AN APPRAISAL OF
DESERT SPRINGS MEDICAL PLAZA
LAS VEGAS, NEVADA
2
(logo) VALUATION COUNSELORS GROUP, INC.
340 Interstate North Parkway
Atlanta, Georgia 30339
(404) 955-0088
(Fax) 955-0466
February 21, 1994
Crescent Capital Trust, Inc.
One Perimeter Park South
Suite 335-S
Birmingham, Alabama 35243
Attention: Mr. John W. McRoberts
President & Chief Financial Officer
Gentlemen:
In accordance with your request, we are pleased to submit this appraisal report
covering the market value of the medical office building identified as follows:
DESERT SPRINGS MEDICAL PLAZA
2121 EAST FLAMINGO ROAD
LAS VEGAS, NEVADA
The purpose of this valuation is to estimate the market value of the subject
property's leased fee estate as of January 1, 1994, the effective date of this
report. The report is to be used for asset valuation purposes. Crescent
Capital Trust is acquiring this office building for the purpose of establishing
a real estate investment trust (REIT). This valuation assumes that the
prospective REIT is the owner of the property with Quorum Health Group
guaranteeing an annual rental income stream of $528,750. This would correlate
to an average square foot amount, based upon the total leasable square footage
of the subject building, of $19.80 (rounded). This average rate for leasable
square footage appears reasonable based upon our research of the market and
market comparables.
This appraisal investigation includes visits to the facility, discussions with
the current owners and management of the property, a review of available
financial data, discussions with local brokers and government offices, and
research and analysis of the market.
3
Crescent Capital Trust, Inc.
February 21, 1994
Page Two
"Market value" is defined as:
"The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in
this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions
whereby:
o buyer and seller are typically motivated;
o both parties are well informed or well advised, and acting in
what they consider their own best interests;
o a reasonable time is allowed for exposure in the open market;
o payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o 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."
[The Appraisal of Real Estate, p. 21, 10th Ed., published by The
Appraisal Institute.]
The Desert Springs Medical Plaza is a two-story, Class A, 33,360 gross square
foot building constructed in 1974. This building is currently 100 percent
occupied with a net leasable area of 26,701 square feet.
In arriving at the opinion expressed in this report, it is assumed that the
title to the property is free and clear and held under responsible ownership.
The information furnished us by others is believed to be reliable, but no
responsibility for its accuracy is assumed. The value reported herein is based
upon the integrity of the information provided.
4
Crescent Capital Trust, Inc.
February 21, 1994
Page Three
Based upon the procedures, assumptions and conditions outlined in this report,
we estimate the market value of the leased fee interest in the subject medical
office building, as of January 1, 1994, to be as follows:
$4,800,000
==========
We have no responsibility to update our report for events and circumstances
occurring after the date of this report.
Neither the whole, nor any part of this appraisal or any reference thereto may
be included in any document, statement, appraisal or circular without Valuation
Counselors Group, Inc.'s prior written approval of the form and context in
which it appears.
This appraisal report consists of the following:
o This letter outlining the services performed;
o Certifications of the appraisers;
o A Statement of Facts and Limiting Conditions;
o A Summary of Salient Facts and Conclusions;
o A Narrative section detailing the appraisal of the property;
and
o An Exhibit section containing supplementary data.
A copy of this report and the working papers from which it was prepared will be
kept in our files for eight years.
Respectfully submitted,
VALUATION COUNSELORS GROUP, INC.
/s/ Patrick J. Simers
-----------------------
Patrick J. Simers
Managing Director
PJS:jef
5
APPRAISER CERTIFICATION
We, the undersigned, do hereby certify that to the best of our knowledge and
belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions and are our personal,
unbiased professional analyses, opinions, and conclusions.
We have no present or prospective interest in the property that is the
subject of this report, and have no personal interest or bias with
respect to the parties involved.
Our compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in or the use of this
report.
Our analyses, opinions, and conclusions were developed, and this
report has been prepared in conformity with the requirements of the
Code of Professional Ethics, the Appraisal Institute, American Society
of Appraisers, and the Uniform Standards of Professional Appraisal
Practice.
The use of this report is subject to the requirements of the Appraisal
Institute and American Society of Appraisers relating to review by its
duly authorized representatives.
Cheryl Worthy-Pickett of Valuation Counselors has made a personal
inspection of the property that is the subject of this report.
John Bodine and Cheryl Worthy-Pickett provided significant
professional assistance to the person signing this report.
/s/ Patrick J. Simers Cheryl Worthy-Pickett
------------------------------ ------------------------
Patrick J. Simers Cheryl Worthy-Pickett
Managing Director Senior Appraiser
Nevada Certified General Real Estate
Appraiser No. 01339
6
NOT TRANSFERABLE NOT TRANSFERABLE
STATE OF NEVADA - DEPARTMENT OF COMMERCE
REAL ESTATE DIVISION
LICENSE: 01339 This Is to Certify That ISSUE: 11/23/1993
SIMERS, PATRICK J
90 DAY PERMIT CERTIFIED GENERAL APPRAISER
340 INTERSTATE N PARKWAY - #440
ATLANTA GA 30339
IS DULY AUTHORIZED TO ACT AS A REAL ESTATE APPRAISER FROM BUSINESS ADDRESS
STATED HEREIN TO 02/21/1994 UNLESS LICENSE OR REGISTRATION IS SOONER REVOKED,
CANCELLED, WITHDRAWN, OR INVALIDATED.
EXPIRES, FEBRUARY 21, 1994
IN WITNESS WHEREOF, THE DEPARTMENT OF COMMERCE, REAL ESTATE DIVISION, by virtue
of the authority vested in it by Chapter 645C, Nevada Revised Statutes has
caused the License or Registration to be issued with its Seal printed thereon.
This license or registration must be displayed conspicuously in place of
business.
REAL ESTATE DIVISION
LARRY D. STRUVE
DIRECTOR OF COMMERCE
Administrator
7
STATEMENT OF FACTS AND LIMITING CONDITIONS
Valuation Counselors Group, Inc. strives to clearly and accurately disclose the
assumptions and limiting conditions that directly affect an appraisal analysis,
opinion, or conclusion. To assist the reader in interpreting this report, such
assumptions are set forth as follows:
Appraisals are performed, and written reports are prepared by, or under the
supervision of, members of the Appraisal Institute in accordance with the
Institute's Standard of Professional Practice and Code of Professional Ethics.
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment. If
the need for subsequent services related to an appraisal assignment (e.g.,
testimony, updates, conferences, reprint or copy services) is contemplated,
special arrangements acceptable to Valuation Counselors Group, Inc. must be
made in advance. Valuation Counselors Group, Inc. reserves the right to make
adjustments to the analysis, opinions and conclusions set forth in the report
as we may deem necessary by consideration of additional or more reliable data
that may become available.
No opinion is rendered as to legal fee or property title, which are assumed to
be good and marketable. Prevailing leases, liens and other encumbrances,
including internal and external environmental conditions and structural
defects, if any, have been disregarded, unless otherwise specifically stated in
the report. Sketches, maps, photographs, or other graphic aids included in
appraisal reports are intended to assist the reader in ready identification and
visualization of the property and are not intended for technical purposes.
It is assumed that: no opinion is intended in matters that require legal,
engineering, or other professional advice which has been or will be obtained
from professional sources; the appraisal report will not be used for guidance
in legal or professional matters exclusive of the appraisal and valuation
discipline; there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and floodplain, unless otherwise noted;
there are no regulations of any government entity to control or restrict the
use of the property unless specifically referred to in the report; and the
property will not operate in violation of any applicable government
regulations, codes, ordinances or statutes.
In the absence of competent technical advice to the contrary, it is assumed
that the property being appraised is not adversely affected by concealed or
unapparent hazards, such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste or radioactivity. The appraiser is not
qualified to detect such substances.
