Skip to main content
Find a Lawyer

Appraisal of North Shore Surgical Center (Evanston, IL) - Crescent Capital Trust Inc.

                                AN APPRAISAL OF
                                  NORTH SHORE
                                SURGICAL CENTER
                               EVANSTON, ILLINOIS

                                 April 28, 1994

Crescent Capital Trust, Incorporated
One Perimeter Park South, Suite 335-S
Birmingham, Alabama  35243

Attention:       Mr. John W. McRoberts
                 President & CFO


In accordance with your request, we are pleased to submit this appraisal report
covering the market value of the surgical center identified as follows:

                          NORTH SHORE SURGICAL CENTER
                               815 HOWARD STREET
                               EVANSTON, ILLINOIS

The purpose of this valuation is to estimate the market value of the subject
property's leased fee estate as of March 15, 1994, subject to a master lease
from Surgical Health Corporation.  The report is to be used for asset valuation
purposes in conjunction with financing.  Crescent Capital Trust, Incorporated
is establishing a real estate investment trust (REIT) and the valuation assumes
that the prospective REIT is the owner of the property, with Surgical Health
Corporation guaranteeing annual net rental income of $105,860 on a fifteen-year

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.

'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

Crescent Capital Trust, Incorporated
April 28, 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 is a one-story outpatient surgery center containing 5,100
gross square feet constructed in the 1960s, but completely remodeled in 1988,
located on an 0.23-acre site.  The net leasable square feet is equal to its
gross amount of 5,100 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.

Based upon the procedures, assumptions and conditions outlined in this report,
we estimate the market value of the leased fee interest in the North Shore
Surgical Center, as of March 15, 1994, to be:


Crescent Capital Trust, Incorporated
April 28, 1994
Page Three

This value estimate includes real property only, and excludes the value of any
furniture or equipment located within the property.

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;

         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                      

                            APPRAISER CERTIFICATION

I, the undersigned, do hereby certify that to the best of our knowledge and

         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

         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.

         A representative of Valuation Counselors Group made a personal
         inspec-tion of the property that is the subject of this report.
         Patrick J. Simers has not made a personal inspection of the property.

         /s/ Patrick J. Simers
         Patrick J. Simers
         Managing Director


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.


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

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

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.


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.

This report assumes that the property is in compliance with the various
requirements of the Americans with Disabilities Act (ADA) or that the cost of
compliance is minimal.  As appraisers, we are not qualified to determine
compliance with ADA, and this report does not consider any effects of the ADA
on the value of the property.

A copy of this report and the working papers from which it was prepared will be
kept in our files for eight years.


- ------------
Effective Date of Value:                   March 15, 1994

Property Identification:                   North Shore Surgical Center

Property Location:                         815 Howard Street, Evanston, Illinois

Interest Appraised:                        Leased Fee Estate

Gross Building Area:                       5,100 square feet

Net Leasable Area:                         5,100 square feet

Land Size:                                 Approximately 10,004 square feet, or 0.23 acres

Improvements Description:                  A one-story, Class D, building constructed in the 1960s, containing 5,100 gross square
                                           feet and used as an ambulatory surgical center.

Physical Occupancy Percentage:             100%

- -----------
Cost Approach:                             $925,000

Sales Comparison Approach:                 N/A

Income Approach:                           $912,000

Final Value Estimate:                      $910,000


                               TABLE OF CONTENTS
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                                                      4
     Reasonable Exposure Time                                                                            6
DESCRIPTIVE DATA                                                                                         7
     Area Data - Metropolitan Chicago                                                                    7
     Neighborhood Analysis                                                                              10
     Zoning                                                                                             12
     Real Estate Taxes and Assessments                                                                  12
     Site Analysis                                                                                      13
     Building and Site Improvements                                                                     14
HIGHEST AND BEST USE                                                                                    16
VALUATION SECTION                                                                                       20
     Valuation Methodology                                                                              20
     Cost Approach                                                                                      22
     Income Approach                                                                                    31
CORRELATION AND CONCLUSION                                                                              33

                         TABLE OF CONTENTS

- ---------------
Exhibit A    -    Professional Qualifications
Exhibit B    -    Legal Description
Exhibit C    -    Area Map
Exhibit D    -    Location Map
Exhibit E    -    Land Sales Map
Exhibit F    -    Building Description
Exhibit G    -    Land Improvements Description
Exhibit H    -    Estimation of Annual Rental Value
Exhibit I    -    Improved Sales Comparables
Exhibit J    -    Subject Photographs



The subject of this appraisal, known as North Shore Surgical Center, is a 5,100
square foot outpatient surgery facility located at 815 Howard Street, Evanston,
Cook County, Illinois.


