quarter of 2017:

Type Unit Size (SF) Avg. Rent Avg. Rent/SF Studio 689 $921 $1.34 1 bed/1 bath 770 $1,076 $1.40 2 bed/1 bath 906 $1,232 $1.36 3 bed/1 bath 1,591 $2,366 $1.49

The 3 bedroom units have an average rent above the 2-bedroom units, but typically these units

are in newer projects with more modern amenities than many of the older projects that lack 3-

bedroom units.

Future Competitive Supply

Apartment Insights reports 623 apartment units were under construction in three projects as of

the 2nd Quarter of 2017 in the District 14 sub-market. This is an average of 248 units per project.

There were another 1,160 in the planning stages with construction planned in six projects that

will likely be available for rent in the foreseeable future. This is a large number of units for a

submarket with a current base supply of 5,984 units. The following charts summarize known

projects as of this writing and their status.

Project No. Units Status Developer

District 14 (subject) Broadstone Roosevelt Row The Stewart Total

316 307 623

Under Construction

Alliance Residential Aspirant Development

Derby Roosevelt Row (LIHTC) Total

222 222

Final Plan Approval Transwestern

609 Housing (LIHTC) 536 E. Portland City Center in the Park 1 Block 23 (LIHTC) Urban Living on Fillmore (LIHTC) The Willa Total

60 103 239 300

60 229 991

Construction Scheduled or Preliminary

Plan Approval

Native American Conn. Next Wave Transwestern Street Lights Res. Native Am. Connections Tilton Development

Source: Apartment Insights, 2nd Quarter 2017

Broker Comments

A number of brokers were interviewed during the course of our due diligence. Concerning is

that so many new units are under construction in this immediate area with those projects

currently under construction expected to come on line in the near term. The question was posed

to brokers interviewed if the market can sustain the momentum. We received mixed comments.



Mr. Steve Gebing with Marcus & Millichap (broker for Improved Sale No. 3) indicated that the market has entered a correction stage. Adjustments in the capital markets (increased interest rates) within the past 45 days have resulted in a slowing effect in today’s market. He further stated that many deals of which he is aware have fallen out of escrow. Many of those deals that are going forward have been renegotiated to lower prices as sellers will have to be more realistic this year. His complex sold at cap rate in the high 4 percent range, but he stated that this was an anomaly as it would not in today’s market. He opined a cap rate in the low to mid-5 percent range if sold today.

Mr. Sean Cunningham with CBRE was a part of the selling team for Improved Sale

Nos. 1, 2, 4 and 5. His was an opposite take as he felt that the market momentum was still sustainable. Although he agreed that cap rates in today’s market are realistically in the low to mid-5 percent range.

Another source of market information is gleaned from a January 2, 2017 Wall Street Journal

article entitled “Luxury Apartment Boom Looks Set to Fizzle in 2017” concerning trends in the

high-end, luxury apartment market. Excerpts from this article appear below.

“Landlords of upscale properties across the U.S. are bracing for rough conditions in 2017 that will likely force them to slash rents and offer deep concessions as a glut of supply brings a seven-year luxury-apartment boom to an end. The turnaround follows a more-than-26% jump in U.S. apartment rents since early 2010, far outstripping inflation and income growth. But in 2016, rents rose a modest 3.8%, a significant drop from the recent high of 5.6% year-to-year growth in the third quarter of 2015, according to a report to be released Tuesday by MPF Research, a division of RealPage Inc. that tracks the U.S. apartment market.

MPF Vice President Jay Parsons said he expects little or no rent growth in urban rental markets this year. ‘This will be a very challenged leasing environment almost everywhere,” Mr. Parsons said. The slowdown is being driven not by a pullback in demand but rather a flood of new apartments. Demand for urban properties jumped after the housing bust as young, high-earning professional’s eschewed homeownership and flocked to big cities. Developers responded by focusing most of their efforts on high-end properties.

Now, though, the number of upscale apartments coming onto the market appears to be outpacing the number of renters able to move into them: More than 50,000 new units were rented by tenants in the fourth quarter in the U.S., six times the number in the year-earlier period. But that demand was overwhelmed by the 88,000 new units that were completed in the quarter, the most since the mid-1980s, according to MPF.

That gap looks set to widen in 2017. More than 378,000 new apartments are expected to be completed across the country this year, almost 35% more than the 20-year average, according to real estate tracker Axiometrics Inc.

Most of the new construction in recent years has been on the high end. Of 189,100 multifamily rental units completed between the fourth quarter of 2015 and third quarter of 2016 in 54 U.S. metropolitan areas, 84% were in the luxury category, according to



CoStar Group Inc., a real-estate research firm. The firm defines luxury buildings as those that command rents in the top 20% of the market.

For apartment units currently under construction, renters would need to make at least $75,000 a year to afford 88% of those units, compared with 37% of apartment units overall, according to Axiometrics. Roughly 85% are luxury units.

Rising rents in the past few years have helped buoy the housing market by making home purchases more attractive. Home-price appreciation is outpacing rent growth in all 23 of the metropolitan areas tracked by a national index produced by Florida Atlantic University and Florida International University.

But the flattening of rents in 2017 could shift the financial equation back toward renting, posing potential challenges to the housing market, which saw record prices in October.

Rents in San Francisco, New York, Houston and San Jose California, all declined about 1% year-to-year in 2016, according to MPF. Monthly rents now average $1,248 nationally. The sluggishness is expected to spread across the U.S., hitting markets from Nashville, Tenn., and Dallas to Los Angeles and Atlanta.

John Tirrill, managing partner at SWH Partners, an Atlanta developer that has several projects under way in the Nashville area, is leasing a new five-story property with a fitness center, yoga and barre studio and swimming pool. He has lowered rents from $2.25 a square foot to $2.10 a square foot—a $150 discount on a 1,000-square-foot apartment—and is offering one to two months of free rent.

Mr. Tirrill said developers are lowering their expectations about the rents they are likely to get and might try to renegotiate loans or sell properties, though he doesn’t anticipate many foreclosures. The market, he said, is taking a “pause as we work through some excesses at the top end.”

The bad news for landlords is good news for tenants. “This is going to be one of the best apartment markets that I’ve seen [for renters] since 2011,” said Ric Campo, chief executive of Camden Property Trust, one of the country’s largest apartment owners. “The consumer is going to have a much broader choice at a lower price.”

Most real-estate analysts expect luxury construction to slow down in coming years as markets work through supply gluts.

Landlords believe the market will revive over time, however. While they don’t expect it to return to the highflying days of 2015, they say the apartment market should settle into its usual position as a steadily growing but largely unexciting part of the real-estate market. “I don’t see it getting white hot again,” said Mr. Tirrill.