8
STATEMENT OF FACTS AND LIMITING CONDITIONS
No engineering survey has been made by the appraiser. Except as specifically
stated, data relative to size and area were taken from sources considered
reliable, and no encroachment of real property improvements is considered to
exist.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; however, no responsibility, whether
legal or otherwise, is assumed for its accuracy, and cannot be guaranteed as
being certain. All facts and data set forth in the report are true and
accurate to the best of Valuation Counselors Group, Inc.'s knowledge and
belief. No single item of information was completely relied upon to the
exclusion of other information.
It should be specifically noted by any prospective mortgagee that the appraisal
assumes that the property will be competently managed, leased, and maintained
by financially sound owners over the expected period of ownership. This
appraisal engagement does not entail an evaluation of management's or owner's
effectiveness, nor are we responsible for future marketing efforts and other
management or ownership actions upon which actual results will depend.
No effort has been made to determine the impact of possible energy shortages or
the effect on this project of future federal, state or local legislation,
including any environmental or ecological matters or interpretations thereof.
The date of the appraisal to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The
value is based on the purchasing power of the United States dollar as of that
date.
Neither the report nor any portions thereof, especially any conclusions as to
value, the identity of the appraiser, or Valuation Counselors Group, Inc.,
shall be disseminated to the public through public relations media, news media,
sales media or any other public means of communications without the prior
written consent and approval of Valuation Counselors Group, Inc.
Unless otherwise noted, Valuation Counselors Group, Inc. assumes that there
will be no changes in tax regulations.
No significant change is assumed in the supply and demand patterns indicated in
the report. The appraisal assumes market conditions observed as of the current
date of our market research stated in the letter of transmittal. These market
conditions are believed to be correct; however, the appraisers assume no
liability should market conditions materially change because of unusual or
unforeseen circumstances.
9
STATEMENT OF FACTS AND LIMITING CONDITIONS
The report and the final estimate of value and the prospective financial
analyses included therein are intended solely for the information of the person
or persons to whom they are addressed, solely for the purposes stated and
should not be relied upon for any other purpose. Any allocation of total price
between land and the improvements as shown is invalidated if used separately or
in conjunction with any other report.
A copy of this report and the working papers from which it was prepared will be
kept in our files for eight years.
10
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
GENERAL DATA
Effective Date of Value: January 1, 1994
Last Date of Inspection: February 21, 1994
Property Identification: DESERT SPRINGS MEDICAL PLAZA,
2121 East Flamingo Road, Las
Vegas, Nevada
Interest Appraised: Leased Fee Estate
Building Area: 33,360 gross square feet; 26,701
leasable square feet
Subject Land Size: 3.34 acres, or 145,490 square
feet
Improvements Description: A two-story, Class A, structure
constructed in 1974.
CONCLUSIONS
Cost Approach: $4,600,000
Sales Comparison Approach: $3,100,000
Income Approach: $4,800,000
Final Value Estimate: $4,800,000
==========
11
TABLE OF CONTENTS
Page
----
Transmittal Letter
Appraiser Certifications
Statement of Facts and Limiting Conditions
Summary of Salient Facts and Conclusions
INTRODUCTION 1
Property Identification 1
Purpose and Effective Date of the Appraisal 1
Function of the Appraisal 1
Scope of the Appraisal 1
Property Rights Appraised 2
Definition of Value 2
History of the Property 3
History and Nature of the Business Environment 3
DESCRIPTIVE DATA 6
Regional Analysis 6
Neighborhood Analysis 10
Zoning 10
Real Estate Taxes and Assessments 10
Site Description 11
Improvements Description 12
HIGHEST AND BEST USE 14
VALUATION SECTION 18
Valuation Methodology 18
Cost Approach 19
Sales Comparison Approach 29
Income Approach 36
CORRELATION AND CONCLUSION 38
12
TABLE OF CONTENTS
-----------------
EXHIBIT SECTION
- ---------------
Exhibit A - Professional Qualifications
Exhibit B - Legal Description
Exhibit C - Area Map
Exhibit D - Neighborhood Map
Exhibit E - Comparable Land Sale Location Map
Exhibit F - Plat Map
Exhibit G - Building Descriptions
Exhibit H - Rent Comparables Summary
Exhibit I - Subject Photographs
13
INTRODUCTION
PROPERTY IDENTIFICATION
The subject of this appraisal is the Desert Springs Medical Plaza (hereinafter
referred to as the "Plaza") located in Las Vegas, Nevada. The Plaza, located
at 2121 East Flamingo Road, is a two-story, Class A, 33,360 gross square foot
building with 26,701 leasable square feet, constructed in 1974. This building
is currently 100 percent occupied.
A legal description of the property and detail building description is included
in the Exhibit section of the report.
PURPOSE AND EFFECTIVE DATE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of the real
property identified above. The effective date of valuation is January 1, 1994.
FUNCTION OF THE APPRAISAL
The report is to be used for internal financial valuation purposes. The owner,
Quorum Health Group, Inc., is considering the sale of four medical office
buildings for the purpose of establishing a real estate investment trust
(REIT). The subject property would be included in that sale.
SCOPE OF THE APPRAISAL
This appraisal engagement includes all three of the standard valuation
approaches and is in conformity with the requirements of the Code of
Professional Ethics and Standards of Professional Practice of the Appraisal
Institute and Society of Real Estate Appraisers. The scope of our assignment
included collecting, verifying and analyzing market and property data
applicable to the three approaches and consistent with the property's highest
and best use. The results of the three approaches are then reconciled into a
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final value conclusion considering the relevancy and quality of data presented
in each of the approaches.
PROPERTY RIGHTS APPRAISED
The property right appraised herein is the Leased Fee Estate.
"Leased Fee Estate" is:
"an ownership held by the landlord with the right of use and occupancy
conveyed by lease to others; the rights of lessor (the leased fee
owner) and leased fee are specified by contract terms contained within
the lease."
[The Appraisal of Real Estate, p. 123, 10th Ed., published by The
Appraisal Institute.]
DEFINITION OF VALUE
For the purpose of this valuation, "market value" is defined as follows:
"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:
o buyer and seller are typically motivated;
o both parties are well informed or well advised, and acting in
what they consider their own best interests;
o a reasonable time is allowed for exposure in the open market;
o payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o 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."
[The Appraisal of Real Estate, P. 21, 10th Ed., published by The
Appraisal Institute.]
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HISTORY OF THE PROPERTY
The subject medical plaza was acquired on September 30, 1993 by Quorum Health
Group, Inc. This acquisition was part of the acquisition of the Desert Springs
Hospital. The purchase of the facility was recorded in the Clark County
records, Document Record 00702. The recorded purchased price of the Desert
Springs Hospital, inclusive of the medical plaza, was $140,000,000. The
allocated value for the Desert Springs Medical Plaza was $4,717,839.
Based upon confirmation by Crescent Capital Trust, the REIT has agreed upon a
purchase price of $4,700,000 for the medical office building.
HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT
United States Economic Performance and Outlook
The value of the business enterprise is influenced by potential returns
available from alternative investments. These return expectations are affected
by economic conditions as they impact the ability of a business enterprise to
generate a return on its invested capital. Perhaps the most important economic
indicator affecting potential investor returns is the aggregate demand for
goods and services. Aggregate demand is measured by a country's Gross Domestic
Product (GDP), which is the sum of all domestic expenditures for consumption,
government services, and net exports.
The United States economy has been in a period of slow economic growth, but the
rate of growth appears to have increased in recent months. Gross Domestic
Product (GDP) increased at a 2.1 percent annual rate during 1992 after
declining (1.2%) during 1991. The GDP was 0.7 percent and 1.6 percent,
respectively, for the first and second quarters of 1993, and an estimated 4.0
percent for the fourth quarter of 1993.