The purpose of this appraisal is to estimate the market value of the real
property identified above.  The effective date of valuation is March 15, 1994.
The date of the appraisal report is March 25, 1994.


The report is to be used for asset valuation purposes in conjunction with
financing.  Crescent Capital Trust, Incorporated is establishing a real estate
investment trust (REIT).  It is our understanding that the REIT will involve
mortgage financing.


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.



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.]


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

         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.]



In November 1987, the subject property was purchased for $200,000.  Subsequent
remodeling hard costs were $473,000, indirect costs $87,000 and $40,000 for
special purpose fixed systems.  Total remodeling costs were estimated at

On April 1, 1989, Affiliated Bank Group/North Shore National Bank as Trustee
under Trust Agreement dated March 22, 1988, Trust Number 965, entered into a
purchase agreement to sell the subject property on April 1, 1989 for $800,000
to 815 Howard Associates Limited Partnership, an Illinois Corporation.  The
purchase closed on June 30, 1989 at a final purchase price of $748,458.28.  The
document number for the transaction is 89-3808671.

The subject facility was purchased as part of an entire business enterprise in
August 1992 by Surgical Health Corporation.


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.  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.



                                                                     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%

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.


The Appraisal Foundation defines 'Exposure Time' as follows:

         'The estimated length of time the property interest being appraised
         would have been offered on the market prior to the hypothetical
         consummation of a sale at market value on the effective date of the
         appraisal; a retrospective estimate based upon an analysis of past
         events assuming a competitive and open market.  Exposure Time is
         different for various types of real estate and under various market
         conditions.  It is noted that the overall concept of reasonable
         exposure encompasses not only adequate, sufficient and reasonable time
         but also adequate, sufficient and reasonable effort.  This statement
         focusses on the time component.'

         [Statement on Appraisal Standards No. 6 (SMT-6) from the Appraisal 

It is our opinion, based on an analysis of comparable sales and market
transactions, that a reasonable exposure time for the subject property type, at
the appraised market value, is three to six months.


                                DESCRIPTIVE DATA

AREA DATA -  Metropolitan Chicago

The subject property is located in Evanston, in the Chicago Metropolitan
Statistical Area.  This area has the third largest population in the United
States, behind New York and Los Angeles.  The Metropolitan Statistical Area
includes six counties in Illinois and one in Indiana.  The MSA has an estimated
1987 population of 8,146,900 persons.(1)

Chicago was first discovered by the French in 1673 when Pere Marquette and
Louis Joliet passed the mouth of the Chicago River during a trip through the
area.  The future site of the city became part of the portage route between the
Mississippi and the Saint Lawrence to French Canada.  In the 1770 Jean Baptiste
Point du Sable had set up a trading post at the mouth of the river, becoming
the first permanent resident.  Fort Dearborn was built in 1803 to secure the
area and guard the portage route.  Platted in 1830, the original town had
approximately 50 residents.  In 1837 the city was incorporated, with a
population of 4,170 persons.  Chicago soon became a center of transportation.
By 1848 the Illinois and Michigan Canal was opened connecting the city to the
Mississippi River by a water route.  The canal lost its importance as a
transportation route as Chicago soon became the major railroad center of the
West.  In 1856 Chicago had ten trunk lines with 58 passenger trains and 389
freight trains serving the city daily.  In 1871 the city was ravaged by fire.
Almost 100,000 people were homeless and nearly $200 million worth of property
destroyed.  Many predicted the end of Chicago.  The city was, however, rapidly
rebuilt.  A new style of architecture developed, the Chicago School, and the
city continued to grow by leaps and bounds.  The population increased from
298,977 persons in 1870 to 503,185 persons by 1880 and over one million persons
by 1890.

