AN APPRAISAL OF LARKIN 7000 BUILDING SOUTH MIAMI, FLORIDA 2 HealthSouth Corporation February 11, 1994 Page Two 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 subject property includes a seven-story professional office building which contains 120,981 gross square feet and 106,400 net rentable square feet including common area allocations. In addition, the subject site contains a six-story parking structure connected to the office building with open walkways. The subject is located on a 48,687 square foot land site. The building is a Class B structure with glass and stucco exterior finishes The building was originally constructed in 1973 with a total renovation of the structure occurring in 1989-1990. The building is currently 77 percent occupied with "move-ins" anticipated over the next three months to fill the building to a 89 percent occupancy level. 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. Based upon the procedures, assumptions and conditions outlined in this report, we estimate the market value of the leased fee interest in the Larkin 7000 Building, as of September 29, 1993, to be: $13,500,000 =========== 3 HealthSouth Corporation February 11, 1994 Page Three 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 Certification of the appraiser; 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 4 APPRAISER CERTIFICATION I, the undersigned, do hereby certify that to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, unbiased professional analyses, opinions, and conclusions. I 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. My compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in or the use of this report. My 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. I have made a personal inspection of the property that is the subject of this report. No one provided significant professional assistance to the person signing this report. /s/ Patrick J. Simers --------------------- Patrick J. Simers Managing Director 5 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. 6 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. 7 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. 8 SUMMARY OF SALIENT FACTS AND CONCLUSIONS GENERAL DATA Effective Date of Value: September 29, 1993 Last Date of Inspection: September 29, 1993 Property Identification: Larkin 7000 Building Property Location: 7000 Southwest 62nd Avenue, South Miami, Florida Interest Appraised: Leased Fee Estate Gross Building Area: 120,981 square feet Net Rentable Area: 106,400 square feet Subject Land Size: 48,687 square feet, or 1.12 acres Improvements Description: Seven-story, steel frame and concrete structure, Class B professional office building that was constructed in 1973 with a total renovation in 1989-1990. Six-story concrete parking deck containing 124,791 square feet for 345 vehicles. Occupancy Percentage: 77% CONCLUSIONS Cost Approach: $13,450,000 Direct Sales Comparison Approach: $10,640,000 Income Approach: $13,500,000 Final Value Estimate: $13,500,000 =========== 9 TABLE OF CONTENTS Page ---- Transmittal Letter Appraiser Certification 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 11 Real Estate Taxes and Assessments 11 Site Analysis 11 Building and Site Improvements 12 HIGHEST AND BEST USE 15 VALUATION SECTION 19 Valuation Methodology 19 Cost Approach 20 Direct Sales Comparison Approach 30 Income Approach 40 CORRELATION AND CONCLUSION 42 10 TABLE OF CONTENTS EXHIBIT SECTION Exhibit A - Professional Qualifications Exhibit B - Legal Description Exhibit C - Metropolitan Area Map Exhibit D - Neighborhood Map Exhibit E - Tax Plat Map Exhibit F - Land Sale Location Map Exhibit G - Building Descriptions Exhibit H - Land Improvements Description Exhibit I - Subject Photographs Exhibit J - Lease 11 INTRODUCTION PROPERTY IDENTIFICATION The subject of this appraisal is the Larkin 7000 Building located at 7000 Southwest 62nd Avenue, South Miami, Florida. The subject property includes a seven-story professional office building which contains 120,981 gross square feet and 106,400 net rentable square feet including common area allocations. In addition, the subject site contains a six-story parking structure connected to the office building with open walkways. The subject is located on a 48,687 square foot land site. The building is a Class B structure with glass and stucco exterior finishes. The building was originally constructed in 1973 with a total renovation of the structure occurring in 1989-1990. The building is currently 77 percent occupied with "move-ins" anticipated over the next three months to fill the building to a 89 percent occupancy level. 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 September 29, 1993, the date of our last inspection. FUNCTION OF THE APPRAISAL The report is to be used for internal financial valuation purposes. The owners are considering the sale of nine professional office buildings for the purpose of establishing a real estate investment trust (REIT). 