The components of GDP indicate that the economic recovery is affecting many
sectors of the economy. Personal consumption expenditures, which account for
approximately two-thirds of GDP, rose only 1.3 percent during the first half of
1993. Non-Residential Fixed Investment advanced 2.2 percent and Residential
Fixed Investment grew 1.7 percent. Federal Government Purchases declined
(0.6%) over the same period.
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Federal Government Purchases account for 7.2 percent of the total GDP, and this
decline is limited to the rate of overall GDP growth.
The value of the business enterprise is also affected by the current and
expected levels of inflation and interest rates. Inflation creates uncertainty
in the mind of investors as they attempt to estimate future investment returns.
This uncertainty is incorporated into both the required return on equity and
debt capital. The Federal Reserve has warned, however, that interest rates
will be pushed higher if inflation begins to show signs of "heating up".
The economic downturn in the early 1990s resulted in sharply lower inflation.
The Consumer Price Index (CPI) ended 1992 with a 3.0 percent increase compared
to a 4.2 percent increase during 1991. The CPI for 1993 is currently estimated
at 3.3 percent. The GDP Deflator, a much broader price level index, ended 1992
with a 2.6 percent annual increase compared to a 4.0 percent increase during
1991. The GDP Deflator is currently estimated at 2.5 percent for 1993.
The Federal Reserve Bank has adopted a relatively easier monetary policy as a
result of the recession. Interest rates, as represented by long-term Treasury
bond yields, declined approximately ten basis points compared to rates existing
a year earlier. Long-term corporate bond rates have also decreased and the
Federal Reserve's discount rate reductions have prompted commercial banks to
lower their prime lending rate to 6.0 percent. Selected monetary statistics
are presented in the following table.
INTEREST RATES AND SELECTED STATISTICS
JANUARY 6, 1994 JANUARY 2, 1992
Federal Fund Rate 3.0% 3.9%
90-Day Treasury Bill Rate 3.1% 3.9%
30-Year Treasury Bond 6.4% 7.5%
Aaa Bond Yield 6.9% 8.2%
Prime Rate 6.0% 6.5%
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Economic Outlook
According to Value Line's Quarterly Economic Review, dated December 24, 1993,
the economic recovery is now 2.5 years old, but shows much slower growth than
normal for a mature recovery. Among factors cited by Value Line for
contributing to the recent slow growth are "high debt, stagnant personal
income, low consumer confidence and a troubling unemployment rate". Recent
improvements have focussed on the auto, machinery, steel, housing and specialty
retailer market segments. Value Line cautions, however, that the recent
improvements in the economy are being limited by a slow job growth base. Value
Line's Quarterly Economic Review identified the following estimates for
selected economic statistics from 1993 to 1995.
1993 1994 1995
Real GDP 2.6% 3.3% 3.3%
Personal Consumption Expenditures 3.0% 2.7% 2.3%
Federal Government Purchases (4.8%) (5.8%) (4.0%)
30-Year Treasury Bond Yields 6.6% 6.6% 6.8%
Prime Rate 6.0% 6.2% 6.4%
Consumer Price Index 3.1% 3.2% 3.3%
In summary, these factors play an important part in determining the supply and
demand for real property, and, indirectly, the value of properties. Most of
the forces discussed above are indicating an on-going soft demand for many
types of commercial real estate. This soft demand has caused some property
values to remain flat and some to decline. The lower interest rates in recent
periods, however, are serving to stabilize commercial property values.
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DESCRIPTIVE DATA
REGIONAL ANALYSIS
The subject property is located in the southern section of the city of Las
Vegas, in the county of Clark, and the state of Nevada. An area map is
included in the Exhibit section of this report. Demographic information at the
county and state levels is presented below. This data was obtained from Las
Vegas Perspective 1993, and from National Planning Data Corporation (NPDC), a
service that provides both demographic and economic market data for all
geographic areas in the United States.
Demographic Analysis
According to NPDC, the population of Clark County grew from 463,086 in 1980 to
741,459 in 1990. On an annual compounded basis, the growth rate was 4.8
percent. During the same time period, the population in Nevada grew from
800,492 in 1980 to 1,201,833 in 1990, a 4.1 percent compounded annual growth
rate. It is estimated that by 1997, total population at the county and state
levels will be 1,018,240 and 1,615,121, respectively. This represents annual
growth rates of 4.6 percent for the county and 4.3 percent for the state over
the period 1990 to 1997.
The total number of households at the county level rose from 173,888 in 1980 to
287,025 in 1990, thus representing an increase of 5.1 percent on an annual
compounded basis. The total number of households in Nevada increased at a
slower pace than that of the county. Between 1980 and 1990, the number of
households in the state rose from 304,324 in 1980 to 466,297 in 1990, an
increase of 4.4 percent compounded annually.
The 1990 median age of Clark County's population was 33.1 years, with a median
age of the state at 33.3 years. Both geographic areas are considered to have
mature populations similar to the national median age of 33.1 years.
Approximately 7.5 percent of the total population in Clark County in 1980 was
65 years and older. In 1990, the percentage increased to 10.5 percent and is
expected to reach 10.9 percent by 1997. Corresponding percentages for the
state were 8.2 percent in 1980, 10.6 percent in 1990, and 11.0 percent
estimated for 1997.
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Based on the preceding data, the estimated change in population of persons 65
years and older at both the county and state levels is as follows:
Annual Compounded
1990 1995 Rate of Change
-------- -------- ------------------
County:
Total Population 741,459 1,018,240 4.6%
% 65 Years + 10.5% 10.9%
Population 65 Years + 77,678 110,546 5.2%
State:
Total Population 1,201,833 1,615,121 4.3%
% 65 Years + 10.6% 11.0%
Population 65 Years + 127,631 177,212 4.8%
Source: NPDC
The above table supports the outlook that populations at both the county and
state levels will continue to mature. As indicated, the total population of
persons 65 years and older will increase at annual rates of 5.2 percent for the
county and 4.8 percent for the state. For the most part, these rates are
significantly higher than the estimated overall rates of growth between 1990
and 1997.
Economic Analysis
The median household income for Clark County increased from $18,113 in 1980 to
$30,714 in 1990, representing an annual compounded rate of change of 5.4
percent. In comparison, the median household income in Nevada rose 5.5 percent
on an annual compounded basis over the same time period. The state's median
income in 1980 was $18,216 and increased to $31,011 in 1990.
Clark County's strong economic well-being is due to its diversification. Of
the county's total number of employed (not including agriculture or mining
occupations), the service industry accounts for nearly 46 percent, retail and
wholesale trade 21 percent, government 11 percent, and construction 8.0
percent. Combined, the total number of
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employed persons in nonagricultural and mining occupations accounted for over
75 percent of the total. This distribution indicates a fairly well-balanced
economy which is less prone to economic hardship should one industry experience
a downturn.
The Nevada Department of Economic Security lists 35 businesses in Clark County
which have more than 1,000 employees. Of these, 24 were hotels and/or casinos.
Other major employers included three utility companies, three government
agencies, two banks, two engineering firms, and one hospital.
Tourism provides, by far, the greatest source of income for the area. In 1992,
21.9 million tourists generated nearly $14.7 billion in income for the Las
Vegas Metropolitan Statistical Area (MSA).
Transportation is provided by U.S. Interstate Highway 15 south to Los Angeles
and north to Salt Lake City, U.S. Routes 93 and 95 south to Phoenix and north
to Tonopah; McCarran International Airport, which has been expanded with a new
Charter/ International terminal to further facilitate airline access, Amtrak
rail passenger service, and major bus lines.
