AN APPRAISAL OF
ST. LOUIS COMPREHENSIVE AND
AMBULATORY CARE FACILITY
ST. LOUIS, MISSOURI
2
(LOGO) VALUATION COUNSELORS GROUP, INC.
340 Interstate North Parkway
Atlanta, Georgia 30339
(404) 955-0088
(Fax) 955-0466
May 25, 1994
Crescent Capital Trust, Incorporated
One Perimeter Park South, Suite 335-S
Birmingham, Alabama 35243
Attention: Mr. John W. McRoberts
President & CFO
Gentlemen:
In accordance with your request, we are pleased to submit this appraisal report
covering the market value of the medical office building identified as follows:
ST. LOUIS COMPREHENSIVE AND AMBULATORY CARE FACILITY
13303 TESSON FERRY ROAD
ST. LOUIS, MISSOURI
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 $801,563 on a fifteen-year
lease.
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
whereby:
3
Crescent Capital Trust, Incorporated
May 25, 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 two-story outpatient surgery center containing 54,801
gross square feet constructed in 1993, located on a 10.002-acre site. The net
leasable square feet is equal to its gross amount of 45,205 square feet. A
critical assumption of our report is that the subject property will be complete
prior to transfer to the REIT.
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 St. Louis
Comprehensive and Ambulatory Care Facility, as of March 15, 1994, to be:
$7,400,000
==========
This value estimate includes real property only, and excludes the value of any
furniture or equipment located within the property.
4
Crescent Capital Trust, Incorporated
May 25, 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 Certifications of the appraisers;
o A Statement of Facts and Limiting Conditions;
o A Summary of Salient Facts and Conclusions;
o A Narrative section detailing the appraisal of the property;
and
o An Exhibit section containing supplementary data.
A copy of this report and the working papers from which it was prepared will be
kept in our files for eight years.
Respectfully submitted,
VALUATION COUNSELORS GROUP, INC.
/s/ Patrick J. Simers
-----------------------------
Patrick J. Simers
Managing Director
5
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.
Jery L. Hunter made a personal inspection of the property that is the
subject of this report. Patrick J. Simers has not made a personal
inspection of the property.
This assignment was made subject to regulations of the State of
Georgia Real Estate Appraisers Board. The undersigned state certified
appraiser has met the requirements of the board that allow this report
to be regarded as a "certified appraisal".
/s/ Patrick J. Simers
-----------------------------------
Patrick J. Simers
Managing Director
Georgia Certificate No. 001977
6
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.
7
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.
8
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.
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.
9
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
GENERAL DATA
Effective Date of Value: March 15, 1994
Property Identification: St. Louis Comprehensive and Ambulatory Care Facility.
Property Location: 13303 Tesson Ferry Road, St. Louis, Missouri
Interest Appraised: Leased Fee Estate
Gross Building Area: 54,801 square feet
Net Leasable Area: 45,205 square feet
Land Size: Approximately 435,687 square feet, or 10.002 acres
Improvements Description: A two-story building anticipated to be complete and occupied by May 1994.
Physical Occupancy Percentage: 92.16%
CONCLUSIONS
Cost Approach: $7,400,000
Sales Comparison Approach: $7,124,000
Income Approach: $7,456,000
Final Value Estimate: $7,400,000
==========
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TABLE OF CONTENTS
Page
Transmittal Letter
Appraiser Certifications
Statement of Facts and Limiting Conditions
Summary of Salient Facts and Conclusions
INTRODUCTION 1
Property Identification 1
Purpose and Effective Date of the Appraisal 1
Function of the Appraisal 1
Scope of the Appraisal 1
Property Rights Appraised 2
Definition of Value 2
Estimated Marketing Period 3
History of the Property 3
History and Nature of the Business Environment 3
Reasonable Exposure Time 6
DESCRIPTIVE DATA 7
Regional and City Analysis 7
Office Market Data - St. Louis Area 11
Neighborhood Description 15
Zoning 17
Real Estate Taxes and Assessments 18
Subject Property Description 19
Improvements Description 21
HIGHEST AND BEST USE 23
VALUATION SECTION 26
Valuation Methodology 26
Cost Approach 27
Sales Comparison Approach 40
Income Approach 50
CORRELATION AND CONCLUSION 52
11
TABLE OF CONTENTS
EXHIBIT SECTION
Exhibit A - Professional Qualifications
Exhibit B - Legal Description
Exhibit C - Subject Location Map
Exhibit D - Land Sales Location Map
Exhibit E - Improved Sales Location Map
Exhibit F - Site Plan
Exhibit G - Building Description and Summary of Value
Exhibit H - Land Improvements Description
Exhibit I - Lease Comparables Summary
Exhibit J - Improved Sales Comparables Summary
Exhibit K - Subject Photographs
12
INTRODUCTION
PROPERTY IDENTIFICATION
The subject of this appraisal, known as St. Louis Comprehensive and Ambulatory
Care Facility, is a 54,801 square foot medical office facility located at 13303
Tesson Ferry Road, St. Louis, Missouri. The building is anticipated to be
complete in May 1994. It is presently 92.16 percent pre-leased. The building
contains 45,205 net rentable square feet.
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 March 15, 1994.
The date of the appraisal report is March 25, 1994.
FUNCTION OF THE APPRAISAL
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.
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.
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PROPERTY RIGHTS APPRAISED
The property right appraised herein is the Leased Fee Estate.
"Leased Fee Estate" is:
"an ownership held by the landlord with the right of use and occupancy
conveyed by lease to others; the rights of lessor (the leased fee
owner) and leased fee are specified by contract terms contained within
the lease."
[The Appraisal of Real Estate, p. 123, 10th Ed., published by The
Appraisal Institute.]
DEFINITION OF VALUE
For the purpose of this valuation, "market value" is defined as follows:
"The most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair
sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit in
this definition is the consummation of a sale as of a specified date
and the passing of title from seller to buyer under conditions
whereby:
o Buyer and seller are typically motivated;
o Both parties are well informed or well advised, and acting in
what they consider their own best interests;
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash in U.S. dollars or in terms
of financial arrangements comparable thereto; and
o The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale."
[The Appraisal of Real Estate, p. 21, 10th Ed., published by The
Appraisal Institute].
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ESTIMATED MARKETING PERIOD
As completed, the subject property is best suited for multi-tenant
medical-related occupancy. Given the existing balance of supply and demand for
medical-related buildings in the St. Louis metropolitan area, we estimate the
marketing period of the subject is between six and eight months.
HISTORY OF THE PROPERTY
Ownership
According to public records on file at the St. Louis County Recorder of Deeds
office, the subject property is currently owned by Tesson Ferry Medical
Equities L.P., a Missouri limited partnership. The property's land was
acquired on November 10, 1992 from Louis & Rhoda M. Laudel, William H. & Kathleen M. Laudel, Herbert & Margaret H. Laudel, Albert & Barbara R. Laudel
and Bernadine & Kenneth Kuhn. This sale transaction is recorded in Deed Book
9512, Page 1130 and represents the only sale transaction within the past five
years.
HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT
United States Economic Performance and Outlook
The value of the business enterprise is influenced by potential returns
available from alternative investments. These return expectations are affected
by economic conditions as they impact the ability of a business enterprise to
generate a return on its invested capital. Perhaps the most important economic
indicator affecting potential investor returns is the aggregate demand for
goods and services. Aggregate demand is measured by a country's Gross Domestic
Product (GDP), which is the sum of all domestic expenditures for consumption,
government services, and net exports.
