\n TABLE OF CONTENTS<\/p>\n Page
\n —-
\n
\nTransmittal Letter
\nAppraiser Certifications
\nStatement of Facts and Limiting Conditions
\nSummary of Salient Facts and Conclusions <\/p>\nINTRODUCTION 1
\n Property Identification 1
\n Purpose and Effective Date of the Appraisal 1
\n Function of the Appraisal 1
\n Scope of the Appraisal 1
\n Property Rights Appraised 2
\n Definition of Value 2
\n History of the Property 3
\n History and Nature of the Business Environment 3<\/p>\n
DESCRIPTIVE DATA 6
\n Regional Analysis 6
\n Neighborhood Analysis 10
\n Zoning 10
\n Real Estate Taxes and Assessments 10
\n Site Description 11
\n Improvements Description 12<\/p>\n
HIGHEST AND BEST USE 14<\/p>\n
VALUATION SECTION 18
\n Valuation Methodology 18
\n Cost Approach 19
\n Sales Comparison Approach 29
\n Income Approach 36<\/p>\n
CORRELATION AND CONCLUSION 38
\n<\/c><\/s><\/caption>\n<\/table>\n
12<\/p>\n
TABLE OF CONTENTS
\n —————–<\/p>\n
EXHIBIT SECTION
\n– —————<\/p>\n
Exhibit A – Professional Qualifications
\nExhibit B – Legal Description
\nExhibit C – Area Map
\nExhibit D – Neighborhood Map
\nExhibit E – Comparable Land Sale Location Map
\nExhibit F – Plat Map
\nExhibit G – Building Descriptions
\nExhibit H – Rent Comparables Summary
\nExhibit I – Subject Photographs<\/p>\n
13
\n INTRODUCTION<\/p>\n
PROPERTY IDENTIFICATION<\/p>\n
The subject of this appraisal is the Desert Springs Medical Plaza (hereinafter
\nreferred to as the “Plaza”) located in Las Vegas, Nevada. The Plaza, located
\nat 2121 East Flamingo Road, is a two-story, Class A, 33,360 gross square foot
\nbuilding with 26,701 leasable square feet, constructed in 1974. This building
\nis currently 100 percent occupied.<\/p>\n
A legal description of the property and detail building description is included
\nin the Exhibit section of the report.<\/p>\n
PURPOSE AND EFFECTIVE DATE OF THE APPRAISAL<\/p>\n
The purpose of this appraisal is to estimate the market value of the real
\nproperty identified above. The effective date of valuation is January 1, 1994.<\/p>\n
FUNCTION OF THE APPRAISAL<\/p>\n
The report is to be used for internal financial valuation purposes. The owner,
\nQuorum Health Group, Inc., is considering the sale of four medical office
\nbuildings for the purpose of establishing a real estate investment trust
\n(REIT). The subject property would be included in that sale.<\/p>\n
SCOPE OF THE APPRAISAL<\/p>\n
This appraisal engagement includes all three of the standard valuation
\napproaches and is in conformity with the requirements of the Code of
\nProfessional Ethics and Standards of Professional Practice of the Appraisal
\nInstitute and Society of Real Estate Appraisers. The scope of our assignment
\nincluded collecting, verifying and analyzing market and property data
\napplicable to the three approaches and consistent with the property’s highest
\nand best use. The results of the three approaches are then reconciled into a<\/p>\n
-1-
\n 14<\/p>\n
final value conclusion considering the relevancy and quality of data presented
\nin each of the approaches.<\/p>\n
PROPERTY RIGHTS APPRAISED<\/p>\n
The property right appraised herein is the Leased Fee Estate.<\/p>\n
“Leased Fee Estate” is:<\/p>\n
“an ownership held by the landlord with the right of use and occupancy
\n conveyed by lease to others; the rights of lessor (the leased fee
\n owner) and leased fee are specified by contract terms contained within
\n the lease.”<\/p>\n
[The Appraisal of Real Estate, p. 123, 10th Ed., published by The
\n Appraisal Institute.]<\/p>\n
DEFINITION OF VALUE<\/p>\n
For the purpose of this valuation, “market value” is defined as follows:<\/p>\n
“The most probable price which a property should bring in a
\n competitive and open market under all conditions requisite to a fair
\n sale, the buyer and seller each acting prudently and knowledgeably,
\n and assuming the price is not affected by undue stimulus. Implicit in
\n this definition is the consummation of a sale as of a specified date
\n and the passing of title from seller to buyer under conditions
\n whereby:<\/p>\n
o buyer and seller are typically motivated;<\/p>\n
o both parties are well informed or well advised, and acting in
\n what they consider their own best interests;<\/p>\n
o a reasonable time is allowed for exposure in the open market;<\/p>\n
o payment is made in terms of cash in U.S. dollars or in terms
\n of financial arrangements comparable thereto; and<\/p>\n
o the price represents the normal consideration for the property
\n sold unaffected by special or creative financing or sales
\n concessions granted by anyone associated with the sale.”<\/p>\n
[The Appraisal of Real Estate, P. 21, 10th Ed., published by The
\n Appraisal Institute.]<\/p>\n
-2-
\n 15
\nHISTORY OF THE PROPERTY<\/p>\n
The subject medical plaza was acquired on September 30, 1993 by Quorum Health
\nGroup, Inc. This acquisition was part of the acquisition of the Desert Springs
\nHospital. The purchase of the facility was recorded in the Clark County
\nrecords, Document Record 00702. The recorded purchased price of the Desert
\nSprings Hospital, inclusive of the medical plaza, was $140,000,000. The
\nallocated value for the Desert Springs Medical Plaza was $4,717,839.<\/p>\n
Based upon confirmation by Crescent Capital Trust, the REIT has agreed upon a
\npurchase price of $4,700,000 for the medical office building.<\/p>\n
HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
United States Economic Performance and Outlook<\/p>\n
The value of the business enterprise is influenced by potential returns
\navailable from alternative investments. These return expectations are affected
\nby economic conditions as they impact the ability of a business enterprise to
\ngenerate a return on its invested capital. Perhaps the most important economic
\nindicator affecting potential investor returns is the aggregate demand for
\ngoods and services. Aggregate demand is measured by a country’s Gross Domestic
\nProduct (GDP), which is the sum of all domestic expenditures for consumption,
\ngovernment services, and net exports.<\/p>\n
The United States economy has been in a period of slow economic growth, but the
\nrate of growth appears to have increased in recent months. Gross Domestic
\nProduct (GDP) increased at a 2.1 percent annual rate during 1992 after
\ndeclining (1.2%) during 1991. The GDP was 0.7 percent and 1.6 percent,
\nrespectively, for the first and second quarters of 1993, and an estimated 4.0
\npercent for the fourth quarter of 1993.<\/p>\n
The components of GDP indicate that the economic recovery is affecting many
\nsectors of the economy. Personal consumption expenditures, which account for
\napproximately two-thirds of GDP, rose only 1.3 percent during the first half of
\n1993. Non-Residential Fixed Investment advanced 2.2 percent and Residential
\nFixed Investment grew 1.7 percent. Federal Government Purchases declined
\n(0.6%) over the same period.<\/p>\n
-3-
\n 16
\nFederal Government Purchases account for 7.2 percent of the total GDP, and this
\ndecline is limited to the rate of overall GDP growth.<\/p>\n
The value of the business enterprise is also affected by the current and
\nexpected levels of inflation and interest rates. Inflation creates uncertainty
\nin the mind of investors as they attempt to estimate future investment returns.
\nThis uncertainty is incorporated into both the required return on equity and
\ndebt capital. The Federal Reserve has warned, however, that interest rates
\nwill be pushed higher if inflation begins to show signs of “heating up”.<\/p>\n
The economic downturn in the early 1990s resulted in sharply lower inflation.