Conclusions

The long-term future for the apartment market within metropolitan Phoenix as well as subject’s

submarket appears to be positive as the area’s locational factors (being in downtown Phoenix),

have led to a steady demand. As noted, the subject’s sub-market is superior to the larger metro

area in terms of vacancy; and the average vacancy rate has remained fairly stable in the recent

past despite large supply increases. Given the strong in-fill location with good amenities, the

subject submarket should remain a strong market for apartment rentals. However, the large

number of planned projects, and those in planning stages, will likely temper the planning of more

units in the foreseeable future.



OFFICE MARKET OVERVIEW

As an integral part of the economic feasibility and maximum productivity requisite for

determining a property’s highest and best use, an analysis of the appropriate real estate market is

necessary. Because the subject is an office facility, we have presented information concerning

the office market. Our analysis concerning each is presented in the following sections.

We have referenced the CoStar Phoenix Office Market Report for 2nd Quarter 2017, as well as

prior issues published by CoStar. This market survey includes all office, office condominiums,

office lofts, medical, etc. for both single and multi-tenant buildings. The following market study

presents an overview of the office market for the Phoenix metropolitan area and the subject’s

submarket. Specific issues addressed include historic trends in construction, absorption,

vacancies and rental rates.

Metropolitan Phoenix Office Market Overview

The Phoenix Office market ended the second quarter 2017 with a vacancy rate of 15.0%. The

vacancy rate was down over the previous quarter, with net absorption totaling positive 590,275

square feet in the second quarter. Vacant sublease space decreased in the quarter, ending the

quarter at 1,167,835 square feet. Rental rates ended the second quarter at $23.86, an increase

over the previous quarter. A total of eight buildings delivered to the market in the quarter

totaling 335,327 square feet, with 1,013,705 square feet still under construction at the end of the

quarter.

Inventory

Total office inventory in the Phoenix market area amounted to 172,707,655 square feet in 8,277

buildings as of the end of the second quarter 2017. The Class-A office sector consisted of

49,060,001 square feet in 305 projects. There were 4,590 Class-B buildings totaling 100,764,803

square feet, and the Class-C sector consisted of 22,882,851 square feet in 3,382 buildings.

Within the Office market there were 814 owner-occupied buildings accounting for 17,303,190

square feet of office space.

The following chart summarizes office market statistics for the past 12 years. The source of data

is CoStar.



Absorption

Net absorption for the overall Phoenix office market was positive 590,275 square feet in the

second quarter 2017. That compares to positive 778,135 square feet in the first quarter 2017,

positive 619,516 square feet in the fourth quarter 2016, and positive 1,023,916 square feet in the

third quarter 2016.

Vacancy

The office vacancy rate in the Phoenix market area decreased to 15.0% at the end of the second

quarter 2017. The vacancy rate was 15.2% at the end of the first quarter 2017, 15.2% at the end

of the fourth quarter 2016, and 15.3% at the end of the third quarter 2016.

Rental Rates

The average quoted asking rental rate for available office space, all classes, was $23.86 per

square foot per year at the end of the second quarter 2017 in the Phoenix market area. This

represented a 1.4% increase in quoted rental rates from the end of the first quarter 2017, when

rents were reported at $23.54 per square foot.

Deliveries and Construction

During the second quarter 2017, eight buildings totaling 335,327 square feet were completed in

the Phoenix market area. This compares to 10 buildings totaling 1,242,992 square feet that were

completed in the first quarter 2017, 10 buildings totaling 534,663 square feet completed in the

fourth quarter 2016, and 497,292 square feet in eight buildings completed in the third quarter

2016. There were 1,013,705 square feet of office space under construction at the end of the

second quarter 2017.



Sales Activity

In the first quarter, 34 office transactions closed with a total volume of $387,745,897. The 34

buildings totaled 2,540,390 square feet and the average price per square foot equated to $152.63

per square foot. That compares to 34 transactions totaling $396,498,199 in the fourth quarter

2016. The total square footage in the fourth quarter was 2,290,803 square feet for an average

price per square foot of $173.08.

Conclusions

Total office building sales activity in 2017 was up compared to 2016. In the first three months of

2017, the market saw 34 office sales transactions with a total volume of $387,745,897. The price

per square foot averaged $152.63. In the same first three months of 2016, the market posted 43

transactions with a total volume of $382,947,783. The price per square foot averaged $139.44.

Additionally, cap rates have been lower in 2017, averaging 7.78% compared to the same period

in 2016 when they averaged 7.96%.

Central Corridor Cluster

The subject lies within the Central Corridor market cluster as defined by CoStar.

CENTRAL CORRIDOR CLUSTER – SUBMARKETS

Downtown (subject) Midtown

The following charts summarize statistics for the Central Corridor Cluster as of second quarter

2017 as reported by CoStar.



As of second quarter 2017, the Central Corridor Office cluster comprises approximately

23,423,060 square feet of space in 558 buildings. For this cluster, 26 are Class A projects

containing 9,641,885 square feet, 189 are Class B projects containing 10,759,465 square feet and

343 are Class C projects containing 3,021,710 square feet.

Downtown CBD Submarket

In the subject’s more specific Downtown/CBD submarket, there was 10,425,852 square feet of

existing office space in the 2nd Quarter of 2017, which is the 7th highest of the 28 submarkets that

make up the study. The asking rental rate was $28.91 per square foot, the second highest and

above the metro average of $23.86 per square foot. The overall vacancy rate was 13.3%, well

below the metro area average of 15.0% and one of the lowest of all submarkets. No new space

was added in the 2nd Quarter of 2017, but 26,174 square feet was under construction. Net

absorption was a negative 4,525 square feet.

For Class A space, the total space was 5,065,976 square feet, or 48% of the total space in this

submarket, with an average asking rent of $30.66 per square foot and an average vacancy rate of

15.9%. The asking rent is slightly above the overall Phoenix market, and the average vacancy

rate is above the metro area average of 14.4%. Class A space had a negative net absorption of

43,908 square feet in the 2nd Quarter.

Thus, the subject’s immediate submarket has generally outperformed the metro area and most of

the other 28 submarkets in vacancy rate and asking rental rates for both total and Class A office

space.



Finally, the subject is part of the Phelps Dodge subdivision, which includes an office tower on

the adjacent site to the south. The office tower is known as One North Central, is reportedly

95.3% leased (Co-Star). This office tower has generally remained well occupied during its

approximate 15-year life.

Conclusion

For the metro area, overall office vacancy rates have generally declined since the peak in 2010,

to the currently 15.0%. The average quoted rental rate is at its highest level since 2009 at $23.55

per square foot. For Class A space, the asking rent of $30.66 per square foot is the highest since

2008, and the overall vacancy rate of 15.9% has remained relatively unchanged since 2nd quarter

2016 when the overall vacancy rate was 15.4%.

For the subject’s Downtown submarket, the average vacancy rate is superior to the metro area,

and average asking rental rates are above most of the other markets. Even with the new space

under construction or recently delivered, these trends are expected to continue.

