\n State of Alabama [SEAL]<\/p>\n This is to certify that \/s\/ Lanett Davis<\/p>\n
\/s\/ W. Phil Fowler
\n PATRICK J. SIMERS
\n \/s\/ F. L. Clark
\n having given satisfactory evidence of the necessary
\n \/s\/ Stu Graham
\n qualifications required by the laws of the State of Alabama
\n \/s\/ James ___ Perry, Jr.
\n is authorized to transact business in Alabama as a
\n \/s\/ George C. Washington<\/p>\n
CERTIFIED GENERAL REAL ESTATE APPRAISER \/s\/ Edward Forand<\/p>\n
\/s\/ Robert E. Nesbin
\n with all the rights, privileges and obligations
\n \/s\/ William R. Sizemore
\n appurtenant thereto.
\n ALABAMA REAL ESTATE
\n APPRAISERS BOARD
\n Certificate Number: CG00375 Expiration Date: SEPT. 30, 1995<\/p>\n
<\/c><\/s><\/table>\n
7
\n STATEMENT OF FACTS AND LIMITING CONDITIONS<\/p>\n
Valuation Counselors Group, Inc. strives to clearly and accurately disclose the
\nassumptions and limiting conditions that directly affect an appraisal analysis,
\nopinion, or conclusion. To assist the reader in interpreting this report, such
\nassumptions are set forth as follows:<\/p>\n
Appraisals are performed, and written reports are prepared by, or under the
\nsupervision of, members of the Appraisal Institute in accordance with the
\nInstitute’s Standard of Professional Practice and Code of Professional Ethics.<\/p>\n
Appraisal assignments are accepted with the understanding that there is no
\nobligation to furnish services after completion of the original assignment. If
\nthe need for subsequent services related to an appraisal assignment (e.g.,
\ntestimony, updates, conferences, reprint or copy services) is contemplated,
\nspecial arrangements acceptable to Valuation Counselors Group, Inc. must be
\nmade in advance. Valuation Counselors Group, Inc. reserves the right to make
\nadjustments to the analysis, opinions and conclusions set forth in the report
\nas we may deem necessary by consideration of additional or more reliable data
\nthat may become available.<\/p>\n
No opinion is rendered as to legal fee or property title, which are assumed to
\nbe good and marketable. Prevailing leases, liens and other encumbrances,
\nincluding internal and external environmental conditions and structural
\ndefects, if any, have been disregarded, unless otherwise specifically stated in
\nthe report. Sketches, maps, photographs, or other graphic aids included in
\nappraisal reports are intended to assist the reader in ready identification and
\nvisualization of the property and are not intended for technical purposes.<\/p>\n
It is assumed that: no opinion is intended in matters that require legal,
\nengineering, or other professional advice which has been or will be obtained
\nfrom professional sources; the appraisal report will not be used for guidance
\nin legal or professional matters exclusive of the appraisal and valuation
\ndiscipline; there are no concealed or dubious conditions of the subsoil or
\nsubsurface waters including water table and floodplain, unless otherwise noted;
\nthere are no regulations of any government entity to control or restrict the
\nuse of the property unless specifically referred to in the report; and the
\nproperty will not operate in violation of any applicable government
\nregulations, codes, ordinances or statutes.<\/p>\n
In the absence of competent technical advice to the contrary, it is assumed
\nthat the property being appraised is not adversely affected by concealed or
\nunapparent hazards, such as, but not limited to, asbestos, hazardous or
\ncontaminated substances, toxic waste or radioactivity. The appraiser is not
\nqualified to detect such substances.