\nThe Consumer Price Index (CPI) ended 1992 with a 3.0 percent increase compared
\nto a 4.2 percent increase during 1991. The CPI for 1993 is currently estimated
\nat 3.3 percent. The GDP Deflator, a much broader price level index, ended 1992
\nwith a 2.6 percent annual increase compared to a 4.0 percent increase during
\n1991. The GDP Deflator is currently estimated at 2.5 percent for 1993.<\/p>\n
The Federal Reserve Bank has adopted a relatively easier monetary policy as a
\nresult of the recession. Interest rates, as represented by long-term Treasury
\nbond yields, declined approximately ten basis points compared to rates existing
\na year earlier. Long-term corporate bond rates have also decreased and the
\nFederal Reserve’s discount rate reductions have prompted commercial banks to
\nlower their prime lending rate to 6.0 percent. Selected monetary statistics
\nare presented in the following table.<\/p>\n
\n\n INTEREST RATES AND SELECTED STATISTICS <\/p>\n
JANUARY 6, 1994 JANUARY 2, 1992 <\/p>\n
\n Federal Fund Rate 3.0% 3.9% <\/p>\n 90-Day Treasury Bill Rate 3.1% 3.9% <\/p>\n
30-Year Treasury Bond 6.4% 7.5% <\/p>\n
Aaa Bond Yield 6.9% 8.2% <\/p>\n
Prime Rate 6.0% 6.5% <\/p>\n
<\/c><\/c><\/s><\/caption>\n<\/table>\n
-4-
\n 17
\nEconomic Outlook<\/p>\n
According to Value Line’s Quarterly Economic Review, dated December 24, 1993,
\nthe economic recovery is now 2.5 years old, but shows much slower growth than
\nnormal for a mature recovery. Among factors cited by Value Line for
\ncontributing to the recent slow growth are “high debt, stagnant personal
\nincome, low consumer confidence and a troubling unemployment rate”. Recent
\nimprovements have focussed on the auto, machinery, steel, housing and specialty
\nretailer market segments. Value Line cautions, however, that the recent
\nimprovements in the economy are being limited by a slow job growth base. Value
\nLine’s Quarterly Economic Review identified the following estimates for
\nselected economic statistics from 1993 to 1995.<\/p>\n
\n\n 1993 1994 1995
\n
\n Real GDP 2.6% 3.3% 3.3% <\/p>\n Personal Consumption Expenditures 3.0% 2.7% 2.3% <\/p>\n
Federal Government Purchases (4.8%) (5.8%) (4.0%) <\/p>\n
30-Year Treasury Bond Yields 6.6% 6.6% 6.8% <\/p>\n
Prime Rate 6.0% 6.2% 6.4% <\/p>\n
Consumer Price Index 3.1% 3.2% 3.3%
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
In summary, these factors play an important part in determining the supply and
\ndemand for real property, and, indirectly, the value of properties. Most of
\nthe forces discussed above are indicating an on-going soft demand for many
\ntypes of commercial real estate. This soft demand has caused some property
\nvalues to remain flat and some to decline. The lower interest rates in recent
\nperiods, however, are serving to stabilize commercial property values.<\/p>\n
-5-
\n 18
\n DESCRIPTIVE DATA<\/p>\n
REGIONAL ANALYSIS<\/p>\n
The subject property is located in the southern section of the city of Las
\nVegas, in the county of Clark, and the state of Nevada. An area map is
\nincluded in the Exhibit section of this report. Demographic information at the
\ncounty and state levels is presented below. This data was obtained from Las
\nVegas Perspective 1993, and from National Planning Data Corporation (NPDC), a
\nservice that provides both demographic and economic market data for all
\ngeographic areas in the United States.<\/p>\n
Demographic Analysis<\/p>\n
According to NPDC, the population of Clark County grew from 463,086 in 1980 to
\n741,459 in 1990. On an annual compounded basis, the growth rate was 4.8
\npercent. During the same time period, the population in Nevada grew from
\n800,492 in 1980 to 1,201,833 in 1990, a 4.1 percent compounded annual growth
\nrate. It is estimated that by 1997, total population at the county and state
\nlevels will be 1,018,240 and 1,615,121, respectively. This represents annual
\ngrowth rates of 4.6 percent for the county and 4.3 percent for the state over
\nthe period 1990 to 1997.<\/p>\n
The total number of households at the county level rose from 173,888 in 1980 to
\n287,025 in 1990, thus representing an increase of 5.1 percent on an annual
\ncompounded basis. The total number of households in Nevada increased at a
\nslower pace than that of the county. Between 1980 and 1990, the number of
\nhouseholds in the state rose from 304,324 in 1980 to 466,297 in 1990, an
\nincrease of 4.4 percent compounded annually.<\/p>\n
The 1990 median age of Clark County’s population was 33.1 years, with a median
\nage of the state at 33.3 years. Both geographic areas are considered to have
\nmature populations similar to the national median age of 33.1 years.
\nApproximately 7.5 percent of the total population in Clark County in 1980 was
\n65 years and older. In 1990, the percentage increased to 10.5 percent and is
\nexpected to reach 10.9 percent by 1997. Corresponding percentages for the
\nstate were 8.2 percent in 1980, 10.6 percent in 1990, and 11.0 percent
\nestimated for 1997.<\/p>\n
-6-
\n 19
\nBased on the preceding data, the estimated change in population of persons 65
\nyears and older at both the county and state levels is as follows:<\/p>\n
\n\n Annual Compounded
\n 1990 1995 Rate of Change
\n ——– ——– ——————
\n
\n County:
\n Total Population 741,459 1,018,240 4.6%
\n % 65 Years + 10.5% 10.9%
\n Population 65 Years + 77,678 110,546 5.2%<\/p>\n State:
\n Total Population 1,201,833 1,615,121 4.3%
\n % 65 Years + 10.6% 11.0%
\n Population 65 Years + 127,631 177,212 4.8%<\/p>\n
Source: NPDC
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
The above table supports the outlook that populations at both the county and
\nstate levels will continue to mature. As indicated, the total population of
\npersons 65 years and older will increase at annual rates of 5.2 percent for the
\ncounty and 4.8 percent for the state. For the most part, these rates are
\nsignificantly higher than the estimated overall rates of growth between 1990
\nand 1997.<\/p>\n
Economic Analysis<\/p>\n
The median household income for Clark County increased from $18,113 in 1980 to
\n$30,714 in 1990, representing an annual compounded rate of change of 5.4
\npercent. In comparison, the median household income in Nevada rose 5.5 percent
\non an annual compounded basis over the same time period. The state’s median
\nincome in 1980 was $18,216 and increased to $31,011 in 1990.<\/p>\n
Clark County’s strong economic well-being is due to its diversification. Of
\nthe county’s total number of employed (not including agriculture or mining
\noccupations), the service industry accounts for nearly 46 percent, retail and
\nwholesale trade 21 percent, government 11 percent, and construction 8.0
\npercent. Combined, the total number of<\/p>\n
-7-
\n 20
\nemployed persons in nonagricultural and mining occupations accounted for over
\n75 percent of the total. This distribution indicates a fairly well-balanced
\neconomy which is less prone to economic hardship should one industry experience
\na downturn.<\/p>\n
The Nevada Department of Economic Security lists 35 businesses in Clark County
\nwhich have more than 1,000 employees. Of these, 24 were hotels and\/or casinos.
\nOther major employers included three utility companies, three government
\nagencies, two banks, two engineering firms, and one hospital.<\/p>\n
Tourism provides, by far, the greatest source of income for the area. In 1992,
\n21.9 million tourists generated nearly $14.7 billion in income for the Las
\nVegas Metropolitan Statistical Area (MSA).<\/p>\n
Transportation is provided by U.S. Interstate Highway 15 south to Los Angeles
\nand north to Salt Lake City, U.S. Routes 93 and 95 south to Phoenix and north
\nto Tonopah; McCarran International Airport, which has been expanded with a new
\nCharter\/ International terminal to further facilitate airline access, Amtrak
\nrail passenger service, and major bus lines.<\/p>\n
The median purchase price for a home in the Las Vegas Metropolitan Statistical
\nArea (MSA) was $119,900 in 1992, with 63 percent of households owning their
\nhomes.<\/p>\n
The Suburban East sub-market consists of office buildings located east of
\nInterstate 15, not including those in the Downtown sub-market. In the
\nSuburban East sub-market, the most clearly defined corridor is Flamingo Road.