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 final value conclusion considering the relevancy and quality of data presented in each of the approaches. -1- 12 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.] -2- 13 HISTORY OF THE PROPERTY The subject was originally constructed in 1973 to serve the hospitals in the immediate region. In November of 1988, Juana Corp. purchased the building from One Seven Thousand Place Corp. for $7,876,100. The building's occupancy at this time was falling and Juana Corp. mortgaged the property in order to modernize and renovate the structure to be competitive with new modern structures in the subject's region. During this renovation period, the property owners defaulted on the notes and the property was placed in receivership under the management of the Resolution Trust Corporation. The property was subsequently purchased from HealthSouth Rehabilitation Corporation for $6,500,000 in August of 1992. The overall occupancy at the time of HealthSouth's acquisition was under 50 percent. The subject professional office building has reportedly not been marketed for sale and is not currently under an agreement of sale. No other deed transfers were noted in the last three years. A title search is recommended for official determination. HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT United States Economic Performance and Outlook The value of the business enterprise value 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. As of the valuation date, the United States economy is currently mired in a period of slow economic growth. 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, or an annualized rate of 1.1 percent. -3- 14 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. 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 value 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 economic downturn has 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 JUNE 30, 1993 JANUARY 2, 1992 Federal Fund Rate 3.0% 3.9% 90-Day Treasury Bill Rate 3.1% 3.9% 30-Year Treasury Bond 6.9% 7.5% Aaa Bond Yield 7.4% 8.2% Prime Rate 6.0% 6.5% -4- 15 Economic Outlook According to Value Line's Quarterly Economic Review, dated June 30, 1993, the economic recovery is now two years old, but shows much slower growth than normal for a mature recovery. Among factors cited by Value Line for contributing to the slow growth are "high debt, stagnant personal income, low consumer confidence and a troubling unemployment rate". Value Line's Quarterly Economic Review identified the following estimates for selected economic statistics from 1993 to 1995. 1993 1994 1995 Real GDP 2.7% 3.2% 3.3% Personal Consumption Expenditures 2.8% 2.7% 2.5% Federal Government Purchases (5.2%) (3.0%) (4.0%) 30-Year Treasury Bond Yields 7.1% 7.2% 7.2% Prime Rate 6.0% 6.3% 6.7% Consumer Price Index 3.5% 3.5% 3.6% -5- 16 DESCRIPTIVE DATA REGIONAL ANALYSIS South Miami is located on the southwest border of Coral Gables in Dade County, Florida. The area is generally known for its fine residential areas, educational facilities, its quality of life, and is one of the nation's leading locations for multi-national corporate headquarters. Trends in population, housing, employment and income are contributing social and economic forces that impact property values. Each of these elements is discussed separately. POPULATION The Dade County region encompasses 26 municipalities with an estimated 1992 popu-lation of 1,982,901. This figure represents a growth estimate of approximately 22 percent over 1980 levels. The subject facility is located in the eleventh largest munici-pality in the county and presently has an estimated population of 10,459. It is antici-pated, by the year 2000, that the population will continue to expand in the county to an estimated 2,201,836 with individual communities in the region sharing in this growth. The median age of the population in the community is estimated at 35.5 with 21 percent of the population represented at under 18 years of age and 13 percent of the population represented above 65 years of age. This compares to an overall median age of 34.2 for the county with 24 percent of the population represented at under age 18 and 14 percent of the population over the age of 65. This would tend to indicate that the South Miami region is occupied by families with members older than the average in the county. The racial and ethnic distribution of members in the South Miami community is estimated at 66.8 percent white, 29.6 percent black, and the remaining 3.6 percent other races. It is estimated that the hispanic community in South Miami is represented as 23.8 percent of the overall population. These figures would tend to indicate that the South Miami community is similar in ethnic diversification as computed to the Dade County region which is 72.9 percent white, 20.6 percent black, and 6.5 percent other, with the hispanic population represented at 49.2 percent. -6- 17 POPULATION GROWTH BY MUNICIPALITY 1980 1992* % POPULATION POPULATION GROWTH DADE COUNTY 1,625,509 1,982,901 22.0 Miami 346,865 359,973 3.8 Hialeah 145,254 195,579 34.6 Miami Beach 96,298 93,461 -2.9 North Miami 42,566 50,090 17.7 Coral Gables 43,241 40,700 -5.9 North Miami Beach 36,553 35,268 -3.5 Homestead 20,668 27,087 31.1 Opa-Locka 14,460 15,255 5.5 Sweetwater 8,251 14,096 70.8 Miami Springs 12,350 13,230 7.1 South Miami 10,944 10,459 -4.4 Miami Shores 9,244 10,097 9.2 Hialeah Gardens 2,700 9,259 242.9 Key Biscayne** - 8,897 N/A Florida City 6,174 6,067 -1.7 West Miami 6,076 5,712 -6.0 North Bay Village 4,920 5,550 12.8 Bay