\n 8
\n STATEMENT OF FACTS AND LIMITING CONDITIONS<\/p>\n
No engineering survey has been made by the appraiser. Except as specifically
\nstated, data relative to size and area were taken from sources considered
\nreliable, and no encroachment of real property improvements is considered to
\nexist.<\/p>\n
Information furnished by others is presumed to be reliable, and where so
\nspecified in the report, has been verified; however, no responsibility, whether
\nlegal or otherwise, is assumed for its accuracy, and cannot be guaranteed as
\nbeing certain. All facts and data set forth in the report are true and
\naccurate to the best of Valuation Counselors Group, Inc.’s knowledge and
\nbelief. No single item of information was completely relied upon to the
\nexclusion of other information.<\/p>\n
It should be specifically noted by any prospective mortgagee that the appraisal
\nassumes that the property will be competently managed, leased, and maintained
\nby financially sound owners over the expected period of ownership. This
\nappraisal engagement does not entail an evaluation of management’s or owner’s
\neffectiveness, nor are we responsible for future marketing efforts and other
\nmanagement or ownership actions upon which actual results will depend.<\/p>\n
No effort has been made to determine the impact of possible energy shortages or
\nthe effect on this project of future federal, state or local legislation,
\nincluding any environmental or ecological matters or interpretations thereof.<\/p>\n
The date of the appraisal to which the value estimate conclusions apply is set
\nforth in the letter of transmittal and within the body of the report. The
\nvalue is based on the purchasing power of the United States dollar as of that
\ndate.<\/p>\n
Neither the report nor any portions thereof, especially any conclusions as to
\nvalue, the identity of the appraiser, or Valuation Counselors Group, Inc.,
\nshall be disseminated to the public through public relations media, news media,
\nsales media or any other public means of communications without the prior
\nwritten consent and approval of Valuation Counselors Group, Inc.<\/p>\n
Unless otherwise noted, Valuation Counselors Group, Inc. assumes that there
\nwill be no changes in tax regulations.<\/p>\n
No significant change is assumed in the supply and demand patterns indicated in
\nthe report. The appraisal assumes market conditions observed as of the current
\ndate of our market research stated in the letter of transmittal. These market
\nconditions are believed to be correct; however, the appraisers assume no
\nliability should market conditions materially change because of unusual or
\nunforeseen circumstances.
\n 9
\n STATEMENT OF FACTS AND LIMITING CONDITIONS<\/p>\n
The report and the final estimate of value and the prospective financial
\nanalyses included therein are intended solely for the information of the person
\nor persons to whom they are addressed, solely for the purposes stated and
\nshould not be relied upon for any other purpose. Any allocation of total price
\nbetween land and the improvements as shown is invalidated if used separately or
\nin conjunction with any other report.<\/p>\n
This report assumes that the property is in compliance with the various
\nrequirements of the Americans with Disabilities Act (ADA) or that the cost of
\ncompliance is minimal. As appraisers, we are not qualified to determine
\ncompliance with ADA, and this report does not consider any effects of the ADA
\non the value of the property.<\/p>\n
A copy of this report and the working papers from which it was prepared will be
\nkept in our files for eight years.
\n 10
\n SUMMARY OF SALIENT FACTS AND CONCLUSIONS<\/p>\n
GENERAL DATA <\/p>\n
Effective Date of Value: February 2, 1994<\/p>\n
Date of Report: February 15, 1994<\/p>\n
Property Identification: HealthSouth Professional Building #2<\/p>\n
Property Location: 1201 11th Avenue South
\n Birmingham, Alabama<\/p>\n
Interest Appraised: Leased Fee Estate<\/p>\n
Gross Building Area: 109,682 square feet<\/p>\n
Net Leasable Area: 81,800 square feet<\/p>\n
Subject Land Size (Allocated): 108,900 square feet, or 2.5 acres<\/p>\n
Improvements Description: Three-story, steel frame and
\n concrete structure, Class B+
\n professional office building
\n constructed in 1990 to 1991.<\/p>\n
Physical Occupancy Percentage: 67%<\/p>\n
CONCLUSIONS <\/p>\n
Cost Approach: $13,980,000<\/p>\n