\nThe heaviest concentration of office development in this corridor is located
\nbetween Maryland Parkway on the west and Eastern Avenue on the east. As the
\noffice market has expanded, Eastern and Tropicana Avenues have also become
\npopular office locations. More recently a small cluster of office buildings
\nhas developed in the area of the Green Valley Town Center in Henderson.<\/p>\n
The Suburban East sub-market absorbed approximately 5,560 square feet, based
\nupon a study developed by Coopers and Lybrand. However, due to its inventory
\nbase, the sub-market vacancy rate increased slightly to 14.5 percent. The
\nsubject property is presently 100 percent occupied and located next to hospital
\nthat is growing. We would not anticipate any dramatic decline in its occupancy
\nover the foreseeable future.<\/p>\n
-8-
\n 21<\/p>\n
TABLE 1
\n SUMMARY OF OFFICE MARKET CONDITIONS
\n BY REGION AND AGE
\n QUARTER 2 1993
\n METRO LAS VEGAS<\/p>\n
\n\n– ————————————————————————————————————————————
\n ASKING
\n O C C U P A N C Y D A T A ABSORPTION LEASE
\n ———————————————— ———- RATES
\n Total Unoccupied Unoccupied ————
\n Space but and Current Average & Sq. Ft. Occupied Committed Available Quarter Weighted
\n ————- Sq. Ft. Sq. Ft. Sq. Ft. ———– Average
\n # of % of ———— ————- ————- Previous ————
\n Submarket\/Age Buildings Metro Total % % % 12 mos. $\/Sq. Ft.
\n– ————————————————————————————————————————————
\n <\/p>\nDowntown 15 909,483 856,431 8,000 45,052 2,892 $1.39
\n 13.0% 94.2% 0.9% 5.0% 16,321 $1.60<\/p>\n
Suburban East 56 3,566,062 3,044,589 4,750 516,723 5,560 $1.31
\n 50.8% 85.4% 0.1% 14.5% 65,062 $1.45<\/p>\n
Suburban West 55 2,537,481 2,268,522 17,250 251,709 33,598 $1.38
\n 36.2% 89.4% 0.7% 9.9% 58,098 $1.48<\/p>\n
– ————————————————————————————————————————————
\nTOTAL 126 7,013,026 6,169,542 30,000 813,484 42,050 $1.35
\nPercent of Total 100.0% 88.0% 0.4% 11.6% 139,481 $1.48
\n– ————————————————————————————————————————————<\/p>\n
New 5 130,434 129,234 0 1,200 2,800 $1.18
\n 1.9% 99.1% 0.0% 0.9% 47,700 $1.13<\/p>\n
Recent 41 1,661,265 1,539,372 8,800 113,093 445 $1.44
\n 23.7% 92.7% 0.5% 6.8% 83,698 $1.52<\/p>\n
Mature 80 5,221,327 4,500,936 21,200 699,191 38,805 $1.31
\n 74.5% 86.2% 0.4% 13.4% 8,083 $1.48<\/p>\n
– ————————————————————————————————————————————
\n<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
Definitions:
\nNew = First occupied within the last two years.
\nRecent = First occupied within the last three to five years.
\nMature = First occupied six years ago or more.
\nNote: Percentage may not sum 100% due to rounding.
\nSource: Surveyed building owners and managers, June 1993<\/p>\n
-9-
\n 22
\nNEIGHBORHOOD ANALYSIS<\/p>\n
The subject property is located in the southern section of Las Vegas. It is
\nbounded by Flamingo Road to the north, Rochelle Avenue to the south, and Bruce
\nStreet to the west. Burnham Avenue divides the hospital property from the
\nmedical office building. A map of this area is included in the Exhibit section
\nof this report.<\/p>\n
The subject’s immediate area is comprised of a diverse sampling of commercial,
\nmedical office, and large multi-family residential units along Flamingo Road.
\nSouthwest Medical Associates, Paradise Valley Women’s Care Center, Charter
\nCounseling Center, Cosmetic Surgery Center, and a physician’s clinic surround
\nthe subject providing a variety of healthcare services. South of the property
\nare primarily modest single-family homes.<\/p>\n
The property has convenient access to Interstate 15, which is located two miles
\nwest on Flamingo Road. McCarran International Airport is also approximately
\ntwo miles southwest of the property.<\/p>\n
Currently, there are a total of eight hospitals in the Las Vegas area providing
\n2,278 beds. With the continued growth of Clark County virtually assured, we
\nbelieve that the resulting increased demand for quality healthcare should
\nprovide the subject with a good basis for continued growth and high occupancy
\nlevels.<\/p>\n
ZONING<\/p>\n
The subject property is zoned local business (C-1). Its use as a medical
\noffice is permitted in accordance with the Conditional Use permit it has been
\ngranted for the hospital site and its own separate zoning. Potential legal
\nuses include office\/institutional, retail and restaurants.<\/p>\n
REAL ESTATE TAXES AND ASSESSMENTS<\/p>\n
The subject property was assessed in 1988 by the Clark County Property
\nAssessor. The property is taxed based upon approximately 35 percent of the
\nappraised value. The property is identified by parcel number 150-360-006. The
\nassessor’s appraised values for the subject parcel is presented on the
\nfollowing page.<\/p>\n
-10-
\n 23<\/p>\n
\n\n Clark County Property Assessor’s Appraised Value
\n ————————————————
\n
\n Land $1,091,857
\n Improvements 1,881,486
\n ———-
\n $2,973,343
\n<\/c><\/s><\/caption>\n<\/table>\nThe subject is assessed at 35 percent of the appraised value. The indicated
\nassessed value is $1,040,670. The Clark County tax rate is 2.6347 per $100.
\nThis would indicate a taxable amount of $27,418.53<\/p>\n
SITE DESCRIPTION<\/p>\n
The medical plaza site enjoys approximately 289 feet of frontage along Flamingo
\nRoad to the north and approximately 536 feet along Burnham Avenue. Ingress and
\negress is available from both streets, providing the primary public points of
\nentry and departure. As indicated by the plat map included in the Exhibit
\nsection of this report, the site consists of an irregularly-shaped parcel
\ncontaining 3.34 acres.<\/p>\n
The subject land is generally level at street grade rising only slightly
\nsouthwardly back toward the building improvements. Utilities to the sites
\ninclude water, sewer, electricity, cable, telephone and gas.<\/p>\n
The subject properties appear to have adequate drainage and soil load-bearing
\ncapabilities to support most development alternatives. A soil report, however,
\nwas not made available to the appraiser and it is assumed, based on existing
\nimprovement, that soil load-bearing capabilities are adequate.<\/p>\n
We are not aware of any detrimental easements or encroachments encumbering the
\nsite. Further, we assume that the subject site is not encumbered with
\ndetrimental easements or encroachments. To our knowledge, no environmental
\nstudy has been conducted on the subject site. As appraisers, we are not
\nqualified to detect hazardous materials. Consequently, our report assumes that
\nthere are no environmentally hazardous materials in the site or building that
\nwould adversely affect the subject property’s value.<\/p>\n
According to the County Planning Office, the subject property is not located in
\na flood plain zone.<\/p>\n
-11-
\n 24
\nA legal description of the properties and a plat map are included in the
\nExhibit section of this report.<\/p>\n
IMPROVEMENTS DESCRIPTION<\/p>\n
Medical Plaza<\/p>\n
The site at 2121 East Flamingo Road is improved with a two-story medical office
\nbuilding (MOB) containing a gross area of 33,360 square feet. The facility was
\nbuilt in 1974.<\/p>\n
The building has full frame construction with steel columns and beams. Floors
\nare mesh reinforced concrete with some brick on the ground floor and concrete
\nwith steel joists on the second floor. The roof cover is bituminous roofing on
\ntwo-inch rigid insulation and two-inch vermiculite. The exterior walls are a
\nmixture of stucco and eight-inch clay tile masonry units.<\/p>\n
Partitioning is generally drywall on metal studs dividing the building into
\nconventional medical suites. Finishes are generally good quality commercial
\ngrade carpeting, vinyl asbestos tile and suspended acoustical fiber ceilings.<\/p>\n
Mechanical services are typical for an office building of this type.