Today, the Northeastern Illinois Counties Area (NICA), as defined by the
Northeastern Illinois Planning Commission, consists of the six northeastern
Illinois Counties, encompassing 3,724 square miles.  It includes Cook, DuPage,
McHenry, Kane, Lake and Will.  This area encompasses not only the City of
Chicago but also 208 communities.  It had an estimated 2,659,500 households, in
1987, with an average size of 2.76 persons,


(1)  U.S. Census


and a calculated median household effective buying income of $32,067.  In 1987
total retail sales exceeded $47.6 billion, or $17,915 per household.

                                         CHICAGO NICA POPULATION

                              1960 Census          1970 Census          1980 Census          1990 Census

  Chicago                         3,550.4              3,369.4              3,005.1              2,783.7
  Suburban Cook                   1,579.3              2,132.2              2,248.6              2,321.3
  DuPage                            313.5                492.2                658.8                781.7
  Kane                              208.2                251.0                278.4                317.5
  Lake                              293.7                382.6                440.4                516.4
  McHenry                            84.2                111.6                147.9                183.2
  Will                              191.6                247.8                324.5                357.3
  Total                           6,220.9              6,977.6              7,103.6              7,261.2

Source:  Bureau of the Census, 1960, 1970, 1980, 1986 and 1990.

National trends during the late 1970s have shown a shift in population movement
from the central city to the outlying suburban areas.  This trend seems to be
constant with that experienced in the Chicago area.  During this period, each
of the five collar counties within the metropolitan area has shown a strong
continual growth pattern.

Business and industry have tended to shift from the city to the suburbs.  This
trend is due in part to the increase in crime rate, traffic, taxes and the lack
of new facilities in the urban areas.  It is causing the outlying areas to
absorb the region's industries.  The trend has been increasing steadily over
the past few years.

There are 3.4 million people in the Chicago Metropolitan Statistical Area work
force.  Their professions include 28.7 percent in managerial and professional
fields; 28.0 percent in administration, technical and sales; and 9.0 percent in
service businesses.  Other occupations include 15.9 percent in crafts and
repair; 17.2 percent operators and laborers; and 1.2 percent in farming and
fishing.  Important industries include


publishing, food, printing and chemical industries.  One result of the region's
numerous industries is that the unemployment rate is typically less than other
areas throughout the United States.

Due to the excellent air, rail and expressway system, the Chicago Metropolitan
Region is considered a major national transportation and distribution center.
O'Hare International Airport, located just southwest of Elk Grove Village, is
the would's busiest airport both in terms of number of passengers and cargo.
Midway Airport and Meigs Field also operate in Chicago.  More than 63,700,000
air passengers and more than 1,000,000 flights pass through Chicago's three
airports during a year.  O'Hare Airport has an average of 927 flights per day
and with approximately 795,000 flights per year.  The region's extensive
highway system, which is the third largest in the United States (behind Texas
and California), is served by nine interstate highways including the new
North-South Tollway, Interstate 355, which opened at the end of 1989.  This
results in an effective means of travel between city and suburban areas.  There
are more than 1,650 trucking and warehousing firms and 350 interstate trucking
companies serving the metropolitan area.

The Chicago Metropolitan Region is also important as the central point for
moving goods and materials across the nation through its excellent system of
railroads.  Chicago's trunk lines operate half of the nation's railway mileage.
The city has 22 Class I railroads, three Class II railroads and 22 terminal
companies.  It is the leading area in the nation for total number of persons
employed in the railroad industry.  Employing one of the most extensive spur
and trunk lines in the county, all major rail companies have carry-through
service to make Chicago the world's largest center, handling 37,000 freight
cars daily and 40 million tons of freight per day out of the city.