Harbor Islands 4,869 4,721 -3.0 Surfside 3,763 4,204 11.7 Biscayne Park 3,088 3,081 -0.2 Bal Harbor 2,973 3,033 2.0 El Portal 2,055 2,461 19.8 Virginia Gardens 2,098 2,199 4.8 Medley 537 821 52.9 Golden Beach 612 805 31.5 Indian Creek Village 103 44 -57.3 Islandia 12 13 8.3 Unincorporated Dade 799,053 1,060,739 32.7 * Population estimates, subject to revision. ** Key Biscayne incorporated in June 1991. SOURCE: Dade County Planning Department, and Bureau of Economic Research. -7- 18 DADE COUNTY POPULATION GROWTH 1950-2000 YEAR POPULATION GROWTH 1950 495,100 - 1955 709,800 43% 1960 935,000 32% 1965 1,097,200 17% 1970 1,267,800 16% 1975 1,452,000 15% 1980 1,625,800 12% 1985 1,775,000 9% 1990 1,937,094 9% 1991* 1,961,694 1% 1992* 1,982,901 1% 1995** 2,083,555 5% 2000** 2,201,836 6% *Estimate of population, subject to revision **Projection of population, which is subject to annual adjustment. SOURCE: Dade County Planning Department; Bureau of Economic and Business Research, and U.S. Dept. of Commerce -8- 19 HOUSING The growth of the region's population has helped to foster a steady residential market. The total household units have increased over the past four decades from 348,946 in 1960 to 771,288 in 1990. This represents an overall increase of 121.0 percent over the period and an annual compound rate of growth of 2.0 percent. The Dade County real estate market reached its peak in 1980 with over 50,145 residences sold. This figure has dipped and climbed over the past decade, but has generally declined with 36,521 sales reported in 1992. Average home prices in the region have generally increased though, indicating that the area has generally been built-out and that demand in the area remains strong. From 1980 through 1992 the average single-family residential home price increased 58.3 percent. The average condominium residence price increased 94.2 percent. EMPLOYMENT Employment growth grew rapidly in the region from 1980 through 1988 when it appeared to hit its peak at 891,788. From 1980 through 1988 this represented an overall growth of 18.69 percent. In 1992 the employment in the region was estimated at 878,028, or a drop of 1.54 percent. This rate of employment appears to be stabilized and one would not anticipate further large drops in this figure. The labor force in the area has continued to increase with an overall growth rate of 19.4 percent over the period 1980 through 1992. The present labor force is estimated at 976,024. During the 1980s, the average annual unemployment rate ranged from a low of 5.3 percent to a high of 10.0 percent with an overall average of 7.67 percent. The average unemployment at the end of 1992 was estimated at 10.0 percent compared to 7.4 percent for the U.S. From 1980 through 1992 the diversity of the employment in the region has greatly increased with 60,364 firms active in the Dade County market. This represents a 32.5 percent change over 1980 levels. The service industry is represented by the largest number of firms, with healthcare firms ranking as the largest component of this sector. Wholesale and retail trade represents the next largest employer in the region. The remaining sectors, which follow in number of companies in their respective order, include finance/real estate, construction, manufacturing, transportation, communications, public utilities, and finally agriculture, forestry, and fishing. -9- 20 As of April 1993, the top five employers in the Dade County region were: Dade County Public Schools 38,310 Metropolitan Dade County 23,000 Federal Government 18,800 State of Florida 14,900 Publix Super Markets, Inc. 8,000 INCOME The per capita income in Dade County, Florida and the United States in 1990 was $17,823, $18,539, and $18,696, respectively. In summary, the region of the subject property enjoyed rapid growth in the early 1980s which has stabilized in the early 1990s. Its economic base is diverse, which bodes well for stabilized growth patterns in the foreseeable future. The economy has recovered from Hurricane Andrew, which occurred in 1992, and is well positioned to post economic gains. NEIGHBORHOOD ANALYSIS The subject property is located in the center of South Miami approximately three blocks west of the Central Business District. The immediate neighborhood of the subject property is characterized by healthcare development including the HealthSouth Hospital adjacent to the subject and South Miami Hospital two blocks south of the subject. The neighborhood boundaries include U.S. 1 which runs diagonally south and east of the subject property and the Palmetto Expressway which runs in a north-south direction approximately two miles west of the subject. The northern boundary of the subject's neighborhood extends to Southwest 56th Street. The residential neighborhoods surrounding the subject are diverse in character with the residential area north of the subject generally consisting of lower income families with the areas immediately west and south of the subject experiencing higher income families. -10- 21 The general neighborhood of the subject can be classified as stable and providing a good location for a medical office structure serving the medical community in the immediate area of the subject. ZONING The subject property is zoned "GR" by the City of South