\nElectrical features include rigid conduit wiring, fluorescent fixtures with
\nsnap switches, wall outlets, and a Westinghouse transformer.<\/p>\n
Heating, ventilating and air conditioning are provided by an Ajax natural gas
\nboiler, an American hot water heater, and Commandair individual combination
\n1.5- to 5-ton air conditioning units.<\/p>\n
The building is serviced by a U.S. Elevator 4,000-pound capacity elevator.<\/p>\n
-12-
\n 25
\nLand Improvements – MOB<\/p>\n
Land improvements consist of concrete and asphalt paving, concrete curbing,
\nyard lighting and signage, landscaping, a carport, and underground utility
\nlines.<\/p>\n
Details of the construction are shown in the Exhibit section of this report.<\/p>\n
DEFERRED MAINTENANCE<\/p>\n
Construction of the subject’s improvements date from their original
\nconstruction in 1974. The improvement is considered to have an effective age
\nof ten years based upon its continued renovation plan. The overall condition
\nof the facilities is considered above average. The short-lived building
\ncomponents have been replaced periodically. Deferred maintenance is short-term
\ncurable depreciation that should be corrected to ensure the facility remains
\ncompetitive with other facilities in the area. No deferred maintenance was
\nnoted during our site inspection.<\/p>\n
The design of the subject improvements is functional for their intended uses.
\nAccrued depreciation due to functional features is considered minimal and is
\ncombined with physical depreciation.<\/p>\n
The subject’s location and surrounding development do not present any
\nlimitation to the competitiveness of the facilities. Surrounding the subject
\nare several other medical establishments, which suggests no limitation in
\nattracting physicians and patients. Therefore, we are of the opinion that no
\neconomic or external obsolescence exists.<\/p>\n
-13-
\n 26
\n HIGHEST AND BEST USE<\/p>\n
The Appraisal Institute defines “highest and best use” as follows:<\/p>\n
“The reasonably probable and legal use of vacant land or an improved
\n property, which is physically possible, appropriately supported,
\n financially feasible, and that results in the highest value”<\/p>\n
[The Appraisal of Real Estate, P. 45, 10th Ed. published by The
\n Appraisal Institute.]<\/p>\n
The four categories of highest and best use analysis are:<\/p>\n
1. Physically Possible – Uses which are physically possible for
\n the site and improvements being analyzed.<\/p>\n
2. Legally Permissible – Uses permitted by zoning and deed
\n restrictions applicable to the site and improvements being
\n analyzed.<\/p>\n
3. Financially Feasible – This step identifies if the physically
\n possible and legally permitted alternatives produce a net
\n income equal to or greater than the amount needed to satisfy
\n operating expenses.<\/p>\n
4. Maximally Productive – This step clarifies which of the
\n financially feasible alternatives provides the highest value
\n consistent with the rate of return warranted by the market for
\n a particular use.<\/p>\n
There are two types of highest and best use: THE HIGHEST AND BEST USE OF LAND
\nAS VACANT and THE HIGHEST AND BEST USE OF A PROPERTY AS IMPROVED. Both types
\nare discussed as follows using the four categories of highest and best use.<\/p>\n
-14-
\n 27
\nAs Vacant<\/p>\n
The purpose of this analysis, given the site is vacant or can easily be made
\nvacant, is to determine if something should be constructed on the site, and, if
\nso, what should be constructed on the site.<\/p>\n
PHYSICALLY POSSIBLE<\/p>\n
The size and shape of the subject site is adequate for the development of a
\nnumber of alternative uses including small residential, commercial,
\noffice\/institutional, industrial and special-purpose properties. The site
\npossesses good access and visibility. The size of the parcel would preclude
\nany large developments.<\/p>\n
LEGALLY PERMISSIBLE<\/p>\n
As stated earlier in the Zoning section of this report, the property is
\ncurrently zoned “C-1”, local business. Permitted uses in this general zoning
\ncategory vary widely. Potential legal uses would include some retail and
\nrestaurants, office\/institutional and hotels.<\/p>\n
Surrounding uses include the hospital, other medical office uses, some
\napartments and some older single-family residential properties. These use
\npatterns would likely preclude industrial, retail or future single-family
\ndevelopment on the site.<\/p>\n
FINANCIALLY FEASIBLE<\/p>\n
Having established that the site is physically suited for and legally
\nrestricted to office\/institutional development, the next consideration is
\neconomic feasibility. Financially feasible uses for the site, if vacant, are
\nthose uses that would generate an economic return to the land surrounding the
\nsubject building.<\/p>\n
-15-
\n 28
\nMAXIMALLY PRODUCTIVE<\/p>\n
The maximally productive use is a financially feasible use that would produce
\nthe greatest land value. Office\/institutional use is physically possible and
\nlegally permissible, and new development is financially feasible. Based on
\nthis analysis, the current highest and best use of the land, if vacant, would
\nbe for office\/institutional development.<\/p>\n
As Improved<\/p>\n
The subject site is currently improved with a 26,701 rentable square footage
\noffice building, and associated site improvements. The purpose of this
\ndiscussion is to determine whether to leave the improvements as they are, to
\nmodify the improvements or to remove the improvements.<\/p>\n
PHYSICALLY POSSIBLE<\/p>\n
It would obviously be physically possible to leave the improvements as they
\nare, to demolish the existing improvements and replace them with new
\nimprovements, or to make minor repairs to the deferred maintenance items on the
\nproperty. The improvements are considered functional.<\/p>\n
LEGALLY PERMISSIBLE<\/p>\n
The improvements, as improved, are a legal conforming use according to the City
\nof Las Vegas zoning guidelines. Under the zoning, the property could remain as
\nit is, be torn down or renovated.<\/p>\n
FINANCIALLY FEASIBLE<\/p>\n
The highest and best use of the land, if vacant, was to develop with an
\noffice\/institutional use based on the adjacent hospital’s growth needs. Of the
\nphysically possible and legally permissible changes that could be made to the
\nexisting facility, demolishing the building would significantly reduce the
\ncurrent asset value, and would not be financially feasible.<\/p>\n
-16-
\n 29
\nMAXIMALLY PRODUCTIVE<\/p>\n
The maximally productive use for the existing property is the financially
\nfeasible use that produces the greatest property value. The only financially
\nfeasible use is to correct any deferred maintenance that currently exists.
\nThis will enable to the property to remain competitive in the leasing market.
\nThe highest and best use, as improved, is to not make any major changes to the
\ncurrent asset use. The improvements represent the current highest and best use
\nof the property.<\/p>\n
-17-
\n 30
\n VALUATION SECTION<\/p>\n
VALUATION METHODOLOGY<\/p>\n
There are three principal methods to estimate the market value of the assets of
\nthe subject property. These are summarized as follows:<\/p>\n
COST APPROACH: This method is based on the principle of substitution,
\n whereby no investor would prudently pay more for a property than it
\n costs to buy land and build a comparable new building. The market
\n value is estimated by calculating the replacement costs of a new
\n building and subtracting all forms of depreciation and obsolescence
\n present in the existing facility. This provides a depreciated value
\n of the subject improvements if replaced new. The estimate of the
\n current value of the subject land is then added to provide a market
\n value of the property.<\/p>\n
SALES COMPARISON APPROACH: The principle of substitution also says
\n that market value can be estimated as the cost of acquiring an equally
\n desirable substitute property, assuming no costly delay in making the
\n substitution. This method analyses the sales of other comparable
\n improved properties. Since two properties are rarely identical, the
\n necessary adjustments for differences in quality, location, size,
\n services and market appeal are a function of appraisal experience and
\n judgment.<\/p>\n
INCOME APPROACH: This method is based on the principle of
\n anticipation, which recognizes that underlying value of the subject
\n property can be estimated by its cash flow or stream of earnings.