The port of Chicago is a major seaport of Lake Michigan, connecting the
Atlantic Ocean through the St. Lawrence Seaway and the Gulf of Mexico via the
Illinois Sanitary and Shipping Canal and the Mississippi River.  Interstate
waterways include the Cal-Sag Channel, joining the Illinois Waterway River with
Lake Calumet and Lake Calumet joining Lake Michigan and the Calumet River.  In
1987, some 188 overseas ships carried more than 1.6 million short tons of

According to a recent study by the Chicago Association of Commerce and
Industry, Chicago's suburbs gained $22.8 billion in industrial and commercial
development since 1970, compared with only $10.6 billion in the city.  There
has been a continual shift from


goods produced to serve producing industries within the city with a
corresponding relocation of manufacturing industries out of the central city.
During 1987, Chicago lost 524 manufacturing plants, almost a tenth of the
total, while only 73 new plants were begun, indicating a net loss of 451
plants.  Since 1970, Chicago has lost more than 250,000 manufacturing jobs.

The Chicago area has a rich cultural heritage, including its would famous
architecture, and has much to offer.  Cultural attractions include the world
famous Chicago Symphony Orchestra, the Lyric Opera, and the Ravinia Festival.
Museums include the Art Institute of Chicago, the Museum of Science and
Industry, the Field Museum of Natural History, the Adler Planetarium and the
John G. Shedd Aquarium.  In addition, there are two zoos and numerous annual
events including the Chicago Blues Festival and Taste of Chicago.  Free
open-air concerts are offered throughout the warm months at the Petrillo Music
Shell in Grant Park.  Chicago has two major league baseball teams, as well as
professional football, hockey and basketball.

In conclusion, it can be stated that the Chicago Metropolitan Area, as a whole,
represents a thriving political, physical, economic and social climate which
should continue to prosper in terms of growth and economy due to the great
diversity of industry and excellent transportation.  However, the majority of
the growth is expected to occur in the suburban areas while the City of Chicago
experiences a continued gradual decline in industry and population.


The subject property is locate at 815 Howard Street within the community of
Evanston, Illinois.  Evanston is located near Lake Michigan, 12 miles north of
the Loop.  It is bounded on the south by Chicago, on the west by Skokie and on
the north by Wilmette.  The population of Evanston is approximately 73,700.

The development of Evanston proper began with the founding of Northwestern
University, located in the northeastern corner of the city along the lake
shore.  The university was founded in 1850.  Evanston was incorporated as a
town in 1863.  In 1872, the town was reincorporated as a village.  In 1892,
Evanston was incorporated as a city with a mayor-council form of government.


Improved transportation was the key to development of Evanston.  By the turn of
the century, the Chicago North Shore and Milwaukee Line was operating between
Wilson Avenue in Chicago and Waukegan.  In 1908, the Chicago Rapid Transit
System was extended to Central Street near the northern border of Evanston and
in 1912 to Linden Street in Wilmette.  Population increased rapidly in the
first decades of the twentieth century.

Growth continued but at a slower pace after World War II.  In 1952, Evanston
adopted a council manager form of government.

There are over 100 manufacturing establishments in the city but Evanston is
primarily a residential community.  Property tax is the single largest source
of revenue, and the tax rate is one of the highest in the metropolitan area.

Evanston has a large downtown area which was a key retail center serving the
north shore for many years.  In the 1950s, however, downtown Evanston began to
decline in terms of retail sales,a nd general desirability.  The Old Orchard
regional shopping center in Skokie signaled the beginning of this decline.  A
growth of community shopping centers is continuing to this day.  These centers
have the advantage of ample parking which is not available in traditional
downtown retail districts.  However, in the late 1980s there has been both new
development and rehabilitation in downtown Evanston.  Central Evanston has over
200 stores.  In addition, there has been construction for over a decade of
modern high-rise office space.  Washington National Insurance Company is the
largest user in the downtown area.  There are other modern office buildings as
well as some rehabilitated older offices.  Another major development is the
American Hospital Plaza.

All typical city services such as police, fire and garbage pickup are provided.
Public transportation is also available.  Access to the Loop is available via
the CTA, Evanston Express or the Chicago and Northwestern Railroad, which also
accesses northern suburbs.  Entry to Edens Expressway is available at Dempster
Street in adjoining Skokie, as well as Old Orchard Road (known as Harrison
Street in Evanston).  Access is also available to the Chicago Outer Drive via
Sheridan Road.