Sales Comparison Approach: $11,045,000<\/p>\n
Income Approach: $11,900,000<\/p>\n
Final Value Estimate: $11,900,000
\n ===========
\n 11
\n TABLE OF CONTENTS<\/p>\n
Page
\n —-
\nTransmittal Letter
\nAppraiser Certifications
\nStatement of Facts and Limiting Conditions
\nSummary of Salient Facts and Conclusions <\/p>\n
INTRODUCTION 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 4
\n Reasonable Exposure Time 6<\/p>\n
DESCRIPTIVE DATA 7
\n Market Data – Metropolitan Birmingham 7
\n Neighborhood Analysis 11
\n Zoning 12
\n Real Estate Taxes and Assessments 13
\n Site Analysis 13
\n Building and Site Improvements 16<\/p>\n
HIGHEST AND BEST USE 19<\/p>\n
VALUATION SECTION 23
\n Valuation Methodology 23
\n Cost Approach 24
\n Sales Comparison Approach 37
\n Income Approach 49<\/p>\n
CORRELATION AND CONCLUSION 51
\n 12
\n TABLE OF CONTENTS<\/p>\n
EXHIBIT SECTION<\/p>\n
Exhibit A – Professional Qualifications
\nExhibit B – Metropolitan Area Map
\nExhibit C – Neighborhood Map
\nExhibit D1 – Site Plan
\nExhibit D2 – Plat Map
\nExhibit E – Land Sale Location Map
\nExhibit F – Building Floor Plans
\nExhibit G – Building Description
\nExhibit H – Land Improvements Description
\nExhibit I – Rent Comparable Location Map
\nExhibit J – Rent Comparables Summary
\nExhibit K – Subject Photographs
\n 13
\n INTRODUCTION<\/p>\n
PROPERTY IDENTIFICATION<\/p>\n
The subject of this appraisal is known as, HealthSouth Professional Building
\n#2, and is located at 1201 11th Avenue South in Birmingham, Alabama. The
\nsubject is a three-story building that is situated on the east side of, and is
\ncontiguous to, the new five-story HealthSouth Hospital. The subject
\nprofessional building shares an atrium, mechanical systems and parking with the
\nhospital. The entire hospital and professional building property is identified
\nby Jefferson County as tax parcel number 29-1-3-9-1.0.<\/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 February 2,
\n1994, the date of our last inspection.<\/p>\n
FUNCTION OF THE APPRAISAL<\/p>\n
The report is to be used for internal financial valuation purposes. The owners
\nare considering the sale of several professional office buildings for the
\npurpose of establishing a real estate investment trust (REIT). The subject
\nproperty would be included in that sale. It is our understanding that the REIT
\nwill involve mortgage financing.<\/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
\nfinal 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
-2-
\n 15
\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
HISTORY OF THE PROPERTY<\/p>\n
HealthSouth Medical Center, Inc., acquired the assets of the South Highlands
\nHospital in November 1989 [Deed Book 3726\/Page 014]. The purchase consisted of
\napproximately ten acres of land and improvements. A new main hospital building
\nand the subject, HealthSouth Professional Building #2, were constructed in
\n1991. The new hospital and the subject building share a common atrium
\nentryway, elevators and mechanical systems. From 1990 through 1992,
\nHealthSouth Medical Center acquired additional parcels around the hospital, and
\nit now controls approximately 15 acres of land and buildings. The American
\nSports Medicine Institute (ASMI) was constructed on 1.7 acres of land just east
\nof the subject in late 1992 and early 1993.<\/p>\n
The top floor of the subject professional office building is currently vacant,
\nalthough a lease is reportedly in process for an ophthalmology practice to take
\nthe entire floor. Tenant finish work has not been completed on this space as
\nof the date of this report. The owners are considering including all medical
\noffice buildings in a new REIT, as mentioned earlier. This report is being
\ncompleted for internal valuation purposes and for mortgage financing in
\nconjunction with the sale to the REIT.<\/p>\n
The subject professional building has reportedly not been marketed for sale and
\nis not currently under an agreement of sale. No other deed transfers were
\nnoted in the last three years. A title search is recommended for official
\ndetermination.<\/p>\n
-3-
\n 16
\nHISTORY 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. Federal Government Purchases account for 7.2
\npercent of the total GDP, and this decline is limited to the rate of overall
\nGDP 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<\/p>\n
-4-
\n 17
\nannual increase compared to a 4.0 percent increase during 1991. The GDP
