PREPARED FOR PREPARED BY · The narrative report that follows sets forth the data and analyses upon which our conclusions are based. Sincerely, Kurt D. Kleinman MAI Arizona Certified

AN APPRAISAL REPORT OF

A RESTAURANT & CABIN RENTALS

CREEKSIDE STEAKHOUSE & TAVERN CABINS AT CREEKSIDE

LOCATED AT

1520 EAST CHRISTOPHER CREEK LOOP

PAYSON, ARIZONA 85541

PREPARED FOR

MS. CAROL HIGGINSON APPRAISAL COORDINATOR

MOUNTAIN AMERICA CREDIT UNION 7181 SOUTH CAMPUS VIEW DRIVE

WEST JORDAN, UTAH 84084

PREPARED BY

KS APPRAISAL

444 S. GREENFIELD ROAD MESA, ARIZONA 85206

(480) 464-7800

February 20, 2018

Ms. Carol Higginson Appraisal Coordinator Mountain America Credit Union 7181 South Campus View Drive West Jordan, Utah 84084 RE: An appraisal report of an existing restaurant & cabin resort facility located at 1520 East

Christopher Creek Loop in Payson, Gila County, Arizona 85541. KS Appraisal File No. 2018-0129.

Dear Ms. Higginson: At your request, we have made an inspection and appraisal of the above referenced real property. The date of inspection and valuation is February 9, 2018 and the date of this report is February 20, 2018. The object of this investigation has been to estimate the following value for the subject property: Market value “as is” on the appraisal date based on the fee simple estate

On the basis of the findings of our investigation, we have estimated the fee simple market value of

the subject property “as is” to be:

ONE MILLION ONE HUNDRED THOUSAND DOLLARS $1,100,000*

* The value of the furniture, fixtures, and equipment (FF&E) and franchise was included in each approach to value. There is no business

value component associated with the market value opinion (see discussion in reconciliation section). The subject value components are enumerated as follows:

Component Value

Land & Improvements: 1,053,000$

Motel Furniture, Fixtures, and Equiptment: 47,000$

Business Value (BEV): -$

Total Market Value 1,100,000$

This opinion of value is based upon an estimated exposure period of 12 months or less and does not include any tangible or intangible personal property or business value. The estimate of value includes FF&E, or $47,000 (rounded) The Client is Mountain America Credit Union. The Intended User is Mountain America Credit Union, the U.S. Small Business Administration with the Intended Use of loan underwriting and-or credit decisions. This report may not be used for any other reason, nor is it intended for use by any other

entity than the party for which it was prepared. This report may not be used for the sale of partial property interests (limited, general partnership, or syndication) unless specifically authorized by the appraisers. This appraisal has been prepared in conformity with the current requirements of the Appraisal Foundation as set forth in the Uniform Standards of Professional Appraisal Practice (USPAP-2018/2019 Edition) and with the requirements of the federal bank regulating agencies. This appraisal conforms to Mountain America Credit Union and the U.S. Small Business Administration appraisal guidelines. This valuation is based upon the attached report and all the assumptions and limiting conditions contained therein, including the understanding that we have no control of the utilization of this report by subsequent readers. Disclosure of the contents of this appraisal report is governed by the By-laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or the firm with which they are connected, nor any reference to the Appraisal Institute or the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without prior written consent and approval of the undersigned. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with Title XI of the Federal Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA) and to the additional standards set forth by Section 304 of the FDIC Improvement Act of 1991 (FDICIA), the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, and the Office of the Comptroller of the Currency (OCC). Certified The narrative report that follows sets forth the data and analyses upon which our conclusions are based.

Sincerely,

Kurt D. Kleinman MAI Arizona Certified General Certificate No. 30272 [email protected] 480-464-7800 ext:26

Jared D. Kleinman Arizona Cert. General Real Estate Appraiser No. 31582 [email protected] 480-464-7800 ext:22

mailto:[email protected]


TABLE OF CONTENTS

SECTION 1 SUMMARY OF SALIENT FACTS .................................................................................. 1

Subject Overview .................................................................................................................... 1 Site Overview ......................................................................................................................... 2 Improvement Overview ......................................................................................................... 3 Indications of Value ................................................................................................................ 3 Final Value Estimates ............................................................................................................. 4 Property History ..................................................................................................................... 4 Legal Description .................................................................................................................... 5 Legal Description .................................................................................................................... 6

SECTION 2 DEFINITIONS ............................................................................................................ 7 SECTION 3 APPRAISAL REPORTING AND SCOPE OF WORK .......................................................... 9 SECTION 4 AREA AND NEIGHBORHOOD ANALYSIS ..................................................................... 13 SECTION 5 SITE DESCRIPTION .................................................................................................... 22 SECTION 6 IMPROVEMENTS DESCRIPTION ................................................................................. 30 SECTION 7 HIGHEST AND BEST USE ANALYSIS ............................................................................ 40 SECTION 8 VALUATION ............................................................................................................. 43

COST APPROACH TO VALUE ................................................................................................... 47 SALES COMPARISON APPROACH ............................................................................................ 48 INCOME APPROACH TO VALUE .............................................................................................. 69

SECTION 9 RECONCILIATION OF VALUES .................................................................................... 88 SECTION 10 ASSUMPTIONS AND LIMITING CONDITIONS ............................................................ 90 SECTION 11 CERTIFICATION ....................................................................................................... 96 SECTION 12 ADDENDA .............................................................................................................. 98

QUALIFICATIONS ................................................................................................................... 99

AP P R AI S ALK S Page 1

SECTION 1 SUMMARY OF SALIENT FACTS

Subject Overview


Property Type:

Existing cabin resort consisting of seven rental cabins, a sit-down restaurant, and a miscellaneous storage building. The property is known as the “Creekside Steakhouse & Tavern and Cabins at Creekside.”

Property Location:

The property is located at the north side of Christopher Creek Loop and east of Columbine Road. More specifically, the subject property can be described as its street name: 1520 East Christopher Creek Loop, Payson in Gila County, AZ 85541.

Assessor’s Parcel Number(s)

303-09-015U

Township-Range-Section

11N-13E-20

Census Tract

2.00


Site Overview

Net Site Area:

92,783 net square feet, or 2.13 net acres

Frontage:

The site is a mid-block parcel with +/-430.15’feet of frontage along Christopher Creek Loop.

Zoning:

GU-Genral Unclassified District by Gila County Intent and Purpose: To provide for all the unincorporated areas of Gila County not otherwise designated for some other specific zone to be included in the “General Unclassified District” by this Zoning Ordinance.

Topography:

Gentle slope upward to the north.

Lot Dimensions:

Irregular, please refer to the plat map within the site description.

Flood Zone:

Zone D, F.E.M.A. Panel No. 04021C0015E dated December 4, 2007. According to F.E.M.A., Flood insurance is available in Zone D and property owners should be encouraged to purchase it. However, flood insurance is not federally required by lenders for loans on properties in these zones.

Apparent Adverse Factors:

We are not qualified to determine the presence of hazardous conditions within the structure(s) described. This would include, but would not be limited to, urea formaldehyde, asbestos, toxic chemicals of all kinds, dangerous electromagnetic fields, etc. Unless otherwise stated, the property is assumed so unaffected. We did not notice any signs of potential environmental problems during our site and property inspection.

Restrictions:

We have not been provided with a copy of a commitment for title insurance. We assume there are no easements or restriction, which would negatively influence the marketability. We assume that any such undisclosed restrictions that may exist are typical for such properties, and do not conflict with either the current or highest and best use of the subject property.


Improvement Overview

Summary:


Building Size:

Sit-down restaurant 3,667 sq. ft.

Seven Cabin Rentals 3,684 sq. ft.

7,351 sq. ft.

Please note, six of the seven cabin buildings have finished loft areas. Additionally, there was a loft area above a portion of the restaurant. As of the date of valuation this area unfinished and does not have access. It was reported this area will be utilized as an apartment studio. The loft areas have not included in the total square footage. The miscellaneous storage building is not included in the total square footage.

Units Mix:

Qty Cabins Beds Max

6 Cabins 1-6 2 Qn, 2 Tw 7

1 Cabin #7 2Kg, 6Tw 12

Highest & Best Use Conclusion

“As If Vacant”

Hold for future development

“As Improved”

Continued use a lodge/cabin property

Indications of Value (Approaches)

“As Is”

Cost Approach:

N/A

Sales Comparison Approach:

$1,140,000

Income Approach:

$1,060,000


Final Value Estimates

“As Is”

Market Value:

$1,100,000

Report Dates

Date of Property Inspection:

February 9, 2018

Effective Date of Value:

February 9, 2018 (“As Is”)

Date of the Report:

February 20, 2018

Property History

According to Gila County public records, ownership of the subject property is vested in the name of Eighth Deal LLC. Gila County public records indicate that the current owner has retained ownership since January 2014. Gila County public records do not indicate any additional sales transactions involving the subject property in the previous three-year time period. To the best of our knowledge, the subject is not currently listed for or pending sale. After purchasing the subject property, the current owner has continued to improve the property and has made numerous capital improvements including, but not limited to $350K into the restaurant (foundation, electrical, plumbing, septic, A.D.A. bathrooms, ramp, POS systems, office, server stations, decor, windows, exterior, new flooring, booths, kitchen equip, walk-ins, freezers, all plates, utensils, bar equip, tables, chairs, central vac, etc


Legal Description

The following legal description was obtained from public records and is an unofficial copy. The appraiser assumes no responsibility for its accuracy:


Legal Description


SECTION 2 DEFINITIONS Definition of Fee Simple Estate “Absolute ownership unencumbered by any other interest or estate, subject only to the limitations

imposed by the governmental powers of taxation, eminent domain, police power, and escheat.”1 Definition of Leased Fee Estate “An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.”2 Definition of “As Is” “The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date. (Interagency Appraisal and Evaluation Guidelines) Note that the use of the “as is” phrase is specific to appraisal regulations pursuant to FIRREA applying to appraisals prepared for regulated lenders in the United States. The concept of an “as is” value is not included in the Standards of Valuation Practice of the Appraisal Institute, Uniform Standards of Professional Appraisal Practice, or International Valuation Standards.”3 Market Value Definition 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 is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and 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. Source: Office of the Comptroller of the Currency under title 12 CFR Ch.1 (1-1-10 Edition), Part 34, Subpart C-Appraisals, 34.42 Definitions [g].

1 Source: The Dictionary of Real Estate Appraisal, 6th ed., s.v. “fee simple estate.” (Chicago: Appraisal Institute, 2015)

2 Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015). 3 Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015).


Definition of Exposure 1. The time a property remains on the market. 2. [The] estimated length of time that the property interest being appraised would have been

offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. Comment: Exposure time is a retrospective opinion based on an analysis of past events assuming a competitive and open market. (USPAP, 2018-2019 ed.)

In this appraisal report, the exposure period for the subject property is estimated to be 12 months or less. This conclusion is predicated upon telephone interviews with market participants, consideration of current market conditions, and an evaluation of the historical marketing periods of comparable sales information analyzed during the preparation of this report. Definition of Marketing Time The sales considered did indicate sufficient demand exists to presume the subject property could be marketed successfully under the supplied definitions of value within 12 months or less. This estimate, however, assumes any disposition of the subject property is in its "as is" condition, and that the pricing of any marketing effort is near the value estimated within this report. This estimate also assumes no material changes (either up or down) in market conditions. (Exposure Period precedes the date of valuation, whereas Marketing Time follows the date of valuation). Conclusion Based upon both a survey of historical exposure periods of properties which have sold within geographical and product type submarkets considered to be similar to the subject’s, and a review of market trends and the subject’s essential characteristics; we conclude that a reasonable exposure period for the subject would be one year or less. However, given the aforementioned limitations, any estimate of a relevant exposure period is subject to uncertainty and must be interpreted with caution, particularly with respect to the impact the lack of available financing might have upon any prospective transaction.


SECTION 3 APPRAISAL REPORTING AND SCOPE OF WORK

Purpose of the Appraisal The purpose of this appraisal report is to establish an opinion of the following value(s) in relation to the subject property:

“As Is” Market Value based upon the following property rights: Fee Simple Interest Leased Fee Interest

Leasehold Interest These value(s) opinions are predicated upon the definition(s) of value that are presented within Section 2 of this report. Intended Use & User of the Appraisal The Client is Mountain America Credit Union. The Intended User is Mountain America Credit Union and the U.S. Small Business Administration with the Intended Use of loan underwriting and-or credit decisions. This report may not be used for any other reason, nor is it intended for use by any other entity than the party for which it was prepared. This report may not be used for the sale of partial property interests (limited, general partnership, or syndication) unless specifically authorized by the appraisers. Reporting Level & Content

The following paragraphs discuss the accepted reporting requirements as specified by the Uniform Standards of Professional Appraisal Practice. The check box indicates which reporting level is used within this appraisal:

Appraisal Report: A presentation of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser’s opinion of value. To this end, the report places significant reliance upon data presentation, discussion, visual graphics, charts, and tables in order to convey data to the reader in a clear and concise manner. The detailed overview and reporting of relevant information is based on the scope of work established with the client prior to and/or at the time of engagement.

Restricted Appraisal Report: A brief statement of information significant to the solution of

the appraisal problem. This type of report is limited to the use of the client and may not be used by any other party. The methodology and data upon which the appraisers’ opinions and conclusions are based may not be fully understood without supportive documentation contained within our work file.


Problem Identification & Scope of Work The term scope of work refers to “the type and extent of research and analyses in an appraisal

assignment.”4 As stated previously, the purpose of this appraisal (and therefore the problem to be solved) is to form an opinion of the indicated property values with corresponding property rights. Therefore, in order to meet the goal of this appraisal assignment, it is important to determine the necessary scope of work in order to produce credible assignment results which are based upon relevant evidence and logic. The following describes the scope of work performed:

Property Identification & Inspection

Primary Data - (data directly obtained by KS Appraisal) Inspection of the subject site on February 9, 2018 and other various dates. Secondary Data - (data obtained from second and third-party sources)

Municipal and county government departments (i.e., County Assessor’s Office, County Recorder’s Office, City Building Services Department, and Planning and Zoning Department. Published third-party sources of government data, such as NDC Data ownership records and mapping applications were also utilized.

Market and Economic Data

Primary Data - (data directly obtained by KS Appraisal)

Telephone interview with local real estate brokers, real estate agents, and market participants (e.g., buyers, sellers, etc.)

Secondary Data - (published data)

Arizona’s Economy, published by the Karl Eller Graduate School of Management, College of Business and Public Administration, University of Arizona

Arizona Business, published by the Center for Business Research, Seidman Research

Institute, College of Business, Arizona State University Various publications by the Arizona Department of Economic Security Comparable Data

Primary Data - (data directly obtained by the appraiser)

The comparable property information (e.g., comparable sales and rents) were confirmed by KS Appraisal, with one or more of the parties to the transaction (e.g., buyer, seller, tenant, landlord, or agent).

4 USPAP 2018/2019, Definition: Scope of Work


Secondary Data - (data obtained from second and third-party sources)

Published transaction data was obtained from the following data services:

CoStar Comps

NDC Data

On-line County deeds and State of Arizona affidavits of property value

Type and Extent of Analysis Current Uniform Standards of Professional Appraisal Practice (USPAP) grants appraisers broad flexibility and significant responsibility in determining the type and extent of the analysis used in order to develop an opinion of value. It is incumbent upon the appraiser to ensure that the type and extent of analysis meet or exceed (1) the expectations of parties who are regularly intended users for similar assignments, and (2) what an appraiser's peers’ actions would be in performing the same or similar assignment. It is our opinion that the type and extent of analysis necessary to develop credible appraisal results for the subject are as follows:

Area & Neighborhood Analysis

Site Description & Analysis

Improvement Description & Analysis

Highest and Best Use Analysis

Cost Approach to Value – In our opinion, this approach is not an applicable approach as it does not reflective the marketability of the subject given typical buyers do not consider the Cost Approach in their purchase decisions.