The median purchase price for a home in the Las Vegas Metropolitan Statistical
Area (MSA) was $119,900 in 1992, with 63 percent of households owning their
homes.
The Suburban East sub-market consists of office buildings located east of
Interstate 15, not including those in the Downtown sub-market. In the
Suburban East sub-market, the most clearly defined corridor is Flamingo Road.
The heaviest concentration of office development in this corridor is located
between Maryland Parkway on the west and Eastern Avenue on the east. As the
office market has expanded, Eastern and Tropicana Avenues have also become
popular office locations. More recently a small cluster of office buildings
has developed in the area of the Green Valley Town Center in Henderson.
The Suburban East sub-market absorbed approximately 5,560 square feet, based
upon a study developed by Coopers and Lybrand. However, due to its inventory
base, the sub-market vacancy rate increased slightly to 14.5 percent. The
subject property is presently 100 percent occupied and located next to hospital
that is growing. We would not anticipate any dramatic decline in its occupancy
over the foreseeable future.
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TABLE 1
SUMMARY OF OFFICE MARKET CONDITIONS
BY REGION AND AGE
QUARTER 2 1993
METRO LAS VEGAS
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ASKING
O C C U P A N C Y D A T A ABSORPTION LEASE
------------------------------------------------ ---------- RATES
Total Unoccupied Unoccupied ------------
Space but and Current Average & Sq. Ft. Occupied Committed Available Quarter Weighted
------------- Sq. Ft. Sq. Ft. Sq. Ft. ----------- Average
# of % of ------------ ------------- ------------- Previous ------------
Submarket/Age Buildings Metro Total % % % 12 mos. $/Sq. Ft.
- ------------------------------------------------------------------------------------------------------------------------------------
Downtown 15 909,483 856,431 8,000 45,052 2,892 $1.39
13.0% 94.2% 0.9% 5.0% 16,321 $1.60
Suburban East 56 3,566,062 3,044,589 4,750 516,723 5,560 $1.31
50.8% 85.4% 0.1% 14.5% 65,062 $1.45
Suburban West 55 2,537,481 2,268,522 17,250 251,709 33,598 $1.38
36.2% 89.4% 0.7% 9.9% 58,098 $1.48
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TOTAL 126 7,013,026 6,169,542 30,000 813,484 42,050 $1.35
Percent of Total 100.0% 88.0% 0.4% 11.6% 139,481 $1.48
- ------------------------------------------------------------------------------------------------------------------------------------
New 5 130,434 129,234 0 1,200 2,800 $1.18
1.9% 99.1% 0.0% 0.9% 47,700 $1.13
Recent 41 1,661,265 1,539,372 8,800 113,093 445 $1.44
23.7% 92.7% 0.5% 6.8% 83,698 $1.52
Mature 80 5,221,327 4,500,936 21,200 699,191 38,805 $1.31
74.5% 86.2% 0.4% 13.4% 8,083 $1.48
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Definitions:
New = First occupied within the last two years.
Recent = First occupied within the last three to five years.
Mature = First occupied six years ago or more.
Note: Percentage may not sum 100% due to rounding.
Source: Surveyed building owners and managers, June 1993
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NEIGHBORHOOD ANALYSIS
The subject property is located in the southern section of Las Vegas. It is
bounded by Flamingo Road to the north, Rochelle Avenue to the south, and Bruce
Street to the west. Burnham Avenue divides the hospital property from the
medical office building. A map of this area is included in the Exhibit section
of this report.
The subject's immediate area is comprised of a diverse sampling of commercial,
medical office, and large multi-family residential units along Flamingo Road.
Southwest Medical Associates, Paradise Valley Women's Care Center, Charter
Counseling Center, Cosmetic Surgery Center, and a physician's clinic surround
the subject providing a variety of healthcare services. South of the property
are primarily modest single-family homes.
The property has convenient access to Interstate 15, which is located two miles
west on Flamingo Road. McCarran International Airport is also approximately
two miles southwest of the property.
Currently, there are a total of eight hospitals in the Las Vegas area providing
2,278 beds. With the continued growth of Clark County virtually assured, we
believe that the resulting increased demand for quality healthcare should
provide the subject with a good basis for continued growth and high occupancy
levels.
ZONING
The subject property is zoned local business (C-1). Its use as a medical
office is permitted in accordance with the Conditional Use permit it has been
granted for the hospital site and its own separate zoning. Potential legal
uses include office/institutional, retail and restaurants.
REAL ESTATE TAXES AND ASSESSMENTS
The subject property was assessed in 1988 by the Clark County Property
Assessor. The property is taxed based upon approximately 35 percent of the
appraised value. The property is identified by parcel number 150-360-006. The
assessor's appraised values for the subject parcel is presented on the
following page.
-10-
23
Clark County Property Assessor's Appraised Value
------------------------------------------------
Land $1,091,857
Improvements 1,881,486
----------
$2,973,343
The subject is assessed at 35 percent of the appraised value. The indicated
assessed value is $1,040,670. The Clark County tax rate is 2.6347 per $100.
This would indicate a taxable amount of $27,418.53
SITE DESCRIPTION
The medical plaza site enjoys approximately 289 feet of frontage along Flamingo
Road to the north and approximately 536 feet along Burnham Avenue. Ingress and
egress is available from both streets, providing the primary public points of
entry and departure. As indicated by the plat map included in the Exhibit
section of this report, the site consists of an irregularly-shaped parcel
containing 3.34 acres.
The subject land is generally level at street grade rising only slightly
southwardly back toward the building improvements. Utilities to the sites
include water, sewer, electricity, cable, telephone and gas.
The subject properties appear to have adequate drainage and soil load-bearing
capabilities to support most development alternatives. A soil report, however,
was not made available to the appraiser and it is assumed, based on existing
improvement, that soil load-bearing capabilities are adequate.
We are not aware of any detrimental easements or encroachments encumbering the
site. Further, we assume that the subject site is not encumbered with
detrimental easements or encroachments. To our knowledge, no environmental
study has been conducted on the subject site. As appraisers, we are not
qualified to detect hazardous materials. Consequently, our report assumes that
there are no environmentally hazardous materials in the site or building that
would adversely affect the subject property's value.
According to the County Planning Office, the subject property is not located in
a flood plain zone.
-11-
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A legal description of the properties and a plat map are included in the
Exhibit section of this report.
IMPROVEMENTS DESCRIPTION
Medical Plaza
The site at 2121 East Flamingo Road is improved with a two-story medical office
building (MOB) containing a gross area of 33,360 square feet. The facility was
built in 1974.
The building has full frame construction with steel columns and beams. Floors
are mesh reinforced concrete with some brick on the ground floor and concrete
with steel joists on the second floor. The roof cover is bituminous roofing on
two-inch rigid insulation and two-inch vermiculite. The exterior walls are a
mixture of stucco and eight-inch clay tile masonry units.
Partitioning is generally drywall on metal studs dividing the building into
conventional medical suites. Finishes are generally good quality commercial
grade carpeting, vinyl asbestos tile and suspended acoustical fiber ceilings.
Mechanical services are typical for an office building of this type.
Electrical features include rigid conduit wiring, fluorescent fixtures with
snap switches, wall outlets, and a Westinghouse transformer.
Heating, ventilating and air conditioning are provided by an Ajax natural gas
boiler, an American hot water heater, and Commandair individual combination
1.5- to 5-ton air conditioning units.
The building is serviced by a U.S. Elevator 4,000-pound capacity elevator.
-12-
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Land Improvements - MOB
Land improvements consist of concrete and asphalt paving, concrete curbing,
yard lighting and signage, landscaping, a carport, and underground utility
lines.
Details of the construction are shown in the Exhibit section of this report.