\nDeflator 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
INTEREST RATES AND SELECTED STATISTICS<\/p>\n
JANUARY 6, 1994 JANUARY 2, 1992<\/p>\n
Federal Fund Rate 3.0% 3.9%
\n90-Day Treasury Bill Rate 3.1% 3.9%
\n30-Year Treasury Bond 6.4% 7.5%
\nAaa Bond Yield 6.9% 8.2%
\nPrime Rate 6.0% 6.5%<\/p>\n
Economic 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
-5-
\n 18<\/p>\n
\n 1993 1994 1995
\n
\n Real GDP 2.6% 3.3% 3.3%
\n Personal Consumption Expenditures 3.0% 2.7% 2.3%
\n Federal Government Purchases (4.8%) (5.8%) (4.0%)
\n 30-Year Treasury Bond Yields 6.6% 6.6% 6.8%
\n Prime Rate 6.0% 6.2% 6.4%
\n Consumer Price Index 3.1% 3.2% 3.3%
\n<\/c><\/c><\/c><\/s><\/table>\nIn 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
REASONABLE EXPOSURE TIME<\/p>\n
The Appraisal Foundation defines “Exposure Time” as follows:<\/p>\n
“The estimated length of time the property interest being appraised
\n would have been offered on the market prior to the hypothetical
\n consummation of a sale at market value on the effective date of the
\n appraisal; a retrospective estimate based upon an analysis of past
\n events assuming a competitive and open market. Exposure Time is
\n different for various types of real estate and under various market
\n conditions. It is noted that the overall concept of reasonable
\n exposure encompasses not only adequate, sufficient and reasonable time
\n but also adequate, sufficient and reasonable effort. This statement
\n focusses on the time component.”<\/p>\n
[Statement on Appraisal Standards No. 6 (SMT-6) from the Appraisal
\n Foundation].<\/p>\n
It is our opinion, based on an analysis of comparable sales and market
\ntransactions, that a reasonable exposure time for the subject property type, at
\nthe appraised market value, is three to six months.<\/p>\n
-6-
\n 19
\n DESCRIPTIVE DATA<\/p>\n
MARKET DATA – Metropolitan Birmingham<\/p>\n
Birmingham is recognized as a leading financial, transportation, communication,
\nmanufacturing, healthcare and distribution center for the southeast United
\nStates. The region’s central location within the state of Alabama has been a
\nmajor factor in its economic success.<\/p>\n
The Birmingham Metropolitan Statistical Area (MSA) consists of five counties
\nwith an estimated 1992 population of 917,100. This ranks the metropolitan area
\nas the 46th largest in the country. The larger 16-county primary market area
\ncontains a population of 1,341,500. A map of the Birmingham MSA is shown in
\nthe Exhibit Section of this report.<\/p>\n
Trends in population, housing, employment and income are contributing social
\nand economic forces that impact property values. Each of these elements is
\ndiscussed separately.<\/p>\n
POPULATION<\/p>\n
Historical data and growth projections reflect the economic climate of an area
\nand have both a direct and indirect impact on property values. Table 1 on the
\nnext page shows the county population totals by decade. Table 1 also shows the
\nannual percentage increases in population for the individual counties in the
\nBirmingham MSA.<\/p>\n
The fastest annual population growth in the Birmingham MSA occurred in the
\ndecade of the 1980s. The rate of growth in the 1980s, however, was only 1.13
\npercent per year, compared to 2.0 percent to 3.0 percent per year for many
\nother large Southeast U.S. metropolitan cities during the decade. The City of
\nBirmingham, in Jefferson County, and Walker County experienced population
\ndeclines during the most recent decade.<\/p>\n
-7-
\n 20
\n TABLE 1
\n POPULATION BY COUNTY<\/p>\n
1970 1980 1990
\nCOUNTY CENSUS CENSUS CENSUS<\/p>\n
Blount 26,853 36,459 39,248
\nJefferson 644,991 671,392 651,525
\nCity of Birmingham* 300,910 286,799 265,968
\nSaint Claire 27,956 41,205 50,009
\nShelby 38,037 66,298 99,358
\nWalker 56,246 68,660 67,670
\nTOTAL MSA 794,083 884,014 907,810<\/p>\n
* City of Birmingham included in Jefferson County totals.<\/p>\n
TABLE 1 (CONTINUED)<\/p>\n
AVERAGE PERCENTAGE INCREASE<\/p>\n
COUNTY 1970S 1980S 1990S<\/p>\n
Blount 3.58% 0.76% N\/A
\nJefferson 0.41% -0.30% N\/A
\nSaint Clair 4.74% 2.14% N\/A
\nShelby 7.43% 4.99% N\/A
\nWalker 2.21% -0.14% N\/A
\nTOTAL MSA 1.13% 0.27% 0.5% <\/p>\n
Source: Birmingham Area Chamber of Commerce<\/p>\n
-8-
\n 21
\nJefferson County, excluding the City of Birmingham, grew 1.18 percent per year
\nin population during the 1970s, but experienced little growth during the 1980s.