The immediate area of the subject property is improved with commercial
properties.  Immediately to the west of the subject is a dental center.  The
subject property is in census tract 81-2.


In conclusion, Evanston in general and the vicinity of the subject are
considered to be stable.


According to the zoning code for the City of Evanston, the subject property is
zoned C-2, Commercial District.

It is the Appraiser's opinion that the subject property represents a conforming
use under this zoning classification.

For full permitted uses or restrictions thereof under this classification, we
suggest that an inspection of the complete ordinance be made.


According to the Cook County's Assessors office, the properties Permanent Index
Numbers, assessments and taxes are represented as follows:

      Permanent                                                                           1992/1993
        Index                  Assessed           Equalization         Equalized          Real Estate
        Number                 Valuation             Factor              Value               Taxes   
    -------------              ---------          ------------         ---------          -----------
    11-30-123-019               $ 38,938              2.0897           $81,368.74          $ 9,198.74
    11-30-123-020               $ 38,938              2.0897           $81,368.74          $ 9,198.74

    11-30-123-021               $ 24,325              2.0897           $50,831.95          $ 5,746.55

    11-30-123-022               $ 10,054              2.0897           $21,009.84          $ 2,375.16
                                --------                               ----------          ----------
        Totals                  $112,255                               $  234,579          $26,519.19


         11-30-123-019       Land                             $ 9,712
                             Improvements                      29,226
                             Total                            $38,938

         11-30-123-020       Land                             $ 9,712
                             Improvements                      29,226
                             Total                            $38,938

         11-30-123-021       Land                             $ 9,712
                             Improvements                      14,613
                             Total                            $24,325

         11-30-123-022       Land                             $ 9,712
                             Improvements                         342
                             Total                            $10,054


The subject site is a rectangular-shaped interior parcel of land having
approximately 100.04 feet of frontage along the north side of Howard Street and
a depth of 100 feet, for a total land area of approximately 10,004 square feet.

The site is level throughout.  All street improvements are in, as well as
concrete curbs, gutters, and sidewalks.  Public utilities of water, sewer and
electricity are available and connected to the property.  No portion of the
subject site lies within a special flood hazard area, but rather in Flood Zone
C, an area of minimal flood hazard.  The flood plain map is effective date
January 2, 1981.

No soil boring tests were made or caused to be made to determine the
suitability of land for construction purposes, as necessity for the same is
precluded by the existence of the present improvement thereon.  There were no
noticeable settlement cracks or indication of any sub-soil problems.

No plat of survey was provided to the appraiser.


Our site inspection of the property revealed no obvious easements or
encroachments, other than the typical street and utility easements, which do
not negatively affect the utility of the property.  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
side.  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.

Overall, the characteristics of the subject property are functional, marketable
and well suited for the current use as a surgical center.

A legal description of the property is included in the Exhibit Section of this


The site is improved with a one-story structure constructed in the 1960s and
completely renovated in 1988.  The building contains 5,100 gross square feet,
which is the same as the leasable square feet.

The building is a one-story, Class D structure, with a brick exterior.  The
building has reinforced concrete floors.  The roof is comprised of wood joists,
and wood decking, with asphalt composition shingles.  Ceiling finishes consists
of acoustical ceiling tiles and recessed fluorescent lighting and gypsum board
with painted finish.  The interior walls are gypsum board over metal studs with
vinyl wall coverings and paint.

Air conditioning is supplied via package units with electric baseboard heat in
the zoned system.  Heat is also supplied by a gas-fired forced air system.  In
addition, the facility is equipped with a medical gas system with vacuum.  We
assume that the heating and electrical capacity is adequate for the subject

The interior floors have both carpeting and vinyl tiles.  Windows and doors are
metal-framed, and interior doors are solid-core wood.  The facility has two
surgery suites, administrative offices, patient recovery areas, a laboratory,
an instrument preparation room, locker rooms, a lounge, and reception areas.