Sales Comparison Approach to Value – This approach to value is considered

necessary, applicable and highly reliable when valuing the subject property type.

Income Approach to Value – This approach to value is considered necessary, applicable and highly reliable when valuing the subject property type.

Reconciliation of Value Opinion(s)

*A further discussion of all necessary approaches to value and types of analysis will be presented and developed within the following sections of this report.


AP P R AI S ALK S .. Page 13

SECTION 4 AREA AND NEIGHBORHOOD ANALYSIS

An area analysis is a study of the interrelating forces of supply and demand as they relate on a regional basis. In order to identify the character of the area and to obtain the most current perspective on the overall regional real estate market, four interrelated factors are considered in detail. These four factors are physical characteristics, demographics/sociological characteristics, economic/financial conditions and political/governmental characteristics. As part of the discussion of economic/financial conditions, a brief overview of each of the major real estate sub-markets will be presented. This analysis provides a basis for estimating demand for the subject's product type, analyzing the highest and best use of the subject property, and identifying market trends affecting the value of the subject property. Christopher Creek, with an elevation of 5,900 feet just 22 miles east of Payson, is located on the banks of spring fed Christopher Creek, which runs just beneath the Mogollon Rim. "The Rim" has cliffs and ledges for over 200 miles, reaching elevations near 8,000 feet. The Christopher Creek area was once traveled by the ancient Anasazi, and was more recently made famous by Zane Grey, many of whose classic Western novels were set in this mystical, wild land he called "Tonto Country". This majestic area is also located within one of the world's largest stand of Ponderosa Pines. In late 2004 the Arizona Department of Transportation rerouted State Highway 260 around Christopher Creek; because of this the area has had major decrease in highway traffic and exposure. Property owners stated that it would take nearly 5 to 10 minutes (on the weekend) just to pull out onto Highway 260. On a commercial standpoint, this decrease in traffic and exposure had both a positive and negative impact on the business of Christopher Creek. The residents of the area feel that moving Highway 260 to the south east of Christopher Creek has increased property values. We have


interview several business owners in the area. These owners stated that the rerouting of Highway 260 has had a negative effect on certain businesses; however, some businesses increased. Owners of cabin rental facilities have noticed a positive effect, visitors are much happier with less traffic and noise, providing a much more enjoyable stay. Overall it is our opinion the affect of rerouting Highway 260 had a short term negative effect on the business but has been positive for the area, creating a destination area versus a pit stop location. Arizona has a limited number of areas similar to Christopher Creek, with tall ponderosa pines and a year- round running creek on privately owned land. Because of this it is our opinion that the area will continue to be a very desirable area for both commercial and residential property owners, along with year-round visitors. The Christopher Creek area has limited demographic and business data; therefore, we have included an area analysis of the Payson area, as it is the closest town. Overview Payson, located at the "heart" of Arizona and a 90-minute drive from the Phoenix metropolitan area, is renowned for its beauty, recreational opportunities and, more recently, its dynamic business environment. At an elevation of 5,000 feet, the area enjoys a mild four-season climate that attracts visitors from throughout the world the year around. Rich in its Western heritage, Payson—with an average trade area population of some 24,500—offers the atmosphere of rural America, with the amenities of a metropolis.

Scenic Attractions

Local attractions include the Tonto National Bridge, Indian Archaeological Site, Payson Exotic Zoo, Tonto Fish Hatchery, a llama ranch, a town-wide Christmas tree lighting ceremony, and the 45-acre Green Valley Park featuring three fishing lakes and space for many recreational activities. Payson also boasts the Recreational Fly-In Campground located at Payson Airport. Payson hosts the "World's Oldest Continuous Rodeo" in August and the Spring Pro Rodeo in May. Other festivals occur throughout the year, including the Art and Craft shows, the June Bug Blues Festival, and the State Championship Fiddlers Contest in September. Climate Due to a wide range in topography, Gila County's climate is extremely diverse. Payson is located in the mountainous region of Central Arizona at an average elevation of 5,000 feet. This high elevation and an average year-round humidity of 45 percent translate into an average maximum daily temperature of 72.5 degrees and an average minimum daily temperature of 39.0 degrees. Mean annual precipitation throughout the area is just 21.5 inches. Limited extremes in temperature and moderate precipitation create a favorable climate in which to reside.


POPULATION

The Arizona Department of Economic Security has released the following data regarding Payson’s population:

Payson Population Statistics & Projections

FISCAL YEAR TOTAL

1999 13,180

2000 13,620

2002 14,510

2004 15,120

2006 15,625

2007 16,742

2008 16,965

2010 15,301

2014 15,245

2016 15,476

Between 1999 and 2008, population was reported to have risen by 17.42% or 1.02% per year. Payson Age Demographics:

0

1

2

3

4

5

6

7

8

9

10

Pe

rce

nt

Age Groups

The median age for the Payson area was reported to be 53.1. This is slightly higher than the Gila County average of 45.7 and the state median 35.8 years, suggesting that a large portion of the population in Payson is retirees.


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2000

2010

2015

The median household income for the area increased from $33,792 in 2000 to $42,555 in 2010 and is rose to $48,178 in 2015. PRINCIPAL ECONOMIC ACTIVITIES The local economy is dominated by the tourism and retirement industries, with a growing emphasis on manufacturing and service firms. Also being encouraged is light industry that is compatible with the community's quality of life. Many Arizonans and visitors alike migrate to cool Payson in summer. In the winter, the community attracts many visitors who want to enjoy its mild climate and rural atmosphere. Among the area's major employers are the Payson Unified School District, the Mazatzal Casino, the Payson Regional Medical Center, and the Town of Payson. In recent years, several manufacturing operations have located in Payson, including Precision Intricast (precision orthotics device manufacturer), Custom Aircraft (airplane assembly/repair firm), Daryl's Precision (precision machine work), and the Payson Candle Factory.


The Payson Economic Development Corporation works actively with new and existing business to provide high quality business and employment opportunities for area residents. It operates a revolving loan fund program for use by local and relocating firms requiring low-interest financing.

Agriculture / Mining, 1.3%

Construction, 13.4%Manufacturing, 2.8%

Wholesale Trade, 1.7%

Retail Trade, 12.6%

Transportation / Utilities, 3.7%

Information, 1.1%

Finance / Insurance / Real Estate, 7.4%

Services, 48.2%

Public Administration, 7.8%

Employment by Industry

The largest employment sector is services, followed by construction, and retail trade. The finance / insurance / real estate / and public administration sectors constitute 15.2% of the total employment. Approximately 54.6% of the workforce consists of white collar jobs, 20.8% are blue collar, and 24.6% services jobs. Current unemployment is reported to be 7.7% at the end of 2015, which is trending down from the peak in 2010 of 11.8%. The following chart shows the trend in unemployment:


7.26.4

5.95.1

4.1

6.3

11.211.8

10.5

9.4 9.3

8.17.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Payson Area Unemployment

Growth Indicators Several factors are good indicators of growth in an area. Amongst these are taxable sales and taxable

assessed valuation. 5

$-

$1,000,000.00

$2,000,000.00

$3,000,000.00

$4,000,000.00

$5,000,000.00

$6,000,000.00

$7,000,000.00

$8,000,000.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

City of Payson Taxable Sales

Taxable sales have risen steadily since the low in 2010. The downward trend has reversed itself as the 2015 taxable sales were up over 2014.

5 Comprehensive Annual Financial Report, Town of Payson


$-

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Taxable Assessed Valuations

Net Assessed Valuation has continued to decrease at a steady rate between 2010 and 2015.

Community Facilities

Payson offers a broad range of community facilities, including a library, museum, indoor theater, golf course, zoo, four lighted tennis courts, an auditorium, swimming pool, two parks, a bowling alley and rodeo grounds. Educational: Payson has three elementary schools, one middle school, one high school and a community college. In addition, ASU is building a campus on Highway 260 near the subject. The 253 acre site expects to open phase 1 by the fall of 2008 with 500-1,000 students. The master plan calls for the construction of a 6,000-student campus, research park, commercial area, dorms, a conference

hotel and other support facilities over the next 10 to 20 years.6 Medical: The 44-bed Banner Payson Medical Center contains an emergency room and trauma center, radiology and laboratory facilities, three operating suites, outpatient rooms, and an eight-bed recovery unit. Other medical resources are three nursing homes and more than 30 medical professionals including physicians, osteopaths, orthodontists, dentists, optometrists, chiropractors, opticians, and ophthalmologists. Financial: There are five full-service banks and four mortgage banking offices in Payson. Payson businesses are eligible for assistance in financing fixed assets through the Strategic Finance Division of the Arizona Department of Commerce. Information on private activity bonds within the town may be obtained from the same source or from the Industrial Development Authority of Payson, Payson Economic Development Corporation, Arizona.

6 http://www.paysonroundup.com/news/2016/mar/04/celebrating-progress-university/


Governmental: Payson has a manager/council form of government with a mayor, six council members and a town manager. The town has a full-service police department and a full-service fire department with two stations. The Gila County Sheriff and the Department of Public Safety also maintain offices in Payson. In recent years, the primary issue facing the community was growth or no growth. The mayor and town council had a clear message about Payson's positive attitude toward growth that is both encouraged and well managed. Nearby developments include Sawmill Crossing (the old Kiabab Sawmill site), comprises 15 acres at the SWC of Main Street and South Beeline (Highway 87). The groundbreaking ceremony was held April 18, 2000 and contains approximately 45,000 SF of retail space out of the planned total of 100,000 SF. The first building contains a 16,000 SF state-of-the-art, six-screen theater, plus 13,000 SF of retail space. Single Family Housing Market The following data was extracted from MLS regarding single-family sales within the Payson area. The first chart tracks the median sales price of single-family residences within the area. This chart was expanded to include 2007 to 2015. We've also included a chart which tracks the total number of single-family sales from 2007 through 2015.

$305,000

$268,000

$233,750

$182,250 $165,250

$173,000 $186,250

$204,950 $209,000

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Payson Median Home Sales Price


140

150

160

170

180

190

200

2007 2008 2009 2010 2011 2012 2013 2014 2015

Payson Area Average Days on Market

It is apparent from this data that from 2007 through 2011, the market area experienced a marked decline in median home prices as a result of the great recession which began in 2008. The median home price declined by over 45% during this period. However, since the low in 2011, the median has increased by 26.5% to the 2015 median price of $209,000. Another positive sign in that the average days on market has declined considerably from the highs of 2008, indicating that more buyers are entering the market are becoming more aggressive and confident that prices will not decline again in the near future. Area Analysis Conclusion A typical development cycle of a community or neighborhood can be described as an "S -Curve,” indicating that areas which are virtually undeveloped will grow at a slow rate during the first period of growth. As the development in an area increases, the growth accelerates until development approaches saturation, when growth will again slow down. Based on our observations of the Payson community, we believe that the subject neighborhood is in the growth phase of its life cycle. Recent growth has been showing signs of recovery. This tends to have a positive effect on commercial values and industry in the area. One key factor that will help Payson recover is the area has limited land available for commercial development; because of this, the area should see increased demand in the near future.


SECTION 5 SITE DESCRIPTION

General Site Information

Address:

1520 East Christopher Creek Loop, Payson, Gila County, Arizona.

Location:

The property is located at the north side of Christopher Creek Loop and east of Columbine Road.

Assessor’s Parcel Number(s)

303-09-015U

Township-Range-Section

11N-13E-20

Census Tract

2.00


Tax Assessment


Physical Characteristics of the Site

Site Dimensions:

Irregular see plat map.

Frontage:

The site is a mid-block parcel with +/-430.15’ of frontage along Christopher Creek Loop.

Gross Site Area:

103,237 Square feet 2.37 acres

Usable Land Area

92,783 Square feet 2.13 acres

Surplus Land Area

None noted

Excess Land Area

None noted

Shape of Tract:

Irregular

Topography:

The site has a gentle slope upward to the north

Ingress and Egress:

Access along Christopher Creek Loop.

Lot Type:

Mid-block parcel

Easements:

We have not been provided with a copy of a current title report concerning the subject property. We assume that there are no easements that affect either the development potential or the marketability of the subject site.

Encroachments:

None noted from site visit

Site Lighting:

Security lighting

Walks and Landscaping:

Adequate, the majority of the site is naturally landscaped with pine trees, shrubs/ivy, and mature trees. The paths are primarily paved with crushed cinders.

Utilities to Site:

Sewer .................................... Septic Water .................................... Private well Electric .................................. APS Propane ................................ Energy West Phone .................................... CenturyLink Police and Fire ...................... Public

Curbs:

None

Sidewalks:

None


Flood & Soil Characteristics of the Site

Flood Designation:

The subject is located on F.E.M.A. Panel No. 04021C0015E dated December 4, 2007. According to this map, the subject lies within flood Zone D. According to F.E.M.A., Flood insurance is available in Zone D and property owners should be encouraged to purchase it. However, flood insurance is not federally required by lenders for loans on properties in these zones.

Zone D:

The Zone D designation is used for areas where there are possible but undetermined flood hazards, as no analysis of flood hazards has been conducted. The designation of Zone D is also used when a community incorporates portions of another community’s area where no map has been prepared.


Surface Drainage:

Appears adequate with no noticed standing water.

Soils:

A soil analysis for the site has not been provided for the preparation of this appraisal. In the absence of a soil report, it is a specific assumption that the site has adequate soils to support the highest and best use.

Subsurface Conditions:

It is assumed that there are no hidden or unapparent conditions to the property, soil, or subsoil, which would render them more or less valuable. Subsurface oil, gas or mineral rights were not considered in this report unless otherwise stated.

Seismic Zone:

The subject property is not situated within an established seismic zone.

Economic Factors Affecting the Site

Supply of Vacant Tracts:

Minimal supply in the Christopher Creek Area

Demand for Vacant Tracts:

In-balance

Traffic Pattern/Volume:

Negligible traffic flow along Christopher Creek Loop

Neighboring Property Uses:

Primarily commercial uses

Zoning:

GU-Genral Unclassified District by Gila County Intent and Purpose: To provide for all the unincorporated areas of Gila County not otherwise designated for some other specific zone to be included in the “General Unclassified District” by this Zoning Ordinance.

Allowable Uses in the District:

This district will allow for a wide variety of uses.

Major Flaws in Site:

None noted

Overall Site Analysis:

The subject site is located in Christopher Creek a getaway destination location located just below the Mogollon Rim. Overall site analysis is considered to be good.


Adjacent Land Uses & Site Compatibility

Adjacent Land Uses:

North ................Residential South ................Christopher Creek Loop/Grey Heckle Lodge East ...................Mobile Home Park West .................Commercial Development

Rail Access:

No

Hazardous Material:

We are not qualified to determine the presence of hazardous substances as they affect the site. This would include, but not be limited to, toxic chemicals, radon gas, methane, etc. Unless otherwise stated, the site is assumed to be unaffected by these substances.

Unusual Nuisances:

None noted

Apparent Adverse Factors:

None noted

Unapparent Adverse Factors:

None noted

Restrictions:

As previously noted, we have not been provided with a copy of a current title report which includes relevant covenants, conditions and restrictions that affect the property. We assume that there are no restrictions that conflict with either the current or highest and best use of the subject property. We also assume that any undisclosed restrictions do not negatively affect the marketability of the subject property.


Site Photographs

LOOKING WEST ALONG CHRISTOPHER CREEK LOOP

LOOKING EAST ALONG CHRISTOPHER CREEK LOOP

TYPICAL VIEW OF CABINS TYPICAL VIEW OF CABINS

TYPICAL VIEW OF CABINS VIEW OF LARGE CABIN BUILDING


VIEW OF RESTAURANT VIEW OF RESTAURANT

VIEW OF RESTAURANT VIEW OF RESTAURANT


SECTION 6 IMPROVEMENTS DESCRIPTION


General Description

General Property Type:

Cabin / lodge and sit-down restaurant property

Number of Buildings:

Nine

Year Built:

1965-1983 (according to Gila County records)

Number of Stories:


Design and Functionality:

Log / Wood

Construction Class:

Class D

Construction Quality:

Average workmanship and materials

Source:

Appraiser’s measurements at time of inspection


Building Size:

Sit-down restaurant 3,667 sq. ft.