\nThe estimated population growth rate so far in the 1990s is still slow, but
\nfaster than experienced in the 1980s.<\/p>\n
HOUSING<\/p>\n
The growth in housing in the Birmingham MSA was also slow but stable during the
\n1980s. As was the case in other cities during the decade, much of the new
\nhousing occurred due to a decline in the average household size. In the
\nBirmingham MSA, there were 3.01 persons per household in 1970, compared to 2.41
\npersons per household in 1990.<\/p>\n
So far in the 1990s, single-family housing sales have been brisk, with record
\nsales in 1992 and thus far in 1993. The area ranks 48th in new homes built in
\n1993, with 3,510 new homes the first half of 1993. New apartment construction
\ntotaled over 6,000 units from 1987 through 1990, or an average of 1,545 per
\nyear. New multifamily units only totaled 40 in 1992 and 140 for the first six
\nmonths of 1993. Most of the new apartment construction has been concentrated
\nsouth of the City of Birmingham along the U.S. Highway 280 and U.S. Highway 31
\ncorridors.<\/p>\n
Looking forward, the average household size is not expected to continue to
\ndecline indefinitely. The growth in housing, therefore, should equal the
\npopulation growth plus the replacement of obsolete housing.<\/p>\n
EMPLOYMENT<\/p>\n
In the 1980s, the average annual growth in employment in the MSA was 3,520 per
\nyear, compared to 8,290 per year during the 1970s. So far in the 1990s, the
\nregion is averaging 3,233 new jobs each year. The unemployment rate at the end
\nof 1992 was 6.1 percent, compared to 7.3 percent and 7.4 percent for the state
\nof Alabama and the U.S., respectively.<\/p>\n
-9-
\n 22
\nTable 2 shows the diversity in employment in the Birmingham MSA.<\/p>\n
TABLE 2
\n EMPLOYMENT BY SECTOR<\/p>\n
\n\n PERCENTAGE PERCENTAGE
\n OF TOTAL OF TOTAL
\nSECTOR LABOR DOLLARS ESTABLISHMENTS<\/p>\n
\nHealth Services 11.7% 6.5%
\nOther Services 14.0% 26.5%
\nManufacturing 15.7% 5.7%
\nConstruction 12.0% 8.8%
\nTransportation, Communications & Utilities 13.8% 3.6%
\nWholesale Trade 10.2% 9.5%
\nRetail Trade 9.8% 25.2%
\nFinance, Insurance, & Real Estate 9.1% 9.2%
\nMining & Agricultural 3.5% 1.4%
\nMiscellaneous 0.2% 3.6%
\nREGION 100.0% 100.0%<\/p>\nSource: Birmingham Chamber of Commerce
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n
In 1970, manufacturing accounted for 28.3 percent of the employment in the MSA.
\nBy 1991, manufacturing only accounted for 13.1 percent of the area’s
\nemployment. The manufacturing jobs have been replaced with service jobs. The
\nservice sector accounts for 25.4 percent of all jobs in 1991, versus 14.3
\npercent in 1970.<\/p>\n
As of April 1993, the largest employers in the Birmingham MSA were as follows:<\/p>\n
University of Alabama 15,696
\n U.S. Government 9,501
\n South Central Bell 7,450
\n State of Alabama 6,304
\n Birmingham City Schools 4,733
\n Alabama Power Company 4,611<\/p>\n
-10-
\n 23
\nINCOME<\/p>\n
Jefferson County and the Birmingham MSA are very representative of the average
\nper capita income and average household income in the United States. Table 3
\nbelow shows the area’s income averages compared to the entire U.S.<\/p>\n
\n\n TABLE 3<\/p>\n PERCENT PERCENT
\n AVERAGE PER OF U.S. AVERAGE OF U.S.