The United States economy has been in a period of slow economic growth, but the
rate of growth appears to have increased in recent months. Gross Domestic
Product (GDP) increased at a 2.1 percent annual rate during 1992 after
declining (1.2%) during 1991.
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15
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.
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INTEREST RATES AND SELECTED STATISTICS
JANUARY 6, 1994 JANUARY 2, 1992
Federal Fund Rate 3.0% 3.9%
90-Day Treasury Bill Rate 3.1% 3.9%
30-Year Treasury Bond 6.4% 7.5%
Aaa Bond Yield 6.9% 8.2%
Prime Rate 6.0% 6.5%
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.
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The lower interest rates in recent periods, however, are serving to stabilize
commercial property values.
REASONABLE EXPOSURE TIME
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
Foundation].
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 six to eight months.
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DESCRIPTIVE DATA
REGIONAL AND CITY ANALYSIS
The subject property is located in the City of St. Louis, St. Louis County,
Missouri. More specifically, the property is located in the western central
section of the city.
The City of St. Louis is located within the St. Louis Consolidated Metropolitan
Statistical Area (CMSA). The CMSA is located near both the geographic and
population centers of the United States and has a current population of
1,942,000. The 1980 census indicated that the St. Louis consolidated area had
experienced a population decline since 1970, however, the 1990 census indicated
that the population has recovered somewhat during more recent years with the
St. Louis CMSA currently ranked fifteenth in population in the nation. The St.
Louis regional population was 2,444,000 at the 1990 census reporting period.
This level reflects an increase of approximately 67,000 people, or 2.8 percent,
since the 1980 census. The current population is reported at 2,452,000.
Population growth figures, both actual and projected, for the Missouri counties
of the St. Louis CMSA and City of St. Louis, are as follows:
Actual Projected
1960 1970 1980 1990 2000
St. Louis 703,532 951,353 974,177 993,529 1,035,852
St. Charles 52,970 95,954 144,107 212,907 250,797
Jefferson 66,377 105,248 146,183 171,380 201,880
Franklin 44,566 55,116 71,233 80,603 91,117
St. Louis City 750,026 622,236 452,804 396,685 357,971
According to the above population table, St. Charles County had the greatest
increase in population of the Missouri counties in the CMSA and the City of St.
Louis. Additionally, St. Charles County has the greatest growth rate of all
counties in the state of Missouri. The 47.7 percent increase is attributable
to the three largest incorporated areas in St. Charles County, St. Peters, St.
Charles and O'Fallon, ranked first, third and fifth, respectively, in the top
ten total gain increase in population of incorporated areas.
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Reciprocally, the City of St. Louis ranked first of the bottom 10 incorporated
places in Missouri that had a loss in population.
The Missouri portion of the CMSA area is located on the eastern edge of the
state of Missouri near the confluence of the Missouri and Mississippi Rivers.
This site was originally chosen by French traders in the mid-1700s because of
its favorable location on the waterway system of the central North American
continent. Their foresight and vision have been vindicated by the fact that
over 200 years have passed and St. Louis is still the leading port on the
Mississippi River, second largest rail hub and sixth busiest air traffic point
in the nation. These location factors also make it a major industrial center.
The port of St. Louis is the busiest inland port in the nation. In addition,
the St. Louis district constitutes the second largest railroad terminal in the
country, surpassed only by Chicago. The CMSA of St. Louis is served by 14
trunk-line railroads and five switching lines, with Amtrak providing passenger
service to a variety of cities throughout the nation. Trucking service is
available with more than 200 common carrier truck lines and numerous local
lines operating in the area. Four interstate highways serve the area, with
Interstate 70 linking Washington, D.C. with the west via Kansas City and
Denver; Interstate 55 running from Chicago to New Orleans; Interstate 44
connecting St. Louis with Interstate 40 at Oklahoma City and continuing through
points southwest to Los Angeles, and Interstate 64 traveling inland from
Virginia to St. Louis. Additionally, Interstates 270 and 255 serve as
circumferential highways in the metropolitan area.
Airline service is available from Lambert - St. Louis International Airport.
Ten scheduled passenger airlines, three commuter lines, one all-cargo airline,
two air freight cartage agents and 14 air freight forwarders operate from the
airport. In addition to Lambert-St. Louis International Airport, there are six
general aviation airports serving the area.
The area enjoys a diversified economy, being a major financial, manufacturing,
telecommunications, and trade and distribution center serving the central
United States. St. Louis is headquarters for six of the Fortune 100
corporations and ten of the Fortune 500 companies.
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The following are the largest employers in the St. Louis CMSA area with their
respective number of employees:
Number of
Company Employees
McDonnell Douglas 30,000
Scott Air Base, IL 13,512
McDonald's Restaurant 13,279
Schnuck Markets, Inc. 12,000
Southwestern Bell 10,800
U.S. Postal Service 10,442
Washington University 8,013
Trans World Airlines 7,463
Barnes Hospital 7,025
National Supermarkets 6,890
St. Louis University 6,685
May Department Stores 6,500
St. Louis Board of Education 6,127
SSM Health Care Systems 6,000
Sisters of Mercy Health System 5,714
As indicated above, the area's largest employer is McDonnell Douglas
Corporation, with approximately 30,000 St. Louis area employees. Other
nationwide firms headquartered in the area include Anheuser-Busch Co., Inc.,
Ralston Purina Company, Pet, Inc., Peabody Coal Company, and Graybar Electric.
In addition to their headquarters, and research and chemical manufacturing
facilities, international high tech giant Monsanto also established a major
silicon chip manufacturing facility in the area, since sold to a German combine
and know as Monsanto Electronic Materials Corporation (MEMC). Furthermore, the
St. Louis area is second only to Detroit in automobile manufacturing.
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It should be noted that there is no one dominant segment of the economy; it is
a diverse employment base. As indicated by the following table, each industry
is well represented in the St. Louis MSA.
Employment - St. Louis, MSA
June, 1993
Total Percentage
Employment of Total
Construction & Mining 50,400 4.4
Manufacturing 193,600 16.8
Transportation & Public Utilities 77,700 6.7
Trade 280,400 24.3
Finance, Insurance & Real Estate 73,900 6.4
Services 344,300 29.9
Government 131,900 11.4
--------- -----
Total 1,152,200 100.0
In keeping with the national trend of the times, the manufacturing sector,
historically a strong one in St. Louis, is losing ground to service-based
industries. Between 1983 and 1987, non-manufacturing employment increased at
an annual compound rate of approximately 3.6 percent, while Department of Labor
figures show employment in manufacturing industries decreased approximately 1.1
percent.
According to Employment Security, a division of the Missouri Department of
Labor and Industrial Relations, the St. Louis Metropolitan area, as of June,
1993 had a civilian labor force of 1,285,504 people with a total employment of
1,209,658. The unemployment rate, currently 5.9 percent, is down from 6.5
percent for the same reporting period in 1993. The current unemployment rate
of 5.9 percent for the state of Missouri is also down, from 6.3 percent, for
the same reporting period in 1992.
In summary, the St. Louis CMSA is a progressive and active market area with a
well-diversified and stable economic base. The migration and in-migration
patterns are typical of those in other large CMSAs with active suburban areas.
It is our opinion that the area will continue to maintain and encourage an
increasing development pace, and that the general economy and property values
will start to realize and experience moderate growth for the foreseeable
future.
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OFFICE MARKET DATA - ST. LOUIS AREA
The St. Louis area office market is segmented into six markets, downtown,
Clayton, west county, south county, north county and St. Charles.