\n This approach simulates the future earnings for the property, and
\n converts those earnings into a present market value estimate.<\/p>\n
Consideration has been given to each of the three methods to arrive at a final
\nopinion of value. The application of each approach to value is further
\ndiscussed in the appropriate sections which follow.<\/p>\n
-18-
\n 31
\n COST APPROACH<\/p>\n
In the Cost Approach, the subject property is valued based upon the market
\nvalue of the land, as if vacant, to which is added the depreciated replacement
\ncost of the improvements. The replacement cost new of the improvements is
\nadjusted for accrued depreciation resulting from physical deterioration,
\nfunctional obsolescence, and external (or economic) obsolescence.<\/p>\n
The cost analysis involves three basic steps:<\/p>\n
o Land value estimate.<\/p>\n
o Estimated replacement cost of the improvements.<\/p>\n
o Estimation of the accrued depreciation from all causes.<\/p>\n
The sum of the market value of the land and the depreciated replacement cost of
\nthe improvements and equipment is the estimated market value via the Cost
\nApproach.<\/p>\n
Land Valuation<\/p>\n
Land valuation, assuming the site is vacant, is based upon the following steps:<\/p>\n
o A comparison with recent sales and\/or asking prices for
\n similar land.<\/p>\n
o Interviews with reliable real estate brokers and other
\n informed sources who are familiar with local real estate
\n activity.<\/p>\n
o Our experience in estimating land values.<\/p>\n
The following sales are located within the general market area of the subject
\nproperty and are considered to be representative of market activity and
\nconditions as of the valuation date. Unless otherwise indicated, the sales
\ninvolved arm’s length transactions that conveyed a fee simple interest, and
\nonly real property was included in the transactions.<\/p>\n
-19-
\n 32
\nLand Sale Number 1<\/p>\n
Location: Flamingo Road, east of Arville Street
\nDate of Sale: September 5, 1991
\nGrantor: Marcor Development Company, Inc.
\nGrantee: Sun State Bank
\nDocument Number: 91090500024
\nSale Price: $1,064,810
\nSize: 106,286 square feet, or 2.44 acres
\nUnit Price: $10.02 per square foot
\nZoning: C2, County Commercial District
\nComments: Four miles west of subject.<\/p>\n
Land Sale Number 2<\/p>\n
Location: Twain Avenue, east of Eastern Avenue
\nDate of Sale: January 10, 1991
\nGrantor: Century Property Limited
\nGrantee: Diamond Villas Partners
\nDocument Number: 011000465
\nSale Price: $451,043
\nSize: 231,304 square feet, or 5.31 acres
\nUnit Price: $1.95 per square foot
\nZoning: RE, Clark County
\nComments: One-half-mile from subject in residential
\n area.<\/p>\n
-20-
\n 33
\nLand Sale Number 3 (Listing)<\/p>\n
Location: Flamingo Road, west of Topaz
\nBroker: McCardell Realty
\nAsking Price: $8.50 per square foot under current
\n zoning (R1),[$12.50 – $15.00 after
\n rezoning to C2 (1 – 3 months)]
\nSize: 129,809 square feet, or 2.98 acres
\nUnit Price: $8.50 per square foot (currently)
\nZoning: R1 (Current) \/ C2 (Applied)
\nComments: One-half-mile from subject on Flamingo
\n Road. Broker feels subject property is
\n worth $8.00 to $12.00 per square foot.<\/p>\n
Land Sale Number 4 (Listing)<\/p>\n
Location: Flamingo Road, west of Topaz
\nBroker: Realty Holdings Group
\nAsking Price: $15.00 per square foot
\nSize: 69,696 square feet or 1.6 acres
\nUnit Price: $15.00 per square foot
\nZoning: C1
\nComments: One-half-mile from subject on Flamingo
\n Road. Broker feels average property on
\n Flamingo Road is worth $8.00 to $9.00 per
\n square foot.<\/p>\n
-21-
\n 34<\/p>\n
\n\n SALE SUMMARY <\/p>\n SALE SALE SIZE UNIT PRICE
\n NUMBER DATE LOCATION SQ. FT. PER SQ. FT. ZONING
\n
\n 1 09\/05\/91 Flamingo Road and Arville Street 106,286 $10.02 C2 <\/p>\n 2 01\/10\/91 Twain Avenue and Eastern Avenue 231,304 $ 1.95 RE <\/p>\n
3 Offered Flamingo Road and Topaz 129,809 $ 8.50 R1 <\/p>\n
4 Offered Flamingo Road and Topaz 69,696 $15.00 C1 <\/p>\n
SUBJECT 2121 EAST FLAMINGO ROAD 145,490 C1 <\/p>\n
<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
The above sales indicate an unadjusted range of $1.95 to $15.00 per square foot
\nand range in size from 69,696 square feet to 231,304 square feet. The sales
\noccurred in 1991. No more recent sales of comparable land have been found.
\nBased on our analysis of the market and the recent occurrence of these
\ntransactions, no adjustment for time is necessary. Financing for the sales is
\ndeemed to be cash equivalent. As such, no adjustment for financing is
\nrequired. Adjustments are necessary to reflect differences in location, access
\nand exposure characteristics, size, zoning, and other factors influencing
\nvalue.<\/p>\n
SALE NUMBER 1 is located approximately four miles west of the subject. The
\nsale is located on a heavily traveled commercial drive (Flamingo Road) and,
\ntherefore, requires no adjustment for location and access. Also, the size of
\nthe sale parcel is smaller than the subject. Typically, smaller parcels sell
\nfor higher unit prices than larger tracts. The subject land is 3.34 acres. As
\nsuch, no adjustment for size was warranted, as the property could sell in
\nsmaller lots. Topography and zoning is considered to be comparable and,
\ntherefore, no adjustment is required. Overall, we have made no adjustment to
\nthis sale and consider the sale the most comparable to the subject.<\/p>\n
SALE NUMBER 2 is located approximately one-half-mile northeast of the subject.
\nThe sale is located in a residential neighborhood with no frontage on a busy
\nstreet. Therefore, a significant upward adjustment is warranted for location.
\nTopography of the sale is considered comparable and requires no adjustment for
\nthis factor. No adjustment is needed for size. Overall, we have adjusted the
\nsale upward in comparison to the subject, but have given the sale little
\nconsideration in determining the value of the subject property.<\/p>\n
-22-
\n 35
\nSALE NUMBER 3 (LISTING) is located one-half-mile east of the subject on
\nFlamingo Road. An upward adjustment was necessary for location based upon the
\nlimited visibility of the parcel as compared to the subject. The property is
\nsmaller than the subject but, given the subject’s characteristics, no
\nadjustment is necessary. Topography of the offered land is considered
\ncomparable and requires no adjustment for this factor. Finally, a downward
\nadjustment is warranted to reflect the likely reduction of the offering price
\nduring the negotiation process, and also to reflect the effects of rezoning the
\nproperty.<\/p>\n
SALE NUMBER 4 (LISTING) is also located one-half-mile east of the subject on
\nFlamingo Road. Therefore, no adjustment is necessary for location or access.