Site improvements include paved parking, exterior lighting and shrubbery around
the subject building.  A detail description of the building and site
improvements are included in the Exhibit section of this report.


The building has been remodeled and in excellent condition.  There is no
deferred maintenance, or functional or economic obsolescence.


                              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

         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
are discussed as follows using the four categories of highest and best use.


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.


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, and special-purpose properties.  The site possesses good
access and visibility.  The size of the parcel would preclude any large


As stated earlier in the Zoning section of this report, the property is
currently zoned 'C-2, Commercial'.  Permitted uses in this general zoning
category vary widely.  Potential legal uses would include retail and
restaurants, office/institutional, hotels, hospitals and other medical-oriented

Surrounding uses include a dentist office and other office/commercial uses.
These use patterns would likely preclude industrial, or future single-family
development on the site.


Having established that the site is physically suited for and legally
restricted to office/institutional and commercial 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 commercial related development in the subject area indicates that new
commercial/office development is financially feasible.


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 medical-related 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 based on the growth needs of the area.

As Improved

The subject site is currently improved with an 5,100 leasable square foot
surgical center 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.


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 modify existing improvements.  The improvements were
recently renovated and are considered functional.  The building could be
converted to an alternative medical office use as recent trends in the hospital
business call for more outpatient business and less inpatient stays.


The building, as improved, is assumed to be a legal conforming use, since the
property was recently renovated and received an occupancy permit.  Under the
current zoning, the property could remain as it is, be torn down or renovated.


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.  The only
financially feasible use of the existing improvements is its current use as an
outpatient surgery center.



The maximally productive use for the existing property is the financially
feasible use that produces the greatest property value.  The existing use was
the only financially feasible use.  The highest and best use, as improved, is
the property's current use.


                               VALUATION SECTION


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

         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.  Due to the specialized nature of the subject property, we
have not considered the Sales Comparison Approach as being appropriate for the
subject property.  The subject property has been specifically designed to
accommodate a freestanding surgical center.  An alternative use for this
structure would require extensive renovation and remodeling and as such,
comparisons to medical office space or commercial office sales


would be inappropriate.  We did not find any sales of comparable specialized
facilities in the region which were similar in size or use and as such, due to
the lack of reliable comparable data, we have not considered this approach as
being an appropriate determinant of value.  The application of the Cost and
Income Approaches to value is further discussed in the appropriate sections
which follow.


                                 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

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

        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.


Land Comparable Number 1
- ------------------------
Parcel Number:                             09-23-106-001

Location:                                  Greenwood Terrace/Blk 2, Southeast corner Dempster Street and Greenwood Avenue.

Size:                                      17,269 square feet

Sale Date:                                 May 1993

Document Number:                           93-855170

Grantor:                                   Union Oil Co. of California, 1201 W 5th Street, Los Angeles, California  90017

Grantee:                                   S & S Petroleum Products, 400 S. Curran Road, Grayslake, Illinois  60030

Sale Price:                                $278,000

Price Per Square Foot:                     $16.09

Terms of Sale:                             All Cash

Shape:                                     Rectangular

Zoning:                                    Evanston Commercial

Utilities:                                 All utilities are available.


Land Comparable Number 2
- ------------------------
Parcel Number:                             05-19-109-001

Location:                                  Northeast corner Central Avenue and Cherry Street.  Willow Crest/Blk 12, Parcel has
                                           additional frontage on Frontage Road for Edens Expressway.

Size:                                      21,780 square feet

Sale Date:                                 August 1993

Document Number:                           93-683 844

Grantor:                                   LaSalle National Trust, Chicago (no Trust No. listed)

Grantee:                                   NBD Bank-Highland Park (no Trust No. listed)

Sale Price:                                $295,000

Price Per Square Foot:                     $13.54

Terms of Sale:                             All Cash

Shape:                                     Rectangular

Zoning:                                    Commercial

Utilities:                                 All utilities are available.

Comments:                                  This parcel was improved with a 12,000 square foot two-story office building.