Seven Cabin Rentals 3,684 sq. ft.

7,351 sq. ft.


Unit Mix:

Qty Cabins Beds Max

6 Cabins 1-6 2 Qn, 2 Tw 7

1 Cabin #7 2Kg, 6Tw 12


Property Sketch


Property Layout


Exterior Construction Detail

Footings:

Block pillars open crawl space and/or concrete footings

Foundation Walls:

Log with block pilings

Sub-Floor Construction:

Wood and log sub floors

Framing:

Log and wood studs

Exterior Wall Material:

Log

Roof Construction:

Asphalt shingle roof systems

Windows:

Aluminum frame casement windows

Exterior Doors:

Wood and steel frame doors


Electrical and Mechanical Description

Heating System:

Wood fireplaces in the majority of the rooms

Cooling System:

Wall mounted units in each room

Plumbing:

Copper piping (assumed)

Electrical Service:

Assumed compliant with county code

Elevator Service:

None

Fire Protection:

Smoke detectors


Interior Description

Building Layout:


Ceilings:

Wood paneling, finished drywall, and exposed beams.

Lighting:

Hung and wall mounted incandescent lighting

Partitions and Interior Walls:

Wood paneling, finished drywall, and exposed beams.

Trim:

Wood

Floor Cover:

Carpeting and ceramic tile

Interior Doors:

Hollow core wood doors

Restrooms:

One restrooms in each unit, with three fixtures each


Site Improvements

Parking:

The site has no marked spaces however the property has adequate parking to accommodate the existing improvements.

Parking Ratio:

Adequate

Outside Lighting:

Some on site lighting noted

Onsite Landscaping:

Adequate, the majority of the site is naturally landscaped with pine trees, shrubs/ivy, and mature trees. The paths are primarily paved with crushed cinders.

Signage:

Located near the property entrance

Auxiliary Buildings:

Miscellaneous storage buildings and well support building

Other:

None


Physical Condition

Year Built:

1966-1988 (according to Gila County records)

Actual Age:

30-52 years

Effective Age:

20 years (estimated by the appraisers)

Expected Useful Life:

50 years (based on MVS Section 97, Page 5)

Remaining Useful Life:

30 years (based on MVS Section 97, Page 5)

Condition:

Average

Past Maintenance:

The subject has received renovation, modernizations, and repairs of deferred maintenance in the past 5 to 10 years.

Deferred Maintenance:

The subject has had the majority of deferred maintenance repaired in the past several years. There are no major items of deferred maintenance that would cause a negative impact on the subject property.

Overall Rating:

Average

Functional Utility:

The subject does not suffer from any functional obsolescence.

External Influences:

There are no external factors that affect the marketability of the subject property as of the date of the appraisal.

Comments on Condition:

The subject is in average condition despite its actual age, due to refurbishments and maintenance.

Summary:

The subject is a functional cabin/lodge/motel property. The condition of the subject is average overall.

Apparent Adverse Cond.:

None noted.

Unapparent Adverse Conditions:

We are not qualified to determine the presence of hazardous conditions within the structure(s) described. This would include, but would not be limited to, urea formaldehyde, asbestos, toxic chemicals of all kinds, dangerous electromagnetic fields, etc. Unless otherwise stated, the structures are assumed so unaffected.


Additional Interior Photographs


SECTION 7 HIGHEST AND BEST USE ANALYSIS Highest and best use analysis is critical to the appraisal problem. In the highest and best use analysis, the appraiser defines the composition of the subject property, and this in turn determines the appropriate valuation methodology. The highest and best use analysis links the "Descriptions" sections of the appraisal report with the valuation sections. Highest and best use is analyzed from two points of view. First, the highest and best use of the site as though vacant is discussed. Then, the highest and best use of the property as improved is discussed. In order to complete this analysis, the subject is evaluated according to the following four tests of highest and best use.

Highest and Best Use

Decision

Zoning Planning Environment

Dimensions Soils Terrain

Cost Benefit Risk

Yield Project Value

Maximally Productiv e

Financial Feasibility

Physical Possibility

Legal Permissibility


Highest and Best As If Vacant Legally Permissible The subject site has GU-Genral Unclassified District by Gila County Intent and Purpose: To provide for all the unincorporated areas of Gila County not otherwise designated for some other specific zone to be included in the “General Unclassified District” by this Zoning Ordinance. Overall, based on our review of the zoning restrictions, the most reasonable probable legal uses of the site are for some form of allowed commercial and/or residential development. Physically Possible The size, shape, and terrain of the appraised site is conducive for most types of allowable development. The utilities serving the subject site are adequate for most uses, and the property is accessible from Christopher Creek Loop. A review of the county land development code indicates that the size and width of the site is sufficient to allow development. The subject's physical aspects do impose apparent physical limitations on development for the above legally permissible uses. The subject site would reasonably accept a site layout for any of the legally probable uses. There are no known physical reasons why the subject site would not support any legally probable development. The existence of the present development on the site provides additional evidence for the physical possibility of development. The size of the subject property is conducive for most types of allowed development. Financially Feasible The determination of financial feasibility is dependent primarily on the relationship of supply and demand for the legally probable land uses versus the cost to create the uses. As discussed in the market analysis of this report, the market is generally stabilized; however, there is minimal marginal demand to justify new development. The cost of new development for commercial does not justify cost given the time to lease up the property to stabilized occupancy. The more likely scenario of the subject is to be sold to an owner-user user or under a pre-leased or build-to-suit arrangement, new development is considered feasible; however, for speculative development the land should be held for future development. Maximum Profitability The final test of highest and best use of the site as though vacant is the use be maximally productive, yielding the highest return to the land. In the case of the subject as if vacant, the analysis has indicated that the property should be held for future commercial development.


Highest and Best Use as Improved Legally Permissible As discussed, the subject site’s zoning and legal restrictions permit a variety of land uses. The site is improved with an existing cabin resort facility that does conform to the current zoning guidelines. There are no private or previously recorded deed restrictions that limit the use of the site. Physically Possible The physical characteristics of the subject’s improvements were discussed in detail in the Improvement Description section of this report. Overall, the layout and positioning of the improvements are considered functional for a cabin resort facility. While it would be physically possible for a wide variety of uses, based on the legal restrictions and the design of the improvements, the existing use of the property for cabin resort facility purposes would be the most functional use. Financially Feasible As improved, the subject is of similar design and quality to other cabin resort facilities found in the subject’s competitive market area. The design of the improvements and layout of the project are acceptable in the market and represent maximum utilization of the site as improved. Please refer to the Improvement Description section for further information. Financially feasible refers to legal uses which are physically possible and have a sufficient demand to produce a positive return. Once the physically possible and legally permissible potential improvement uses have been determined, the next step in estimating the highest and best use is to determine which uses are economically feasible. The feasibility of continued resort facility development is evidenced by the degree of occupancy of similar type properties. The use as a cabin resort facility reflects the highest and best uses of the site. Summary Considering these factors, the highest and best use of the subject, as improved, is to continue its use as a cabin resort facility in accordance with the physically possible, appropriately supported, and financially feasible use of the current improvements.


SECTION 8 VALUATION

According to current appraisal theory, there are three approaches to valuing improved properties. These are the Cost, the Sales Comparison, and the Income Approaches. The type and age of the property and the quantity and quality of data affect the applicability of each approach for a specific appraisal problem. The ultimate goal of the valuation process is a well-supported value conclusion that reflects all of the factors that influence the market value of the property being appraised. To achieve this goal, properties can typically be studied from three different viewpoints, which correspond to the three traditional approaches to value.

The current cost of reproducing or replacing the improvements, minus the loss in value from depreciation, plus site value -- The Cost Approach

The value indicated by recent sales of comparable properties in the market -- The Sales Comparison Approach

The value of a property’s earning power based on the capitalization of its income -- The Income Capitalization Approach

The valuation process is depicted as follows:

Definition of the Problem

Identificationof real estate

Identificationof property rights to

be valued

Use ofappraisal

Definitionof value

Date ofvalue

estimate

Descriptionof scope ofappraisal

Otherlimiting

conditions

Preliminary Analysis and Data Selection and

Collection

Highest and Best Use Analysis

Application of the Three Approaches

Cost Sales Comparison Income Capitalization

Reconciliation of Value Indications and Final Value

Estimate


Appraisal Methodology The appraisal process is defined as an orderly program by which the problem is planned and the data involved is acquired, classified, analyzed and interpreted into an estimate of value. In this process three basic approaches to value are considered: income capitalization approach, sales comparison approach, and cost approach. In appraisal practice, an approach to value is included or omitted based on its applicability to the property type being valued and the quality and quantity of information available. The final step in the appraisal process is reconciliation: a process by which we analyze alternative conclusions and selects a final value estimate from among the indications of value. We weigh the relative significance and applicability of each approach as it relates to the type of property being appraised. Provided on the following pages is a more detailed discussion of each applicable approach to value. The Cost Approach is based on the principle of substitution, which states that no rational person would pay more for a property than the amount for which he can obtain, by purchase of a site and construction of improvements without undue delay, a property of equal desirability and utility. In the cost approach, the land value is estimated through consideration of transactions involving comparable sales (refer to the following sales comparison approach discussion for the typical process used to determine land value). The replacement cost new of the improvements is supported via typical sources, primarily the Marshall & Swift Cost Estimation Service, a nationally recognized cost service. When applicable, the actual construction costs for the subject are utilized and information for costs of constructing similar buildings is considered. Then to estimate, in dollar amounts, the accrued depreciation caused by the physical deterioration, functional deficiencies, super adequacies, or any adverse economic influences. The next step is to deduct the accrued depreciation from the improvement’s estimated replacement or reproduction cost new to arrive at a present depreciated cost estimate. The contributory value of the land is then added to the depreciated replacement cost of the improvements to indicate value via the cost approach. The Sales Comparison Approach utilizes sales of comparable properties, adjusted for differences, to indicate a value for the subject. Valuation is typically accomplished using physical units of comparison such as price per square foot, price per unit, price per floor, etc., or economic units of comparison such as gross rent multiplier. Adjustments are applied to the physical units of comparison derived from the comparable sales. The unit of comparison chosen for the subject is then used to yield a total value. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences, with the final estimate derived based on the general comparisons. Within the sales comparison approach, the fundamental basis for the real estate appraisal conclusion involve differences (elements of comparison) between the comparables and the subject property. Specifically, the elements of comparison are the characteristics of properties and transactions that cause the prices paid for real estate to vary. The nine common elements of comparison that are always considered in the sales comparison approach include:

1. Real property rights conveyed 6. Physical Characteristics 2. Financing terms 7. Economic Characteristics 3. Conditions of sale 8. Use 4. Market Conditions 9. Non-Realty Components of Value 5. Location


Adjustments can be applied verbally or in terms of dollars or percentages; the appropriate methodology is determined by the market. Rigid statements on the `proper` way to make adjustments should be avoided and the calculations that an appraiser uses to make an adjustment are based on a rationale, but the mathematics should not control an appraiser's judgment. Appraisal has an art aspect in that appraisers use their judgment to analyze and interpret quantitative data. While the above statement is true, constant attention must be paid for market-based, well-explained support for all adjustments. The Income Capitalization Approach reflects the subject’s income-producing capabilities. This approach is based on the assumption that value is created by the expectation of benefits to be derived in the future. Specifically estimated is the amount an investor would be willing to pay to receive an income stream plus reversion value from a property over a period of time. The two common valuation techniques associated with the income capitalization approach are direct capitalization and the discounted cash flow (DCF) analysis. A discussion of the steps to be completed in each of this analysis is presented in the following paragraphs. Direct capitalization is the method used to convert a single year’s estimate of income into a value indication. In direct capitalization, a precise allocation between return on and return of capital is not made because investor assumptions or forecasts concerning the holding period, pattern of income, or changes in value of the original investment are not simulated in the method. Direct capitalization is most appropriate when analyzing a stable income stream and in estimating the reversion at the end of a holding period. Using this method, the following sets forth the process: Estimate the Potential Gross Income (PGI) from all sources that a competent owner should be

able to generate from a property based on existing and/or market rents. Deduct an estimate of Vacancy and Collection Loss (VCL) to arrive at an Effective Gross Income

(EGI) estimate. Deduct operating expenses from the estimate of EGI. The result is an estimate of the stabilized

Net Operating Income (NOI). Estimate an Overall capitalization rate (Ro, or OAR). Divide the NOI by Ro, resulting in a value estimate at stabilized occupancy. Adjust the stabilized value to account for “as is” condition, if applicable.

Discounted Cash Flow (DCF) analysis is a detailed analysis used when the future income is expected to be variant, usually as a result of numerous lease obligations and/or anticipated changes in income and expenses. It is also particularly relevant when institutional buyers are the most likely purchasers of the subject because institutional buyers often place great weight on this analysis. The DCF analysis specifies the quantity, variability, timing, and duration of NOIs and cash flows. Selecting the proper yield rate (discount rate) is essential. In this analysis appraisers must consider the target yield sought by investors, as well as yields derived from comparable sales and/or market information. The methodology is: Estimate the before-tax cash flows for each period of a projected holding period net of any

capital expenditures such as leasing expenses and tenant improvements. Estimate a discount rate and a terminal overall capitalization rate. Estimate a selling price, known as the reversion, for the end of the projected holding period. The cash flows and the reversion are then discounted to a present value estimate.


The final step in the appraisal process is the reconciliation of the indicated value resulting from each of the approaches utilized. Consideration is given to the relative applicability of each of the approaches prior to concluding with the final value estimate. Methodology Applicable to the Subject The present appraisal situation deals with the valuation of an existing cabin resort facility. The subject property is located at 1520 East Christopher Creek Loop, Payson in Gila County, AZ 85541. The subject is being appraised on the basis of its value “as is”. In order to develop an opinion of market value, we will utilize the sales comparison and income approaches. A discussion of the cost approach will be had on the following page.


COST APPROACH TO VALUE The cost approach estimates the value based upon the reproduction or replacement cost new of the improvements, less accrued depreciation from physical, functional, and locational obsolescence, if any. To this is added the market value of the site, which is estimated at its highest and best use. The cost approach to value is based upon the principle of substitution. This is a valuation principle, which states a prudent buyer would pay no more for real property than for the cost of acquiring an equally desirable substitute on the open market. The Principle of Substitution presumes that the purchaser will consider the alternatives available to him, that he will act rationally or prudently on the basis of his information about these alternatives, and that time is not a significant factor. Substitution may assume the form of the purchase of an existing property with the same utility or acquisition of a vacant lot and the building of a structure upon that lot having the same general utility as the property being appraised. The cost to construct an improvement, as of the effective date of the appraisal, may be developed as the cost to reproduce the improvement or the cost to replace it. Presented below are definitions of the two cost estimation techniques: Reproduction Cost is defined as the cost of construction, at current prices, of an exact duplicate or replica using the same materials, construction standards, design, layout, quality of workmanship, and embodying all the deficiencies, super-adequacies, and obsolescence of the subject improvements.

Replacement Cost is defined as the cost of construction, at current prices, of a building having utility equivalent to the building being appraised, but built with modern materials and according to current standards, design, and layout. Due to the subject age and associated physical depreciation, the cost approach is not considered an applicable evaluation technique in the case of the subject. Furthermore, the cost approach does not test marketability and market participants have indicated that they are placing little weight upon this approach for the subject property type. Therefore, the cost approach has not been developed.