In 1993 the six office markets combined had a total of 38,336,000 square feet
of net rentable office area with 6,977,000 square feet available indicating an
overall average occupancy of 81.8 percent. The following table illustrates the
office space summary for the six markets:
1993 OFFICE SPACE FOR ST. LOUIS AREA
(SQUARE FEET IN THOUSANDS)
NET AVAILABLE AVERAGE
RENTABLE RENTABLE OCCUPANCY
MARKET SECTOR AREA (SF) AREA (SF) PERCENT
Downtown 14,834 3,931 73.5
Clayton 4,564 758 83.4
West County 13,572 1,656 87.8
South County 2,099 168 92.0
North County 2,895 428 85.2
St. Charles 402 28 93.1
TOTAL 38,366 6,969 81.8
The above table reflects the net rentable area and available rentable
area and resulting average occupancy for all types of office space in
the St. Louis area. As indicated, the downtown market, the largest
of the office markets, has the greatest vacancy rate at 26.5 percent.
The remaining markets combined, comprising the suburban market, has a
vacancy rate of 12.9 percent. The market area the subject property
is located in, the south county market, reported a vacancy rate for
all types of office area of 8 percent.
The majority of the occupancy rates reported reflect an increase from the
previous reporting period. Overall, the metropolitan area is seeing little or
no new construction resulting in office area vacancies going down.
Additionally, by occupying existing buildings the rental rates are starting to
increase after having been stable for the past
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two years; according to building owners these rates are starting to reach a
reasonable level.
In 1993, office rental rates were low prompting tenants to absorb large
contiguous blocks of office space. The complete shut-down of speculative
office construction, combined with positive net absorption, continues to reduce
the available number of large contiguous blocks of space. No other market
characteristic seems to surprise tenants more than the limited selection of
Class A buildings with large contiguous blocks of space available. The
dwindling supply of large blocks of Class A space is most apparent in suburban
St. Louis County. After hitting a peak of 16 blocks in 1992 only 7 blocks of
20,000 square feet of contiguous Class A space were available by mid-1993.
According to the Turley Martin Office Report "the market is already tight for
large tenants and is limited for mid-size tenants. As a result, owners with
larger blocks of space in some sub-markets are setting higher lease rates."
The following table illustrates the Class A office space summary for the six
markets comprising the St. Louis area office market:
1993 CLASS A OFFICE SPACE FOR ST. LOUIS AREA
(SQUARE FEET IN THOUSANDS)
NET AVAILABLE AVERAGE
RENTABLE RENTABLE OCCUPANCY
MARKET SECTOR AREA (SF) AREA (SF) PERCENT
Downtown 7,282 1,027 85.9
Clayton 3,232 514 84.1
West County 7,786 926 88.1
South County 718 13 98.2
North County 1,731 242 86.0
St. Charles 109 8 93.1
TOTAL 20,858 2,730 86.9
As indicated above, Class A office space approximates 54 percent of all office
space in the St. Louis area. The Clayton area, the seat of St. Louis County,
has the highest concentration of Class A office space while St. Charles,
geographically divided from St. Louis County by the Missouri River, has the
least amount of Class A office space.
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South St. Louis County, the area the subject property is located in, has the
second lowest amount of Class A office space.
The overall average occupancy rate for Class A office space in the St. Louis
area is 86.9 percent compared with 81.8 percent of all office space. Clayton,
the area with the highest concentration of Class A office space has the lowest
average occupancy at 84.1 percent while South County has the highest occupancy
rate at 98.2 percent. As indicated by the second lowest amount of Class A
space and the highest occupancy rate the South St. Louis County area has a good
balance of supply and demand favoring the building owners.
With little or no new office building construction it is expected that
occupancy rates throughout the St. Louis area will continue to increase.
The increasing occupancy rates have had a positive affect on rental rates as
well. With the decreasing supply of office space building owners are having to
make less concessions than before to attract tenants. Asking rental rates in
Class A buildings typically range from $16 to $22 per square foot for full
service. At one time, substantial concessions were decreasing the asking rents
by up to 30 percent over a five to seven-year lease. According to the 1993
Urban Land Institute Profiles standard lease terms for new office space for the
St. Louis area are:
Original Lease Length: Five years
Number of Renewals: One
Length of Renewal Term: Five years
Free Rent: None, however substantial services are
included in base rent.
Escalation Clauses: Rents adjusted annually by operating expenses.
Tenant Improvement
Allowances: $12 - $14 per square foot over the life of
the lease.
Pass-Through Expenses: Taxes, insurance, utilities, common area
maintenance above base amount or base year.
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Concessions: 15-30 percent off face rent, extra tenant
improvement allowance, moving expenses.
As indicated above, the asking rental rates in Class A office buildings is
between $16 to $22 per square foot. The following table reflects the asking
rental rates for office buildings in the Interstate 44/South St. Louis County
area:
YEAR BUILT NO. OF BUILDING ASKING
BUILDING/LOCATION FLOORS SIZE (SF) RENT
Laumeier II 1990 4 118,000 $19.50
3636 S. Geyer Road
Laumeier I 1987 4 112,000 $19.50
3630 S. Geyer Road
Sunset Office II 1984 4 90,000 $18.50
10733 Sunset Office Drive
Southwest Executive Ctr 1982 3 76,400 $17.50
9735 Landmark Parkway R 1986
Laumeier III 1990 3 52,000 $19.50
3660 S. Geyer Road
Laumeier IV 1990 3 50,800 $19.50
3666 S. Geyer Road
Clubs Center Office Bldg. 1989 4 44,000 $16.00 -
12300 Old Tesson Road $18.00
10825 Watson Building 1978 2 40,000 $16.50
10825 Watson Road R 1990
Sunmark Building 1975 2 40,000 $16.50
10795 Watson Road
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NEIGHBORHOOD DESCRIPTION
As previously stated, the subject St. Louis Comprehensive and Ambulatory Care
Facility is located in St. Louis County. The location can more accurately be
described as being on the west side of Tesson Ferry Road (Missouri State
Highway 21) two miles south of Interstate 270 in the southwestern section of
St. Louis County.
The neighborhood is generally defined as that area lying on both sides of
Tesson Ferry Road to the south of Interstate 270 being bounded on the east by
Interstate 55 and on the west by the Meramec River.
The neighborhood area is comprised of a well-balanced blend of residential,
commercial and institutional properties with commercial, institutional,
professional and multi-family residential uses near the Interstate 270
interchange and along the major thoroughfares and single-family residential use
in the outlying areas away from the major thoroughfares.
Commercial uses in the immediate area are located primarily to the north along
Tesson Ferry Road. These uses include those types of businesses serving
passing motorists as well as the area's residential base. Commercial uses
include a McDonald's and a Taco Bell fast-food restaurant, a gasoline station,
an automobile repair facility, a sit-down restaurant, a grocery store, banks
and two strip shopping centers.
Institutional uses include the St. Anthony's Hospital located on the west side
of Tesson Ferry Road approximately 1.5 miles north of the subject property, a
church and the Mehlville Fire Protection District fire house also to the north
and the Garden Villa South - Luxury Retirement Community and Delmar Gardens
South - Nursing and Rehabilitation Center to the south.
Professional properties include medical office buildings at the St. Anthony's
Hospital complex, Tesson Grove Medical Center, numerous doctors offices, Nooter
- - Eriksen office building and the General American corporate offices located to
the north of the subject property.
Multi-family residential properties include the multi-story Village Royale
Apartments directly to the east across Tesson Ferry Road, Southmoor Apartments
and Townhomes
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adjacent to, and on the north of the subject property and the Cedar Run
Apartment Complex at Suson Woods Drive to the south.