DEFERRED MAINTENANCE
Construction of the subject's improvements date from their original
construction in 1974. The improvement is considered to have an effective age
of ten years based upon its continued renovation plan. The overall condition
of the facilities is considered above average. The short-lived building
components have been replaced periodically. Deferred maintenance is short-term
curable depreciation that should be corrected to ensure the facility remains
competitive with other facilities in the area. No deferred maintenance was
noted during our site inspection.
The design of the subject improvements is functional for their intended uses.
Accrued depreciation due to functional features is considered minimal and is
combined with physical depreciation.
The subject's location and surrounding development do not present any
limitation to the competitiveness of the facilities. Surrounding the subject
are several other medical establishments, which suggests no limitation in
attracting physicians and patients. Therefore, we are of the opinion that no
economic or external obsolescence exists.
-13-
26
HIGHEST AND BEST USE
The Appraisal Institute defines "highest and best use" as follows:
"The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value"
[The Appraisal of Real Estate, P. 45, 10th Ed. published by The
Appraisal Institute.]
The four categories of highest and best use analysis are:
1. Physically Possible - Uses which are physically possible for
the site and improvements being analyzed.
2. Legally Permissible - Uses permitted by zoning and deed
restrictions applicable to the site and improvements being
analyzed.
3. Financially Feasible - This step identifies if the physically
possible and legally permitted alternatives produce a net
income equal to or greater than the amount needed to satisfy
operating expenses.
4. Maximally Productive - This step clarifies which of the
financially feasible alternatives provides the highest value
consistent with the rate of return warranted by the market for
a particular use.
There are two types of highest and best use: THE HIGHEST AND BEST USE OF LAND
AS VACANT and THE HIGHEST AND BEST USE OF A PROPERTY AS IMPROVED. Both types
are discussed as follows using the four categories of highest and best use.
-14-
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As Vacant
The purpose of this analysis, given the site is vacant or can easily be made
vacant, is to determine if something should be constructed on the site, and, if
so, what should be constructed on the site.
PHYSICALLY POSSIBLE
The size and shape of the subject site is adequate for the development of a
number of alternative uses including small residential, commercial,
office/institutional, industrial and special-purpose properties. The site
possesses good access and visibility. The size of the parcel would preclude
any large developments.
LEGALLY PERMISSIBLE
As stated earlier in the Zoning section of this report, the property is
currently zoned "C-1", local business. Permitted uses in this general zoning
category vary widely. Potential legal uses would include some retail and
restaurants, office/institutional and hotels.
Surrounding uses include the hospital, other medical office uses, some
apartments and some older single-family residential properties. These use
patterns would likely preclude industrial, retail or future single-family
development on the site.
FINANCIALLY FEASIBLE
Having established that the site is physically suited for and legally
restricted to office/institutional development, the next consideration is
economic feasibility. Financially feasible uses for the site, if vacant, are
those uses that would generate an economic return to the land surrounding the
subject building.
-15-
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MAXIMALLY PRODUCTIVE
The maximally productive use is a financially feasible use that would produce
the greatest land value. Office/institutional use is physically possible and
legally permissible, and new development is financially feasible. Based on
this analysis, the current highest and best use of the land, if vacant, would
be for office/institutional development.
As Improved
The subject site is currently improved with a 26,701 rentable square footage
office building, and associated site improvements. The purpose of this
discussion is to determine whether to leave the improvements as they are, to
modify the improvements or to remove the improvements.
PHYSICALLY POSSIBLE
It would obviously be physically possible to leave the improvements as they
are, to demolish the existing improvements and replace them with new
improvements, or to make minor repairs to the deferred maintenance items on the
property. The improvements are considered functional.
LEGALLY PERMISSIBLE
The improvements, as improved, are a legal conforming use according to the City
of Las Vegas zoning guidelines. Under the zoning, the property could remain as
it is, be torn down or renovated.
FINANCIALLY FEASIBLE
The highest and best use of the land, if vacant, was to develop with an
office/institutional use based on the adjacent hospital's growth needs. Of the
physically possible and legally permissible changes that could be made to the
existing facility, demolishing the building would significantly reduce the
current asset value, and would not be financially feasible.
-16-
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MAXIMALLY PRODUCTIVE
The maximally productive use for the existing property is the financially
feasible use that produces the greatest property value. The only financially
feasible use is to correct any deferred maintenance that currently exists.
This will enable to the property to remain competitive in the leasing market.
The highest and best use, as improved, is to not make any major changes to the
current asset use. The improvements represent the current highest and best use
of the property.
-17-
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VALUATION SECTION
VALUATION METHODOLOGY
There are three principal methods to estimate the market value of the assets of
the subject property. These are summarized as follows:
COST APPROACH: This method is based on the principle of substitution,
whereby no investor would prudently pay more for a property than it
costs to buy land and build a comparable new building. The market
value is estimated by calculating the replacement costs of a new
building and subtracting all forms of depreciation and obsolescence
present in the existing facility. This provides a depreciated value
of the subject improvements if replaced new. The estimate of the
current value of the subject land is then added to provide a market
value of the property.
SALES COMPARISON APPROACH: The principle of substitution also says
that market value can be estimated as the cost of acquiring an equally
desirable substitute property, assuming no costly delay in making the
substitution. This method analyses the sales of other comparable
improved properties. Since two properties are rarely identical, the
necessary adjustments for differences in quality, location, size,
services and market appeal are a function of appraisal experience and
judgment.
INCOME APPROACH: This method is based on the principle of
anticipation, which recognizes that underlying value of the subject
property can be estimated by its cash flow or stream of earnings.
This approach simulates the future earnings for the property, and
converts those earnings into a present market value estimate.
Consideration has been given to each of the three methods to arrive at a final
opinion of value. The application of each approach to value is further
discussed in the appropriate sections which follow.
-18-
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COST APPROACH
In the Cost Approach, the subject property is valued based upon the market
value of the land, as if vacant, to which is added the depreciated replacement
cost of the improvements. The replacement cost new of the improvements is
adjusted for accrued depreciation resulting from physical deterioration,
functional obsolescence, and external (or economic) obsolescence.
The cost analysis involves three basic steps:
o Land value estimate.
o Estimated replacement cost of the improvements.
o Estimation of the accrued depreciation from all causes.
The sum of the market value of the land and the depreciated replacement cost of
the improvements and equipment is the estimated market value via the Cost
Approach.
Land Valuation
Land valuation, assuming the site is vacant, is based upon the following steps:
o A comparison with recent sales and/or asking prices for
similar land.
o Interviews with reliable real estate brokers and other
informed sources who are familiar with local real estate
activity.
o Our experience in estimating land values.
The following sales are located within the general market area of the subject
property and are considered to be representative of market activity and
conditions as of the valuation date. Unless otherwise indicated, the sales
involved arm's length transactions that conveyed a fee simple interest, and
only real property was included in the transactions.
-19-
32
Land Sale Number 1
Location: Flamingo Road, east of Arville Street
Date of Sale: September 5, 1991
Grantor: Marcor Development Company, Inc.
Grantee: Sun State Bank
Document Number: 91090500024
Sale Price: $1,064,810
Size: 106,286 square feet, or 2.44 acres
Unit Price: $10.02 per square foot
Zoning: C2, County Commercial District
Comments: Four miles west of subject.
Land Sale Number 2
Location: Twain Avenue, east of Eastern Avenue
Date of Sale: January 10, 1991
Grantor: Century Property Limited
Grantee: Diamond Villas Partners
Document Number: 011000465
Sale Price: $451,043
Size: 231,304 square feet, or 5.31 acres
Unit Price: $1.95 per square foot
Zoning: RE, Clark County
Comments: One-half-mile from subject in residential
area.