SALES COMPARISON APPROACH Introduction The sales comparison approach is the process in which a market value estimate is derived by analyzing the market for similar properties and comparing those properties to the subject property. Estimates of market rent, cost, depreciation, and other value parameters may be derived in the other approaches to value using comparative techniques. Often, these elements are also analyzed in the sales comparison approach to determine the adjustments to be made to the sales prices of comparable properties. The comparative techniques of analysis applied in the sales comparison approach are fundamental to the valuation process. In the sales comparison approach, market value is estimated by comparing the subject property to similar properties that have recently sold, are listed for sale, or are under contract (i.e., recently drawn up purchase offers accompanied by a cash or equivalent deposit). A major premise of the sales comparison approach is that the market value of a property is directly related to the prices of comparable, competitive properties. The comparative analysis performed in the approach focuses on similarities and differences among properties and transactions that affect value. These may include differences in the property rights appraised, the motivations of buyers and sellers, financing terms, market conditions at the time of sale, size, location, physical features, and, if the properties produce income, economic characteristics. The various elements of comparison are tested against market evidence to determine which elements are sensitive to change and how they affect value. The concepts of anticipation and change, together with the principles of supply and demand, substitution, balance, and externalities, are basic to the sales comparison approach. In order to apply the sales comparison approach, the appraiser follows a five-step systematic process, which can be summarized as follows: 1. Research the relevant market in order to obtain information concerning sales transactions, listings,

and offers to purchase or sell properties that are similar to the subject property in terms of characteristics such as property type, date of sale, location, and zoning.

2. Verify the research information obtained by confirming that the data gathered are factually

accurate and that the transactions examined are reflective of arms-length market considerations. In addition, the verification process may also elicit supplemental information concerning the overall market environment.

3. Based upon the information obtained through the research and verification process, the appraiser

selects relevant units of comparison (e.g., income multipliers or dollars per acre or per square foot) and develops a comparative analysis for each unit of comparison.

4. The comparable sale properties are compared with the subject property using the elements of

comparison and the sales prices of each of the comparables are adjusted to the subject as appropriate. If considered necessary, certain sale properties may be eliminated as comparables based upon examination of the elements of comparison.

.. Page 49

AP P R AI S ALK S

5. Reconcile the various value indications produced from the analysis of the comparable properties into a single value indication, or range of value indications. It should be remembered that in an imprecise market environment subject to varying occupancy levels and economies, a range of value might be a better conclusion than a single value estimate.

Overview of the Search for Comparable Sales Information Emphasis was placed upon selecting relatively recent transactions involving comparables, which were considered to be the most similar to the subject property in terms of highest and best use, property rights conveyed, locational attributes, physical characteristics, and economic factors. Although differing from the subject property in certain respects, the comparables included within this analysis are nonetheless considered to be representative of the range of indications of value within which the subject property could be placed. Verification of Comparable Sales Information All comparable property transaction information was confirmed in conversations with the buyers, the sellers, or the brokers involved. Selection of Appropriate Units of Comparison As can be seen from a review of the comparable sales information, several alternative units of comparison are suggested from the available data:

* Sales Price Per Square Foot of Net Rentable Area * Sales Price Per Room * Effective Gross Income Multipliers

With these considerations in mind, the choice must now be made as to which of these units of comparison is the most appropriate for the purpose of this analysis. Outwardly, given the nature of the subject and the comparable properties, the price per room and price per square foot of building area is considered the most common form of comparison by the market, based on conversations with active brokers in the market, the price per square foot is the best unit of comparison.

.. Page 50

AP P R AI S ALK S

IMPROVED COMPARABLE NO. 1

Name of Facility: El Haven Cabins & RV Park

Street Address: 1925 East Colcord Road, Payson Arizona 85541 Tax Parcel Number: 303-12-003A, 003B, and 003C Transaction Information: Sale Price: $850,000 Unit Value(s): $121.43 per square foot Financing Terms: Cash to seller Conditions of Sale: Typical Date of Recordation: September 30, 2016 Grantor/Seller: Living Trust Letwak Grantee/Buyer: R Mcgannon Trust Tom Document Number: 0000009091 Confirmation Data: Confirmation Source: Public records; affidavit of value, flexmls and property

manager

.. Page 51

AP P R AI S ALK S

Site Data: Site Area: 141,134 square feet or 3.24 acres Shape/Dimensions: Irregular Topography: Generally, level Exposure, Visibility, & Access: Average Improvement Data: Square Feet: 7,000 square feet Number of Rooms/cabins: 6 Density: 1.85 rooms per acre (not counting excess land) Construction Materials: Wood/log Year Built: 1979-1998 Operating Data: This property has a reported to have a high vacancy, with

the cabins being under marketed at the time of sale. This property has a larger cabin (main house, which has three bedrooms and sleeps 13 with five smaller cabin). Additionally there is approximately 30 RV spaces, which generate income for the property. At the time of sale the RV spaces were generally stabilized with upside potential in the cabins, which were under marketed. No additional operating data was disclosed.

Transaction History: No other sales or transactions have occurred in the past

three years.

.. Page 52

AP P R AI S ALK S


Name of Facility: Lantern Light Inn

Street Address: 556 Highway 179, Sedona Tax Parcel Number: 408-11-093Q Transaction Information: Sale Price: $877,500 Unit Value(s): $202.56 per square foot Financing Terms: All cash to seller Conditions of Sale: Typical Date of Recordation: April 21, 2017 (Was on the market for 2 years) Grantor/Seller: Edward Varjian et. al. Grantee/Buyer: Dharmish Vora Document Number: 2017-0018151 Confirmation Data: Confirmation Source: Public records; affidavit of value; Ed Pennington, agent

(928-282-5966)

.. Page 53

AP P R AI S ALK S

Site Data: Site Area: 20,865 square feet or 0.48 acres Shape/Dimensions: Irregular Topography: Flat Exposure, Visibility, & Access: Good Improvement Data: Square Feet: 4,332 square feet Number of Rooms: 5 rooms Density: 10.42 rooms per acre Construction Materials: Wood frame Year Built: 1975 Operating Data: Would not disclose, however, stated the property was

listed for a couple of years at $1,275,000 and the sellers decided to take the sales price of the current owner (buyer).


three years. Other Improvements: None Comments: The improvements are of good quality materials and the

property was in good condition at the time.

.. Page 54

AP P R AI S ALK S


Name of Facility: Casa Sedona

Street Address: 55 Hozoni Drive, Sedona, AZ Tax Parcel Number: 408-24-492D Transaction Information: Sale Price: $3,850,000 Unit Value(s): $382.48 per square foot Financing Terms: Cash to seller Conditions of Sale: Typical Date of Recordation: September 13, 2017 Grantor/Seller: Casa Sedona Inn, Inc. Grantee/Buyer: Canyon Holdings LLC Document Number: 2017-047070

.. Page 55

AP P R AI S ALK S

Confirmation Data: Confirmation Source: Public records; affidavit of value; Gorden Allred, agent

(909-456-3420) confirmed public records. Size and other information is per a previous appraisal

Site Data: Site Area: 36,154 square feet or 0.83 acres Shape/Dimensions: Trapezoidal Topography: Generally, level Exposure, Visibility, & Access: Good Improvement Data: Square Feet: 10,066 square feet Number of Rooms: 16 rooms Density: 19.28 rooms per acre Construction Materials: Wood frame / stucco Year Built: 1988, 1995 Operating Data: No income and expense was report. The listing agent did

state that the buyer was going to continue to utilize the property as a lodging facility.


three years. Other Improvements: None Comments: The improvements are of good quality materials and the

property was in good condition. Marketing time was 90 days (the property was originally listed for $4,150,000).

.. Page 56

AP P R AI S ALK S


Name of Facility: Prescott Pines Inn

Street Address: 901 White Spar Road, Prescott, Arizona Tax Parcel Number: 107-14-071 and 085A Transaction Information: List Price: $1,210,000 Unit Value(s): $183.33 per square foot Financing Terms: Cash Conditions of Sale: Typical Date of Recordation: June 15, 2017 Grantor/Seller: Two Crazy Ladies Inc. Grantee/Buyer: Kb Tenacity LLC Document Number: 2017-0030174

.. Page 57

AP P R AI S ALK S

Confirmation Data: Confirmation Source: Public records; Brian Miller 928-420-2680 Site Data: Site Area: 48,900 square feet or 1.12 acres Shape/Dimensions: Irregular Topography: Generally level Exposure, Visibility, & Access: Good Improvement Data: Square Feet: 6,600 square feet Number of Rooms: 12 rooms Density: 10.71 rooms per acre Construction Materials: Wood frame Year Built: 1979 Operating Data: This property has a reported an occupancy of 36%. The

gross income is reported at $261,300 which equates to a GIM of 4.6 and an OAR is 8.4%.


three years. Other Improvements: None Comments: This facility has a fully licensed commercial kitchen with

seating for 16 guests. The 12 guest rooms with separate entrances are located in four cottage-like buildings connected by paths.

.. Page 58

AP P R AI S ALK S


Name of Facility: Pine View Motel

Street Address: 500 Copper Basin Road, Prescott 86303 Tax Parcel Number: 109-09-078A Transaction Information: List Price: $650,000 Unit Value(s): $154.69 per square foot Financing Terms: Cash Conditions of Sale: Typical Date of Recordation: January 31, 2018 Grantor/Seller: Jsn Holdings LLC Grantee/Buyer: Pine View In Prescott LLC Document Number: 2018-0005368 Confirmation Data: Confirmation Source: Public records, ARMLS, and listing broker

.. Page 59

AP P R AI S ALK S

Site Data: Site Area: 19,602 square feet or 0.45 acres Shape/Dimensions: Irregular Topography: Slopping Exposure, Visibility, & Access: Good Improvement Data: Square Feet: 4,202 square feet Number of Rooms: 13 rooms Density: 28.89 rooms per acre Construction Materials: Wood frame Year Built: 1954 Operating Data: No additional operating data was disclosed. Transaction History: No other sales or transactions have occurred in the past

three years. Comments: This facility has an on-site laundry room and managers

quarters which is approximately 1,000 and consist of one bedroom and one bath.

.. Page 60

AP P R AI S ALK S


Name of Facility: Cordes Jct Motel/RV & 50's Diner

Street Address: 19780 E Hitching Post Way, Mayer, AZ 86333 Tax Parcel Number: 500-05-082 Transaction Information: List Price: $1,200,000 Unit Value(s): $119.28 per square foot Financing Terms: Cash Conditions of Sale: Typical Date of Recordation: June 2, 2016 Grantor/Seller: Hitching Post Investments LLC Grantee/Buyer: Gpm Holdings LLC Document Number: 2016-0026427 Confirmation Data: Confirmation Source: Public records, ARMLS, and listing broker

.. Page 61

AP P R AI S ALK S

Site Data: Site Area: 217,800 square feet or 5.00 acres Shape/Dimensions: Rectangular Topography: Level and at grade Exposure, Visibility, & Access: Good Improvement Data: Square Feet: 10,060 square feet Number of Rooms: 12 rooms Density: 2.40 rooms per acre Construction Materials: Wood frame Year Built: 1983 Operating Data: No additional operating data was disclosed. Transaction History: No other sales or transactions have occurred in the past

three years. Comments: Improvements include a 12 room motel with manager's

quarters (800 sf, 1 bdrm, 1 bth), a public laundry room, arcade building, a site manager's home (1,200 sf, 2 bdrm, 2 bth) an unattached garage/utility building, an a 50s-style diner (56 seats) with a separate similarly styled, recently constructed bar (50 seats, #12 Liquor License), and 22 RV/Mobile Home hookups (12 with 30 amp service and 10 with 30/50 amp service).

.. Page 62

AP P R AI S ALK S

IMPROVED SALES MAP

.. Page 63

AP P R AI S ALK S

SALES SUMMARY Summary of Improved Comparables

Comparable No. Subject 1 2 3 4 5 6

Sales Price $850,000 $877,500 $3,850,000 $1,210,000 $650,000 $1,200,000Price Per SF of Building Area $121.43 $202.56 $382.48 $183.33 $154.69 $119.28

Transaction Characterisctics

Real Property Rights Conveyed: Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple

Financing Terms (Effective): Cash Cash Cash Cash Cash Cash

Conditions of Sale: Normal Normal Normal Normal Normal Normal Market Conditions (Time): Sep-16 Apr-17 Sep-17 Jun-17 Jan-18 Jun-16

Property Characteristics

Location:

Arterial Frontage or Visibility Yes No Yes No Yes Yes NoGeneral Location: Good Good Good Good Good Good Average

Physical Characteristics:

Building Size 7,351 7,000 4,332 10,066 6,600 4,202 10,060

Quality: Good Good Good Good Good Good Good

Condition: Average Average Average Average Average Average Average

Rooms Per Acre: 3.29 1.85 10.42 19.28 10.71 28.89 2.40Year Built: 1966/1988 1979/1998 1975 1988/1995 1979 1954 1983

Number of Rooms 7 6 5 16 12 13 12 A search was made in the market to obtain improved sales, which would provide the same or similar utility as the subject. Because no two properties are ever exactly the same, adjustments are considered to reflect the difference so that a valid estimate of value can be made. The unit of measure considered in this report is price per square foot. Almost all buyer decisions were based on the price per room and/or price per square foot. This unit of measure is commonly used in the market for small motels and lodging properties and is accepted as a method of assisting in the determination of value. We note there have been very few sales in the past 3 years comparable to the subject. The sales utilized are the best comparable sales. Comparative Process Typically, the sales comparison approach involves using a combination of quantitative and qualitative comparative techniques to analyze and compare the comparable sales with the subject property. Qualitative techniques are used to derive qualitative adjustments to comparable sale prices in the sales comparison approach. Qualitative adjustments are obtained by ranking analysis or relative comparison analysis. Quantitative techniques are used to derive quantitative adjustments to comparable sale prices in the sales comparison approach. Quantitative adjustments are obtained by paired sales analysis or statistical analysis. Quantitative Adjustments Those adjustment categories for which market derived information is considered to be able to support quantifiable adjustments include:

Real Property Rights Conveyed Financing Terms Conditions of Sale Market Conditions

.. Page 64

AP P R AI S ALK S

Real Property Rights Conveyed: A transaction price is always predicated upon the real property interest conveyed. All the comparable sales were on-going operating inns or lodging properties like the subject and overall no adjustment is required under this category. Financing Terms: The second factor to consider is the financing terms of sale. The definition of value used in this report indicates that the value estimate must assume terms of cash or terms equivalent to cash (with equivalent cash terms generally referring to terms offered by financial institutions). Thus, it is important to consider the financing terms of each comparable because creative financing arrangements typically suggest a possibly inflated sales price. No adjustment to these comparable sales are necessary as they are cash sales. Conditions of Sale: Nowhere are the effects of an imperfect market more apparent than with respect to the conditions of sale adjustment category. This is the most difficult adjustment category within the adjustment process. After a review of the circumstances surrounding the properties included within this analysis, it would appear that in the case of the comparable sales analyzed, little or no adjustment for conditions of sale appears warranted.

Market Conditions: The sales occurred between June 2016 and January 2018. The sales are the most recent sales available in the market area. None of the sales have resold in the past 3 years, however, in general the market appears to be strong and the sale representing the current market. Therefore, no adjustments made to the other comparable sales.

Summary of Quantitative Adjustments As previously noted, given the nature of the subject property and current market conditions, my analysis has utilized a combination of quantitative and qualitative comparative techniques to analyze and compare the comparable sales with the subject property. Further, with respect to the various factors of adjustment individually considered within the preceding paragraphs, supportable adjustments, if any have been considered reasonable. Therefore, we believe that it would be redundant to present a summary adjustment grid under the circumstances. The reader is simply directed to the preceding exhibit summarizing the comparable sales for further information.