\nCOUNTY CAPITA COME AVERAGE HOUSEHOLD COME AVERAGE<\/p>\n
\nBlount $13,135 70% $27,219 77%
\nJefferson $18,624 100% $34,235 97%
\nSt. Clair $13,056 70% $26,750 76%
\nShelby $15,935 85% $44,813 115%
\nWalker $14,556 78% $26,585 75%
\nMSA $17,479 94% $34,315 100%
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nJefferson County has approximately the same per capita income and household
\nincome as the national average.<\/p>\n
In summary, metropolitan Birmingham has experienced a slow but stable growth
\nrate in recent years. Its economic base is diverse. National trends of a
\nlower manufacturing work force and lower household size have also been the
\nexperience in Birmingham.<\/p>\n
NEIGHBORHOOD ANALYSIS<\/p>\n
The subject neighborhood is identified as the “Southside” area of Birmingham.
\nThis area is just south of the Central Business District (CBD) of Birmingham
\nand west of the Red Mountain Expressway. This neighborhood is bounded on the
\nnorth by the University of Alabama at Birmingham (UAB), on the east by the Red
\nMountain Expressway (U.S.Highway 31), on the south by Red Mountain with the
\nfamous Vulcan Statue, and on the west by Interstate 65. A map of the
\nneighborhood is located in the Exhibit Section.<\/p>\n
-11-
\n 24
\nThe Southside includes many of the city’s old restored homes. The
\nHighland\/Five-Points area has undergone considerable renovation, and is
\nbecoming a restaurant and entertainment center. The subject medical office
\nbuilding, which is part of the HealthSouth Medical Center, is located
\none-half-mile west of the Highland\/Five-Points area, and just north of Red
\nMountain. The upscale residential communities of Homewood and Mountain Brook
\nare located just south and east of the Southside. The property is situated at
\n1201 11th Avenue South. The block bounded by 13th Place South, 12th Avenue
\nSouth and 13th Street South contains the subject building. East and south of
\nthe property are primarily older residential areas. The HealthSouth Medical
\nCenter and the HealthSouth Professional Condominium Building are situated to
\nthe west and south of the property. Some homes have been converted to
\ncommercial uses around the hospital. A few neighboring parcels have been
\nredeveloped with small apartment buildings, including the site just south of
\nthe property.<\/p>\n
North of the HealthSouth Medical Center is the UAB, which is reportedly now the
\nsecond largest university in Alabama. The university has been growing rapidly
\nand has absorbed most of the land uses in a six by fifteen block area. The UAB
\nMedical Center is considered by some to be in the same class as the Mayo Clinic
\nin some medical research fields.<\/p>\n
In summary, the neighborhood is an older residential area that is undergoing
\nrenovation and restoration. Development in the area is being driven primarily
\nby hospital growth which includes the subject HealthSouth Medical Center, the
\nUAB Medical Center and St. Vincent Medical Center. Although medical service
\nis the focus of new development, new retail, restaurant and residential
\ndevelopment is also active in the area.<\/p>\n
ZONING<\/p>\n
The subject property is zoned “COI, Conditional Office and Institutional
\nDistrict”, by the City of Birmingham. According to the City zoning
\nrequirements, the office and institutional district provides “for the orderly
\narrangement of institutional, clerical and administrative space”. Permitted
\nuses include public, semi-private or private offices; public or semi-private,
\nreligious, educational or charitable institutions; and, other similar uses
\nconsistent with this zoning code’s purpose and surrounding uses. This zoning
\nshall not include properties with industrial characteristics, communal living
\nfacilities or correctional institutions.<\/p>\n
-12-
\n 25
\nThe subject’s “conditional” zoning provided for the specific medical services
\nproperty that was constructed on the site. The hospital reportedly was granted
\nsetback and parking variances prior to the construction of the building. Since
\nthe site plan was approved prior to construction, and the occupancy permit
\nreceived after construction, it is assumed that the property conforms to all
\nthe required conditions of zoning. The zoning variance may have provided for