Highest And Best Use


HIGHEST AND BEST USE Highest and best use is a fundamental concept in appraising real estate because it focuses market

analysis on the subject property’s optimum use given current market conditions. In ascertaining

the highest and best use of a vacant site or an improved property, it is necessary to study four

factors:

1. Is the existing or proposed use legally permissible or reasonably possible?

2. Is the existing or proposed use physically possible on the site?

3. Is the existing or proposed use economically and financially feasible under existing and projected market conditions?

4. Is the existing or proposed use estimated to be the most profitable among the alternatives that are legally permissible, physically possible, and economically feasible?

Our analysis of the foregoing follows.

Highest and Best Use - If Vacant

1. Is the proposed use legally permissible or reasonably possible.

The subject is in the Business Core, BC, area of the Downtown Phoenix Plan, or Code, DTC.

The purpose of the DTC, according to the City of Phoenix zoning ordinance, “…is to implement

the vision, goals and policies of the Downtown Phoenix Plan and provide the physical

environment necessary to create a pedestrian-oriented, dynamic urban center with an authentic

sense of place.” The DTC applies to all land uses, subdivisions and development within the

boundary generally between McDowell Road on the north, 7th Street on the east, Buckeye Road

on the south and 7th Avenue on the west. Each structure and land use shall be established,

constructed, reconstructed, enlarged, altered, moved or replaced in compliance with the

requirements of the Use Matrix for the Character Area in which the property is located.

According to the city of Phoenix Zoning Ordinance, “…the Business Core should function as a

strong regional center for employment, entertainment, conventions, tourism and cultural

institutions, drawing visitors from around the country and attracting residents from throughout

the region. … The greatest development intensity within the region should be located within this

Character Area.”



According to the City maps regarding height limitations, the subject parcel is in a zone allowing

a 425-foot maximum height. In addition, the subject in a development density zone with no

maximum density of dwelling units per acre. Therefore, it appears that the subject parcel has

many legally permissible uses, with some of the highest available densities in the metro area but

is restricted by various encumbering easements.

2. Is the proposed use physically possible?

All forms of infrastructure necessary to sustain a variety of uses are to the sites, including public

utilities and services. The subject has a generally adequate shape, with street frontage on three

sides with access limited to one. It is a fully improved site, level and at-grade with surrounding

streets. Thus, any uses allowed by zoning would appear to be generally physically possible on

the subject site. However, as noted, the subject has some unusual development restrictions as a

result of the existing high-rise office tower on the site adjoining to the south and the historical 3

story building (Hanny’s) on the corner. The deed restriction and easements will have to be

incorporated into any future development of the site, thus adding significant restrictions that will

likely reduce the utility of the site, and thus it’s Market Value.

3. and 4. Is the proposed use economically feasible and maximally productive?

The subject currently has a base zoning designation that allows for a variety of uses, including

high density multi-family residential, office and retail/commercial uses. In addition, a hotel use

would be allowed. The uses which would have the ability to utilize the high densities of

development allowed are multi-family, office and hotel, with retail typically being used in

conjunction with these uses.

As an example, the subject is part of the Phelps Dodge subdivision, which includes an office

tower on the adjacent site to the south. The office tower is known as One North Central, is

reportedly 95.3% leased (Co-Star) at market rates. This office tower has generally remained well

occupied during its approximate 15-year life. Currently, there are five multi-family residential

projects in downtown south of Van Buren Street.



Highest and Best Use Conclusion - As Vacant

Based on the four factors discussed above, it is our opinion that the Highest and Best Uses of the

subject site is to hold for likely future high-rise office or high density residential use as the

market dictates demand. As noted, the subject has some additional development restrictions that

will likely have a lower density of development and a longer hold time.

Sales Comparison Approach


SALES COMPARISON APPROACH

The basic premise of the Sales Comparison Approach is the principle of substitution which holds

that the value of a property tends to be set by the price that would be paid to acquire a substitute

property of similar utility and desirability within a reasonable amount of time. Other relevant

appraisal principles are anticipation, balance, externalities, and supply and demand.

The subject properties are composed of a single legal parcel of land. It is zoned for a high-

density, mixed-use, type of development in line with uses allowed in the Business Core character

area.

It is not known which use will ultimately be placed on the subject and the most likely use is for

office or multi-family residential development. The underlying zoning for the subject would

allow a 425-foot height, with unlimited residential density, depending on other site restrictions

such as parking and set-backs. However, as will be noted, parcels are rarely developed to their

fullest allowed by zoning. Thus, it is reasonable to utilize sales from other areas of the

Downtown Phoenix Plan, from other Character Areas that may have lower allowed building

heights and densities.

Therefore, our search for comparable sales was for the recent sales of comparable sites in the

Downtown Phoenix Plan area that are zoned for and/or intended for land uses similar to the

subject, with variances in density and height subject to adjustment.

Confirmation sources included the listing or sales agent (when available), Co-Star COMPS,

public records and an inspection by the appraisers. We have analyzed five closed sales of

comparable properties within the subject's general DTC market area. The sales are detailed on the

following pages, with a summary table and map following the sales.



Land Sale No. 1 Identification Type: Commercial Land Location/Address: 815 N. 3rd Avenue Tax Parcel Nos.: 111-44-094, 096, 098 Transaction Data Grantor: Pathfinder McKinley Court

Holdings, LLC Grantee: McKinley Land Development,

LLC Contract Date: April 2017 Date of Sale: June 29, 2017 Recorded Date: June 29, 2017 Instrument: Special Warranty Deed Instrument No.: 17-0475935 Sale Price: $3,300,000 Terms: Cash 100% Unit Price: $134.69/SF Physical Data Size: 24,500 SF; 0.562 ACS Gross/Net: Net Zoning: DTC/RE Utilities: All available at the site Condition: Improved with a 40 Unit Apartment Complex Parcel History No sale noted in previous 12 months Marketing Time Unknown Comments This sale is composed of 3 legal parcels and is improved with the 40 unit

McKinley Court Apartments. The parcels form a rectangular parcel with good street frontage on 3rd Avenue – a one-way northbound two lane roadway. The improvements on site will need to be demolished. According to the confirming party the estimated budget to demolish the improvements is $75,000.

The parcel is within the Roosevelt East character area of the Downtown

Core area, (DTC). The allowed land uses include retail, office and high-density multi-family residential, with a maximum building height of 65 feet and a maximum residential density of 43.5 dwelling units per gross acre (to the center line of surrounding streets).

Proposed Use The property is planned for a multi-family project of an undisclosed size. Confirmed By Co-Star COMPS; Chris Murdey with Haselden Construction (buyer);

Public Records; Inspection (08/17 RT).