Miami. This zoning district generally allows for the development of commercial properties, including office, retail and institutional uses. The minimum lot size is 10,000 square feet with a minimum of 100 feet of frontage. Setback requirements include 20 feet, front; 15 feet, rear; and 15 feet for any side toward a street. The height limitation is presently 30 feet, or two stories. A site's maximum improvement ratio is 85 percent. The subject site's use has been "grandfathered" in due to its height and improvement ratio. A letter of zoning compliance from the City of South Miami is recommended for an official determination regarding any zoning conformity issues. REAL ESTATE TAXES AND ASSESSMENTS The subject property is situated in South Miami and is subject to the taxing authority of the city and Dade County. Commercial properties in the City and County are assessed at 100 percent of tax-appraised value for tax purposes. The 1993 millage rate was $28.60 per $1,000 of assessed value. The total tax-appraised value of the subject is $5,200,000. The total City and County property taxes due in 1993 were $148,720. SITE ANALYSIS The subject site is an L-shaped parcel which fronts 220 lineal feet on the west side of Southwest 62nd Avenue and 114 lineal feet on the south side of Southwest 70th Street. The subject site's southern border extends 295 heading in a westerly direction from Southwest 62nd Avenue. The rear section of the site contains 130 lineal feet and -11- 22 borders a single-family residential home to its rear. The subject site contains 48,687 square feet. The topography of the site is level and at street grade throughout. The eastern half of the site along Southwest 62nd Avenue is improved with the office structure with the western or rear portion of the site improved with the parking deck. The subject site enjoys good visibility and frontage along Southwest 62nd Avenue. The subject site is accessed from the southern right-of-way of Southwest 70th Street. Vehicles exit through a drive-through on the first floor of the building which exits on the east side of Southwest 62nd Avenue. Utilities serving the site include water, sewer, telephone, gas and electricity. Police services and fire protection are located in the neighborhood. Other site improvements consists of general landscaping, asphalt paving, concrete paving and curbing, some trees and general signage. 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. BUILDING AND SITE IMPROVEMENTS Building The Larkin 7000 Building was originally constructed in 1973 with a total renovation in 1989-1990. The building contains 120,981 gross square feet and 106,400 net rentable square feet. The building, during our site visit, was 77 percent occupied. The building is a seven-story, reinforced concrete Class B office structure. The exterior walls of the structure include glass panels and styrofoam stucco non-load bearing panels. -12- 23 The first floor of the structure is concrete with a portion of the first floor open to allow for a vehicle exit. Upper floors including the roof are concrete panels supported on metal framing. There is mechanical penthouse on the roof of the structure which houses the elevator mechanicals and the chilling units. Interior finishes in the building are generally excellent quality accommodating physician suites which range in size from 1,000 to 11,600 square feet. Ceiling finishes throughout the structure include drop down acoustical panels except for the main entrance which included reflective panels. Physician suites generally contain high grade carpeting in patient waiting areas with vinyl tile found in examination areas. The first floor entrance contains marble floor finishes. The physician suites include multiple plumbing tie-ins to accommodate aluminum basins, and private bath areas. Wall finishes primarily consist of vinyl wall coverings with some areas painted. On each floor of the building a woman's and men's public restroom is provided. The building is cooled by a central chiller system. During our site inspection the building was replacing its original chiller with two new 175-ton chillers. The building's electric is provided in metal conduit and serves fluorescent and incandescent lighting. The building has a pass key security system and emergency power generator. The building is served by three elevators. Adjacent to the office building and connected through open walkways is a six-story concrete parking structure. The parking deck contains 124,791 square feet including the walkways and houses spaces for 345 vehicles. The parking garage does not contain an elevator and contains minimum lighting. The parking garage has metal screens on three sides with concrete panels and dryvit on its north face. Site Improvements Site improvements include concrete walkways which surround the structure and concrete drives to the parking and exit areas. More detail descriptions of the building and site improvement are included in the Exhibit section of this report. -13- 24 CONDITION OF IMPROVEMENTS AND OBSOLESCENCE The building is in good overall condition. It appears to have been adequately maintained. No significant deferred maintenance was indicated from the appraiser's inspection of the property. There does not appear to be any