\nan easement with the hospital for additional parking spaces on the north side
\nof the property. A letter of zoning compliance from the City of Birmingham is
\nrecommended for an official determination regarding any zoning conformity
\nissues.<\/p>\n
REAL ESTATE TAXES AND ASSESSMENTS<\/p>\n
The subject property is situated in the City of Birmingham, and subject to the
\ntaxing authority of the City and Jefferson County. Commercial properties in
\nthe City and County are assessed at 20 percent of tax appraised value. The
\nsubject building is included with the HealthSouth Medical Center for tax
\npurposes. The tax appraised market value of the entire hospital and
\nprofessional building property in 1993 was $29,368,240. The entire property
\nrecently paid $408,219 in 1993 property taxes.<\/p>\n
The market value estimated in this report is $11,900,000. In the City of
\nBirmingham, properties are assessed at 20% of their tax appraised market
\nvalues. The 1993 millage rate is $69.50 per $1,000 of assessed value. The
\nsubject property taxes are estimated as follows:<\/p>\n
$11,900,000 x 20% \/ $1,000 x $69.50 = $165,410<\/p>\n
SITE ANALYSIS<\/p>\n
The subject site is part of approximately 15 acres owned by HealthSouth Medical
\nCenter. The HealthSouth Professional Building #2 is adjacent and contiguous to
\nthe new hospital on 11th Avenue South. The subject building was constructed
\ntogether with the hospital in 1990-1991, and a separate land parcel has not
\nbeen surveyed and allocated to the professional building. The appraisers have
\nnot been provided with a survey or legal description for the subject property.<\/p>\n
-13-
\n 26
\nFor the purpose of this valuation, the appraisers have allocated a portion of
\nthe hospital land to the professional building. This allocated land consists
\nbasically of the footprint of the subject building plus a parking lot just east
\nof the building and 11th Street South. A county tax plat map of the subject
\narea is included on the next page. The entire hospital property is highlighted
\nin yellow on that map. The subject land and building footprint are also
\nidentified in orange on that map. A total of 2.5 acres, or 108,900 square
\nfeet, of land has been allocated to the subject property. The appraisers
\nreserve the right to modify this report if the land is later resurveyed and
\nfound to differ significantly in size from our allocated acreage.<\/p>\n
Approximately half of the subject 2.5 acres is situated on the west side of
\n11th Street South. This parcel is rectangular-shaped, and fronts approximately
\n240 feet on the west side of 11th Street South. This parcel is approximately
\n210 feet deep, and slopes upward from its north side toward its south side.
\nAlmost this entire parcel is covered by the footprint of the subject building.
\nThe remaining subject parcel is irregular-shaped. It has approximately 220
\nfeet of frontage on the east side of 11th Street South. This site slopes
\nslightly from its north end up to its south end, which abuts the new American
\nSports Medicine Institute (ASMI) Building. This entire site has asphalt paving
\nand fencing and is used for hospital and professional office building parking.
\nAccess to this parking lot is via an entrance at the northwest corner of this
\nsite.<\/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. Since the subject building is
\ncontiguous to the hospital, it is likely that the subject property would only
\nsell along with the hospital. A site plan of the entire hospital is shown in
\nthe Exhibit section.<\/p>\n
-14-
\n 27<\/p>\n
Tax Plat Map<\/p>\n
(Map)<\/p>\n
-15-
\n 28
\nUtilities serving the site include water, sewer, telephone, gas and
\nelectricity. Police services and fire protection are located in the
\nneighborhood. Other site improvements consists of general landscaping, asphalt
\npaving, concrete paving and curbing, some shrubs and general signage. To our
\nknowledge, no environmental study has been conducted on the subject site. As
\nappraisers, we are not qualified to detect hazardous materials. Consequently,
\nour report assumes that there are no environmentally hazardous materials in the
\nsite or building that would adversely affect the subject property’s value.