MCKINLEY STREET

TH

IRD

AV

EN

UE

Sale



Land Sale No. 2 Identification Type: Commercial Land Location/Address: NEC 3rd & Pierce Streets Tax Parcel Nos.: 111-44-033, 034, 035, 040,

041, 042 Transaction Data Grantor: Third & Pierce

Development LLC Grantee: CA Residential Phoenix

Property Owner, LLC Contract Date: June 2016 Date of Sale: March 31, 2017 Recorded Date: March 31, 2017 Instrument: Special Warranty Deed Instrument No.: 17-0229865 Sale Price: $6,600,000* Terms: Cash 100% Unit Price: $119.83/SF Physical Data Size: 55,078 SF; 1.34 ACS Gross/Net: Net Zoning: DTC/ECW, Mixed-Use Utilities: All available at the site Condition: Level, vacant site Parcel History Northern 3 parcels with 21,000 SF sold in January 2016, for $950,000; Southern 3 parcels with 37,462 SF sold in December 2013, for

$1,775,000, or $47.38/SF. See Comments Marketing Time 125 days Comments This sale is composed of 6 legal parcels. They form an L-shaped parcel

with good street frontage on 4 neighborhood streets. Minimal improvements on site need to be demolished.

*The appraisers were unable to directly confirm the purchase price.

According to the Special Warranty Deed this sale was exempt from the Affidavit and the confirming party stated they were unable to confirm or deny the purchase price. However, the listing company, JLL released a Press Report on April 6, 2016 announcing the sale for a reported $6.6 million. When this property was pending last year the appraisers spoke with the listing agent for JLL and was able to find out the intended use for the property.

Sale



Land Sale No. 2, contd.

The northern 3 parcels sold in January 2016, for $950,000 and were improved with an older, 4,902 square foot brick office building occupied by the seller that will be leased to the seller on a short-term basis prior to re-sale for more dense development. The leasing of the northern 21,000 SF parcel to the seller for a short term prior to development, and the rental income is considered an off-set to the cost of $25,000 for the removal of the improvements. The buyer of the northern 3 parcels owns the adjoining 3 parcels to the south and the March 2017 sale is the assemblage of the 6 parcels.

The parcel is within the Evans Churchill West character area of the

Downtown Core area, (DTC). The allowed land uses include retail, office and high-density multi-family residential, with a maximum building height of 450 feet and a maximum residential density of 218 dwelling units per gross acre (to the center line of surrounding streets).

Proposed Use The property is planned for a 35-story student housing project. The

closing took place after entitlements were obtained. Confirmed By Co-Star COMPS; John Cunningham, JLL, listing agent; Public Records;

Inspection (05/17 RT).



Land Sale No. 3 Identification Type: Commercial Land Location/Address: 372-86 N. 1st Avenue Tax Parcel Nos.: 111-42-077A, 079A, 081A,

083 and 085. Transaction Data Grantor: Pterodactyl Holdings

Phoenix LLC; Martha E. Bishop Trust

Grantee: Arizona Board of Regents Contract Date: January 2016 Date of Sale: April 12, 2016 Recorded Date: April 12, 2016 Instrument: Special Warranty Deed Instrument No.: 16-0240287;0240288 Sale Price: $4,650,000* Terms: Cash 100% Unit Price: $133.63/SF Physical Data Size: 34,798 SF; 0.799 ACS Gross/Net: Net Zoning: DTC/BC Utilities: All available at the site Condition: Level, vacant site Parcel History A 27,971 SF portion of the property (APNs 111-42-081A, 083, 085), sold

in September 2012, for $1,250,000, or $44.69/SF, cash; No other sales noted in previous 12 months

Marketing Time Larger parcel (APNs 111-42-081A, 083, 085) were marketed for a

reported 14 days: smaller parcel, APN 111-42-077A, 079A, none, directly between parties

Comments This sale parcel is composed of 5, adjoining rectangular legal parcels,

with frontage on 2 collector streets, 1st Avenue and Fillmore Street. The overall site is rectangular with good frontage of approximately 250 lineal feet, but a narrow depth of 139 lineal feet. The south-bound leg of the Valley Metro Light Rail runs in front of this site, with no nearby station. At the date of sale, the site was improved with an old, single story brick building in poor condition, and totaling approximately 3,510 square feet, and some concrete and asphalt paving. These will be razed prior to development.

Sale



Land Sale No. 3 *The sale price is composed of the total of two separate transactions,

(allocation not known) to the same buyer from two separate sellers at the same sale date (detailed above). In addition, the estimated cost of removal of the existing improvements is $15,000.

The parcel is within the Business Core character area of the Downtown

Core area, (DTC). The allowed land uses include retail, office and multi-family residential, with a maximum building height of 525 feet, one of the highest allowed in the City and no maximum residential density.

Proposed Use The site was assembled for the purpose of constructing improvements to

serve Arizona State University in offices or classrooms to support other area ASU facilities. The buyer’s representative acknowledged that a premium was paid for the proximity of this site to other nearby ASU properties.

Confirmed By Co-Star COMPS; Mike Sutton, listing agent, Cushman & Wakefield;

Public Records; Inspection (06/16 SM)



Land Sale No. 4 Identification Type: Commercial Land Location/Address: 802-06 N. 2nd Street Tax Parcel Nos.: 111-43-053, 054 Transaction Data Grantor: Mojave Enterprises LLC Grantee: Amstar McKinley LLC Contract Date: January 2016 Date of Sale: April 5, 2016 Recorded Date: April 5, 2016 Instrument: Special Warranty Deed Instrument No.: 16-0222253 Sale Price: $920,205 Terms: Cash 100% Unit Price: $67.44/SF Physical Data Size: 13,644 SF; 0.31 ACS Gross/Net: Net Zoning: DTC/ECW, Mixed-Use Utilities: All available at the site Condition: Level, vacant site Parcel History No sale noted in previous 12 months Marketing Time NA Comments This sale parcel is composed of 2 legal parcels. They form a rectangular

parcel with good street frontage on the northwest corner of two neighborhood streets, 2nd and McKinley Streets. It is currently improved with an asphalt-paved parking lot.

The parcel is within the Evans Churchill West character area of the

Downtown Core area, (DTC). The allowed land uses include retail, office and high density multi-family residential, with a maximum building height of 250 feet and a maximum residential density of 218 dwelling units per gross acre (to center line of fronting streets).

Proposed Use The buyer plans to hold the site for future mixed-use development. Confirmed By Co-Star COMPS; Public Records; Inspection (06/16 SM).

Sale



Land Sale No. 5 Identification Type: Commercial Land Location/Address: 802 N. Central Avenue Tax Parcel Nos.: 111-40-053, 111-40-056A Transaction Data Grantor: Singer Holding, LLC Grantee: Circle on Central LLC Contract Date: May 2015 Date of Sale: February 16, 2016 Recorded Date: February 16, 2016 Sale Price: $2,650,000 Terms: Cash 100% Unit Price: $76.59/SF Physical Data Size: 34,602, 0.79 acre Gross/Net: Net Zoning: DTC/DG, Mixed-Use Utilities: All available at the site Condition: Improved with a 19,263 SF building Parcel History No sale noted in previous 12 months Marketing Time 1,105 days Comments The property is improved with the former Circle Record building with a

total of 19,692 square feet of building area and an asphalt-paved parking area. The site has frontage on Central Avenue, the major north-south arterial through the downtown central business district, and McKinley Street, a neighborhood street. The Valley Metro Light Rail has a north-bound line running along the center of Central Avenue, but with no nearby station. McKinley Street is a neighborhood street and the intersection is signalized.