.. Page 65

AP P R AI S ALK S

Qualitative Adjustments Those adjustment categories for which available market information is more appropriately considered to support a qualitative analysis include:

* Economic Characteristics * Location * Physical Characteristics * Use * Non-Realty Components of Value

Economic Characteristics: Sale 1 was reported to have high vacancy, with the cabins being under marketed at the time of sale. No income information was available, therefore no adjustment will be made to this sale, however, this will be considered in the conclusion of this section. The remaining five sales were reported to be generally stabilized at the time of sale and facilities. Overall, no adjustment is made under this category. Location: An attempt was made to find comparable property’s that have sold within similarly competitive markets to that of the subject. The subject is located in Payson. Sale Nos. 2 and 3 in Sedona which also has similar influences, however, further away. The difference being a larger population and property values in Sedona and overall, we consider the locations of these properties to be slightly superior to the subject and have adjusted Sale Nos. 2 and 3 downward under this category. Sale 6, requires an adjustment as this sale is located in Mayer, which has inferior underlying land values and demographics, therefore, this will be adjusted upward under location. The remaining sales are considered generally similar with no adjustment required. Physical Characteristics: Presented within the following discussion is a qualitative analysis concerning those physical attributes which are considered to possibly have a significant effect upon the indications of value for the subject property. These factors include Building Size, Quality/Design, Age/Condition, and density. Typically, density is not an important issue in estimating the value of and inn or bed and breakfast property, it is considered as it may indicate a property with excess and/or surplus land allowing for future expansion.

.. Page 66

AP P R AI S ALK S

Building Size - Usually, the size of the building in question has an observable general relationship with respect to the price for which the typical buyer would be willing to pay, with all other factors being equal. Smaller buildings typically sell for more on a price per square foot basis. The comparable sales have been arranged in the following array based on building size. The array does illustrate a correlation between building size and price per square foot of gross building area. Sales 2, 4, and 5 will be adjusted downward under size. The remaining sales are generally considered similar in size therefore, no adjustments are considered necessary to the sales.

Comparable Sales Arranged by Building Size

Number Bldg. Size $/SF* Sales Date Year Built Rooms/Acre

5 4,202 $155 Jan-18 1954 28.89 2 4,332 $203 Apr-17 1975 10.42 4 6,600 $183 Jun-17 1979 10.71 1 7,000 $121 Sept-16 1979/1998 1.85

Subject 7,351 1966/1988 3.29 6 10,060 $119 Jun-16 1983 2.40 3 10,066 $382 Sep-17 1988/95 19.28

Quality/Design - The subject improvements are of good quality construction and design. Based on a visual inspection of each property, it is my opinion that each of the comparable sales are similar in terms of quality. No adjustment is required under this category.

Age/Condition - Building condition is an important physical attribute when a buyer considers the purchase of a property. In general, the condition of a property is a function of its age; however, this relationship is not always true, given the possibility of remodeling and/or renovating. The subject is appraised in average condition. Each of the comparable sales was reported to be in average condition at the time of sale, and my exterior inspections of each property supported this notion. Therefore, no adjustments are necessary under this category.

Comparable Sales Arranged by Age


Subject 7,351 1966/1988 3.29 1 7,000 $121 Sept-16 1979/1998 1.85 3 10,066 $382 Sep-17 1988/95 19.28 5 4,202 $155 Jan-18 1954 28.89 2 4,332 $203 Apr-17 1975 10.42 4 6,600 $183 Jun-17 1979 10.71 6 10,060 $119 Jun-16 1983 2.40

.. Page 67

AP P R AI S ALK S

Rooms/Acre - Rooms/Acre (Density) is an important physical attribute when a buyer considers the purchase of a property. In general, properties with less density sell for more per room than those with a higher Rooms/Acre. The subject had a Rooms/Acre of 2.37 or similar to sales 1 and 6. The remaining sales require adjustments under this category.

Comparable Sales Arranged by Density


1 7,000 $121 Sept-16 1979/1998 1.85 6 10,060 $119 Jun-16 1983 2.40

Subject 7,351 1966/1988 3.29 4 6,600 $183 Jun-17 1979 10.71 2 4,332 $203 Apr-17 1975 10.42 3 10,066 $382 Sep-17 1988/95 19.28 5 4,202 $155 Jan-18 1954 28.89

Intended Use: The subject and each of the comparables have the same general intended use, and adjustments beyond the previously discussed “economic characteristics” are not considered to be necessary. Non-Realty Components of Value: we were unable to find a direct correlation between non-realty components of value. Because of this we will not make an adjustment for this factor.


Comparable No. Subject One Two Three Four Five Six

Sale Price $850,000 $877,500 $3,850,000 $1,210,000 $650,000 $1,200,000

Price Per SF $121.43 $202.56 $382.48 $183.33 $154.69 $119.28

Date of Sale Sep-16 Apr-17 Sep-17 Jun-17 Jan-18 Jun-16

INDIVIDUAL ADJUSTMENTS

Property Rights Conveyed Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple

Adjustment Factor 0% 0% 0% 0% 0% 0%

Total Adjustment ($) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Price Adj. for Rights Conveyed $121.43 $202.56 $382.48 $183.33 $154.69 $119.28

Financing Mixed Cash Cash Cash Cash Cash



Price Adj. for Financing $121.43 $202.56 $382.48 $183.33 $154.69 $119.28

Conditions of Sale Normal Normal Normal Normal Short Sale Normal



Price Adj. for Financing $121.43 $202.56 $382.48 $183.33 $162.42 $119.28

Market Conditions (Date of Sale) Sep-16 Apr-17 Sep-17 Jun-17 Jan-18 Jun-16

Adjustment Factor 0% 0% 0% 0% 0% 0%Total Adjustment ($) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Adjusted Price Per S.F. $121.43 $202.56 $382.48 $183.33 $162.42 $119.28

GROUPED ADJUSTMENTS

Economic Considerations Stablized Non-stablized Stablized Stablized Stablized Stablized Stablized

Adjustment Factor 0% 0% 0% 0% 0% 0% 0%

Location Good Similar Superior Superior Similar Similar Inferior

Adjustment Factor 0% 0% -15% -15% 0% 0% 10%

Number of Rooms 7 6 5 16 12 13 12


Building Size 7,351 7,000 4,332 10,066 6,600 4,202 10,060

Adjustment Factor 0% 0% -10% 0% -5% -10% 0%

Quality/Design Good Good Good Good Good Good Good


Age/Condition 1966/1988-Avg 1979/1998-Avg 1975-Avg 1988/1995-Avg 1979-Avg 1954-Avg 1983-Avg


Density (Rooms/Acre) 3.29 1.85 10.42 19.28 10.71 28.89 2.40


Net Percentage Adjustments 0.00% 0.00% -20.00% -5.00% 0.00% 5.00% 10.00%

FINAL ADJUSTED PRICE/SF $0.00 $121.43 $162.05 $363.35 $183.33 $170.54 $131.21

SUMMARY

Comparable No.: Subject One Two Three Four Five Six

Unadjusted Price Per S.F. $0.00 $121.43 $202.56 $382.48 $183.33 $154.69 $119.28

Adjusted Price Per S.F. $0.00 $121.43 $162.05 $363.35 $183.33 $170.54 $131.21 Conclusion As stated previously there have been relatively few sales that have closed in the past 3 years. These were considered the best comparable sales. We note that no income and expense information was available for Sale Nos. 1, however, the listing broker reported the property had high vacancy and the cabins were under marketed at the time of sale, we have given less weight to this sale. After location, and age/condition adjustments the range is from $121 to $363 per square foot, rounded. Four of the six had a narrower range from $131 to $183 per square foot. Therefore, the "as is" market value via the sale comparison approach is calculated as follows:

7,351 SF x $150.00 per SF = $1,102,650

to

7,351 SF x $160.00 per SF = $1,176,160

Reconciled to: $1,140,000


INCOME APPROACH TO VALUE Introduction Income-producing real estate is typically purchased as an investment, and from an investor’s point of view, earning power is the critical element affecting property value. One basic premise is that the higher the earnings, the higher the value. An investor who purchases income-producing real estate is essentially trading present dollars for the right to receive future dollars. The Income Capitalization Approach to value consists of methods, techniques, and mathematical procedures that an appraiser uses to analyze a property’s capacity to generate benefits (i.e., usually the monetary benefits of income and reversion) and convert these benefits into an indication of present value. The income capitalization approach is one of the three traditional approaches that an appraiser may use in the valuation process. However, it is not an independent system of valuation that is unrelated to the other approaches. The valuation process as a whole is composed of integrated, interrelated, and inseparable techniques and procedures designed to produce a convincing and reliable estimate of value, usually market value. The principle of anticipation is fundamental to the approach. Because value is created by the expectation of benefits to be derived in the future, value may be defined as the present worth of all rights to these future benefits. All income capitalization methods, techniques, and procedures attempt to consider anticipated future benefits and estimate their present value. The approach is also based on and consistent with the basic value influences and principles of change, supply and demand, substitution, balance, and externalities. The two most commonly utilized methods of capitalizing net income into value are direct capitalization and yield capitalization. These methods are based on different measures of expected earnings and include different assumptions concerning the relationship between expected earnings and value. Direct capitalization is a method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step - either by dividing the income estimate by an appropriate income rate or by multiplying the income estimate by an appropriate factor. The income expectancy considered is frequently the anticipated income for the following year. Direct capitalization is market-oriented; an appraiser analyzes market evidence and values property by inferring the assumptions of typical investors. Direct capitalization does not explicitly differentiate between the return on and return of capital because investor assumptions are not specified. However, it is implied that the selected multiplier, or rate, will satisfy a typical investor and that the prospects for future monetary benefits, over and above the amount originally invested, are sufficiently attractive. Yield capitalization is a method used to convert future benefits into present value by discounting each future benefit at an appropriate yield rate or by developing an overall rate that explicitly reflects the investment’s income pattern, value change, and yield rate. Like direct capitalization, yield capitalization should reflect market behavior. The procedure used to convert periodic income and reversion into present value is called discounting; the required rate of return is called the discount rate. The discounting procedure presumes that the investor will receive a satisfactory return on the investment and complete recovery of the capital invested.


The method is referred to as yield capitalization because it analyzes whether an investment property will produce the particular level of profit or yield required. Yield capitalization is also called discounted cash flow analysis because a discount rate is used to calculate the present value of anticipated future cash flows. In completing the income capitalization approach to value section of this appraisal report, both of these techniques were considered as potentially useful with respect to deriving indications of value for the subject property. Thus, the income capitalization approach to value section of this report follows a systematic process, which can be summarized as follows: 1. Based upon consideration of both the nature of the subject property and previous analysis of

area, regional, and neighborhood factors, reasonable conclusions regarding the subject’s competitive market area are made. It should be appreciated that depending upon certain circumstances, these conclusions can vary considerably.

2. For the purpose of estimating the subject’s achievable market rental rates, similar properties

within the subject’s competitive market area are surveyed. The comparable rental properties are compared with the subject improvements and adjustments are made as considered necessary. Based upon the survey information obtained and the elements of comparison with respect to the comparable properties, appropriate estimations of the achievable market rental rates applicable to the subject improvements are derived.

3. Utilizing either contract or achievable market rental rates, the potential gross income of the

subject property is estimated. 4. Vacancy and collection losses are estimated to allow for reductions in potential gross income

due to vacancies, tenant turnover, and nonpayment of rent. 5. Estimated vacancy and collection losses are deducted from the subject’s estimated potential

gross income to obtain effective gross income. 6. An analysis of operating expenses (the periodic expenditures necessary to maintain the real

property and continue the production of the effective gross income) is completed. The operating expense analysis considers fixed expenses, which generally do not vary with occupancy and must be paid whether the property is occupied or not; variable expenses, which generally do vary with the level of occupancy or the extent of services provided; and a replacement allowance, which provides for the periodic replacement of components that wear out more rapidly than the improvements themselves and must be replaced periodically during the improvement’s economic life.

7. A reconstructed operating statement, or pro forma statement, is then prepared which

represents estimates of the probable future net operating income of the subject property. 8. An appropriate overall capitalization rate is then derived to convert the subject’s estimated net

operating income into a value indication. When sufficient market data concerning sales of similar, competitive properties are available, deriving overall capitalization rates from comparable sales information is preferred. Appropriate data concerning each of the comparables sales price, income and expense information, financing terms, and market conditions at the time of sale are gathered and overall capitalization rates estimated by dividing each comparable’s reported net operating income by the appropriate sales price.


The range of overall capitalization rates derived from the comparables is then carefully considered and conclusions are drawn concerning either a range or point estimate of overall capitalization rates applicable to the subject property.

9. The subject’s single year’s net operating income estimate is then capitalized into a value

indication in one step, either by dividing the net operating income estimate by an appropriate income rate, or by multiplying it by an appropriate income factor. The income rates and factors reflect the relationship between income and value and are derived from market data, if available.

The direct capitalization formula that applies to this type of valuation analysis can be expressed

as follows:

Indicated Value = Net Operation Income Overall Capitalization Rate Overview of the Search for Comparable Information Emphasis was placed upon identifying and obtaining current leasing information pertaining to properties considered being similar to the subject in terms of locational and physical attributes and income generating potential. Although differing from the subject property in certain respects, the comparables included within this analysis are nonetheless considered to be representative of the range of indications of value within which the subject property could be placed. Verification of Comparable Information All comparable property information was confirmed in conversations with the property owner, tenants, leasing agents, or property management personnel. Selection of Appropriate Units of Comparison

Development of the “use value” is estimated by constructing a pro-forma income and expense statement for the subject property based on historic and projected data in order to arrive at a projected net operating income (NOI). The NOI for the restaurant portion will be based on a reasonable rental rate derived from comparable rentals. The NOI for the cabins spaces will be based on the actual rental rates and historic occupancy. The NOI will be converted to a use value by the process of capitalization using an appropriate rate. Available market evidence gathered during the confirmation process and obtained during interviews with market participants indicates that rental rates for space comparable with the subject improvements are invariably expressed in terms of the amount of per square foot, rent per room, rack rates and/or average daily rates. These figures are those that potential tenants seek and are either quoted directly over the telephone or advertised on listing brochures and signs.


Projecting Operating Levels: A major consideration in developing future operating levels for the subject and any lodging property is the assessment of the property's attributes, quality of service and facilities, and marketing and operational philosophy of the management team. The following factors have been utilized in determining the estimated occupancy level and average daily room rate for the subject hotel:

Considering the competitive market size and the subject's age, utilization of reported actual operations (historical data) is typically a prime consideration, however we have also utilized expense comparables.

Historical occupancy levels and average daily room rates on comparable hotel properties in the market

Any potential future lodging supply of competitive properties

Possible seasonal fluctuations of lodging demand Projecting Rental Rate for the Restaurant: Please note, the current year-end gross sales for the restaurant was unavailable because the property owner took back operations in approximately August 2017, prior to this the restaurant was leased. Therefore, we first attempted to find recent leases of restaurant facilities in the Payson area. Nominal leases of similar properties were found near the subject property. Therefore, we expanded our search to other rural counties in Northern/Eastern Arizona. Present on the following pages are individual summaries of some of the comparable rental properties analyzed within our analysis, followed by a conclusion of an appropriate market rental rate for the restaurant property. Rent Comparable Number One

Restaurant 219 N Cortez (Suite D) Street, Prescott, AZ 86301

Lease Start: Available Size: 4,136 S.F. Type Leases: MG

Rental Rates: Asking Rate: $9.70/SF Comments: The property has an asking rate of $7.50/SF NNN rent with the taxes and insurance expenses being $2.20/SF. The modified gross lease rate is $9.70/SF.

Year Built: 1920 Type: Single-Tenant Retail No. of Stories: One

NRA: 4,136 S.F. Vacancy: 100% Construction: Frame/stucco


Rent Comparable Number Two

Restaurant 520 Miller Valley Road, Prescott

Lease Start: March 2017 Size: 7,800 S.F. Type Leases: MG Expense Stop: None

Rental Rates: Actual: $9.87/SF Comments: The property was leased as restaurant space on a NNN basis at $7.88/SF with the taxes and insurance expenses being $1.99/SF. The modified gross lease rate is $9.87SF.