While there are numerous single-family subdivisions in the area of the subject
property the newest single-family residential development is to the south and
west at Suson Woods Drive and Tesson Ferry Road.
The growth pattern in the area along Tesson Ferry Road has been progressing to
the south, the natural growth pattern being experienced in St. Louis County,
from Interstate 270. This growth is expected to continue due to the abundance
of vacant land available to the south of the subject property.
Like any high density commercial areas, good access has had a direct positive
affect on the commercial growth in the area. Tesson Ferry Road (Missouri State
Highway 21), an asphalt-surfaced, four-lane with center turning lane
thoroughfare, is a heavily travelled commuter route connecting Gravois Road
(Missouri State Highway 30) to the north with the small town of Glover,
Missouri to the south. Tesson Ferry Road intersects with the major
thoroughfares Lindbergh Boulevard (U.S. Route 61/67), Interstate 270 and
Missouri State Highway 141 within the St. Louis Metropolitan Area. Like Tesson
Ferry Road, Interstate 270 also provides direct access to the neighborhood
area, Interstate 270, linking with Interstate 255 is a circumfrential
interstate serving the St. Louis Metropolitan Area. Access to the area is also
provided by way of Missouri State Highway 141 traversing north to south through
the western and southern sections of St. Louis County and in the general area
connecting Interstate 44 to the north with Interstate 55 to the south.
As stated above the neighborhood area is a well balanced blend of commercial,
professional, institutional and residential properties. Traffic along the
major thorough-fares is significant and the direct result of the fronting
commercial businesses. The residential base in the area tends to support the
commercial businesses as well as the institutional and professional uses. The
properties in the area are well maintained indicating an economically stable
area. As stated above, there is vacant land available for continued
commercial, institutional, professional and residential growth; this area is
within a natural growth corridor of St. Louis County.
No detrimental conditions or hazards appear to exist in the subject
neighborhood or immediate area that would be considered to have a negative
affect on the St. Louis
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Comprehensive and Ambulatory Care Facility property or on properties in the
immediate area.
ZONING
The subject property is zoned "C-8" - Planned Commercial District, by the St.
Louis County Department of Planning and Zoning. According to the zoning
ordinance, "the C-8 Planned Commercial District encompasses areas where
developments and uses permitted in any of the other "C" Commercial Districts
may be located. It is the purpose of these regulations to facilitate the
establishment of combinations of developments and uses for which no provision
is made in any other single "C" Commercial District, or the establishment of
developments and uses in locations appropriate under approved site plans and
conditions. Such approved plans and conditions shall be consistent with good
planning practice and compatible with permitted developments and uses in
adjoining districts, so as to protect the general welfare".
Planned Commercial Districts are designated to those properties approved by the
St. Louis County Council upon review and acceptance of a preliminary
development plan, approval and recordation of a site plan and the schedule of
construction of the approved use is complied with in accordance with the zoning
ordinance.
The subject property was zoned "R-6A" - Residence District at the time Tesson
Ferry Medical Equities L.P. purchased the property. The application and
preliminary plans for the proposed subject development were submitted by the
purchasers and approved by the St. Louis County Council; this approval
resulted in rezoning the subject property to a "C-8" classification allowing
the proposed use as the St. Louis Comprehensive and Ambulatory Care Facility.
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REAL ESTATE TAXES AND ASSESSMENTS
The subject property is recognized by the St. Louis County Assessor's Office by
locator number 31L430040. As indicated in the Zoning section of this report,
at the time of the sale the subject property was zoned for residential
purposes, therefore the property was assessed as residential property;
residential properties are assessed at 19 percent of appraised value. The
appraised and assessed value for 1993 is as follows:
Appraised Assessed
Value Value
--------- --------
Land $105,800 $20,100
Improvements 0 0
--------- ---------
Total $105,800 $20,100
According to the Collector of Revenue's Office the millage rate for properties
located within the Mehlville R-9 School Subdivision District 120H is $6.015 per
$100 of assessed value. Based upon the above assessed value of $20,100 and the
millage rate of $6.015 the 1993 real estate tax liability is $1,209.02.
Subsequent to it's purchase the subject property was rezoned to C-8 - Planned
Commercial District. According to the Assessor's Office the subject property
will be reassessed as a commercial property upon completion of the
improvements; commercial properties are assessed at 32 percent of appraised
value. In addition to the 1993 base millage rate of $6.015, industrial and
commercial properties are levied an additional surcharge of $1.70 per $100 of
assessed value.
Real estate tax liabilities in the state of Missouri are based upon the
assessed value as of the first day of the year and due and payable by the last
day of the year. Since the subject property was still under construction as of
January 1, 1994 the property will not be assessed as if completed until January
1, 1995.
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SUBJECT PROPERTY DESCRIPTION
Site Description
The subject St. Louis Comprehensive and Ambulatory Care Facility site is
located on the west side of Tesson Ferry Road at Duessel Road. The
irregular-shaped parcel, containing 10.002 acres, or 435,687 square feet, has
the following frontages and boundaries:
North property line - 749.46' - Southmoor Apartment Complex
East property line - 761.13' - Tesson Ferry Road
South property line - 555.45' - Garden Villas South
West property line - 557.15' - Butler Hill Road/Garden Villas South
The subject site has a sloping terrain with the highest elevation being at the
northeast corner of the property. From this area the site slopes uniformly
downward to the south with a change in elevation of -30 feet from the north
property line to the south property line. Additionally, the terrain slopes
downward to the west and to the southwest with a change in elevation of -65
feet along the north property line and a change in elevation of -68 feet from
the northeast corner to the southwest corner of the site. A significant amount
of excavation was necessary in the area of the improvement resulting in the
improvement's main entrance on the front elevation entering into the second
level and the rear entrance being on the lower level. The site has been
excavated to maximally utilize the property for the existing improvement,
parking areas and any future expansion or additions.
Access to the subject property is by way of one signalized entrance on Tesson
Ferry Road on the east property line and one entrance on Butler Hill Road on
the west property line.
The subject site is served by all customary utilities, including water, sewer,
electricity and telephone service.
Given the sloping terrain and the excavation for a water retention area in the
southwest portion of the property, the site has the appearance of having good
drainage throughout. In addition, with properly engineered concrete piers and
footings, the soil appears to
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have been excavated, filled and compacted to have adequate load bearing
capability for this type of improvement.
The improvement is located in the north-central section of the property with
asphalt paving for employee/guest parking on the north and east sides of the
improvement. Expansion of and to the building would be possible on the west
and south elevations. Additionally, there is adequate room on the site for an
additional structure. In our opinion, the location of the improvement on the
site maximally utilizes the land area given the terrain of the property and
allows for future improvements on the site.
The building containing 27,558 square feet on the lower level encompasses 6.3
percent of the site indicating a land to building ratio of 15.8:1.
The site is considered to compliment its proposed medical related use. There
is good visibility and access from Tesson Ferry Road. Additionally, access is
provided to the site by way of one entrance on Butler Hill Road, a much less
travelled road.
During our inspection of the site and site plans there were no adverse
easements or encroachments noted that would be considered to have a negative
affect on the value of the property.
According to the National Flood Insurance Program - Federal Emergency
Management Agency, Map 290327 Community Panel 0135E dated November 1, 1985, the
subject property is located in Flood Zone C. Flood Zone C are areas of minimal
flooding.
A legal description of the property and a plot plan showing the property
configuration are included in the Exhibit Section of this report.
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IMPROVEMENT DESCRIPTION
Building
The subject site is improved with a two level, Class A, medical office
building. The building, with a projected opening date of May, 1994, contains
54,801 square feet of gross building area with 27,558 square feet on the lower
level and 27,243 square feet on the upper level. The building is of good
construction with good quality materials and in good condition.