The parcel is within the Downtown Gateway, (DG), character area of the

Downtown Core area, (DTC). The allowed land uses include retail, office and high-density multi-family residential, with a maximum building height of 500 feet and a maximum residential density of 218 dwelling units per gross acre (to the center line of surrounding streets).

Proposed Use The site is planned for redevelopment, with the improvements adding no

value. The demolition cost is estimated at $100,000. Confirmed By Co-Star COMPS; Mike Milic, Cushman & Wakefield, listing agent, 480-

655-3328; Public Records; Inspection (06/16 SM/LA)

Sale



Sale No. Subject 1 2 3 4 5

Address/Location SEC of Central Ave. and Adams Street

815 N. 3rd Avenue NEC of 3rd and Pierce Streets

372-86 N. 1st Avenue

802-06 N. 2nd Street 802 N. Central Avenue

Sale Date N/A Apr-17 Mar-17 Apr-16 Apr-16 Jan-16

Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple

Sale Price N/A $3,300,000 $6,600,000 $4,650,000 $920,205 $2,650,000

Financing N/A Cash to Seller Cash to Seller Cash to Seller Cash to Seller Cash to Seller.

Sale History No sales in prior 3 years.

No sales in prior 3 years.

See CommentsNo sales in prior 3

yearsNo sales in prior 3

yearsNo sale in prior 3

years

Zoning BC RE ECW BC ECW DG

Land Area (SF) 25,981 24,500 55,078 34,798 13,644 34,602

Land Area (Ac) 0.596 0.562 1.264 0.799 0.313 0.794

Price/SF Land N/A $134.69 $119.83 $133.63 $67.44 $76.59

Corner site along amajor arterial withutilites to site.Currently a parkinglot. Light railfrontage.

Corner site, level,mid-rise apt projectplanned. This is theformer McKinleyCourt Apartments.The site is plannedfor redevelopment,the improvementsadding no value.The demolition costis estimated at$75,000.

Corner site, level,mid-rise apt projectplanned.

Land for ASU use,near existingcampus, light railfrontage.At the dateof sale, the site wasimproved with an old, single story brickbuilding in poorcondition, andtotaling approximately 3,510square feet, andsome concrete andasphalt paving.These will be razedprior to development.

Corner site, intendedfor future mixed-usecommercial andresidential project.

Corner site along amajor arterial withutilites to site. Lightrail frontage. Theproperty is improvedwith the formerCircle Recordbuilding with a totalof 19,692 square feetof building area andan asphalt-pavedparking area. Thesite is planned forredevelopment, withthe improvementsadding no value.The demolition costis estimated at$100,000.

Identification

Transaction Data

Physical Data

Unit of Comparison

Comments

LAND SALES MAP AND SUMMARY CHART

SUBJECT



SALES BY PHOENIX DOWNTOWN CORE CHARACTER AREA MAP

SUBJECT

Sale 3

Sale 1

Sale 4

Sale 5

Sale 2



Additional Sale

In addition to the five sales analyzed herein, the appraisers are aware of a sale located at the SEC

of Central Avenue and Polk Street. This sale occurred in February 2017 and was for APNs 111-

45-188A; -188B (formerly 111-45-188). The site is

38,469 net square feet (0.88 net acres) in size and

zoned DTC/BC. It is a former parking lot.

Comments: This sale was a single rectangular legal

parcel with frontage on Central Avenue, the major

north-south arterial through the downtown central

business district, and Polk Street, a neighborhood

street. The Valley Metro Light Rail has a north-

bound line running along the center of Central

Avenue, with a station directly across from it. Polk

Street is a neighborhood street and the intersection is

signalized. The overall site is rectangular with

frontage of approximately 125± lineal feet along Central Avenue and 310± lineal feet of frontage

along Polk Street. At the date of sale, the site was an asphalt paved parking lot.

According to the confirming party this site has a utility easement bisecting the site north/south

almost in the middle. This necessitated the splitting of the parcel into two almost equal parcels to

allow for full development. A lodging use will be developed on APN 111-45-188A and a multi-

family project with a parking garage and retail will be developed on APN 111-45-188B.

However, the confirming party, Mr. George Forristall with Mortenson Development, stated a

GPLET was involved in the transaction. Mr. Forristall stated the price paid was a total of $7.5

million for the entire 38,469 SF half block or $194.96/SF. Of this total, $2.5 million ($64.99/SF)

was attributable to the real estate and $5.0 million was the perceived enhancement of the GPLET.

We were unable to find an affidavit for this transaction. The lodging site (16,760 SF) does reflect

the affidavit of $5.6 million which he also confirmed, suggesting a value of $334.13/SF for this

portion. And as we were told, the GPLET was transferred to the adjacent portion (21,709 SF)

which is proposed for apartment construction sometime down the road. Mr. Mortenson called

this the "remnant" piece which was allocated a value of $1.9 million or $87.52/SF. However,

Sale



given the questions arising from the perceived enhancement of the GPLET and whether or not

this is part of the real property, we chose not to use this sale in the formal analysis.

Analysis of Comparable Sales

The appraisers located and utilized five closed sales of vacant land parcels zoned for and/or

intended for commercial development, similar to the subject zoning. These are all located in the

subject’s Downtown Phoenix market area, in one of the noted character areas. The sales range in

size from 13,644 to 58,462 square feet, with the subject in the lower end at 25,981 square feet.

Unadjusted unit prices for these sales range from $67.44 to $134.69 per square foot.

Price Per Square Foot Method

This method compares the comparables to the subject based on a price per square foot unit of

comparison, typical for mixed-use parcels of land. Sales are compared to the subject and first

adjusted for such factors as Property Rights Conveyed (i.e., fee simple, leased fee, leasehold,

etc.), Financing (cash equivalency), Conditions of Sale, Expenditures After The Sale and Market

Conditions/Time. Then the sales are adjusted for various physical considerations such as

Location/Neighborhood, Zoning/Entitlements, Size and On and Off-Site Conditions.

The reliability of this technique depends upon a) the degree of comparability of the property

appraised with each sale, b) the length of time since the sale occurred, c) the accuracy of the data

provided and d) the absence of unusual conditions affecting the sale. This method is most reliable

when comparing properties assuming similar projected Highest and Best Uses. In the case of the

subject, all of the sales are generally similar in utility and zoning, with six of the eight sales to be

held for future mixed-use development, similar to the subject Highest and Best Use. The sales

were sold for near-term starts on multi-family or mixed-use projects, several have projects

underway.