Land Comparable Number 3
- ------------------------
Parcel Number:                             10-21-414-053

Location:                                  N. Lincoln Avenue

Size:                                      7,800 square feet

Sale Date:                                 April 1993

Document Number:                           93-344648

Grantor:                                   NBD Skokie

Grantee:                                   Village of Skokie

Sale Price:                                $94,000

Price Per Square Foot:                     $12.05

Terms of Sale:                             All Cash

Shape:                                     Basically rectangular

Zoning:                                    Commercial

Utilities:                                 All utilities are available.


A summary of the land sales is shown as follows:

                          SUMMARY OF LAND COMPARABLES

                   SALE                                                             SALE         SIZE            PRICE
                    NO.       LOCATION                                              DATE         (SF)           PER SF

                     1        Greenwood Terrace                                    05/93        17,269          $16.09
                     2        NEC Central Avenue & Cherry Street                   08/93        12,000          $13.54
                     3        8017 - 8019 Lincoln Avenue                           04/93         7,800          $12.05
                  SUBJECT     815 HOWARD STREET                                                 10,004

The above 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.  The sales range in size from 7,800 square
feet to 17,269 square feet and indicate an unadjusted range of value from
$12.05 per square foot to $16.09 per square foot.  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.  The
comparable sales are analyzed in the following paragraphs.

LAND SALE NUMBER 1 is a corner parcel which is utilized as a gas station.  This
comparable's location is considered to be superior to the subject's and a
downward adjustment for location is considered appropriate.  The sales's size
is larger than the subject's which would necessitate that a downward adjustment
for this factor be made.  Overall, we believe that these factors offset each
other negating any overall adjustment to this parcel.  The adjusted price is

LAND SALE NUMBER 2 is located on a more travelled thoroughfare with greater
exposure than the subject.  This sale was used for the development of an
office structure.  Due to its location, a down ward adjustment to this sale is
warranted.  Overall, we have made a downward adjustment of five percent for an
adjusted price of $13.24.

LAND SALE NUMBER 3 is located near a hospital campus and carries with the most
similar characteristics as the subject.  We believe that this sale has a
slightly superior location and have adjusted this sale downward by five
percent.  This indicates an adjusted sale price of the subject of $11.44.


Land Conclusion

Based upon the preceding analysis and conversations with local brokers, it is
our opinion that a value of $14.00 per square foot is representative of the
subject site, as if vacant.  Multiplied by the subject's 10,004 square foot
site, this would indicate a market value of the subject land calculated as

                      10,004 SF  x  $14.00/SF  =  $140,056

                             Rounded to:   $140,000

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
Service, 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.  A schedule, indicating the derived costs from the Marshall Valuation
Service shows the estimated replacement cost by category for the subject
building, is presented in the Exhibit Section of this report.  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 developer would expect to
receive for construction of the project.  The amount of entrepreneurial profit
varies according to economic conditions and types of development.  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 45 to 50 years.  For the subject Class D
        building, we have assumed an economic life of 45 years.

        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 Service, Inc. was used 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
minimal due to its recent renovation.  Observation of the subject property
indicated that the structure and related component parts have been adequately
maintained through a continuous maintenance service program.

The subject property was renovated in 1988 and it is in excellent condition.
It is judged that the subject has an effective age equal to five years.  The
remaining useful life is estimated to be 40 years.  This translates into a
physical depreciation estimate of 11.0


percent (5 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.

Due to the design and structural components of the building, we have not
indicated any loss in value due to functional obsolescence.

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 25 percent.

During our area study, we did not notice any evidence of economic obsolescence
associated with the subject property.