Rent Comparable Number Three

Restaurant 5000 South White Mountain Road, Show Low

Lease Start: April 2016 Size: 2,365 S.F. Type Leases: MG Expense Stop: None

Rental Rates: Actual: $10.67/SF Comments: The property was leased as restaurant space on a NNN basis at $7.61/SF with the taxes and insurance expenses being $3.06/SF. The modified gross lease rate is $10.67/SF.



Summary & Adjustment of Comparable Restaurant Rentals Typical lease agreements for buildings in the subject’s market area are based on a modified gross or triple net basis where the landlord pays for real estate taxes and insurance with the tenant paying all other expenses) or triple net basis (the tenant paying for most expenses, i.e. real estate taxes, insurance and interior maintenance). The subject property is analyzed based on a modified lease structure. The adjusted rental rates for the comparable properties range from a low of $9.70 per square foot to a high of $10.67 per square foot on a modified gross basis. Based on the comparable rentals, and considering the subject’s size and build-out, we estimate the market rent at $10.00 per square foot modified gross (with the lessee paying for utilities and maintenance with the landlord paying for the real estate taxes and insurance). Potential Gross Rental Revenue for the Restaurant Therefore, the potential gross income for the subject’s restaurant is estimated as follows (based on net rentable area):

3,667 S.F. x $10.00 per S.F. = $36,670


Vacancy and Collection Losses Vacancy and collection losses are defined as a deduction from potential gross income (PGI) made to reflect income reductions due to vacancies, tenant turnover, and nonpayment of rent; also

called vacancy and credit loss or vacancy and contingency loss.7 This allowance is usually estimated as

a percentage of potential gross income and reflects consideration of relevant supply and demand factors, local and national economic conditions, and the specific property’s physical and locational attributes. Credit and collection losses, estimated at approximately two percent to three percent of potential gross income, are typically added to the allowance for vacancy factor as any attempt to extract a separate allowance assumes a degree of exactitude not supported by available market data. I have estimated the vacancy rate for the subject at three percent, plus two percent for credit and collection losses for a total of five percent. Estimation of Effective Gross Income for the Restaurant Having estimated the total potential gross income of the subject property as of the date of valuation and a stabilized factor for vacancy and collection losses, the subject’s effective gross income can now be estimated as follows:

Potential Gross Income: $36,670

5% Vacancy & Collection Loss: $1,834

Effective Gross Income: $34,837

7 Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute), 2015.


Subject's Operating History for the Rental Cabins: The following table summarizes the known income and expense for the subject’s cabins from P&L statements provided by the current owner. This data has been reviewed and appears to be fairly reasonable and accurate; however, the several of categories were lumped into unclassified expenses and did not contain a detailed breakdown of some items (hence, some items might have been erroneously lumped into the wrong category). Please note, 2017 is based on annualized numbers. The total room revenue as of October 31, 2017 was reported to be $132,785.

2015 2016 2017

Total Effective Revenue (net of sales tax)** $156,035 $158,691 $159,342

Departmental Expenses

Rooms Department Expense 28.3% $44,225 22.4% $35,547 24.1% $38,433

Telephone Department Expense 0.0% $0 0.3% $431 0.0% $80

Total Departmental Expenses 28.3% $44,225 22.7% $35,978 24.2% $38,513

Undistributed Operating Expenses

Administrative Operating Expenses 1.8% $2,809 3.0% $4,781 3.2% $5,171

Management Fee/Professional fees 0.0% 8.1% $12,893 7.8% $12,477

Marketing (Advertising) 0.7% $1,150 0.1% $98 0.9% $1,388

Franchise Fee

Energy (Utilities) 11.8% $18,471 11.5% $18,271 16.0% $25,567

Property Operations and Maintenance Expense 2.5% $3,856 3.1% $4,965 2.4% $3,828

Total Undistributed Operating Expenses 16.8% $26,286 25.8% $41,009 30.4% $48,432

Fixed Expenses

Property Taxes $10,136 $10,870 $11,145

Insurance $3,527 $3,907 $3,922

Total Fixed Expenses $13,663 $14,777 $15,067

Total Operating Expenses 53.95% $84,174 57.8% $91,764 64.0% $102,011

Net Operating Income Before Reserves $71,861 $66,928 $57,331

** Includes all sources of revenue

In order to value the subject property via the income approach, we have undertaken a competitive lodging analysis. For the purpose of estimating the subject's market operating revenue, we have analyzed the macro and micro market areas. The macro area reviews historical data for the entire market area while the microanalysis details competitive properties. MICRO MARKET ANALYSIS - Competitive Lodging Analysis General: The competitive lodging supply is composed primarily of older and newer cabin type facilities with a wide array of amenities and variations in quality. We have surveyed the following competitive lodge properties within a close proximity to the subject.


Comparable No. 1

Mountain Meadows Cabins is a 6 cabin resort located off Colcord Road near Christopher Creek, Arizona. Just under the Mogollon Rim, this facility has daily room rates reported to be $120 to $160 per night with a two night minimum stay on weekends (for one night stay, additional $20 will be charged). Each of the cabins have a shower, kitchen, porch swings, fireplaces, TV, VCR and barbecue areas, and picnic tables. The owner reported that they are only open during the summer months. The owner would not disclose the ADR and Occupancy

Comparable No. 2

Wooden Nickel Cabins is a seven cabin resort facility. This hotel is located on Hunter Creek Drive in Christopher Creek, Arizona. Amenities include air conditioning, Satellite TV, VCR, full kitchen, and microwaves. Room rates are $129 to $189 per night for the standard cabin, $378 for the five bedroom facility. The ADR was not disclosed. The property manager reported an annual 65% occupancy.


Comparable No. 3

Christopher Creek Lodge is the same owner as the subject property. This is an 24 cabin resort located off Christopher Creek Loop with cabins having Creekside frontage. The nightly room rates range from $60 to $200 per room. The property has a year around occupancy of 65% and an ADR of $104.94.

Comparable No. 4

Gray Hackle is the same owner as the subject property. This is an 11 cabin resort located off Christopher Creek Loop. The nightly room rates range from $70 to $129 per room for the motel style cabins, up to $120 to $190 per night for the larger cabin units. The property has a year around occupancy of 65% to 70% and an ADR of $52.38. This is lower than the market, due to property offering minimal services with guest required to bring their own bedding, towels etc.


Comparable No. 5

Elk Haven Cabins: This facility has 5 cabins and is located at on Colcord Road in Christopher Creek, Arizona. This facility is in good condition and has a standard selection of amenities. The nightly room rates range from $135 for the motel style cabins, up to $375 per night for the larger cabin unit. Amenities include a fully equipped kitchen, with refrigerator, stove top, microwave, toaster and coffee maker, gas log fireplaces, air conditioning, BBQ's, Satellite TV, and VCR's. The property manager reported an annual 55% occupancy.


SUMMARY OF COMPETITIVE SUPPLY

No. of Room Reported Reported Property Cabins Type Occupancy ADR

1 Mountain Meadow Cabins 6 Standard N/A N/A Rates Between $120 & $160

2 Wooden Nickel Cabins 7 Standard 65% N/A Rates Between $129 & $378

4 Christopher Creek Lodge 24 Standard 65% $104.94 4 Grey Heckle 11 Standard 65% $52.38 5 Elk Haven Cabins 5 Standard 55% N/A

Rates Between $135 & $375

Total 56 Existing Demand Levels: Our research of the competitive properties indicates that the lodging demand has be stable over the past several years. We note lodging facilities are not like normal hotels with occupancy and ADR as many reported that they have guest who come back year after you and take deposits which and this changes their occupancy totals and/or ADR totals. We will consider the “effective gross sales” historical for the subject given the stable numbers we have received over the past three years. Seasonally of Demand: The volume of lodging demand in the market fluctuates throughout the year, experiencing seasonal peaks in the winter for skiers and summer months for travelers wanting to escape the heat of the Phoenix summers. Future Demand Growth: The area continues to attracts visitors and guests from the Phoenix metropolitan area. Future Supply Growth: In addition to the existing competitive properties previously discussed, we considered those properties, which are currently being planned. Our research has revealed that there are no planned cabin/motel or lodge facilities for the Christopher Creek area. SUBJECT HOTEL'S OPERATING ESTIMATES: Future Average Daily Room Rate Estimates: A hotel's average daily rate is calculated by dividing its annual rooms revenue by its annual number of rooms occupied. Due to discounting, market segmentation, seasonality and double occupancy, hotels typically perform at average daily rates below their posted room rates. In order for the subject to be competitive with its competition, the owner will have to give its clientele base a perceived bargain. In estimating the average daily room rate for the subject, we have considered the average daily rates for those properties that are most competitive with the subject in terms of quality and facility, the subject's operating history, and data from other properties in the area. The subject was reported to have the following ADR and occupancy over the past several years:

Subject

Occupancy ADR Occupancy ADR Occupancy ADR

65% $93.95 65% $95.55 65% $95.95

2015 2016 2017

ADR is net of sales tax


Estimated Revenue: Total Revenues: Total revenues are derived from rooms, telephone, vending machines, and other income. In projecting the revenues, the first item to estimate is the revenue from room sales. This item is the most important revenue in that the subject has no other primary income source. Guest Room Revenues: These are based on projected levels of occupancy and average room rates. The number of saleable rooms in the lodge (7) is multiplied by the number of days in a year to arrive at the number of room nights available (RNA). This number is multiplied by the projected occupancy rate to arrive at the number of room nights demanded (RND). Multiplying the RND by our projected average daily rate (ADR) for the subject, results in the room revenues. Based on this information and analysis detailed, the projected stabilized revenue from room sales for the subject property is: Projected Guest Room Revenues

No. of Rooms RNA Occupancy RND ADR Revenues

7 2,555 65% 1,661 $96.00 $159,432

We estimate the “effective” gross revenue of $159,432.


We have utilized the following expense comparables (the addresses of which are retained in our files) in estimating an appropriate deduction from the gross annual income to arrive at a net operating income: Expense Comparables* 1 2 3 4 5 6 7

Location Sedona Sedona Sedona Flagstaff Sedona Flagstaff Williams Average Median

Department Expenses

Rooms Department Expense 33.0% 27.9% 27.9% 17.5% 29.0% 20.6% 13.7% 24.2% 27.9%

Telephone Department 1.0% 2.8% 0.9% 0.8% 1.0% 1.8% 1.6% 1.4% 1.0%

Total Departmental Expenses 34.0% 30.7% 28.8% 18.3% 30.0% 22.4% 15.3% 27.4% 29.4%


Administrative Operating 4.0% 2.4% 18.0% 2.5% 6.0% 5.5% 9.3% 6.8% 5.5%

Management Fee / Professional Fees 0.0% 0.0% 0.0% 0.0% 3.0% 3.0% 4.5% 1.5% 0.0%

Marketing (Advertising) 3.0% 2.1% 0.8% 1.5% 1.0% 3.7% 12.3% 3.5% 2.1%

Energy (Utilities) 4.5% 4.5% 10.5% 4.3% 3.0% 9.5% 6.3% 6.1% 4.5%

Maintenance Expense 3.0% 2.2% 0.5% 3.0% 1.9% 3.1% 2.6% 2.3% 2.6%

Total Undistributed Operating Expenses 14.5% 11.2% 29.8% 11.3% 14.9% 24.8% 35.0% 17.8% 14.7%

Fixed Expenses

Property Taxes (per unit) $1,848 $888 $810 $1,426 $1,370 $555 $479 $1,054 $888

Insurance (per unit) $830 $590 $502 $584 $750 $520 $1,090 $695 $590

Total Fixed Expenses $2,678 $1,478 $1,312 $2,010 $2,120 $1,075 $1,569 $1,779 $1,744

* Expenses presented as a percentage of effective gross income, net of sales tax Estimated Expenses: Expenses applicable to the operation of lodging facilities can be broken down into three general categories. These are Departmental Expenses, Undistributed Operating Expenses, and Fixed Charges and Reserves. The following discussion details the specific expenses within each of these categories. In estimating the individual expenses, we have utilized comparable properties' operating statements. We have relied heavily on the comparable expenses, which are summarized for confidential purposes. Estimated Departmental Expenses: Rooms Department Expense: This expense includes the cost of departmental management, front desk staff and housekeeping personnel (often times this fluctuates as the owner does a lot of these expenses). Also included in the cost are breakfast, paper supplies, cleaning supplies, laundry, linen, dry cleaning, and other items required for the upkeep of guestrooms and public areas, and complimentary services. The comparable expenses indicate a range from 13.7% to 33.00% with an average of 24.2% and a median of 27.9%. The subject was reported to have an expense of 28.3% in 2015, 22.4% in 2016, and 24.1% in 2017. We estimate the subject’s pro-forma room’s department expense to be 24% with most weight on the subject’s actual expenses


Telephone Department Expenses: This expense includes the costs associated with maintaining the telephone system in good working order, payment for services received, payroll, and related expenses attributable to the telephone operations. Due to current regulations allowing the selling of telephone services at a profit, hotel properties can operate a profitable telephone department. The expense comparables indicate a range from 0.8% to 2.8%, with an average of 1.4% and a median of 1%. The subject was reported to have an expense of 0% in 2015, 0.3% in 2016, and less than 0.1% in 2017. With this range we estimate the subject’s pro-forma telephone department expense to be 0.1%. Undistributed Operating Expenses: All operating expenses of the hotel that are not directly allocated to revenue-producing departments are discussed in this section. Administrative and General Expenses: This category includes the payroll costs of hotel management, administrative staff, general liability insurance, bookkeeping, and personnel. Also included are such items as accounting and legal fees, credit card commissions, printing, stationery, postage, licenses, travel expenses and provision for bad debts. One way to examine this category is to estimate the expense as a percentage of total revenues. The expense comparables indicate a range from 2.4% to 18.0% with an average of 6.8% and a median of 5.5%. The subject was reported to have an expense of 1.8% in 2015, 3.0% in 2016, and 3.2% in 2017. Within this range we estimate the subject’s pro-forma administrative expense to be 3.0%. Management Fees: These expenses are simply charges to operate a hotel and do not include any salary or related expenses. Industry standards for this expense typically run in the neighborhood of 2.5 to 6.0 percent of total revenues. The expense comparables indicate a range from 0% to 4.5%. The subject was reported to have an expense of 0% in 2015, 8.0% in 2016, and 7.8% in 2017. Within this range I estimate the subject’s pro-forma management expense to be 8%. Marketing (Advertising): These costs include all promotional expenses exclusive of the franchise royalties, such as cost of local newspaper, magazine, radio, highway billboard and television advertising, entertainment and travel, and other similar expenses (including franchise fees devoted to national marketing). The difficulty of utilizing industry averages for this expense lies in discerning what type of advertising is necessary and what the market conditions are for each property. The expense comparables indicate a range from 0.8% to 12.3% with an average of 3.5% and a median of 2.1%. The subject was reported to have an expense of 0.7% in 2015, 0.1% in 2016, and 0.9% in 2017. We estimate the subject’s pro-forma marketing expense to be 1.0%. Energy (Utility) Expenses: This expense item includes the cost of electricity, heating, fuel, water, and sewer. This expense is projected to increase or decrease with the occupancy rate. Thus, as occupancy increases, this expense will decrease on a percentage basis. The expense comparables indicate a range from 3% to 10.5% with an average of 6.1% and a median of 4.5%. The subject was reported to have an expense of 11.8% in 2015, 11.5% in 2016, and 16% in 2017. With most emphasis on the historic range, we estimate the subject’s pro-forma utility expense to be 12%. Maintenance Expenses: This expense item includes hotel repairs and maintenance expenses. This expense item typically increases as the improvements age and require more attention. The expense comparables indicate a range from 0.5% to 3.1% with an average of 2.3% and a median of 2.6%. The subject was reported to have an expense of 2.5% in 2015, 3.1% in 2016, and 2.4% in 2017. With most weight on the historical data, we estimate a pro-forma expense of 3%.