The sales are all within the same immediate market area, the Downtown Core, and thus have the

same market conditions and generally similar density and height limitations. While some owners

are planning a near-term start to projects, others are planning to hold for superior market

conditions for development or re-sale. Overall, these sales are comparable to the subject and

provide a reasonable basis for comparison.



Property Rights Conveyed

The interest transferred in all of the sales was the Fee Simple Estate. This is the valuation

premise of the subject; thus, no adjustments were made.

Financing

Standard definitions of market value include payment in "cash or its equivalent." The equivalent

includes financing terms generally available in the market. All five sales were reported to be

cash to the seller; therefore, no adjustments were necessary for cash equivalency.

Conditions of Sale

Adjustments for condition of sale are required when sales occur which may not be arm's length or

a special condition affected the negotiated sales price. Four of the sales were considered to have

no unusual sale conditions and no adjustments were made for this factor. However, Sale No. 3

was sold at a reported premium, which the buyer’s representative reported to reasonably be 10%

to 15% for its proximity to other parcels owned by the buyer in the immediate area of the sale.

While the sale price was based upon an appraised Market Value, the buyer’s representative

acknowledged that a premium was paid. For this reason, Sale No. 3 was adjusted downward 15%

for this condition of sale.

Sale No. 3 was from different sellers to the same buyer for an assemblage. However, the

confirming party reported that the deal was negotiated separately and was considered a market

value purchase. Thus, an adjustment was not required for this assemblage.

Expenditures After The Sale

This factor considers any unusual expenditures required by the buyer after the sale that may have

influenced the price paid for the property. In the case of two of the sales, no unusual expenditures

were reported by the confirming parties; therefore, no adjustment for this factor was necessary.

A portion of Sale No. 2 was leased to the seller for a short term prior to development, and the

rental income is considered an off-set to the cost of removal. Thus, no adjustment was made to

this sale. However, Sale Nos. 1, 3 and 5 had improvements on-site at the date of sale that would

require removal prior to development.



Sale Nos. 1, 3 and 5 have adjustments made based upon the estimated cost to remove the

improvements on a per square foot of size basis, as summarized in the following table:

Market Conditions (Time)

This adjustment is caused by changes in market conditions between the time of sale of a

comparable and the date of the appraisal of the subject. Changes in market conditions may be

caused by inflation, deflation, fluctuations in supply and demand, or other factors.

The following table shows the sales arrayed by sale date and sale price per square foot of site

area:

The closed sales occurred in a 14-month time period, with the most recent sale occurring 4

months prior to the date of value of this report. The oldest sale occurred 19 months prior to the

date of value.

The data does not appear to indicate a value trend during this period. In discussions with real

estate professionals in the market and the listing or buyer’s agents for the sales it was noted that

there has been a consistent demand for land parcels in the Phoenix Downtown Core in the past 12

to 20 months, and that values have shown some value increases during the period of the sales.

Therefore, a 2% per month upward time adjustment was made to recognize value trends.

Location/Neighborhood Environment

The subject property is located in the Business Core area of the Downtown Core area, DTC. All

of the sales are within the DTC, but in various other character areas. All of the sales are located

SaleNo.

Estd. Costof Removal

SiteSize Adjustment

1 $75,000 24,500 $3.063 $15,000 34,798 $0.435 $100,000 34,602 $2.89

SaleNo.

SaleDate

SitePrice/SF

1 17-Apr $134.692 17-Mar $119.833 16-Apr $133.634 16-Apr $67.445 16-Jan $76.59



within a few blocks of Central Avenue, in areas with the most active development and higher

price ranges within the DTC. The sales are all generally within character areas having similar

surrounding uses and allowed uses. In addition, for both residential and offices uses (the Highest

and Best Use of the site) there would be significant amenities of restaurants and entertainment

within a short walk. Further, the subject site is within the downtown central core, allowing

significant pedestrian traffic to and from employment and entertainment such as Chase Field

(home of the Arizona Diamondbacks MLS team) and Talking Stick Resort Arena (home of the

NBA Phoenix Suns) and being on the path of the Light Rail System. Most of the sales do not

have this locational benefit, except for No. 3, for which upward 5% adjustments were made to all

sales except No. 3.

Frontage

The subject and Sale No. 5 front to major arterials, while the other sales front to collector or

interior streets. Arterial frontage generally provides superior visibility and identity to a project,

whether residential or commercial, and thus can be a superior factor. However, Sale No. 5 has

only the fourth highest adjusted sale price to this point. In fact, the highest three sales, Nos. 1, 2

and 3, all lack major arterial frontage. The indication is that within the DTC, frontage is less

important than other factors and no adjustment was made for this factor.

Access

The subject is a corner site fronting three roadways. However, according to Craig Messer, with

the City of Phoenix Planning Department, the city would likely not allow a curb cut to the subject

site from either Central Avenue or Adams Street since they are pedestrian streets and the site has

access from a side street (1st Street). Thus, all access would be from 1st Street. This is inferior to

all of the sales, but No. 3, which have superior corner locations that would likely allow access

potential from two streets. A downward 5% adjustment was made for this factor.

Zoning/Allowed Density/Allowed Height

The subject parcel is located with the Business Core, BC, Character area within the Downtown

Core area, with a mixed-use underlying zoning, a 425-foot maximum height allowance and no

maximum density for residential development. This is the densest residential zoning in the City



of Phoenix, and a higher height allowance than all but 3 sales, which range from 90 to 525 feet in

allowed height.

In recent discussions with market participants and David Goodman, with the City of Phoenix

Commercial Planning Division, it was noted that there have been no recent projects in these areas

built to the maximum allowed heights and densities, and that given the large number of projects

planned for the area, it is unlikely that a developer would consider such a high density use. It has

been typical in the recent past for new projects to be built well below the maximum allowed

heights and densities.

Sale No. 1 is planned for a multi-family project with an unknown height and density. While the

total planned height and density is not known, the Roosevelt East District has a building height

limit of 65 feet and a density allowance of 43.5 unit density.

Sale No. 2 is planned for a 35 story student housing project with 5 floors of above-ground

parking. While the total planned density is not known, the building height of approximately 350

feet is below the allowed height of 450 feet.

After comparing the sales by allowed height, those sales having allowed heights of 425-525 feet

(Sales 2, 3 and 5) had an average time-adjusted sale price of $130.66 per square foot to this point,

while Sale Nos. 1 and 4, having an allowed height of 65 and 250 feet, have an adjusted price of

$118.90 per square foot. However, Sale No. 1 has the most restrictive zoning but has the second

highest time-adjusted sale price. Therefore, an adjustment to the comparables is not necessary.

A final consideration under zoning is set-back requirements, which vary by Character Area. The

following table summarizes the front, side and rear set-backs for each sale based upon the

information on their respective Character Area requirements and their specific locations.