\nThe property is smaller than the subject but, given the subject’s
\ncharacteristics, no adjustment is necessary. Topography of the offered land is
\nconsidered comparable and requires no adjustment for this factor. Finally, a
\ndownward adjustment is warranted to reflect the likely reduction of the
\noffering price during the negotiation process, and also to reflect the
\ndifference in zoning.<\/p>\n
Based on the preceding analysis and discussions with local sources, we estimate
\na land value of $10.00 per square foot for the medical office building. This
\nvalue was considered appropriate given the proximity of the parcel to Flamingo
\nRoad and its current zoning. The resulting rounded land value is as follows:<\/p>\n
$1,455,000
\n ==========<\/p>\n
-23-
\n 36
\n L A N D S A L E A D J U S T M E N T G R I D
\n Desert Springs Medical Plaza
\n Las Vegas, Nevada<\/p>\n
Subject Land Comp Land Comp Land Comp Land Comp
\n Element #1 #2 #3 #4<\/p>\n
Sale Price\/SF $10.02 $1.95 $8.50 $15.00<\/p>\n
Property Rights Fee Simple Same Same Same Same
\n Adjustment
\n ———————————————-
\nAdjusted Price\/SF $10.02 $1.95 $8.50 $15.00<\/p>\n
Financing Cash Cash Cash Cash Cash
\n Adjustment
\n ———————————————-<\/p>\n
Adjusted Price\/SF $10.02 $1.95 $8.50 $15.00<\/p>\n
Conditions of Sale None None None None
\n Adjustment
\n ———————————————-
\nAdjusted Price\/SF $10.02 $1.95 $8.50 $15.00<\/p>\n
Market\/Time
\n Adjustment 0% 0% -5% -5%
\n ———————————————-
\nAdjusted Price\/SF $10.02 $1.95 $8.08 $14.25<\/p>\n
Other Adjustments: 0% 50% 10% 0%
\n Location Adjustment 0% 0% 0% 0%
\n Topography Adjustment 0% 0% 0% 0%
\n Size Adjustment 0% 0% 0% 0%
\n Zoning Adjustment 0% 0% 0% 0%
\n Net Other Adjustments 0% 50% 10% 0%<\/p>\n
FINAL ADJUSTED PRICE PER SF $10.02 $2.93 $8.88 $14.25
\n =============================================<\/p>\n
-24-
\n 37
\nBuilding and Site Improvements<\/p>\n
The building and site improvements have been valued on the basis of replacement
\ncost less accumulated depreciation. The cost new was estimated via the
\nsegregated cost method, with cost factors obtained from Marshall Valuation
\nServices, Inc., a national cost manual. The unit cost includes both direct and
\nindirect costs, with adjustments made for special building features,
\nconstruction quality, time and location. The composite unit cost has then been
\napplied to the gross square footage of the building to derive the replacement
\ncost new. An amount representing entrepreneurial profit has also been included
\nin this analysis. This profit is a necessary element in the motivation to
\nconstruct the improvements and represents an additional amount the develop
\nwould expect to receive for construction of the project. The amount of
\nentrepreneurial profit varies according to economic conditions and types of
\ndevelopments. For the purpose of this report, entrepreneurial profit was
\nestimated to comprise ten percent of the direct and indirect building costs.<\/p>\n
The total accumulated depreciation of a structure represents the loss in value
\ndue to physical deterioration, functional obsolescence, or external (or
\neconomic) obsolescence. Economic life of a structure or improvement is the
\nperiod over which they contribute to the value of the property. These terms
\nare defined as follows:<\/p>\n
Physical Deterioration: The loss in value due to deterioration or
\n ordinary wear and tear, i.e., natural forces taking their toll of the
\n improvements. This begins at the time the building is completed and
\n continues throughout its physical life.<\/p>\n
Functional Obsolescence: The loss in value due to poor plan,
\n functional inadequacy, or super-adequacy due to size, style, design, or
\n other items. This form of depreciation occurs in both curable or
\n incurable forms.<\/p>\n
External (or Economic) Obsolescence: The loss in value caused by
\n forces outside the property itself. It can take many forms such as
\n excessive noise levels, traffic congestion, abnormally high crime
\n rates, or any other factors which affect a property’s ability to
\n produce an economic income, thereby causing a decline in desirability.
\n Other forms of economic obsolescence may include governmental
\n restrictions, excessive taxes, or economic trends.<\/p>\n
Economic Life: The economic life of a good quality medical office
\n buildings is typically 40 to 50 years.<\/p>\n
-25-
\n 38
\n Remaining Economic Life: Remaining economic life can be defined as the
\n number of years remaining in the economic life of the structure or
\n structural components as of the date of the appraisal.<\/p>\n
Marshall Valuation Services, Inc., and the actual experience of other buildings
\nin the market, were use to estimate the overall economic life of the
\nimprovements. The assignment of economic lives assumed that, except for the
\nbuilding shell and foundation, building components would be replaced
\nperiodically over the life of the building.<\/p>\n
Physical Depreciation<\/p>\n
The amount of physical depreciation and obsolescence in the subject building is
\njudged normal for a building of this age. Observation of the subject property
\nindicated that the structure and related component parts have been excellently
\nmaintained through a continuous maintenance service program.<\/p>\n
The Desert Springs Medical Plaza was constructed in 1974, and is in very good
\ncondition. After taking into consideration all significant physical factors
\naffecting the subject property, it is judged that the subject has an effective
\nage equal to ten years. The remaining useful life is estimated to be 35 years.
\nThis translates into a physical depreciation estimate of 22 percent (10 years
\ndivided by 45 years). The amount of depreciation attributable to the property
\nhas been estimated on a straight-line basis, which is founded on the assumption
\nthat depreciation of a property occurs equally throughout its economic life.<\/p>\n
The elements which make up site improvements have shorter economic lives than
\nthe building. We have estimated the aggregate useful lives of these items to
\nbe 20 years with an effective age of five years and a remaining useful life of
\n15 years. Therefore, the depreciation rate attributable to the site
\nimprovements on a straight-line basis is estimated to be approximately 25
\npercent.<\/p>\n
The total depreciation for the building is estimated to be $864,789, and the
\ndepreciated value of the building replacement costs to be $3,066,069.<\/p>\n
-26-
\n 39
\nCost Approach Conclusion<\/p>\n
The schedule on the following page is a summary of the estimated replacement
\ncost by category for the subject building plus estimates of all forms of
\ndepreciation.<\/p>\n
Based on the investigation as previously defined, the market value of the
\nsubject property by the Cost Approach, as of January 1, 1994, is:<\/p>\n
$4,600,000
\n ==========<\/p>\n
-27-
\n 40
\n SUMMARY OF VALUE VIA COST APPROACH
\n DESERT SPRINGS MEDICAL PLAZA
\n LAS VEGAS, NEVADA<\/p>\n
Replacement
\n Cost
\n ———–<\/p>\n
Site Prepraration 31,304
\nFoundation 89,352
\nFrame 363,984
\nExterior Walls 411,067
\nBasement Walls 0
\nFloors 219,006
\nRoof 220,485
\nRoof Cover 62,137
\nPartitioning & Built-In Items 619,431
\nCeilings 119,202
\nFloor Coverings 116,492
\nPlumbing 182,853
\nHVAC 384,487
\nElectrical 243,095
\nOther Features 58,344
\n ———-<\/p>\n
Total Hard Costs 3,121,239<\/p>\n
Architect’s Fees Plans and Specs 4.0% 124,850
\nArchitect’s Fees, Supervision 3.0% 93,637
\nLegal, Accounting, Contingency 7.0% 233,781
\nEntrepreneurial Overhead, Profit, and Other
\n Miscellaneous Fees 10.0% 357,351
\n ———-
\nTotal Soft Costs 809,619<\/p>\n
Total Replacement Cost $3,930,858
\n ==========<\/p>\n
Accrued Depreciation<\/p>\n
Depreciation Factor 22% Straight Line 10\/45th (864,789)
\n ———-<\/p>\n
Depreciated Value of Building $3,066,069<\/p>\n
Site Improvements<\/p>\n
Replacement Cost $ 150,000
\n Depreciated Cost 25% Straight Line 5\/20ths (37,500)
\n ———-<\/p>\n
Depreciated Value $ 112,500<\/p>\n
Plus Land Value (rounded) 3.34 acres $1,455,000
\n ———-<\/p>\n
COST APPROACH VALUE FOR ALL ASSETS $4,633,569
\n ==========<\/p>\n
-28-
\n 41
\n SALES COMPARISON APPROACH<\/p>\n
The Sales Comparison Approach is based upon the principle of substitution; that
\nis, when a property is replaceable in the market, its value tends to be set at
\nthe cost of acquiring an equally desirable substitute property, assuming there
\nis no costly delay in making the substitution. Since two properties are rarely
\nidentical, the necessary adjustments for differences in quality, location,
\nsize, services and market appeal are a function of appraisal experience and
\njudgment.<\/p>\n
The Sales Comparison Approach gives consideration to actual sales of other
\nsimilar properties with adjustments as previously stated. The sales prices are
\nanalyzed in common denominators and applied to the subject property in
\nrespective categories to be indicative of market value.<\/p>\n
The unit of comparison used in this analysis is the price per square foot,
\nwhich is the gross purchase price of the building divided by the net leasable
\narea in the building. The following sales are considered to be representative
\nof market activity and conditions as of the valuation date. Unless otherwise
\nindicated, the sales involved arm’s length transactions that conveyed a fee
\nsimple interest, and only real property was included in the transactions.