-20-
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Land Sale Number 3 (Listing)
Location: Flamingo Road, west of Topaz
Broker: McCardell Realty
Asking Price: $8.50 per square foot under current
zoning (R1),[$12.50 - $15.00 after
rezoning to C2 (1 - 3 months)]
Size: 129,809 square feet, or 2.98 acres
Unit Price: $8.50 per square foot (currently)
Zoning: R1 (Current) / C2 (Applied)
Comments: One-half-mile from subject on Flamingo
Road. Broker feels subject property is
worth $8.00 to $12.00 per square foot.
Land Sale Number 4 (Listing)
Location: Flamingo Road, west of Topaz
Broker: Realty Holdings Group
Asking Price: $15.00 per square foot
Size: 69,696 square feet or 1.6 acres
Unit Price: $15.00 per square foot
Zoning: C1
Comments: One-half-mile from subject on Flamingo
Road. Broker feels average property on
Flamingo Road is worth $8.00 to $9.00 per
square foot.
-21-
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SALE SUMMARY
SALE SALE SIZE UNIT PRICE
NUMBER DATE LOCATION SQ. FT. PER SQ. FT. ZONING
1 09/05/91 Flamingo Road and Arville Street 106,286 $10.02 C2
2 01/10/91 Twain Avenue and Eastern Avenue 231,304 $ 1.95 RE
3 Offered Flamingo Road and Topaz 129,809 $ 8.50 R1
4 Offered Flamingo Road and Topaz 69,696 $15.00 C1
SUBJECT 2121 EAST FLAMINGO ROAD 145,490 C1
The above sales indicate an unadjusted range of $1.95 to $15.00 per square foot
and range in size from 69,696 square feet to 231,304 square feet. The sales
occurred in 1991. No more recent sales of comparable land have been found.
Based on our analysis of the market and the recent occurrence of these
transactions, no adjustment for time is necessary. Financing for the sales is
deemed to be cash equivalent. As such, no adjustment for financing is
required. Adjustments are necessary to reflect differences in location, access
and exposure characteristics, size, zoning, and other factors influencing
value.
SALE NUMBER 1 is located approximately four miles west of the subject. The
sale is located on a heavily traveled commercial drive (Flamingo Road) and,
therefore, requires no adjustment for location and access. Also, the size of
the sale parcel is smaller than the subject. Typically, smaller parcels sell
for higher unit prices than larger tracts. The subject land is 3.34 acres. As
such, no adjustment for size was warranted, as the property could sell in
smaller lots. Topography and zoning is considered to be comparable and,
therefore, no adjustment is required. Overall, we have made no adjustment to
this sale and consider the sale the most comparable to the subject.
SALE NUMBER 2 is located approximately one-half-mile northeast of the subject.
The sale is located in a residential neighborhood with no frontage on a busy
street. Therefore, a significant upward adjustment is warranted for location.
Topography of the sale is considered comparable and requires no adjustment for
this factor. No adjustment is needed for size. Overall, we have adjusted the
sale upward in comparison to the subject, but have given the sale little
consideration in determining the value of the subject property.
-22-
35
SALE NUMBER 3 (LISTING) is located one-half-mile east of the subject on
Flamingo Road. An upward adjustment was necessary for location based upon the
limited visibility of the parcel as compared to the subject. The property is
smaller than the subject but, given the subject's characteristics, no
adjustment is necessary. Topography of the offered land is considered
comparable and requires no adjustment for this factor. Finally, a downward
adjustment is warranted to reflect the likely reduction of the offering price
during the negotiation process, and also to reflect the effects of rezoning the
property.
SALE NUMBER 4 (LISTING) is also located one-half-mile east of the subject on
Flamingo Road. Therefore, no adjustment is necessary for location or access.
The property is smaller than the subject but, given the subject's
characteristics, no adjustment is necessary. Topography of the offered land is
considered comparable and requires no adjustment for this factor. Finally, a
downward adjustment is warranted to reflect the likely reduction of the
offering price during the negotiation process, and also to reflect the
difference in zoning.
Based on the preceding analysis and discussions with local sources, we estimate
a land value of $10.00 per square foot for the medical office building. This
value was considered appropriate given the proximity of the parcel to Flamingo
Road and its current zoning. The resulting rounded land value is as follows:
$1,455,000
==========
-23-
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L A N D S A L E A D J U S T M E N T G R I D
Desert Springs Medical Plaza
Las Vegas, Nevada
Subject Land Comp Land Comp Land Comp Land Comp
Element #1 #2 #3 #4
Sale Price/SF $10.02 $1.95 $8.50 $15.00
Property Rights Fee Simple Same Same Same Same
Adjustment
----------------------------------------------
Adjusted Price/SF $10.02 $1.95 $8.50 $15.00
Financing Cash Cash Cash Cash Cash
Adjustment
----------------------------------------------
Adjusted Price/SF $10.02 $1.95 $8.50 $15.00
Conditions of Sale None None None None
Adjustment
----------------------------------------------
Adjusted Price/SF $10.02 $1.95 $8.50 $15.00
Market/Time
Adjustment 0% 0% -5% -5%
----------------------------------------------
Adjusted Price/SF $10.02 $1.95 $8.08 $14.25
Other Adjustments: 0% 50% 10% 0%
Location Adjustment 0% 0% 0% 0%
Topography Adjustment 0% 0% 0% 0%
Size Adjustment 0% 0% 0% 0%
Zoning Adjustment 0% 0% 0% 0%
Net Other Adjustments 0% 50% 10% 0%
FINAL ADJUSTED PRICE PER SF $10.02 $2.93 $8.88 $14.25
=============================================
-24-
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Building and Site Improvements
The building and site improvements have been valued on the basis of replacement
cost less accumulated depreciation. The cost new was estimated via the
segregated cost method, with cost factors obtained from Marshall Valuation
Services, Inc., a national cost manual. The unit cost includes both direct and
indirect costs, with adjustments made for special building features,
construction quality, time and location. The composite unit cost has then been
applied to the gross square footage of the building to derive the replacement
cost new. An amount representing entrepreneurial profit has also been included
in this analysis. This profit is a necessary element in the motivation to
construct the improvements and represents an additional amount the develop
would expect to receive for construction of the project. The amount of
entrepreneurial profit varies according to economic conditions and types of
developments. For the purpose of this report, entrepreneurial profit was
estimated to comprise ten percent of the direct and indirect building costs.
The total accumulated depreciation of a structure represents the loss in value
due to physical deterioration, functional obsolescence, or external (or
economic) obsolescence. Economic life of a structure or improvement is the
period over which they contribute to the value of the property. These terms
are defined as follows:
Physical Deterioration: The loss in value due to deterioration or
ordinary wear and tear, i.e., natural forces taking their toll of the
improvements. This begins at the time the building is completed and
continues throughout its physical life.
Functional Obsolescence: The loss in value due to poor plan,
functional inadequacy, or super-adequacy due to size, style, design, or
other items. This form of depreciation occurs in both curable or
incurable forms.
External (or Economic) Obsolescence: The loss in value caused by
forces outside the property itself. It can take many forms such as
excessive noise levels, traffic congestion, abnormally high crime
rates, or any other factors which affect a property's ability to
produce an economic income, thereby causing a decline in desirability.
Other forms of economic obsolescence may include governmental
restrictions, excessive taxes, or economic trends.
Economic Life: The economic life of a good quality medical office
buildings is typically 40 to 50 years.
-25-
38
Remaining Economic Life: Remaining economic life can be defined as the
number of years remaining in the economic life of the structure or
structural components as of the date of the appraisal.
Marshall Valuation Services, Inc., and the actual experience of other buildings
in the market, were use to estimate the overall economic life of the
improvements. The assignment of economic lives assumed that, except for the
building shell and foundation, building components would be replaced
periodically over the life of the building.