General construction includes drilled, poured-in-place pilings, reinforced
concrete spread footings under exterior curtain walls, concrete column pads and
12" thick, below grade concrete walls and interior shear wall. Framing
consists of a full structural steel framing system with fire protected steel
columns, beams and joist girders. Above grade exterior walls are non-bearing
EIFS panels with 1/2" gypsum board on 6" metal studs and batt insulation;
fenestration includes vinyl-clad aluminum framed windows with decorative
mullions, automatic sliding doors on the main entrances and painted metal doors
on secondary entrances. Floor construction is reinforced 5" concrete on
granular fill on the lower level and 5" composite deck on channel-formed metal
deck on steel bar joists on the upper level. The roof structure is a flat type
with roof insulation on gypsum board on metal decking on steel bar joists; the
roof cover is built-up composition.
Finish construction includes metal studs and taped and painted drywall
partitions; wall finishes include paint, vinyl wall covering, ceramic tile and
full height glass wall with sliding glass doors. Ceiling finishes include
taped and painted drywall and acoustical tile panels in metal grid system.
Floor finishes include ceramic tile, vinyl composition and carpeting.
Mechanical equipment includes standard plumbing fixtures with copper, cast iron
and pvc supply, waste and vent piping and electric hot water heaters. The
building is heated and cooled by a zoned warm and cool forced air ducted system
with electric duct heaters and three roof-mounted freon air conditioning units.
Electric service is rated at 2,500 amps with wiring in flexible and rigid
conduit; incandescent and fluorescent light fixtures are typical throughout.
Other mechanical features include a fire alarm system, emergency generator, two
elevators and fire protection sprinkler system.
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A detailed description of the building by construction components is included
in the Exhibit Section of this report.
Site Improvements
Improvements to the site include site preparation, landscaping, underground
utilities, asphalt and concrete paving, concrete curbing, parking lot lighting
and signage.
A detailed description of the site improvements is included in the Exhibit
Section of this report.
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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.
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The analysis of highest and best use is divided into two sections. The site is
analyzed as if vacant and available for development and as currently improved.
As if Vacant
The subject site, containing 10.002 acres, has been excavated to maximally
utilize the total land area and sloping terrain. The terrain, configuration
and size are adequate and sufficient enough for numerous uses that would be
permitted by the St. Louis County Department of Planning and Zoning and the St.
Louis County Council for a Planned Commercial District. In addition, the site
has good visibility on a heavily travelled thoroughfare, good access from a
major thoroughfare and a secondary road, therefore the subject site is
available for numerous office/commercial/medical uses consistent with a Planned
Commercial District.
As If Improved
As previously stated in this report the subject property is located in a
well-balanced mixed use neighborhood area in southwest St. Louis County. The
residential properties consist of upper middle class single-family residences
and multi-family apartment complexes. The commercial type improvements in the
area range from free-standing single-tenant or owner occupied buildings and
strip shopping centers with businesses catering to both area residents and
passing vehicular traffic. Institutional properties in the area include
churches, a nursing homes and retirement village, a hospital and a fire
station. Professional development includes corporate offices, multi-tenant
office buildings and medical office buildings and single-tenant or owner
occupied professional offices and medical offices.
The property is well situated by fronting on a heavily-travelled major
thoroughfare approximately two miles south of an interstate highway; visual
exposure to passing traffic is excellent.
As previously stated, the 10.002-acre site is currently improved with a 54,801
square foot medical office building with 27,558 square feet of floor area on
the lower level indicating a land to building ratio of 15.8:1. The
improvements are situated on the site to maximally utilize the land area as
well as the terrain, provide for good ingress and egress and adequate parking
for this type of use. Additionally, there is sufficient enough space on the
site for future expansion to the building or additional buildings.
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The location of the property as well as the location of the improvements on the
subject site are considered to satisfy the first criterion, physically
possible, of the highest and best use analysis.
As stated in the Zoning section of this report the subject improvement is a
permitted use, therefore the second criterion of the highest and best use
analysis, legally permissible, is satisfied.
The third criterion, financially feasible, of the highest and best use is that
the proposed medical office building use produces the income (return) that is
greater that the amount needed to satisfy the operating expenses, financial
obligations and capital amortization. The most feasible use for the property
as improved is the building's current use given the special use construction
attributes.
The fourth criteria, maximally productive, is a culmination of the first three
criteria. The subject use is physically possible, legally permissible and
financially feasible indicating that the current use could be maximally
productive for the site. Considering the potential rates of return for medical
related use versus what the property was originally zoned for, residential, the
subject use would clearly be superior to potential residential uses at this
location. Therefore, it is our opinion that the highest and best use of the
subject property, as improved, as of the effective date of this appraisal, is
its proposed medical office building use.
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VALUATION SECTION
VALUATION METHODOLOGY
There are three principal methods to estimate the market value of the assets of
the subject property. These are summarized as follows:
COST APPROACH: This method is based on the principle of substitution,
whereby no investor would prudently pay more for a property than it
costs to buy land and build a comparable new building. The market
value is estimated by calculating the replacement costs of a new
building and subtracting all forms of depreciation and obsolescence
present in the existing facility. This provides a depreciated value
of the subject improvements if replaced new. The estimate of the
current value of the subject land is then added to provide a market
value of the property.
SALES COMPARISON APPROACH: The principle of substitution also says
that market value can be estimated as the cost of acquiring an equally
desirable substitute property, assuming no costly delay in making the
substitution. This method analyses the sales of other comparable
improved properties. Since two properties are rarely identical, the
necessary adjustments for differences in quality, location, size,
services and market appeal are a function of appraisal experience and
judgment.
INCOME APPROACH: This method is based on the principle of
anticipation, which recognizes that underlying value of the subject
property can be estimated by its cash flow or stream of earnings.
This approach simulates the future earnings for the property, and
converts those earnings into a present market value estimate.
Consideration has been given to each of the three methods to arrive at a final
opinion of value. The application of each approach to value is further
discussed in the appropriate sections which follow.
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COST APPROACH
In the Cost Approach, the subject property is valued based upon the market
value of the land, as if vacant, to which is added the depreciated replacement
cost of the improvements. The replacement cost new of the improvements is
adjusted for accrued depreciation resulting from physical deterioration,
functional obsolescence, and external (or economic) obsolescence.
The cost analysis involves three basic steps:
o Land value estimate.
o Estimated replacement cost of the improvements.
o Estimation of the accrued depreciation from all causes.
The sum of the market value of the land and the depreciated replacement cost of
the improvements and equipment is the estimated market value via the Cost
Approach.
Land Valuation
Land valuation, assuming the site is vacant, is based upon the following steps:
o A comparison with recent sales and/or asking prices for
similar land.
o Interviews with reliable real estate brokers and other
informed sources who are familiar with local real estate
activity.
o Our experience in estimating land values.
The following sales are located within the general market area of the subject
property and are considered to be representative of market activity and
conditions as of the valuation date. Unless otherwise indicated, the sales
involved arm's length transactions that conveyed a fee simple interest, and
only real property was included in the transactions.
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Land Sale Number 1
Location: 13303 Tesson Ferry Road, subject property, St. Louis County
Date: November 10, 1992
Zoning: R-6A, Residence District
Size:" 435,687 square feet, 10.002 acres
Sales Price: $1.88 per square foot, $81,984 per acre
Grantor: Louis and Rhoda M. Laudel, William H. and Kathleen M. Laudel, Herbert and Margaret H.