Fixed Charges and Reserves Property Tax: The subject was reported to have an expense of $10,136 in 2015, $10,870 in 2016, and $11,145 in 2017. We estimate the subject’s expense at $11,145 Property Insurance: Insurance expenses for the comparables ranged from $502 to $1,090 per room, with an average of $695 per room and a median of $590 per unit. This category simply considers fire and casualty insurance on the property. The subject’s insurance was $504/room in 2015, $558/room in 2016, and $560/unit in 2017. Based on the comparable average, we estimate an insurance expense of $560 per room, or $3,920 and an additional $3,700 for the restaurant building or a total expense of $7,620 for property insurance. Reserves: Replacement of fixed assets is an annual amount set aside for the replacement of short-lived assets such as furniture, fixtures, and equipment as they deteriorate, as well as roofing and floor coverings. This expense is an annual accruing account designed to provide for the anticipated future replacement of the short-lived items. The reserve amount is projected to be 2.0 percent of total sales. This expense level will be required to maintain the facility at a quality level sufficient to support the occupancy and average rate projections. Estimation of Stabilized Net Operating Income Stabilized Forecast Operating Statement

Percent of

Room Revenue

EGI for Restaurant $34,837

Effectve Revenue from Cabins $159,432

Total Effectve Revenue $194,269

Departmental Expenses

Rooms Department Epense 24.0% $38,264

Telephone Department Expense 0.1% $159

Other Income Expense

Total Departmental Expenses $38,423


Administrative Operating Expenses 3.0% $4,783

Management Fee 8.0% $12,755

Marketing 1.0% $1,594

Energy 12.0% $19,132

Maintenance Expense 3.0% $4,783

Total Undistributed Oparating Expenses $43,047

Fixed Expenses

Property Taxes $11,145

Insurance $7,620

Total Fixed Expenses $18,765

Total Operating Expenses ($100,235)

Reserves For Replacement of Fixed Assets 2.00% $3,885 ($3,885)

Net Operating Income $90,149


VALUATION As stated previously, the next step in the appraisal process is to develop an estimate of value for the subject property through the Income Approach. Two methods are utilized in this approach, Direct Capitalization Method and the Discounted Cash Flow Analysis method. The direct capitalization method requires an estimate of the net operating income (after fixed charges and reserves for replacement) for a stabilized year of operation. Using an overall capitalization rate derived from recent sales of hotels, the net operating income is capitalized into a value estimate. CAPITALIZATION METHOD The direct capitalization is a method used to convert an estimate of a single year's income expectancy, or an annual average of several years, into a value in one direct step, either by dividing the income estimate by an appropriate income rate or by multiplying the income estimate by an appropriate factor. The capitalization rate, or overall rate (OAR), which is the ratio of cash flow from operations to selling price, is derived by comparing OAR's from comparable properties which have recently sold. When selecting an appropriate capitalization rate, the appraiser must analyze the strengths and weaknesses of the forecasted income stream along with similarities such as: land and building component ratios, gross and net operating income ratios, age, condition, parties involved, and financing arrangements. Truly comparable properties should produce a narrow range of overall rates. Our selected capitalization rate is based upon the transactions that appear in the following table: We have obtained 3 OAR’s from sales presented previously, plus, several properties from throughout the country which were also bed and breakfast properties. Comparable No. 1 - The OAR is 8.50%. Comparable No. 4 - The OAR is 8.4% Comparable No. 5 - The OAR is 7.9%.


Inn Sales Statistics

The B&B Team, Inn Consultants and BrokersAll Financially Viable Sales as of Dec. 31, 2017 Property Rooms Sale Price $/Room Effective Gross EGIM Cap Rate Occ. EGI/Room Year ST

1 Wollverton Inn 13 $2,800,000 $215,385 $790,000 3.5 8.6% 53% $60,769 2016 NJ

2 Federal House Inn 9 $875,000 $97,222 $186,085 4.7 7.1% 27% $20,676 2016 MA

3 Birchwood Inn 11 $1,660,000 $150,909 $395,628 4.2 6.7% 38% $35,966 2016 MA

4 The Cedars of Williamsburg 10 $1,595,000 $159,500 $347,998 4.6 11.8% 54% $34,800 2016 VA

5 Arcady Vineyard B&B 4 $880,000 $220,000 $195,877 4.5 12.5% 52% $48,969 2016 VA

6 Cuthbert House Inn 10 $2,375,000 $237,500 $547,600 4.3 8.7% 75% $54,760 2016 SC

7 Windflower Inn 13 $1,149,000 $88,385 $207,880 5.5 5.0% 27% $15,991 2016 MA

8 Mission Inn 8 $1,800,000 $225,000 $402,000 4.5 8.5% 52% $50,250 2016 NJ

9 West End Inn 6 $1,090,000 $181,667 $262,475 4.2 11.5% 69% $43,746 2017 ME

10 The Woods Treehouse Resort 5 $640,000 $128,000 $113,000 5.7 11.0% 40% $22,600 2017 AR

11 Atlantean B&B 8 $1,750,000 $218,750 $272,000 6.4 9.4% 41% $34,000 2017 ME

12 Atlantic Birches 10 $775,000 $77,500 $145,000 5.3 9.0% 31% $14,500 2017 ME

13 Amethyst Inn & Cottages 8 $880,000 $110,000 $219,000 4.0 9.6% 45% $27,375 2017 PA

14 Ashley & Cannonboro Inns 16 $3,060,000 $191,250 $745,695 4.1 10.3% 71% $46,606 2017 SC

15 Glenmoor By The Sea 33 $1,975,000 $59,848 $631,000 3.1 9.7% 29% $19,121 2017 ME

16 Manor House 9 $900,000 $100,000 $204,787 4.4 8.5% 31% $22,754 2017 CT

17 Willis Graves 5 $745,000 $149,000 $186,300 4.0 8.0% 58% $37,260 2017 KY

18 The Elms B&B 7 $620,000 $88,571 $115,450 5.4 7.2% 23% $16,493 2017 ME

19 The Barn Inn 11 $1,300,000 $118,182 $414,000 3.1 10.0% 55% $37,636 2017 OH

20 Davidson Village Inn 18 $2,700,000 $150,000 $760,000 3.6 11.8% 79% $42,222 2017 NC

21 Idlewild Inn 14 $1,325,000 $94,643 $226,000 5.9 9.8% 41% $16,143 2017 NY

22 Chalet Moosehead 26 $1,900,000 $73,077 $385,000 4.9 13.0% 31% $14,808 2017 ME

Average All 11.5 $1,490,636 $129,110 $352,399 4.5 9.4% 46.5% $32,611

The Capitalization rates for the comparable sales range from 7.9% to 8.5%. The average of the rates from throughout the country are 6.7% to 13% or an average OAR at 9.4%. These rates represent the relationship between income and value, as observed in the market. In comparing these sales to the subject, special consideration was given to the durability of each property's income as well as its risk level in relation to that of the subject's.


Additionally, we have considered the surveyed rates RealtyRates,com 4th Quarter 2017 Lodging Facilities Investor Survey. These rates ranged from 6.49% to 17.92% with an average of 11.62%. The lower end supports range of sales utilized in this appraisal and other supplemental sales. These rates represent the relationship between income and value, as observed in the market. In comparing these sales to the subject, special consideration was given to the durability of each property's income, as well as its risk level in relation to that of the subject. Summary of Capitalization Methods: Discussion with specialists in the Arizona hotel market has indicated the rates to be in the neighborhood of 8.25% to 8.5%. Based upon our analysis, it is our opinion that the capitalization rate in today's market, would be toward the middle end of the range. We estimate the subject’s capitalization rate to be from 8.25% to 8.75%.


Capitalization of Net Operating Income The following indication of “as is” market value is estimated:

Net Operating Income:

Capitalization Rate Range: 8.25% to 8.75%

Indicated Value Range: $1,092,715 $1,030,274

Reconciled To:

Capitalization Process

$1,060,000

$90,149


SECTION 9 RECONCILIATION OF VALUES Reconciliation is the process whereby the appraisers evaluate and select from among alternative conclusions or indications, a single conclusion of value. An orderly connection of interdependent elements is a prerequisite of proper reconciliation. This requires a re-examination of specific data, procedures, and techniques within the framework of the approaches used to derive preliminary estimates. Each approach is considered a recognized appraisal technique and is reviewed separately by comparing it to the other approaches to value in terms of adequacy, accuracy, completeness of reasoning, and overall reliability. All approaches to value are considered in estimating the subject’s market values. However, only the Sales Comparison and Income Approaches were deemed applicable. The applicable approaches to value have been considered in this analysis and the data, together with the line of reasoning followed for each approach, have been clearly set out. The indications of “as is” market value developed by the applicable approaches are as follows:

Indications of Value (Approaches)

“As Is”

Cost Approach:

N/A

Sales Comparison Approach:

$1,140,000

Income Approach:

$1,060,000

The cost approach estimates value based upon the replacement cost new of the improvements. To this is added the market value of the site, which is estimated at its highest and best use. The subject suffers from physical depreciation due to its age and economic obsolescence associated with depressed rental rates within the submarket. Due to the difficulty of measuring physical depreciation and economic obsolescence, the cost approach is not considered a reliable tool for estimating the value of the subject’s improvements. Also, this approach does not test the marketability of the property. Furthermore, market participants stated that the cost approach is not a tool used by purchasers of similar vintage properties. Therefore, this approach is not considered applicable in valuing the subject property. Utilizing the sales comparison approach, we documented sales of cabin/motel properties and several listings within rural areas similar to the subject. We have placed moderate weight on this approach to value, but have given it less weight because of the unique nature of the property and the difficulty in locating sales with similar features. Overall, this approach is given some consideration, but slightly less than the income approach. The income approach to value is considered to be a reliable indicator of the enterprise or going concern market value of the subject property, just as a typical, prudent investor would be concerned primarily with the income stream and the future benefits of the property. Since the subject is an income-producing property, a buyer would consider this approach; therefore, we have given this approach the greatest consideration.


With emphasis on the income approach to value, the “as is” market value, (including FF&E) as of February 9, 2018, is:

ONE MILLION ONE HUNDRED THOUSAND DOLLARS

$1,100,000 *

* The value of the furniture, fixtures, and equipment (FF&E) was included in each approach to value. According to Marshall Valuation Service (MVS), the typical cost per room for good quality hospitality FF&E is $7,750 (section 65, Page 4). This equates to $46,500 (new) for the entire facility. Lobby, kitchen, and reception area FF&E is estimated to cost approximately $46,500 new. The total cost new totals $47,000, rounded. I have not depreciated this as there is additional FF&E beyond a typical lodge/restaurant which would offset any depreciation attributed to the $47,000.

In terms of business value allocation, I spoke with Mr. Gil Kocija, a specialist with Hotel Broker One who has been very active in the hospitality market for over 25 years. He indicated that he has rarely allocated a separate business value since it is typically insignificant compared to the overall value. Once a property has an established income stream, the “business value” would be the difference between market pro-forma and the actual pro-forma (assuming that the actual is higher). Since the actual income does not currently exceed the pro-forma estimate, there is no business value allocated as part of the overall market value The improved property sales indicated that exposure time (i.e., the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded in this analysis as of the date of this valuation) would have been approximately 12 months. The estimated marketing time (i.e., the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is 12 months.


SECTION 10 ASSUMPTIONS AND LIMITING CONDITIONS We suggest that anyone using this appraisal read the following limiting conditions and assumptions thoroughly. The acceptance and/or use of the appraisal report constitutes acceptance of the following conditions. In rendering our opinions, we have made certain assumptions and our opinions are conditioned upon and are subject to certain qualifications including, but not limited to, the following: Information Used No responsibility is assumed for accuracy of information furnished by others or from others, including the client, its officers and employees, or public records. We are not liable for such information or for the work of contractors, subcontractors and engineers. The comparable data relied upon in this appraisal has been confirmed with one or more parties familiar with the transaction unless otherwise noted; all are considered appropriate for inclusion to the best of our factual judgment and knowledge. We assumed that the information furnished by the property owner, lender, agent, or management is correct as received. Certain information upon which the opinions and values are based may have been gathered by research staff working with the appraiser. Names, professional qualifications and extent of their participation can be furnished to the client upon request. Legal, Engineering, Financial, Structural / Mechanical Nature, Hidden Components, Soil No responsibility is assumed for matters legal in character or nature, nor matters of survey, nor of any architectural, structural, mechanical or engineering nature. No opinion is rendered as to the legal nature or condition of the title to the property, which is presumed to be good and marketable. The property is appraised assuming it is free and clear of all mortgages, liens or encumbrances, unless otherwise stated in particular parts of this report. The legal description is presumed to be correct, but we have not confirmed it by survey or otherwise. We assume no responsibility for the survey, any encroachments or overlapping or other discrepancies that might be revealed thereby. For the purpose of this report, when the square footage of the subject building improvements have been obtained by reference to available architectural drawings and blueprints (where applicable), it is assumed to be correct and reliable. We can in no way assume responsibility for subject data obtained from other professional service. If improvement size provided is based on our measurements obtained from our on-site inspection; we have measured the subject improvements size to the best of our ability and based on typical market practices. The improvement size based on our measurements (when applicable) is considered to be generally accurate and reliable for the purpose of the appraisal, however it is not considered to be an exact measurement as performed by a certified surveyor and should not be construed as such.


We have inspected, as far as possible by observation, the land and improvements thereon; however, it was not possible to personally observe conditions beneath the soil or hidden structural, or other components, or any mechanical components within the improvement; as a result, no representation is made herein as to such matters unless otherwise specifically stated. The estimated market value assumes that no such conditions exist that would cause a loss of value. We do not warrant against the occurrence of problems arising from any of these conditions. It is assumed that there are no hidden or unapparent conditions to the property, soil, subsoil or structures, which would render them more or less valuable. No responsibility is assumed for any such conditions or for any expense or engineering to discover them. All mechanical components are assumed to be in operating condition standard for the properties of the subject's type. The condition of the heating, cooling, ventilation, electric and plumbing equipment is considered to be commensurate with the condition of the balance of the improvements, unless otherwise stated. No judgment is made as to the adequacy of insulation, engineering or energy efficiency of the improvements or equipment. Information relating to the location or existence of public utilities has been obtained through verbal inquiry to the appropriate utility authority, or has been ascertained from visual evidence. No warranty has been made regarding the exact location or capacities of public utility systems. Subsurface oil, gas or mineral rights were not considered in this report unless otherwise stated. We assumed that the subject property is not, nor will it be, in violation of the National Environmental Policy Act, the State Environmental or Clean Air Act, or any and all similar government regulations or laws pertaining to the environment. The subject property does not appear on a list of those properties known to suffer from environmental contamination nor, was any evidence of such contamination noted during our inspection. Nonetheless, we are not qualified to confirm or deny the existence of hazardous conditions and, completion of the Environmental Risk Survey section of this report is not to be construed as such confirmation or denial. Confirmation of site conditions relative to hazardous materials and/or wastes would require assessment by a duly qualified professional with direct training and experience in environmental assessment of real property. Thus, this report is, therefore, contingent upon a review of such an environmental assessment and does not consider the effects of any such adverse factors. Legality of Use The appraisal is based on the premise that there is or will be full compliance with all applicable Federal, State and local environmental regulations and laws, unless otherwise stated in the report; and that all appropriate zoning, building and use regulations and restrictions of all types have been or will be complied with, unless otherwise stated in the report. It is assumed that all require licenses, consent, permits or other legislative or administrative authority, whether local, State, Federal and/or private, have been or can be obtained or renewed for the use intended and considered in the value estimate. Component Values The distribution of the total valuation of this report between land and improvements applies only under the proposed program of utilization. The separate valuations of land and buildings must not be used in conjunction with any other appraisal, and are invalid if so used.