Physical Depreciation
The amount of physical depreciation and obsolescence in the subject building is
judged normal for a building of this age. Observation of the subject property
indicated that the structure and related component parts have been excellently
maintained through a continuous maintenance service program.
The Desert Springs Medical Plaza was constructed in 1974, and is in very good
condition. After taking into consideration all significant physical factors
affecting the subject property, it is judged that the subject has an effective
age equal to ten years. The remaining useful life is estimated to be 35 years.
This translates into a physical depreciation estimate of 22 percent (10 years
divided by 45 years). The amount of depreciation attributable to the property
has been estimated on a straight-line basis, which is founded on the assumption
that depreciation of a property occurs equally throughout its economic life.
The elements which make up site improvements have shorter economic lives than
the building. We have estimated the aggregate useful lives of these items to
be 20 years with an effective age of five years and a remaining useful life of
15 years. Therefore, the depreciation rate attributable to the site
improvements on a straight-line basis is estimated to be approximately 25
percent.
The total depreciation for the building is estimated to be $864,789, and the
depreciated value of the building replacement costs to be $3,066,069.
-26-
39
Cost Approach Conclusion
The schedule on the following page is a summary of the estimated replacement
cost by category for the subject building plus estimates of all forms of
depreciation.
Based on the investigation as previously defined, the market value of the
subject property by the Cost Approach, as of January 1, 1994, is:
$4,600,000
==========
-27-
40
SUMMARY OF VALUE VIA COST APPROACH
DESERT SPRINGS MEDICAL PLAZA
LAS VEGAS, NEVADA
Replacement
Cost
-----------
Site Prepraration 31,304
Foundation 89,352
Frame 363,984
Exterior Walls 411,067
Basement Walls 0
Floors 219,006
Roof 220,485
Roof Cover 62,137
Partitioning & Built-In Items 619,431
Ceilings 119,202
Floor Coverings 116,492
Plumbing 182,853
HVAC 384,487
Electrical 243,095
Other Features 58,344
----------
Total Hard Costs 3,121,239
Architect's Fees Plans and Specs 4.0% 124,850
Architect's Fees, Supervision 3.0% 93,637
Legal, Accounting, Contingency 7.0% 233,781
Entrepreneurial Overhead, Profit, and Other
Miscellaneous Fees 10.0% 357,351
----------
Total Soft Costs 809,619
Total Replacement Cost $3,930,858
==========
Accrued Depreciation
Depreciation Factor 22% Straight Line 10/45th (864,789)
----------
Depreciated Value of Building $3,066,069
Site Improvements
Replacement Cost $ 150,000
Depreciated Cost 25% Straight Line 5/20ths (37,500)
----------
Depreciated Value $ 112,500
Plus Land Value (rounded) 3.34 acres $1,455,000
----------
COST APPROACH VALUE FOR ALL ASSETS $4,633,569
==========
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41
SALES COMPARISON APPROACH
The Sales Comparison Approach is based upon the principle of substitution; that
is, when a property is replaceable in the market, its value tends to be set at
the cost of acquiring an equally desirable substitute property, assuming there
is no costly delay in making the substitution. Since two properties are rarely
identical, the necessary adjustments for differences in quality, location,
size, services and market appeal are a function of appraisal experience and
judgment.
The Sales Comparison Approach gives consideration to actual sales of other
similar properties with adjustments as previously stated. The sales prices are
analyzed in common denominators and applied to the subject property in
respective categories to be indicative of market value.
The unit of comparison used in this analysis is the price per square foot,
which is the gross purchase price of the building divided by the net leasable
area in the building. The following sales are considered to be representative
of market activity and conditions as of the valuation date. Unless otherwise
indicated, the sales involved arm's length transactions that conveyed a fee
simple interest, and only real property was included in the transactions.
Also, all purchase prices quoted in this report represent all cash sales unless
seller financing is noted and the sale prices adjusted for cash equivalency.
In our analysis, we obtained details on four medical office building sales
which have occurred over the past two years. The terms of the sale and
significant data was verified to the extent possible by county deed records and
with parties to the transaction. Information on these sales is shown on the
following pages:
-29-
42
IMPROVED SALE NUMBER 1
GENERAL SALE DATA
Location: South 7th Professional Plaza,
801-829 7th Street, Las
Vegas, Clark County, Nevada
Date of Sale: February 28, 1992
Document Number: 92022800202/203
Grantor: Scott W. Brown
Grantee: Kenneth S. Shioi Trust
Sale Price: $700,000
Terms of Sale: All Cash
PROPERTY DATA
Land Size: 21,000 square feet
Building Size: 7,412 square feet - leasable
Year Built: 1962
Occupancy at Sale: 90%
STABILIZED OPERATING DATA
Dollars Per SF
------- ------
Estimated Gross Income: $88,944 $12.00
Vacancy Allowance @ 5%: ($4,447) ($.60)
------- ------
Effective Gross Income: $84,497 $11.40
Estimated Expenses @ $3.00/SF: ($22,236) $3.00
------- ------
Net Operating Income: $62,261 $8.40
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $ 94.44
Stabilized Overall Rate: 8.9%
EGIM: 8.28
COMMENTS
The building is a one-story brick structure with a reported lease rate of
12.00/SF triple net. There are a total of nine units approximately 800 square
feet each.
-30-
43
IMPROVED SALE NUMBER 2
GENERAL SALE DATA
Location: Parkway Building
Bunkado, 3909 S.
Maryland Parkway,
Las Vegas, Clark
County, Nevada
Date of Sale: August 6, 1992
Document Number: 92080600187
Grantor: M/M Akira & Nobuka Futami
Grantee: Jewish Federation of
Las Vegas
Sale Price: $1,300,000
Terms of Sale: All Cash
PROPERTY DATA
Land Size: 25,265 square feet
Building Size: 17,227 square feet -
Leasable
Year Built: 1981
STABILIZED OPERATING DATA
Dollars Per SF
------- ------
Estimated Gross Income: 227,396 $13.20
Vacancy Allowance @ 10%: 29,561 $ 1.72
------
Effective Gross Income: 197,835 $11.48
Estimated Expenses @ $3.00/SF 52,301 $ 3.00
------- ------
Net Operating Income: 145,534 $ 8.45
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $75.46
Stabilized Overall Rate: 11.16%
EGIM: 6.57
COMMENTS
This is a three-story steel frame building. The average lease rate was
reported at 1.10/SF modified gross. Vacancy rates were reported at 13% and
expenses were reported at 23% of the gross scheduled income.
-31-
44
IMPROVED SALE NUMBER 3
GENERAL SALE DATA
Location:
Lake Mead Medical
Plaza, 2031 McDaniel
Street, Las Vegas,
Clark County,
Nevada
Date of Sale: March 31, 1992
Document Number: 92033101338
Grantor: McDaniel Street Partnership
Grantee: NLVH, Inc.
Sale Price: $1,200,000
Terms of Sale: All Cash
PROPERTY DATA
Land Size: 50,530 square feet
Building Size: 24,000 square feet
Year Built: 1975
Occupancy at Sale: 100%
STABILIZED OPERATING DATA
Dollars Per SF
Estimated Gross Income*: $216,000 $9.00
Vacancy Allowance @ 5%: 10,800 ( .45)
-------- ------
Effective Gross Income 205,200 8.55
Estimated Expenses @ $2.00/SF 48,000 (2.00)
-------- ------
Net Operating Income: $157,200 $6.55
MARKET VALUE INDICATORS
Sale Price Per Square Foot: $ 50.00
Stabilized Overall Rate: 13.1 %
EGIM: 5.85
COMMENTS
This buyer had a one-year-old option to purchase the property. They also spent
an additional $750,000 in tenant improvements. The building is a two-story
steel frame structure constructed in 1975.