Character Building Set-Backs-FtSale Area Front-Min Front-Max Rear/Side

1 RE 5 10 02 ECW 5 15 03 BC 5 10 04 ECW 5 15 05 DG 0 5 0

Subj. BC 5 10 0



As shown, all sales vary between 0 and 5-feet for a minimum frontage set-back, and none are in

an area with side and rear set-back requirements. All of these restrictions are minimal and have

little impact. Therefore, no additional adjustments need to be made for setbacks.

Size

Size can be a determining factor in the sale price of vacant properties. Properties of larger size

can sell for a lower price per square foot due to the principle of economies of scale and greater

capital requirements. The primary reason for this is that the purchase of larger properties usually

entails a larger capital outlay, a factor, which restricts the number of possible buyers, as compared

to the relatively larger market for smaller properties. Additionally, there is also a flexibility of

use that larger parcels have that is an advantage over smaller parcels.

The sales indicate a size range of between 13,644 and 58,462 square feet, with the subject in the

middle of the range at 25,981 square feet. After previous adjustments the data does not indicate

that size is a significant factor within the size range of the comparables. Sale No. 2, the largest,

has one of the highest adjusted sale price at this point, while the sale with the lowest adjusted sale

price, No. 4, is the second smallest sale. Thus, the indication is that within the size range of the

comparables there is no adjustment required, with the normal market trends of small sales having

higher unit sale prices being offset by the increased utility of larger sites. Additionally, in

downtown areas size factors tend to be reversed with larger sites typically being more valuable

since they have a higher development potential.

Off-Site Infrastructure/Utilities

The subject is fully improved and has all off-site infrastructure in-place, including concrete curbs,

gutters and sidewalks. Water and sewer lines are reportedly in surrounding streets. The sales are

all generally the same, thus no adjustment was required for this factor.

Topo/On-Site Improvements

The subject is level and at-grade with surrounding streets and properties. The site is being

utilized as a parking lot.



The sales are all generally level and buildable after the removal of some old improvements on

some of the sales (adjustments made in Expenditures After The Sale). No adverse factors were

considered for the subject or the sales and no adjustments made.

Shape/Utility

A final consideration is the shape and utility of the subject. The subject is an irregular site with

approximately 46 linear feet of frontage along the east side of 1st Street, approximately 200 linear

feet of frontage along the south side of Adams Street and approximately 97 linear feet of frontage

along the west side of Central Avenue. All five of the sales are of a sufficient shape as to allow

the full development of the site while the subject’s irregular shape does not. Therefore, all five

sales require a downward adjustment for this factor.

Further, as noted in the Site Analysis, Central Avenue and Adams Street are designated

Pedestrian Streets by the City of Phoenix, adding additional requirements for development,

related to pedestrian amenities that will add to the cost of a project. However, all of the north-

south streets in the DTC, most of the east-west streets, have this same designation. Thus, it would

appear that this requirement will affect all of the sales relatively equally and no adjustment was

considered necessary, or made for this factor.

Finally, the most significant factors affecting the subject are the requirements that any future use

of the site retains the easements previously mentioned. These restrictions are difficult to quantify,

but they will have a significant impact on the utility of the site in terms of any future project

planned for the parcel. In discussions with the brokers and buyers of the sales utilized in this

report, it was noted that restrictions of this nature diminish the useable area of a site and add

uncertainty to a project in terms of cost and can have a significant impact on the Market Value.

The subject does not have the flexibility to allow for this and it constrained by the easements.

Thus, downward adjustments of 25% for these shape and utility factors have been made to each of

the sales.

Our adjustment process is summarized in the following grid:



LAND SALES ADJUSTMENT GRID

Conclusion of Value

After adjustment, the sales reflect a range from $66.77 to $112.87 per square foot, with a mean

value of $94.47 per square foot. The two most recent sales, Sale Nos. 1 and 2, both occurred in

2017 and had the lowest gross adjustments and a mean value of $105.22 per square foot.

Therefore, considering the sales analysis and broker comments, it is our opinion the subject had

an indicated value at the date of value near the average of the two most recent sales, or $105.00

per square foot, or a total value as follows.

25,981 SF X $105/SF = $2,728,005 rounded to $2,730,000

Sale No. Subject 1 2 3 4 5

Date of Sale N/A Apr-17 Mar-17 Apr-16 Apr-16 Jan-16 Land Area (SF) 25,981 24,500 55,078 34,798 13,644 34,602 Sales Price N/A $3,300,000 $6,600,000 $4,650,000 $920,205 $2,650,000 Sales Price/SF N/A $134.69 $119.83 $133.63 $67.44 $76.59

Property Rights 0.0% 0.0% 0.0% 0.0% 0.0% Adjusted Sales Price/SF $134.69 $119.83 $133.63 $67.44 $76.59 Financing 0.0% 0.0% 0.0% 0.0% 0.0% Adjusted Sales Price/SF $134.69 $119.83 $133.63 $67.44 $76.59 Conditions of Sale 0.0% 0.0% -15.0% 0.0% 0.0% Adjusted Sales Price/SF $134.69 $119.83 $113.58 $67.44 $76.59 Expenditures After Sale $3.06 $0.00 $0.43 $0.00 $2.89 Adjusted Sales Price/SF $137.75 $119.83 $114.01 $67.44 $79.48 Market Conditions 8.0% 10.0% 32.0% 32.0% 38.0% Adjusted Sales Price/SF $148.77 $131.81 $150.50 $89.03 $109.68

Physical Adjustments

Location/Neighborhood 5.0% 5.0% 0.0% 5.0% 5.0% Frontage 0.0% 0.0% 0.0% 0.0% 0.0% Access -5.0% -5.0% 0.0% -5.0% -5.0% Zoning/Density 0.0% 0.0% 0.0% 0.0% 0.0% Property Size 0.0% 0.0% 0.0% 0.0% 0.0% Off-Site Infrastructure 0.0% 0.0% 0.0% 0.0% 0.0% Topo/On-Site Work 0.0% 0.0% 0.0% 0.0% 0.0% Shape/Utility -25.0% -25.0% -25.0% -25.0% -25.0% Total Adjustments -25% -25% -25% -25% -25%

Final Adjusted Price/SF $111.58 $98.86 $112.87 $66.77 $82.26

Certification


CERTIFICATION Pursuant to our appraisal assignment of the property legally described in the body of this report,

as:

A 25,981 Square Foot Site 30 North Central Avenue Phoenix, Arizona 85004

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

-- the statements of fact contained in this report are true and correct. -- the reported analyses, opinions, and conclusions are limited only by the reported assumptions

and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions.