functional or economic obsolescence. -14- 25 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. -15- 26 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 "GR" Commercial Retail. Permitted uses in this general zoning category vary widely. Potential legal uses would include most retail and restaurants, office/institutional uses, and hotels. Surrounding uses include the hospital, other professional office uses, some apartments and some old single-family residential properties. These use patterns would likely preclude industrial or future single-family development on the site. FINANCIALLY FEASIBLE Having established that the site is physically suited for and legally restricted to retail/office 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. New hospital related development on the north and east sides of the building indicate that new development is financially feasible. HealthSouth Medical Center is planning an additional office building across the street. -16- 27 MAXIMALLY PRODUCTIVE The maximally productive use is a financially feasible use that would produce the greatest land value. Office/retail 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 106,400 rentable square foot office building, with an adjacent parking deck 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 non-conforming use according to the City of South Miami, 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 -17- 28 not be financially feasible. It would, however, be financially feasible to correct any deferred maintenance. Due to present height limitations and build-out ratios, the building's present configuration represents an economic advantage to the property. 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. -18- 29 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. DIRECT 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. -19- 30 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. -20- 31 Land Comparable Number 1 Folio Number: 09-4025-028-1970, 1980, 1990, 2020, 2030, 2040, and 2041 Location: 5965 SW 70th Street Size: 65,550 square feet Sale Date: May 1991 Deed Book/Page: 15020-0214 Grantor: Francisco Montana and W. Rosario Grantee: Mauricio Montana Sale Price: $1,100,000 Price Per Square Foot: $16.78 Terms of Sale: All Cash Shape: Rectangular Zoning: South Miami Commercial Utilities: All utilities are available Comments: Property is two blocks east of subject and is presently improved with a five-story parking garage. -21- 32 Land Comparable Number 2 Folio Number: 09-4025-028-1940, 1960 Location: 6920 SW 59th Avenue Size: 9,450 square feet Sale Date: April 29, 1993 Deed Book/Page: 15795-3698 Grantor: Imperial Bank Grantee: A. Building, Inc. Sale Price: $140,000 Price Per Square Foot: $14.81 Terms of Sale: All Cash Shape: Rectangular Utilities: All utilities are available. Comments: This parcel is presently vacant. -22- 33 Land Comparable Number 3 Folio Number: 03-4120-017-1580 Location: Northeast corner of San Lorenzo and LeJeune Road, 4251 LeJeune Road Size: 21,805 square feet Sale Date: February 1993 Deed Book/Page: 15822-3213 Grantor: Commerce Bank Grantee: Goldcoast Partners Properties Co. Sale Price: $650,000 Price Per Square Foot: $29.80 Terms of Sale: All Cash Shape: Rectangular Zoning: Coral Gables Commercial Utilities: All utilities are available. Comments: This parcel is presently being improved with an office building. -23- 34 A summary of the land sales is shown as follows: SUMMARY OF LAND COMPARABLES LAND SALE SIZE PRICE COMP LOCATION DATE (SF) PER SF 1 5965 SW 70th Street 05/91 65,550 $16.78 2 6920 SW 59th Avenue 04/93 9,450 $14.81 3 4251 LeJeune Road 02/93 21,805 $29.80 SUBJECT 7000 SW 62ND AVENUE 46,687 Discussion of Land Comparables LAND COMPARABLE 1 is approximately two blocks east of the subject in a very comparable neighborhood to the subject. This sale has been adjusted slightly upward due to the age of the sale. All factors for location, utility, topography appear to be equal and no adjustment for these occurrences appeared warranted. A slight upward adjustment is warranted for parcel size due to the comparable's larger size. The adjustments are shown on a Land Sale Adjustment Grid at the end of this discussion. The adjusted price per square foot of this comparable is $18.50 per square foot. LAND COMPARABLE 2 is approximately one block east of the subject in a very comparable neighborhood to the subject. No time adjustments to this sale were made. All factors for location, utility, topography appear to be equal and no adjustment for these occurrences appeared warranted. A slight downward adjustment is warranted for parcel size due to the comparable's smaller size. The adjustments are shown on a Land Sale Adjustment Grid at the end of this discussion. The adjusted price per square foot of this comparable is $14.07 per square foot. LAND COMPARABLE 3 is a similar size parcel located on a heavily travelled thoroughfare approximately one mile east of the subject property. No time adjustment was made to this sale. A significant downward adjustment to this sale was made for location. The adjusted price for this comparable is $17.88 per square foot. -24- 35
Appraisal of Larkin 7000 Building (South Miami, FL) - HealthSouth Corp.
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