Laudel, Albert and Barbara R. Laudel, Kenneth and Bernadine Kuhn
Grantee: Tesson Ferry Medical Equities, L.P., a Missouri Limited Partnership
Recording Data: Book 9512, Page 1130
Comments: At the time of the sale the subject property was zoned for residential use; the site has
since been rezoned for commercial use. All utilities were available at the time of the
sale. Sale transaction verified by a representative of SHC Midwest, Inc. and St. Louis
County public records.
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Land Sale Number 2
Location: 12152 Tesson Ferry Road, at the southeast corner of Gerald Drive and Tesson Ferry Road,
St. Louis County
Date: December 7, 1990
Zoning: C-8, Planned Commercial District
Size: 54,842 square feet, 1.259 acres
Sales Price: $302,000
Unit Price: $5.51 per square foot, $239,873 per acre
Grantor: VTF Enterprises
Grantee: Physicians Building Partnership
Recording Data: Book 8897, Page 139
Comments: Purchased subject to rezoning from residential to Commercial zoning. A medical office
building containing 12,000 square feet of floor area on the first level and a 5,000
square foot basement has been built on the site since the time of the sale. The site is
below the grade of Highway 21, at grade with Gerald Drive and slopes downward to the
south. Interstate 270 is approximately 1,000 feet to the south. All utilities were
available at the site at the time of the sale. Sale transaction verified by a
representative of Physicians Building Partnership.
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Land Sale Number 3
Location: 3668 South Geyer Road, Sunset Hills
Date: September 13, 1990
Zoning: PD2, Planned Development, Business Commercial
Size: 97,618 square feet, 2.241 acres
Sales Price: $750,000
Unit Price: $7.68 per square foot, $334,672 per acre
Grantor: Linclay Realty Corporation
Grantee: LJP Realty Corporation
Recording Data: Book 8844, Page 1119
Comments: All utilities were available at the time of the sale. The property has subsequently been
improved with a 64,000 square foot, three-story office building. Sale transaction
verified by a representative of Linclay Realty Corporation.
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Land Sale Number 4
Location: 5423 Telegraph Road, St. Louis County
Date: April 27, 1990
Zoning: R-2, Residence District
Size: 52,272 square feet, 1.200 acres
Sales Price: $310,000
Unit Price: $5.93 per square foot, $258,333 per acre
Grantor: Schnuck Markets, Inc.
Grantee: Union Electric Company
Recording Data: Book 8749, Page 2472
Comments: St. Louis County located #31H130800. This site, with all utilities available, has been
rezoned for commercial use since the time of the sale. Sale transaction verified by St.
Louis County public records.
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Sale Number 5
Location: 12727 Old Tesson Ferry Road at Tesson Ferry Road, St. Louis County
Date: February 1, 1990
Zoning: C-8, Planned Commercial District
Size: 70,132 square feet, 1.610 acres
Sales Price: $415,000
Unit Price: $5.92 per square foot, $257,763 per acre
Grantor: Boatmen's National Bank
Grantee: William and Louann Voss
Recording Data: Book 8708, Page 1476
Comments: St. Louis County locator #29L140463. Part of the land has been improved with a
Children's World Learning Center. The property is located across from St. Anthony's
Hospital and adjoins the south side of the Boatmen's Bank building. The site, with all
utilities available, is at grade with Old Tesson Ferry Road, below the grade of Tesson
Ferry Road and level throughout. Sale transaction verified by St. Louis County public
records.
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Land Sale Number 6
Location: 5139 Mattis Road, St. Louis County
Date: February 1, 1990
Zoning: C-8, Planned Commercial District
Size: 51,856 square feet, 1.190 acres
Sales Price: $300,000
Unit Price: $5.79 per square foot, $252,006 per acre
Grantor: Taylor, Morley, Simon, Inc.
Grantee: Shah Anwar
Recording Data: Book 9500, Page 1767
Comments: St. Louis County locator #29L541183. Sale property, with all utilities available, is
located at the northwest corner of the intersection of Mattis Road and Somerset. The
property has been developed with a 13,466 square foot medical building housing the
Midwest Eye Center. Sale transaction verified by the purchaser.
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The preceding six land sales are summarized in the following table.
LAND SALES SUMMARY
SALE DATE LAND SIZE SALE UNIT PRICE
NUMBER OF SALE ZONING (SQ. FT.) PRICE (SQ. FT.)
1 November 1992 R-6A 435,687 $820,000 $1.88
2 December 1990 C-8 54,842 $302,000 $5.51
3 September 1990 PD2 97,618 $750,000 $7.68
4 April 1990 R-2 52,272 $310,000 $5.93
5 February 1990 C-8 70,132 $415,000 $5.92
6 February 1990 C-8 51,856 $300,000 $5.79
A land sale location map depicting the location of the sales utilized in the
land valuation analysis is presented in the Exhibit Section of this report.
As indicated on the land sales location map, the land sales are located in the
immediate and the same general area of the subject property.
The six land sales utilized in determining the market value of the subject land
occurred between February 1990 and November 1992. The sales reflect a wide
range in sale price from $1.88 to $7.68 per square foot and range in size from
51,856 square feet to 435,687 square feet, the largest being the subject sale.
Since two properties are rarely identical, it is necessary to adjust the sales
for differences when compared with the subject property.
When analyzing the sales for date of sale adjustment to compensate for property
value inflation that has taken place since the date of the sale, we have not
adjusted any sales due to the "soft" conditions experienced in the St. Louis
real estate market for the past three years. Within the past year there has
been a noticeable increase in real estate activity particularly in vacant land
for residential and commercial use.
Since, to the best of our knowledge, these transactions did not involve
favorable financing no adjustment was required for this characteristic.
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Care was taken that all sales be located as near the subject as possible so
that the sale properties are influenced by the same surrounding conditions as
the subject property. As previously stated, all sales are located in the same
general area as the subject property. Additionally, all sale properties are
located in similar office/commercial type areas with residential properties in
the outlying areas. No adjustment was warranted to the sales for surrounding
area or the influence the surrounding properties have on the sales since the
areas are similar and influenced by the same type of property uses. A location
adjustment was considered for frontage or exposure on major thoroughfares. As
previously stated, the subject property is located on the west side of Tesson
Ferry Road 2.2 miles south of the Interstate 270 and Tesson Ferry Road
interchange. Tesson Ferry Road is a heavily travelled thoroughfare linking
Highway 141 to the south with Highway 30 to the north.
When adjusting for this location factor we have adjusted Sale Numbers 2, 5 and
6 downward for their superior location closer to the Interstate 270/Tesson
Ferry Road interchange. Sale Number 3, while being located on a lesser
travelled street nd therefore considered inferior, is located within close
proximity to the Interstate 270/Interstate 44 interchange in a more centralized
location of St. Louis County resulting in a superior location when compared
with the subject. Therefore, Sale Number 3 was adjusted downward as well.
Sale Number 4 is considered to have similar location characteristics, therefore
no adjustment was warranted to this sale.
When adjusting the sales for zoning we have adjusted the subject sale upward
for being zoned for residential use at the time of its sale as compared with
its commercial zoning as of the date of this report. We have also adjusted
Sale Number 4 upward for being zoned for residential use. No adjustment was
warranted to Sale Numbers 2, 3, 5 and 6 since they are zoned, like the subject
property, for commercial use.
There typically exists an inverse relation between the size of a parcel and the
price per unit at which it sells such that a smaller tract of land will
generally sell for a higher price per square foot than a larger parcel with all
else being equal. All sales were adjusted downward by varying degrees for
being significantly smaller than the subject property.