-- I have no present or prospective interest in the property that is the subject of this report and no

personal interest with respect to the parties involved. -- I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. -- my engagement in this assignment was not contingent upon developing or reporting

predetermined results. -- my compensation for completing this assignment is not contingent upon the development or

reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

-- the appraisal assignment was not based on a requested minimum valuation, a specific

valuation, or the approval of a loan. -- my analyses, opinions, and conclusions were developed, and this report has been prepared, in

conformity with the Uniform Standards of Professional Appraisal Practice. -- the undersigned have both made a personal inspection of the property that is the subject of

this report. -- Rockne Taylor provided significant real property appraisal assistance to the person signing

this certification. -- to the best of my knowledge and belief, the reported analyses, opinions and conclusions were

developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute.

Certification


the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

-- as of the date of this report Albert Nava MAI SGA has completed the continuing education

program for Designated Members of the Appraisal Institute. -- Albert Nava, MAI, SGA has the knowledge and experience to competently appraise the

property that is the subject of this report. -- neither the appraiser nor the firm have performed services, as appraisers or in any other

capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

Respectively Submitted, Sincerely, BREKAN NAVA ALLEN GROUP

Albert Nava, MAI, SGA President Arizona Certified General Real Estate Appraiser No. 30806

Contingent and Limiting Conditions


CONTINGENT AND LIMITING CONDITIONS This appraisal is subject to the following limiting conditions:

The legal description furnished our firm is assumed to be correct. We assume no responsibility for matters legal in character nor render any opinion as to the title, which is assumed to be good. The property has been appraised as if under responsible ownership and competent management.

We have made no survey and assume no responsibility in connection with such matters. The firm believes that the information contained in this report is reliable but assumes no responsibility for its accuracy.

The construction and condition of the improvements mentioned in the body of this report are based on observation, and no engineering study has been made which would discover any latent defects. No certification as to any of the physical aspects could be given unless a property engineering study was made.

Neither all nor any part of the contents of this report will be conveyed to the public through advertising, public relations, news, sales, or other media without the written consent and approval of the author, particularly as to valuation conclusions, the identity of the appraiser or firm with which he is connected or any reference to the Appraisal Institute or the MAI designation.

The valuation estimates contained herein apply as of the date of this appraisal only.

The distribution of the total valuation between land and improvements in this report applies only under the existing program of utilization. The separate valuations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used.

The fee is in no way contingent upon the completion or consummation of any project or matter beyond the control of the appraiser.

The contract for appraisal, consultation or analytical services, are fulfilled and the total fee payable upon completion of the report. The appraiser(s) or those assisting in preparation of the report will not be asked or required to give testimony in court or hearing because of having made the appraisal, in full or in part, nor engage in post appraisal consultation with client or third parties except under separate and special arrangement and at additional fee.

The acceptance of said constitutes the acceptance of this contingency unless otherwise arranged for.

The appraiser has inspected the subject property with the due diligence expected of a professional real estate appraiser. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the

Contingent and Limiting Conditions


presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. The appraiser's descriptions and resulting comments are the result of the routine observations made during the appraisal process.

The terms of our engagement are such that we have no obligation to revise this report or the estimated operating results to reflect conditions which occur subsequent to completion of our assignment. However, we are available to discuss the necessity for revision in view of changes in market and economic factors.

As in studies of this type, we assume no significant change in market or economic conditions, legal, or regulatory issues applicable to this project. Further, we have not been engaged to evaluate the effectiveness of management, and are not responsible for future marketing efforts and other management actions upon which actual results will depend.

Possession of the report does not carry with it the right of publication without the previous written consent of the appraisers. Additionally, neither the identification of the appraisers nor any of the material contained in this Report may be included in any prospectus, newspaper publicity or advertising or as a part of any printed material, or used in offerings or representations in connection with the sale of securities of participating interest to the public.

Neither all nor any part of the contents of this report shall be used for any purpose by anyone but the addressee without the previous written consent of the appraisers nor shall it be conveyed by anyone, including the addressee to the public through advertising, public relations, news, sales or other media without the express written consent and approval of the authors, particularly as to valuation conclusions, the identity of the appraisers or any reference to any professional society or institute or any initialed designations conferred upon the appraisers.

It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report.

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

appraisers have not made a specific compliance survey and analysis of the subject property to determine whether it is in conformity with the various detailed requirements of ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect upon the value of the property. Since the appraisers have no direct evidence relating to this issue, possible non-compliance with the requirements of ADA was not considered in estimating the value of the property.

QUALIFICATIONS OF ALBERT NAVA, MAI, SGA

Arizona Certified General Real Estate Appraiser No. 30806

EXPERIENCE Brekan Nava Allen Group, formerly Ralph J. Brekan & Co., Inc. (since February

1995) Partner & President

Bach Thoreen McDermott Incorporated (November 1992 - February 1995) Senior Consultant

Robert B. Jones & Company (1981 - November 1992) (1989-November 1992) Vice President and Valuation Department Head. Managed the daily activities of Robert B. Jones & Co., including both valuation and administrative departments answering directly to company president. (1986-1989) Valuation Department Head. Managed the daily activities of the valuation department including the scheduling of work in-progress, supervision of staff appraisers, and review of company work product. (1982-1986) Senior Associate. (1981-1982) Staff Associate. Appraisal responsibilities included appraisal of high-rise and suburban office buildings, shopping centers, industrial properties, apartments, hotels, recreational and special purpose properties, vacant land, subdivisions, market and feasibility studies, highest and best use studies.

State National Bank of El Paso (1977 - 1981) Corporate Officer - Staff Appraiser; Real Estate and Construction Lending

Division PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Phoenix Chapter (2006 President) Appraisal Institute, Experience Subcommittee Appraisal Institute, Admissions Committee Appraisal Institute, Ethics and Review Committee Society of Golf Appraisers (SGA) Certification: Currently certified in the Appraisal Institute's program of continuing education for

its designated members (MAIs who meet minimum standards of this program are awarded periodic educational certification)

Certified General Real Property Appraiser in the State of Arizona

EDUCATION University of Texas at El Paso, 1977; B.B.A. with emphasis on accounting INSTRUCTOR Various seminars for local taxing authorities and internal seminars for the

Appraisal Institute.

SCOPE OF WORK Sample of appraisal and consulting assignments completed: Land: All types of residential, multifamily, commercial, industrial, including mixed-use

developments. Residential: Multifamily apartments and condominiums, congregate care facilities, Section 42

(LIHTC) affordable housing, Section 8 housing, public housing Commercial: Retail centers (strip, neighborhood, community, regional), low-rise to high-rise

office (50+stories), restaurants, hotels Industrial: Various warehouse, distribution, manufacturing, flex, mini-storage, R&D

facilities Special Purpose: Golf courses and country clubs, marinas, health care facilities (including skilled

nursing), underground bomb shelter, steel fabrication plant, religious facilities

A D D E N D U M

EXHIBIT A APPRAISER’S CERTIFICATION

Documents

Date of Valuation: August 5, 2017 - City of Phoenix, AZ · 25,981+ SQUARE FOOT SITE LOCATED AT 30 NORTH FIRST STREET PHOENIX, ARIZONA 85004 Date of Valuation: August 5, 2017 Prepared