A report related to an estate that is less than the whole fee simple estate applies only to the fractional interest involved. The value of this fractional interest, plus the value of all other fractional interests, may or may not equal the value of the entire fee simple estate considered as a whole. A report relating to the geographic portion of a larger property applies only to such geographic portion and should not be considered as applying with equal validity to other portions of the larger property or tract. The value for such geographic portions, plus the value of all other geographic portions, may or may not equal the value of the entire property or tract considered as a single entity. All valuations in the report are applicable only under the estimated program of the highest and best use and are not necessarily appropriate under other programs of use. Auxiliary and Related Studies No environmental or impact studies, special market study or analysis, highest and best use analysis study or feasibility study has been requested or made by us unless otherwise specified in this report or in our agreement for services. We reserve the unlimited right to alter, amend, revise or rescind any of these statements, findings, opinions, values, estimates or conclusions upon any subsequent study or analysis or previous study or analysis that subsequently becomes available to us. Dollar Values, Purchasing Power The value estimates and the costs used herein are as of the date of the estimate of value. All dollar amounts are based on the purchasing power and price of the United States dollar as of the date of value estimate. Inclusions Furnishings and equipment or business operations, except as otherwise specifically indicated, have been disregarded, with only the real estate being considered. Proposed Improvements Conditioned Value For the purpose of this appraisal, on- or off-site improvements proposed, if any, as well as any repairs required, are considered to be completed in a good and workmanlike manner according to information submitted and/or considered by us. In cases of proposed construction, the report is subject to change upon inspection of the property after construction is complete. The estimate of value, as proposed, is as of the date shown, as if completed and operating at levels shown and projected. Value Change, Dynamic Market Influences The appraisers cannot predict or evaluate the possible effects of future wage price control actions of the government upon rental income or financing of the subject property; hence, it is assumed that no control will apply which would nullify contractual agreements, thereby changing property values. The estimated value is subject to change with market changes over time. Value is highly related to interest rates, exposure, time, promotional effort, supply and demand, terms of sale, motivation and conditions surrounding the offering. The value estimate considers the productivity and relative attractiveness of the property both physically and economically in the marketplace.


The estimate of value in this report is not based in whole or in part upon race, color or national origin of the present owners or occupants of the properties in the vicinity of the property appraised. In the event this appraisal includes the capitalization of income, the estimate of value is a reflection of such benefits and our interpretation of income and yields and other factors which were derived from general and specific market information. Such estimates are made as of the date of the estimate of value. As a result, they are subject to change, as the market is dynamic and may naturally change over time. The date upon which the value estimate applies is only as of the date of valuation, as stated in the letter of transmittal. The appraisal assumes no responsibility for economic or physical factors occurring at some later date which may affect the opinion stated herein. An appraisal is the product of a professionally trained person, but nevertheless is an opinion only, and not a provable fact. As a personal opinion, a valuation may vary between appraisers based upon the same facts. Thus, the appraiser warrants only that the value conclusions are his best estimate as of the date of valuation. There are no guaranties, either written or implied, that the property would sell for the expressed estimate of value. Sales History Unless otherwise stated, the appraiser has not reviewed an abstract of title relating to the subject property. No title search has been made, and the reader should consult an attorney or title company for information and data relative to the property ownership and legal description. It is assumed that the subject title is marketable, but the title should be reviewed by legal counsel. Any information given by the appraiser as to a sales history is information that the appraiser has researched; to the best of our knowledge, this information is accurate, but not warranted. Management of the Property It is assumed that the property which is the subject of this report will be under prudent and competent ownership and management over the entire life of the property. If prudent and competent management and ownership are not provided, this would have an adverse effect upon the value of the property appraised. Confidentiality We are not entitled to divulge the material (evaluation or valuation) content of this report and analytical findings or conclusions, or give a copy of this report to anyone other than the client or his designee, as specified in writing, except as may be required by the Appraisal Institute, as they may request in confidence for ethic enforcement, or by a court of law with the power of subpoena. All conclusions and opinions concerning the analyses as set forth herein are prepared by the appraisers whose signatures appear. No change of any item in the report shall be made by anyone other than the appraiser, and the firm shall have no responsibility if any such unauthorized change is made. Whenever our opinion herein with respect to the existence or absence of fact is qualified by the phrase or phrases "to the best of our knowledge", "it appears" or "indicated", it is intended to indicate that, during the course of our review and investigation of the property, no information has come to our attention which would give us actual knowledge of the existence or absence of such facts.


Neither our name nor this report may be used in connection with any financing plans which would be classified as a public offering under State or Federal Security Laws. Copies, Publication, Distribution, Use of Report Possession of this report, or any copy thereof, does not carry with it the right of publication, nor may it be used for other than its intended use. The physical report remains the property of the firm for the use of the client, with the fee being for the analytical services only. This report may not be used for any purpose by any person or corporation other than the client or the party to whom the report is addressed. Additional copies may not be made without the written consent of an officer of the firm, and then only in its entirety. Neither all nor any part of the contents of this report shall be conveyed to the public through advertising, public relations effort, news, sales or other media without our prior written consent and approval of the client. Neither this report, nor any of its contents, may be used for the sale of shares or similar units of ownership in the nature of securities, without the specific prior approval of the appraiser. It has been assumed that the client or representative thereof, if soliciting funds for his project, has furnished to the user of this report complete plans, specifications, surveys and photographs of land and improvements, along with all other information which might be deemed necessary to correctly analyze and appraise the subject property. Trade Secrets This appraisal was obtained from KS Appraisal and consists of "trade secrets and commercial or financial information" which is privileged and confidential. Notify the appraisers signing the report or an officer of KS Appraisal of any request to reproduce this report in whole or in part. Authentic Copies Any copy that does not have original signatures of the appraiser is unauthorized and may have been altered and, therefore, is considered invalid. Testimony, Consultation, Completion of Contract for Appraisal Services A contract for appraisal, consultation or analytical services is fulfilled and the total fee payable upon completion of the report. The appraisers or those assisting in the 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 will they be asked or required to engage in post appraisal consultation with client or third parties except under separate and special arrangement and at an additional fee. Any subsequent copies of this appraisal report will be furnished on a cost plus expenses basis, to be negotiated at the time of request.


Fee The fee for this appraisal or study is for the service rendered, and not for time spent on the physical report. The acceptance of the report by the client takes with it the agreement and acknowledgement that the client will pay the negotiated fee, whether said agreement was verbal or written. The fee is in no way contingent on the value estimated.


SECTION 11 CERTIFICATION Uniform Standards of Professional Appraisal Practice (USPAP) Standard Rule R-3 indicates that, “. . .

each written real property appraisal report must contain a signed certification . . . “8 Therefore in compliance with this requirement, the undersigned do hereby certify, except as otherwise noted in this appraisal report, that: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions

and limiting conditions, and is our personal, impartial and unbiased professional analyses, opinions, and conclusions.

3. We have no present or prospective interest in the property that is the subject of this report,

and no personal interest with respect to the parties involved. 4. We have no bias with respect to the property that is the subject of this report or to the parties

involved with this assignment. 5. Our engagement in this assignment was not contingent upon developing or reporting

predetermined results. 6. Our compensation for completing this assignment is not contingent upon the development or

reporting of a predetermined value or direction in value that favors the cause of the client, the amount of 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.

7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in

conformity with Title XI of the Federal Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA), the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation, and the Office of the Comptroller of the Currency (OCC).

8. 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 Standards of Professional Practice of the Appraisal Institute.

9. Our employment was not conditioned upon our appraisal producing a specific value or a value

within a given range. Future employment prospects were not based upon whether a loan application is approved. No pressure was placed upon us to estimate a specific value. Furthermore, the appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan.

10. The use of this report is subject to the requirements of the Appraisal Institute relating to

review by its duly authorized representatives.

8 USPAP 2018/2019 Edition


11. As of the date of this report, Mr. Kurt D. Kleinman, MAI has completed the requirements under the continuing education program of the Appraisal Institute.

12. No one provided significant professional assistance to the persons signing this report. 13. The appraisers state that they have the knowledge and experience necessary to complete the

assignment competently. 14. We have made a personal inspection of the property that is the subject of this report. 15. We have not performed any services regarding the subject property within the past three

years, as an appraiser, or in any other capacity.

Kurt D. Kleinman MAI Arizona Certified General Certificate No. 30272 [email protected] 480-464-7800 ext:26

Jared D. Kleinman Arizona Cert. General Real Estate Appraiser No. 31582 [email protected] 480-464-7800 ext:22




SECTION 12 ADDENDA


QUALIFICATIONS KURT D. KLEINMAN Education Bachelor of Science Degree, Geography, Brigham Young University, Dec., 1986 Real Estate Principles and Practice, Brigham Young University, 1984 Real Estate Investment, Arizona State University, 1986 Real Estate Development, Arizona State University, 1986 Real Estate Law, Arizona State University, 1986 Appraisal Institute Course 1A-1: Real Estate Appraisal Principles, Tempe, 1987 Appraisal Institute Exam 1A-2: Basic Valuation Procedures, Tempe, 1988 Appraisal Institute Course 1B-A: Capitalization Theory and Technique, Tempe, 1988 Appraisal Institute Course 1B-B: Capitalization Theory and Technique, Tempe, 1991 Appraisal Institute Course 2-1: Case Studies in Real Estate Valuation, Tempe, 1992 Appraisal Institute Course 2-2: Report Writing and Valuation Analysis, Tempe, 1992 Appraisal Institute Course 410: Standards of Professional Practice Part A (USPAP), Tempe, 1994 Appraisal Institute Course 420: Standards of Professional Practice Part B, Tempe, 1994 Appraisal Institute Course 430: Standards of Professional Practice Part C, Phoenix, 1999 Appraisal Institute Course: Appraiser’s Complete Review, Tempe, 1994 Appraisal Institute Course: Real Estate Evaluations and the Appraisal Industry, Phoenix, 1995 Appraisal Institute Course: Subdivision Analysis, Phoenix, 1996 Appraisal Institute Course: Small Hotel/Motel Valuation, Park City, 1998 Appraisal Institute Course: Valuation of Detrimental Conditions in Real Estate, San Francisco,

1998 Appraisal Institute Course: Analyzing Operating Expenses, Phoenix, 1998 Appraisal Institute Course: REITS and the Role of the Professional Appraiser, New Jersey, 1999 Appraisal Institute Course: Highest and Best Use Case Study, New Jersey, 1999 Appraisal Institute Course: Partial Interest Valuation – Undivided, New Jersey, 1999 Appraisal Institute Course: REITS and the Role of the Real Estate Professional, New Jersey, 1999 Appraisal Institute Course: Online FHA and The Appraisal Process, 1999 Appraisal Institute Course: Online Appraising From Blueprints, 1999 Appraisal Institute Course: Online Residential Design & Functional Utility, 1999 Appraisal Institute Course: Online FHA and The Appraisal Process, 2000 Appraisal Institute Course: Online Residential Property Construction and Standard, Hawaii, 2000 Appraisal Institute Course: Appraisal Consulting: A Solutions Approach for Standard, 2002 Appraisal Institute Course: Technology Update, Part II, Computer Hardware & Standard, Hawaii,

2002 Appraisal Institute Course: Technology Update, Part II, Computer Hardware & Standard, Hawaii,

2002 Appraisal Institute Course: 15-Hour National USPAP Course, San Diego, 2004 Appraisal Institute Course: 7-Hour National USPAP Update Course, Flagstaff, 2006 Appraisal Institute Course: Introduction to GIS Applications for Real Estate Standard, 2006 Appraisal Institute Course: Supervising Appraisers in Arizona, Arizona, 2008 Appraisal Institute Course: 7-Hour National USPAP Update Course, Arizona, 2008 Appraisal Institute Course: Analyzing Distressed Real Estate, 2008 Appraisal Institute Course: Analyzing Operating Expenses, 2008 Appraisal Institute Course: Appraising Convenience Stores, 2008 Appraisal Institute Course: Cool Tools: New Technology for Real Estate, 2008 Action Environmental Services: Site Assessments - The Legal Approach, Lynn Olson, Instructor -

August 22-24, 1991, Tempe Arizona School of Real Estate: Fair Housing ADA, Scottsdale, 1996 Arizona School of Real Estate: How to Exchange Real Estate, 1996 Arizona School of Real Estate: Foreclosures, 1996


Professional Affiliations and Appointments MAI: Member of the Appraisal Institute, Certificate No. 10637 Currently certified as a General Real Estate Appraiser with the State of Arizona, No. 30272 (Expires August 31, 2018) Formerly appointed as a Member on the State Board of Equalization, one of 15 board members to hear all real estate tax appeals (particularly values over $500,000 in value). Experience Currently a principal with KS Appraisal (Kleinman & Sessions) a full service appraisal firm. Formerly, employed with Sell, Huish & Associates, Inc., Real Estate Appraisers and Consultants, 4625 South Lakeshore Drive, Tempe, Arizona 85282-7127 (April 1987 to October 1995). PARTIAL LIST OF PROPERTY TYPES: Have appraised or assisted in the appraisal of the following types of property (proposed and existing): Commercial Industrial Single and multi-family residential Farms Cotton Gins Mobile Home and RV Parks Shopping centers Service stations Highway right-of-way Mini-storage Hotels High-rise Office buildings Subdivisions Car Dealerships Restaurants Time Share Geographic Area State of Arizona State of Utah State of California State of Nevada State of Colorado



QUALIFICATIONS JARED D. KLEINMAN

Education McKissock Education Appraisal of Fast Food Facilities-August 2015

McKissock Education Appraisal of Land Subject to Ground Leases-August 2015

Appraisal Institute 7-Hour National USPAP Update Course-May 2014

Appraisal Institute Analyzing Operating Expenses-September 2013

McKissock Education Construction Details and Trends-August 2013

McKissock Education Appraisal Applications of Regression Analysis-August 2013

Appraisal Institute 7-Hour National USPAP Update Course-April 2013

Appraisal Institute Online Marshal & Swift Commercial Cost Training-August 2011

McKissock Education How to Analyze & Value Income Properties-August 2011

McKissock Education Appraising & Analyzing Retail Shopping Centers for Mortgage Underwriting-Aug.11

Appraisal Institute 7-Hour National USPAP Update Course-July 2011

Arizona Appraiser State Conference Fair Value Implications of the Appraisal, Tract C-Economic Outlook/Market Insight/Valuation across Borders, Phoenix October 2009

Appraisal Institute Appraising Distressed Commercial Real Estate, Mesa, May 2009

Arizona School of Real Estate 14-Hour National USPAP Course, Scottsdale, December 2008

Arizona School of Real Estate Course 104, Part B: Environmental Concerns / American Disabilities Act / Land Planning & Zoning, Scottsdale, April 2006

Arizona School of Real Estate Course 104, Part A: Advanced Income Property Analysis & Valuation- April 06

Arizona School of Real Estate Course 103: Income Property Analysis and Valuation, Scottsdale, March 2006

Arizona School of Real Estate Course 102: Intermediate / Advanced Appraisal Techniques-February 2006

Arizona School of Real Estate Course 101: Fundamentals of Real Estate Appraisal, Scottsdale-January 2006

Arizona School of Real Estate National Uniform Standards of Professional Appraisal Practice-January 2006

Associates of Arts-Chandler Gilbert Community College, Chandler, Arizona Graduation Date: December 2012

Professional Affiliations and Appointments Certified General Real Estate Appraiser- State of Arizona, No. 31582 (Expires November 30, 2019) Experience Currently with KS Appraisal (Kleinman & Sessions) a full service appraisal firm (November 1999 – Present). Geographic Area - State of Arizona Partial List of Property Types: Have appraised or assisted in the appraisal of the following types of property (proposed and existing): Commercial Industrial Single and multi-family resident Mobile Home and RV Parks Shopping centers Service stations Mini-storage Hotels Car Dealerships Restaurants High-rise Office buildings

Vacant land Charter school facilities Assisted living facilities Multi-tenant properties Automotive repair Proposed construction Aircraft Hangars Family entertainment centers

Documents

PREPARED FOR PREPARED BY · The narrative report that follows sets forth the data and analyses upon which our conclusions are based. Sincerely, Kurt D. Kleinman MAI Arizona Certified