Cost Approach Conclusion

Based on the investigation as previously defined, the market value of the
subject property by the Cost Approach, as of March 15, 1994, is rounded to:



               North Shore Surgical Center - 815 Howard Street

EXCAVATION AND SITE PREPARATION                                   1,771
FOUNDATION                                                       16,033
FRAME                                                            21,009
EXTERIOR WALLS                                                   67,431
FLOORS                                                           18,638
ROOF                                                             26,950
ROOF COVER                                                       15,261
PARTITIONING & BUILT-IN ITEMS                                   264,891
CEILINGS                                                         34,225
FLOOR COVERINGS                                                  30,847
PLUMBING                                                         75,201
ELECTRICAL                                                       85,786
OTHER FEATURES                                                        0
ARCHITECTS FEES, SUPERVISION                                     21,534
ADD FOR MISCELLANEOUS FEES                                       76,445
TOTAL REPRODUCTION COST                                         840,890

TOTAL OVERALL LIFE                                      45
EFFECTIVE AGE                                            5
CURVILENEAR DEPR RATE                               11.00%       92,498
DEPRECIATED VALUE OF BUILDING                                   748,392

REPRODUCTION COST OF LAND IMPROVEMENTS                           50,000
LESS DEPRECIATION OF IMPROVEMENTS @ 25%                         (12,500)
DEPRECIATED VALUE OF LAND IMPROVEMENTS                           37,500

TOTAL DEPRECIATED VALUE OF IMPROVEMENTS                         785,892

ADD LAND VALUE                                                  140,000

TOTAL VALUE COST APPROACH                                      $925,892


                                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 is one of several buildings that Crescent Capital Trust,
Incorporated is establishing a real estate investment trust (REIT).  Surgical
Health Corporation 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 master
lease rate per square foot of rentable office area, regardless of the rental
rates charged or received from the actual tenant(s).  Additionally, the annual
rental income provided for in the ground lease, associated with the subject
property, will be received by the REIT.

This master lease is a credit enhancement vehicle that will enable the REIT
issuer to sell the REIT shares.  It will also allow Surgical Health Corporation
leasing flexibility for the surgical space, i.e., they can lease office space
to various physicians at different rates and terms.

The appraisers received a draft of the form of master lease agreement, but the
actual master lease agreement for the property are not yet available.  For the
purpose of our Income Approach, the gross income will be the master lease rate
for the property times the rentable building area.  We reserve the right to
modify the Income Approach valuation if the actual master lease for the
property differs significantly from the draft lease presented to us.

The master lease rate for the subject property will be $105,860 annually based
on a 15-year lease.  We have verified the reasonableness of this rental rate by
conducting a return analysis of the property based upon the expected remaining
lives of the improvements and investment rates of return found in the
marketplace.  A schedule of this analysis is found in the Exhibit section of
this report.  Based upon this analysis, utilizing a required rate of return of
10 percent on land and 12 percent to 14 percent rate on improvements, the
annual rental rate would be anticipated to approximate


$21.56 to $24.54 per square foot.  The rate established in the master lease at
$20.75 appears to be reasonable.

The subject appraisal assumes 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.

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
$5,293, based on the management experience of other properties.  The net
operating income for the property is $105,860 less $5,293 or $100,567.

Although we have not utilized the Sales Comparison Approach to arrive at an
indication of value for the subject property, we have conducted a survey of
medical office building sales throughout the region in order to abstract an
overall rate for capitalization.  The full details of these sales are located
in the Exhibit Section of this report and indicate overall rates from 8.0
percent to 11.33 percent.

A capitalization rate of 11.0 percent is considered appropriate because of the
quality of the tenant and the overall reasonableness of the rental rate

Therefore, it is our opinion that the market value of the subject property by
the Income Approach, as of March 15, 1994, is calculated and rounded as

                  Net Operating Income/OAR  =  Estimated Value

                           $105,567/.11  =  $914,245

                             Rounded to:  $910,000


                           CORRELATION AND CONCLUSION

We have considered three approaches to value in order to estimate the value of
the North Shore Surgical Center.  The three approaches are summarized as

        Cost Approach   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $925,000
        Sales Comparison Approach   . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
        Income Approach   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $910,000

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 for the subject.  For this reason, the Cost Approach is considered
only a fair indicator of value for the subject property.

The Sales Comparison Approach was not utilized due to the specialized nature of
the subject property.

The Income Approach normally provides the most reliable value estimate for
specialty properties 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 North
Shore Surgical Center, as of March 15, 1994, and based on the assumptions and
limiting conditions in this report, is:


Was this helpful?

Copied to clipboard