As previously stated in this report, all utilities are available to the subject
property. No adjustment was warranted to any of the sales for utilities since
they are served by the same utility and supplier.
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When adjusting the sales for topography, all sales were adjusted downward for
having a superior topography when compared with the sloping terrain of the
subject property.
As previously indicated, all sales are in the same general area of the subject
property and have similar characteristics. Differing characteristics of the
sales have been adjusted resulting in the adjusted sale providing a better
basis upon which to determine a market value for the subject property. A land
sale adjustment grid is presented as follows.
LAND SALES ADJUSTMENT GRID
SALE NO. 1 SALE NO. 2 SALE NO. 3 SALE NO. 4 SALE NO. 5 SALE NO. 6
Sale Price Per $1.88 $5.51 $7.68 $5.93 $5.92 $5.79
Square Foot
Financing Market Market Market Market Market Market
Adjustment 0 0 0 0 0 0
Price Per Square $1.88 $5.51 %$7.68 $5.93 $5.92 $5.79
Foot Adjusted for
Financing
Date of Sale 10-Nov-92 07-Dec-90 19-Sep-90 27-Apr-90 01-Feb-90 01-Feb-90
Time Adjustment 0% 0% 0% 0% 0% 0%
Time Adjusted Price $1.88 $5.51 $7.68 $5.93 $5.92 $5.79
Per Square Foot
Land Area 435,687 54,842 97,618 52,272 70,132 51,856
Adjustment 0% -15% -10% -15% -15% -15%
Location/Accessibility Similar Superior Superior Similar Superior Superior
Adjustment 0% 0% 0% 0% 0% 0%
Zoning Inferior Similar Similar Inferior Similar Similar
Adjustment 25% 0% 0% 25% 0% -5%
Topography Similar Superior Superior Superior Superior Superior
Adjustment 25% -55% -45% -15% -55% -60%
Adjusted Price Per $2.35 $2.48 $4.22 $5.04 $2.66 $2.32
Square Foot
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After adjusting the preceding land sales for differences when compared with the
subject property, we find an adjusted sale price per square foot range of $2.32
to $5.04.
In our final correlation of land valuation analysis we have considered all
sales, however the greatest weight was given to the subject property. Based on
the land valuation adjustment analysis and the subject property sale, we have
concluded that the market value of the subject site is reasonably represented
at $2.35 per square foot, which for 435,687 square feet amounts to $1,023,864
rounded to:
$1,024,000
==========
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:
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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 A
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
zero.
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 zero years and a remaining useful life of
20 years. Therefore,
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the depreciation rate attributable to the site improvements on a straight-line
basis is estimated to be zero percent.
During our area study, we did not notice any evidence of economic obsolescence
associated with the subject property.
The computation of value is shown as follows:
Replacement Accumulated Depreciated
Cost Depreciation Value
------------ ------------ -----------
MOB $6,023,595 $0 $6,023,595
Site Improvements 352,850 0 352,850
---------- ---- ----------
Total Improvements $6,376,445 $0 $6,376,445
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:
$7,400,000
==========
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SALES COMPARISON APPROACH
The Sales Comparison Approach is based upon the principle of substitution; that
is, when a property is replaceable in the market, its value tends to be set at
the cost of acquiring an equally desirable substitute property, assuming there
is no costly delay in making the substitution. Since two properties are rarely
identical, the necessary adjustments for differences in quality, location,
size, services and market appeal are a function of appraisal experience and
judgment.
The Sales Comparison Approach gives consideration to actual sales of other
similar properties with adjustments as previously stated. The sales prices are
analyzed in common denominators and applied to the subject property in
respective categories to be indicative of market value.
The unit of comparison used in this analysis is the price per square foot,
which is the gross purchase price of the building divided by the net leasable
area in the building. The following sales are considered to be representative
of market activity and conditions as of the valuation date. Unless otherwise
indicated, the sales involved arm's length transactions that conveyed a fee
simple interest, and only real property was included in the transactions.
Also, all purchase prices quoted in this report represent all cash sales unless
seller financing is noted and the sale prices adjusted for cash equivalency.
In our analysis, we obtained details on six professional office building sales
which have occurred over the past two years. The terms of the sale and
significant data was verified to the extent possible by county deed records and
with parties to the transaction. Information on these sales is shown on the
following pages.
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Improved Sale Number 1
Location: 13065 Old Tesson Ferry Road, St. Louis County
Date of Sale: October 13, 1992
Building Size: 4,596 square feet
Year Built: 1978
Land Area: 47,916 square feet, 1.100 acres
Land to Building Ratio: 10.4:1
Sale Price: $495,000
Price Per Square Foot of Building Area: $107.70
Grantor: Charles and Bernice Willis
Grantee: Kromal Investments, Inc.
Recording Data: Book 9477, Page 1154
Comments: St. Louis County locator #30L420352. This vacant one-story State Farm
Agency building had a 930 square foot garage that was incorporated into
finished office space during a $100,000 renovation for a psychiatric
practice comprising offers of Kromal Investments, Inc. Sale transaction
verified by the Grantor.
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Improved Sale Number 2
Location: 1265 Graham Road, Florissant
Date of Sale: July 1, 1991
Building Size: 11,386 square feet
Year Built: 1978
Land Area: 75,359 square feet, 1.730 acres
Land to Building Ratio: 13.2:1
Sale Price: $1,140,000
Price Per Square Foot of Building Area: $100.12
Grantor: Perry L. Mehlman
Grantee: Christian Hospital N.E./N.W.
Recording Data: Book 9038, Page 1330
Comments: St. Louis County locator #09K340392. Two-story medical office building
known as the Northwest County Professional Building. Sale transaction
verified by St. Louis County public records.
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Improved Sale Number 3
Location: 450 New Ballas Road, Creve Coeur
Date of Sale: May 1, 1991
Building Size: 30,834 square feet
Year Built: 1984
Land Area: 98,446 square feet, 2.260 acres
Land to Building Ratio: 6.4:1
Sale Price: $4,100,000
Price Per Square Foot of Building Area: $132.97
Grantor: Donald Ferguson
Grantee: Dr. Joseph Rubado
Recording Data: Book 9001, Page 94
Comments: St. Louis County located #170320971. Two-story medical office building.
The above stated building area does not include 9,387 square feet of
basement garage.
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Improved Sale Number 4
Location: 414 North New Ballas Road, Creve Coeur
Date of Sale: March 5, 1991
Building Size: 16,536 square feet
Year Built: 1958
Land Area: 92,347 square feet, 2.120 acres
Land to Building Ratio: 11.2:1
Sale Price: $1,575,000
Price Per Square Foot of Building Area: $95.25
Grantor: Joe H. Scott, Sr.
Grantee: Medical Equities, L.P.
Recording Data: Book 9001, Page 98
Comments: St. Louis County locator #17O320265. Two-story Class C medical office
building known as the Creve Coeur Dental Arts Building. Lower level
accessed at the rear of the building. Located at the northeast corner
of New Ballas Road and Magna Carta Drive.
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Improved Sale Number 5
Location: 8430 Pershall Road, Hazelwood
Date of Sale: December 10, 1990
Building Size: 7,017 square feet
Year Built: 1981
Land Area: 40,075 square feet, 0.920 acres
Land to Building Ratio: 11.4:1
Sale Price: $875,000
Price Per Square Foot of Building Area: $124.70
Grantor: Ronald Gersten, DDS
Grantee: Bonhomme Acquisition Corporation
Recording Data: Book 7315, Page 92
Comments: St. Louis County locator #09J110471. Two-story, Class D, medical office
building known as Life Smile Dental Care. Sale transaction verified by
St. Louis County public records.