\nAlso, all purchase prices quoted in this report represent all cash sales unless
\nseller financing is noted and the sale prices adjusted for cash equivalency.<\/p>\n
In our analysis, we obtained details on four medical office building sales
\nwhich have occurred over the past two years. The terms of the sale and
\nsignificant data was verified to the extent possible by county deed records and
\nwith parties to the transaction. Information on these sales is shown on the
\nfollowing pages:<\/p>\n
-29-
\n 42
\nIMPROVED SALE NUMBER 1<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: South 7th Professional Plaza,
\n 801-829 7th Street, Las
\n Vegas, Clark County, Nevada
\nDate of Sale: February 28, 1992
\nDocument Number: 92022800202\/203
\nGrantor: Scott W. Brown
\nGrantee: Kenneth S. Shioi Trust
\nSale Price: $700,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA<\/p>\n
Land Size: 21,000 square feet
\nBuilding Size: 7,412 square feet – leasable
\nYear Built: 1962
\nOccupancy at Sale: 90%<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $88,944 $12.00
\nVacancy Allowance @ 5%: ($4,447) ($.60)
\n ——- ——
\nEffective Gross Income: $84,497 $11.40
\nEstimated Expenses @ $3.00\/SF: ($22,236) $3.00
\n ——- ——
\nNet Operating Income: $62,261 $8.40<\/p>\n
MARKET VALUE INDICATORS<\/p>\n
Sale Price Per Square Foot: $ 94.44
\nStabilized Overall Rate: 8.9%
\nEGIM: 8.28<\/p>\n
COMMENTS<\/p>\n
The building is a one-story brick structure with a reported lease rate of
\n12.00\/SF triple net. There are a total of nine units approximately 800 square
\nfeet each.<\/p>\n
-30-
\n 43
\nIMPROVED SALE NUMBER 2<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: Parkway Building
\n Bunkado, 3909 S.
\n Maryland Parkway,
\n Las Vegas, Clark
\n County, Nevada
\nDate of Sale: August 6, 1992
\nDocument Number: 92080600187
\nGrantor: M\/M Akira & Nobuka Futami
\nGrantee: Jewish Federation of
\n Las Vegas
\nSale Price: $1,300,000
\nTerms of Sale: All Cash <\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 25,265 square feet
\nBuilding Size: 17,227 square feet –
\n Leasable <\/p>\n
Year Built: 1981 <\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: 227,396 $13.20
\nVacancy Allowance @ 10%: 29,561 $ 1.72
\n ——
\nEffective Gross Income: 197,835 $11.48
\nEstimated Expenses @ $3.00\/SF 52,301 $ 3.00
\n ——- ——
\nNet Operating Income: 145,534 $ 8.45 <\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $75.46
\nStabilized Overall Rate: 11.16%
\nEGIM: 6.57 <\/p>\n
COMMENTS<\/p>\n
This is a three-story steel frame building. The average lease rate was
\nreported at 1.10\/SF modified gross. Vacancy rates were reported at 13% and
\nexpenses were reported at 23% of the gross scheduled income.<\/p>\n
-31-
\n 44
\nIMPROVED SALE NUMBER 3<\/p>\n
GENERAL SALE DATA<\/p>\n
Location:
\n Lake Mead Medical
\n Plaza, 2031 McDaniel
\n Street, Las Vegas,
\n Clark County,
\n Nevada
\nDate of Sale: March 31, 1992
\nDocument Number: 92033101338
\nGrantor: McDaniel Street Partnership
\nGrantee: NLVH, Inc.
\nSale Price: $1,200,000
\nTerms of Sale: All Cash <\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 50,530 square feet
\nBuilding Size: 24,000 square feet
\nYear Built: 1975
\nOccupancy at Sale: 100% <\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\nEstimated Gross Income*: $216,000 $9.00
\nVacancy Allowance @ 5%: 10,800 ( .45)
\n ——– ——
\nEffective Gross Income 205,200 8.55
\nEstimated Expenses @ $2.00\/SF 48,000 (2.00)
\n ——– ——
\nNet Operating Income: $157,200 $6.55 <\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 50.00
\nStabilized Overall Rate: 13.1 %
\nEGIM: 5.85 <\/p>\n
COMMENTS<\/p>\n
This buyer had a one-year-old option to purchase the property. They also spent
\nan additional $750,000 in tenant improvements. The building is a two-story
\nsteel frame structure constructed in 1975.<\/p>\n
-32-
\n 45
\nThese three sales are summarized as follows:<\/p>\n
\n\n SUMMARY OF IMPROVED SALES <\/p>\n SALE RENTABLE SALE PRICE PER
\n NUMBER ADDRESS SQ. FT. PRICE SQ. FT.
\n
\n 1 South 7th Professional Plaza 7,412 $700,000 $94.44
\n 801-829 7th Street <\/p>\n 2 Parkway Building 17,227 $1,300,000 $75.46
\n 3909 S. Maryland Parkway <\/p>\n
3 Lake Mead Medical Plaza 24,000 $1,200,000 $50.00
\n 2031 McDaniel Street
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
The unadjusted prices of these comparables range from $50.00 per square foot to
\n$94.44 per square foot. Each of the comparables will be discussed and adjusted
\nfor comparisons with the subject property. An Improved Sales Adjustment Matrix
\nis shown at the end of this section. All the transactions have received a
\ndownward adjustment for time of sale since they are all older transactions.<\/p>\n
SALE NUMBER 1 is a Class C medical office building that is located in the
\ndowntown market of Las Vegas. This transaction is reportedly at a market value
\nprice. However, an upward adjustment for location has been indicated. An
\nadditional upward adjustment has been made based upon the building condition as
\ncompared to the subject. A downward adjustment to the price per square foot is
\nindicated because of the smaller size of this comparable. An upward adjustment
\nto this comparable is indicated because of the subject’s superior construction
\nquality. The adjusted price per square foot of this comparable is $113.33.<\/p>\n
SALE NUMBER 2 is an older building acquired in 1992. Upward adjustments are
\nindicated because of the subject’s superior location and because of the older
\nage of this comparable. The adjusted price for this comparable is $94.32.<\/p>\n
SALE NUMBER 3 is the sale of a similar building in size, but dissimilar in age.