-32-
45
These three sales are summarized as follows:
SUMMARY OF IMPROVED SALES
SALE RENTABLE SALE PRICE PER
NUMBER ADDRESS SQ. FT. PRICE SQ. FT.
1 South 7th Professional Plaza 7,412 $700,000 $94.44
801-829 7th Street
2 Parkway Building 17,227 $1,300,000 $75.46
3909 S. Maryland Parkway
3 Lake Mead Medical Plaza 24,000 $1,200,000 $50.00
2031 McDaniel Street
The unadjusted prices of these comparables range from $50.00 per square foot to
$94.44 per square foot. Each of the comparables will be discussed and adjusted
for comparisons with the subject property. An Improved Sales Adjustment Matrix
is shown at the end of this section. All the transactions have received a
downward adjustment for time of sale since they are all older transactions.
SALE NUMBER 1 is a Class C medical office building that is located in the
downtown market of Las Vegas. This transaction is reportedly at a market value
price. However, an upward adjustment for location has been indicated. An
additional upward adjustment has been made based upon the building condition as
compared to the subject. A downward adjustment to the price per square foot is
indicated because of the smaller size of this comparable. An upward adjustment
to this comparable is indicated because of the subject's superior construction
quality. The adjusted price per square foot of this comparable is $113.33.
SALE NUMBER 2 is an older building acquired in 1992. Upward adjustments are
indicated because of the subject's superior location and because of the older
age of this comparable. The adjusted price for this comparable is $94.32.
SALE NUMBER 3 is the sale of a similar building in size, but dissimilar in age.
An upward adjustment has been made because this sale is a single-tenant
building. An upward adjustment has been made. Upward adjustments are
indicated due to the subject's
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superior location and construction quality. The adjusted price per square foot
of this comparable is $71.88.
The adjusted prices per square foot range from $113.33 to $71.88. A rounded
adjusted price at the upper end of the range of $115.00 per square foot is
representative of the subject property. Based on this analysis, the market
value of the subject property by the Sales Comparison Approach as of January 1,
1994, the effective date of this report, is calculated as follows:
26,710 x 115.00 = $3,071,650
Rounded to: $3,100,000
==========
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I M P R O V E D S A L E S A D J U S T M E N T G R I D
Desert Springs Medical Plaza
Las Vegas, Nevada
Subject Bldg Comp Bldg Comp Bldg Comp
Element #1 #2 #3
Sale Price/SF $ 94.44 $75.46 $50.00
Property Rights Fee Simple Same Same Same
Adjustment ------------------------------------------
Adjusted Price/SF $ 94.44 $75.46 $50.00
Financing Cash Cash Cash Cash
Adjustment ------------------------------------------
Adjusted Price/SF $ 94.44 $75.46 $50.00
Conditions of Sale None None
Adjustment 0% 0%
------------------------------------------
Adjusted Price/SF $ 94.44 $75.46 $50.00
Market/Time
Adjustment 0% 0% 15%
------------------------------------------
Adjusted Price/SF $ 94.44 $75.46 $57.50
Other Adjustments:
Location Adjustment 15% 15% 15%
Size Adjustment -5% 0% 0%
Building Adjustment 10% 10% 10%
Net Other Adjustments 20% 25% 25%
FINAL ADJUSTED PRICE PER SF $113.33 $94.32 $71.88
==========================================
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INCOME APPROACH
The Income Approach is based on the principle of anticipation, and has as its
premise that value is represented by the present worth of expected future
benefits. The price that an investor will pay for an income property usually
depends on the anticipated income stream. The Income Approach represents an
attempt to simulate the future cash flows for the property, and to quantify the
future benefits in present dollars.
The subject property, Desert Springs Medical Plaza is one of four medical
office buildings that Quorum Health Group, Inc. is selling for the purpose of
establishing a real estate investment trust (REIT). Quorum Health Group, Inc.,
the seller, will provide a net rental guarantee in the form of a master lease.
The REIT, as the new property owner, will receive the net rental income
regardless of the rental rates charged or received from the actual
physician/tenants.
This master lease is a credit enhancement vehicle that will enable the REIT
issuer to sell the REIT shares. It will also allow leasing flexibility for the
office space. Crescent Capital can lease office space to various physicians at
different rates and terms, or they can use the office space for hospital
purposes.
The annual income stream guaranteed to the REIT is $528,750. Based upon the
total leasable square footage of the subject office building of 26,701 this
would correlate to a net rental rate per square foot of $19.80 rounded. We
reserve the right to modify the Income Approach valuation if the actual annual
rental income for the property differs significantly from the draft lease
presented to us. This average rate per square foot appears to be reasonable
based upon our market research and rent comparables. We have included these
comparables in the Exhibit section of this report.
Valuation Counselors has received documentation of the guaranteed rental income
stream, but the actual master lease agreements for the property is not yet
available. For the purpose of our Income Approach, the gross income will be
the guaranteed annual income stream for the professional office building of
$528,750.
The subject appraisal assumes that 100 percent of the income is guaranteed
through the master lease agreement. Since the leased fee interest is being
appraised, there is no deduction for vacancy or credit loss.
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Since the master lease provides for an income level to the REIT net of all
operating expenses, the only out-of-pocket expenses to the REIT will be
accounting, legal and internal administration or management expenses. These
management expenses are estimated at 5.0 percent of effective gross income, or
$26,438, based on the management experience of other properties. The net
operating income for the property is $528,750 less $26,438, or $502,312.
The estimated direct capitalization rates, or overall rates (OARs), for the
three improved sale comparables presented in the Sales Comparison Approach
section of this report are summarized as follows:
Sale Number Property Location Sale Date OAR (%)
1 South 7th Professional Plaza February 1992 8.9%
801-829 7th Street
Las Vegas, Nevada
2 Parkway Building August 1992 11.16%
3904 South Maryland Parkway
Las Vegas, Nevada
3 Lake Mead Medical Plaza 2031 McDaniel March 1992 13.1%
Las Vegas, Nevada
The direct capitalization, or overall rates, for these comparables ranged from
8.9 percent to 13.1 percent.
A capitalization rate at 10.5 percent, is considered appropriate because
effective comparable market net lease rates are $1.80 to $6.30 per square foot
less than the master lease rate of $19.80 per square foot.
Therefore, it is our opinion that the market value of the subject property by
the Income Approach is calculated and rounded as follows:
Net Operating Income/OAR = Estimated Value
$502,312/.105 = $4,783,924
Rounded to: $4,800,000
==========
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CORRELATION AND CONCLUSION
We have considered three approaches to value in order to estimate the value of
the Desert Springs Medical Plaza. The three approaches are summarized as
follows:
Cost Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,600,000
Sales Comparison Approach . . . . . . . . . . . . . . . . . . . . . . . $3,100,000
Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,800,000
The Cost Approach involved a detailed analysis of the individual components of
the property. These costs were estimated using sources which were considered
to be reliable. However, estimating the replacement cost and all forms of
depreciation is difficult. Based upon the data available for analysis, it is
our opinion that this approach serves as support and is a fair indication of
value.
The Sales Comparison Approach is based on the price that investors and
owner-occupants have recently paid for comparable medical office buildings.
The quantity and quality of data available in this approach was considered
good, but because of the lack of available transactions in the market, it is
our opinion that they are not a fair representation of value. The appraisers
only consider this approach to be a fair indicator of value for the subject
property.
The Income Approach normally provides the most reliable value estimate for
medical office buildings such as the subject. Although many buyers of
professional office buildings are owner/occupants, these buyers are generally
aware of a property's cash flow potential and its value from an investor's
perspective. For this reason, the Income Approach is considered the best
indicator of value for the subject property.
Based on this analysis, it is our opinion that the market value of the subject
medical office buildings, as of January 1, 1994, and based on the assumptions
and limiting conditions in this report, is:
$4,800,000
==========
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