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Improved Sale Number 6
Location: 225 Dunn Road, Florissant
Date of Sale: July 19, 1990
Building Size: 8,416 square feet
Year Built: 1988
Land Area: 41,382 square feet, 0.95 acres
Land to Building Ratio: 4.9:1
Sale Price: $876,000
Price Per Square Foot of Building Area: $104.09
Grantor: Land Dynamics, Inc.
Grantee: Grey Arch Partnership
Recording Data: Book 8807, Page 1830
Comments: St. Louis County locator #09J130897. One-story medical office building
known as Building A of the Florissant Professional Campus. Land size
includes share of common ground parking. Buyer comprises tenant
physicians exercising option in 1988 lease. Sale transaction verified
by the Grantor.
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The preceding six medical office building property sales are summarized in the
following table.
IMPROVED SALES SUMMARY
SALE DATE BUILDING YEAR SALE UNIT PRICE
NUMBER OF SALE AREA (SF) BUILT PRICE (SF)
1 10/92 4,596 1978 $ 495,000 $107.70
2 07/91 11,386 1978 $1,140,000 $100.12
3 05/91 30,834 1984 $4,100,000 $132.97
4 03/91 16,536 1958 $1,575,000 $ 95.25
5 12/90 7,017 1981 $ 875,000 $124.70
6 07/90 8,416 1988 $ 876,000 $104.09
The six comparable sales utilized in the Sales Comparison Approach analysis
were transacted between July 1990 and October 1992. The building sizes range
from 4,596 square feet to 30,834 square feet and range in sale price from
$95.25 to $132.97 per square foot of building area.
In order to arrive at a market value of the subject property, it is necessary
to compare the subject property with each sale and make adjustments to the
sales for differences. Adjustments are then applied to the unit of comparison.
The most common unit of comparison for commercial properties is based upon
building area. A discussion of the adjustments to develop a similarity between
the sale property and the subject property is as follows:
Since, to the best of our knowledge, these sales transactions did not involve
favorable financing, no adjustment was required for this characteristic.
All sales are located within similar high traffic commercial areas.
Additionally, each medical office building sale is located within close
proximity to an acute care general hospital. Based upon the similar
surrounding property influences and close proximity to an acute-care general
hospital, no adjustment was warranted to any sale for location.
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In addition to comparing location of the area and surrounding properties, we
have analyzed each sale for access. All sales are located on major
thoroughfares within close proximity to an interstate highway, therefore no
adjustment was warranted to these sales since they have comparable access.
All sales were adjusted downward by varying amounts for having less building
area when compared with the subject property's building area. Typically,
smaller buildings sell for more on a per square foot basis than larger
buildings. Smaller buildings of this type must have the same components and
complements as larger buildings to operate properly for their intended
professional use.
When adjusting the sales for building characteristics we have first adjusted
considered condition. No adjustment was warranted to the sales since they are
in similar good condition when compared with the subject building improvement.
In addition to condition, we have also considered an adjustment for age. All
sales were adjusted upward by varying amounts for age due to the subject
property being new.
We have also considered the land to building ratio in our adjustment analysis.
A higher land to building ratio indicates sufficient land area for possible
expansion to the existing improvement or construction of additional buildings.
All sales, except for Sale Number 2, have an inferior land to building ratio
when compared to the subject property's land to building ratio of 15.8:1. We
have therefore, adjusted Sale Numbers 1, 3, 4, 5 and 6 upward by varying
amounts to compensate for the inferior land to building ratio.
No adjustment was warranted to any of the sales for ceiling heights since
ceiling heights are not a significant factor that will adjust marketing time or
sales price in professional office related uses.
In addition, no adjustment was deemed necessary for functional utility since
all improvements are currently being utilized for medical office use.
In our final correlation of the Sales Comparison Approach analysis, we have
relied on the adjusted results of each property since we consider all
properties to be a good representation of the market and to reflect market
conditions. Due to the soft real
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estate market conditions, we have not made an adjustment for the time since
current market conditions ar considered to compensate for inflationary factors.
Based on the foregoing adjustment analysis, we have concluded the market value
of the subject property, utilizing the Sales Comparison Approach, is reasonably
represented at $130.00 per square foot, which for 54,801 square feet, amount to
$7,124,130, rounded to:
$7,124,000
==========
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INCOME APPROACH
The Income Approach is based on the principle of anticipation, and has as its
premise that value is represented by the present worth of expected future
benefits. The price that an investor will pay for an income property usually
depends on the anticipated income stream. The Income Approach represents an
attempt to simulate the future cash flows for the property, and to quantify the
future benefits in present dollars.
The subject property is one of several professional office buildings that
Crescent Capital Trust, Incorporated is purchasing to establish 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 give Surgical Health Corporation
leasing flexibility for the medical office building space, i.e., they can lease
office space to various physicians at different rates and terms, or they can
use the office space for their own expansion.
The appraisers received a draft of the form of master lease agreement, but the
actual master lease agreement for the property is not yet available. For the
purpose of our Income Approach, the gross income will be the master lease rate
for the property. 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 $824,063 annually based
on a fifteen-year lease. The annual rental amount is adjusted each year for
C.P.I. increases. The rental rate approximates $18.23 per square foot. Based
on the subject's build-out and age, this rate appears in line with market
rates. A survey of lease comparables is shown in the Exhibit Section of this
report.
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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
$41,203, based on the management experience of other properties.
Master Lease Revenue $824,063
Less:
Management Fees (5% of master lease) (41,203)
Net Operating Income --------
$782,860
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 at 10.5 percent is considered appropriate because of the
quality of the tenant and the overall reasonableness of the rental rate
negotiated.
It is, therefore, our opinion that the market value of the subject property, as
of March 15, 1994, by the Income Approach is calculated and rounded as follows:
Net Operating Income/OAR = Estimated Value
$782,860/.105 = $7,455,810
Rounded to: $7,456,000
==========
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CORRELATION AND CONCLUSION
We have considered three approaches to value in order to estimate the value of
the St. Louis Comprehensive and Ambulatory Care Center. The values derived
from the three approaches are summarized as follows:
Cost Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,400,000
Sales Comparison Approach . . . . . . . . . . . . . . . . . . . . . . . $7,124,000
Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,456,000
The Cost Approach involved a detailed analysis of the individual components of
the property. These costs were estimated using reliable sources. The Cost
Approach provides a good indicator of the current replacement cost for new and
special purpose properties such as the subject. The Cost Approach, however,
does not necessarily reflect the value that investors and users would be
willing to pay if the property were to be sold. Overall, this approach is
considered only a fair indicator of value.
The Sales Comparison Approach is based on the price that investors and
owner/occupants have recently paid for comparable professional office
buildings. The quality and quality of data available in this approach was
considered good, but several of the comparable sales differed in size from the
subject. The appraisers only consider this approach to be a fair indicator of
value for the subject property for this reason.
The Income Approach normally provides the most reliable value estimate for
multi-tenant professional office buildings. The value of the property is
strongly related to the expected income stream of the property. Although the
buyers of professional office buildings are usually owner/occupants, these
buyers are generally aware of the 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.
Based on this analysis, it is our opinion that the market value of the St.
Louis Comprehensive and Ambulatory Care Facility, as of March 15, 1994, subject
to the Surgical Health Corporation master lease, and based on the assumptions
and limiting conditions in this report, is the Income Approach value of:
$7,400,000
==========
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The values derived in the other approaches support the Income Approach value as
the final value.
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