\nAn upward adjustment has been made because this sale is a single-tenant
\nbuilding. An upward adjustment has been made. Upward adjustments are
\nindicated due to the subject’s<\/p>\n
-33-
\n 46
\nsuperior location and construction quality. The adjusted price per square foot
\nof this comparable is $71.88.<\/p>\n
The adjusted prices per square foot range from $113.33 to $71.88. A rounded
\nadjusted price at the upper end of the range of $115.00 per square foot is
\nrepresentative of the subject property. Based on this analysis, the market
\nvalue of the subject property by the Sales Comparison Approach as of January 1,
\n1994, the effective date of this report, is calculated as follows:<\/p>\n
26,710 x 115.00 = $3,071,650<\/p>\n
Rounded to: $3,100,000
\n ==========<\/p>\n
-34-
\n 47<\/p>\n
\n\n I M P R O V E D S A L E S A D J U S T M E N T G R I D
\n Desert Springs Medical Plaza
\n Las Vegas, Nevada<\/p>\n
\n Subject Bldg Comp Bldg Comp Bldg Comp
\nElement #1 #2 #3<\/p>\nSale Price\/SF $ 94.44 $75.46 $50.00<\/p>\n
Property Rights Fee Simple Same Same Same
\n Adjustment ——————————————<\/p>\n
Adjusted Price\/SF $ 94.44 $75.46 $50.00<\/p>\n
Financing Cash Cash Cash Cash
\n Adjustment ——————————————<\/p>\n
Adjusted Price\/SF $ 94.44 $75.46 $50.00<\/p>\n
Conditions of Sale None None
\n Adjustment 0% 0%
\n ——————————————
\nAdjusted Price\/SF $ 94.44 $75.46 $50.00<\/p>\n
Market\/Time
\n Adjustment 0% 0% 15%
\n ——————————————
\nAdjusted Price\/SF $ 94.44 $75.46 $57.50<\/p>\n
Other Adjustments:
\n Location Adjustment 15% 15% 15%
\n Size Adjustment -5% 0% 0%
\n Building Adjustment 10% 10% 10%
\n Net Other Adjustments 20% 25% 25%<\/p>\n
FINAL ADJUSTED PRICE PER SF $113.33 $94.32 $71.88
\n ==========================================<\/p>\n
<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-35-
\n 48
\n INCOME APPROACH<\/p>\n
The Income Approach is based on the principle of anticipation, and has as its
\npremise that value is represented by the present worth of expected future
\nbenefits. The price that an investor will pay for an income property usually
\ndepends on the anticipated income stream. The Income Approach represents an
\nattempt to simulate the future cash flows for the property, and to quantify the
\nfuture benefits in present dollars.<\/p>\n
The subject property, Desert Springs Medical Plaza is one of four medical
\noffice buildings that Quorum Health Group, Inc. is selling for the purpose of
\nestablishing a real estate investment trust (REIT). Quorum Health Group, Inc.,
\nthe seller, will provide a net rental guarantee in the form of a master lease.
\nThe REIT, as the new property owner, will receive the net rental income
\nregardless of the rental rates charged or received from the actual
\nphysician\/tenants.<\/p>\n
This master lease is a credit enhancement vehicle that will enable the REIT
\nissuer to sell the REIT shares. It will also allow leasing flexibility for the
\noffice space. Crescent Capital can lease office space to various physicians at
\ndifferent rates and terms, or they can use the office space for hospital
\npurposes.<\/p>\n
The annual income stream guaranteed to the REIT is $528,750. Based upon the
\ntotal leasable square footage of the subject office building of 26,701 this
\nwould correlate to a net rental rate per square foot of $19.80 rounded. We
\nreserve the right to modify the Income Approach valuation if the actual annual
\nrental income for the property differs significantly from the draft lease
\npresented to us. This average rate per square foot appears to be reasonable
\nbased upon our market research and rent comparables. We have included these
\ncomparables in the Exhibit section of this report.<\/p>\n
Valuation Counselors has received documentation of the guaranteed rental income
\nstream, but the actual master lease agreements for the property is not yet
\navailable. For the purpose of our Income Approach, the gross income will be
\nthe guaranteed annual income stream for the professional office building of
\n$528,750.<\/p>\n
The subject appraisal assumes that 100 percent of the income is guaranteed
\nthrough the master lease agreement. Since the leased fee interest is being
\nappraised, there is no deduction for vacancy or credit loss.<\/p>\n
-36-
\n 49
\nSince the master lease provides for an income level to the REIT net of all
\noperating expenses, the only out-of-pocket expenses to the REIT will be
\naccounting, legal and internal administration or management expenses. These
\nmanagement expenses are estimated at 5.0 percent of effective gross income, or
\n$26,438, based on the management experience of other properties. The net
\noperating income for the property is $528,750 less $26,438, or $502,312.<\/p>\n
The estimated direct capitalization rates, or overall rates (OARs), for the
\nthree improved sale comparables presented in the Sales Comparison Approach
\nsection of this report are summarized as follows:<\/p>\n
\n\n Sale Number Property Location Sale Date OAR (%)
\n
\n 1 South 7th Professional Plaza February 1992 8.9%
\n 801-829 7th Street
\n Las Vegas, Nevada <\/p>\n 2 Parkway Building August 1992 11.16%
\n 3904 South Maryland Parkway
\n Las Vegas, Nevada <\/p>\n
3 Lake Mead Medical Plaza 2031 McDaniel March 1992 13.1%
\n Las Vegas, Nevada
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
The direct capitalization, or overall rates, for these comparables ranged from
\n8.9 percent to 13.1 percent.<\/p>\n
A capitalization rate at 10.5 percent, is considered appropriate because
\neffective comparable market net lease rates are $1.80 to $6.30 per square foot
\nless than the master lease rate of $19.80 per square foot.<\/p>\n
Therefore, it is our opinion that the market value of the subject property by
\nthe Income Approach is calculated and rounded as follows:<\/p>\n
Net Operating Income\/OAR = Estimated Value<\/p>\n
$502,312\/.105 = $4,783,924<\/p>\n
Rounded to: $4,800,000
\n ==========<\/p>\n
-37-
\n 50
\n CORRELATION AND CONCLUSION<\/p>\n
We have considered three approaches to value in order to estimate the value of
\nthe Desert Springs Medical Plaza. The three approaches are summarized as
\nfollows:<\/p>\n
\n
\n Cost Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,600,000
\n Sales Comparison Approach . . . . . . . . . . . . . . . . . . . . . . . $3,100,000
\n Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,800,000
\n<\/c><\/s><\/table>\nThe Cost Approach involved a detailed analysis of the individual components of
\nthe property. These costs were estimated using sources which were considered
\nto be reliable. However, estimating the replacement cost and all forms of
\ndepreciation is difficult. Based upon the data available for analysis, it is
\nour opinion that this approach serves as support and is a fair indication of
\nvalue.<\/p>\n
The Sales Comparison Approach is based on the price that investors and
\nowner-occupants have recently paid for comparable medical office buildings.
\nThe quantity and quality of data available in this approach was considered
\ngood, but because of the lack of available transactions in the market, it is
\nour opinion that they are not a fair representation of value. The appraisers
\nonly consider this approach to be a fair indicator of value for the subject
\nproperty.<\/p>\n
The Income Approach normally provides the most reliable value estimate for
\nmedical office buildings such as the subject. Although many buyers of
\nprofessional office buildings are owner\/occupants, these buyers are generally
\naware of a property’s cash flow potential and its value from an investor’s
\nperspective. For this reason, the Income Approach is considered the best
\nindicator of value for the subject property.<\/p>\n
Based on this analysis, it is our opinion that the market value of the subject
\nmedical office buildings, as of January 1, 1994, and based on the assumptions
\nand limiting conditions in this report, is:<\/p>\n
$4,800,000
\n ==========<\/p>\n
-38-<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[7751],"corporate_contracts_industries":[9438],"corporate_contracts_types":[9602,9579],"class_list":["post-41871","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-healthsouth-corp","corporate_contracts_industries-health__misc","corporate_contracts_types-land__nv","corporate_contracts_types-land"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/41871","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=41871"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=41871"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=41871"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=41871"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}