\nAccording the Federal Emergency Management Association (FEMA) panel #010116
\n0044B, dated January 2, 1992, this site is not located in a flood hazard area.<\/p>\n
BUILDING AND SITE IMPROVEMENTS<\/p>\n
The HealthSouth Professional Building was constructed in 1990-1991. It
\ncontains 109,682 gross square feet and 81,800 leasable square feet on three
\nfloors. The leasable area excludes the mechanical rooms and vertical
\npenetrations (stairwells, elevator shafts) and lobby bathrooms. The building
\nareas are the appraiser’s calculations based on the dimensions on the Gould
\nTurner Group, PC, architectural plans dated February 1, 1990. We assume that
\nthe building was constructed according to these plans. The gross and net
\nbuilding area by floor are summarized as follows:<\/p>\n
BUILDING AREA GROSS SF LEASABLE SF<\/p>\n
Floor 1 31,490 26,160
\n Floor 2 39,096 28,568
\n Floor 3 39,096 27,072
\nTOTAL BUILDING 109,682 81,800<\/p>\n
The building is a three-story, reinforced concrete and steel structure, with a
\ndryvit and brick veneer exterior. The entire building is sprinklered. The
\nbuilding has reinforced concrete floors and roof deck, with a waterproof
\nmembrane and rock covering. Ceiling heights are approximately nine feet on the
\nfirst floor and eight and one-half feet on the second and third floors. The
\nreception area has a 14 foot ceiling and the gym area has<\/p>\n
-16-
\n 29
\nan eleven-foot ceiling. Ceiling finishes consists of acoustical ceiling tiles
\nand recessed fluorescent lighting with some cone directional lights. The
\ninterior walls are wall paper on gypsum board over metal studs.<\/p>\n
Air conditioning is supplied via three 450-ton Trane chillers and air handlers
\n(one dedicated to hospital). There are additional chillers located in the
\nhospital serving only that building. Two, 350-hp gas or diesel-fired Burnham
\nboilers provide steam heat through a circulating water system to both the
\nprofessional building and the hospital. Two, 600 KW\/hour Cummins diesel
\nengines provide emergency power for the hospital and medical building if the
\nother utilities were to fail. A 10,000 gallon tank for the diesel is located
\nunderground in the alley behind the subject building. In addition, there are
\neight Marathon variable air fans and two pneumatic air pumps. Two Siemens
\nelectric panels control up to 13,500 volts each of electric power, and either
\npanel can control power to both the hospital and professional building. We
\nassume that the heating and electrical capacity is adequate for the subject
\nfacility.<\/p>\n
The interior floors have both carpeting and vinyl tiles. There is ceramic tile
\nin the labs, pool and bathroom areas. Windows and doors are metal framed, and
\ninterior doors are solid-core wood. Each of the floors has their own lobby.
\nHealthSouth Rehabilitation on the first floor has two gymnasium areas, a pool
\narea with a 15 foot by 45 foot pool, a walking track and therapy rooms.
\nAlabama Sports Medicine on the second floor is heavily partitioned with
\nexamination rooms and doctor’s offices. A typical floor plan for the building
\nis shown in the Exhibit Section of this report.<\/p>\n
The third floor of the building is vacant except for the mechanical rooms. A
\nlease is reportedly being negotiated for an ophthalmologist practice to occupy
\nthe entire floor. The construction company has estimated that it will cost
\nslightly more than $1,000,000, or approximately $37 per square foot of leasable
\narea, to complete the tenant finish work on the third floor. This is
\nconsidered above average tenant finish costs for some medical buildings, but
\nconsistent with the levels of finish on the first two floors.<\/p>\n
Site improvements include asphalt paving and curbing, parking lot fencing, a
\nflag pole in front of the subject building and ground cover and shrubbery
\naround the subject building. A detail description of the building and site
\nimprovements are included in the Exhibit section of this report.<\/p>\n
-17-
\n 30
\nCONDITION OF IMPROVEMENTS AND OBSOLESCENCE<\/p>\n
The building is new and in good condition. There is no deferred maintenance,
\nor functional or economic obsolescence. Since the master lease provides for
\nHealthSouth guaranteeing income on this space, this report assumes that
\nHealthSouth will complete the tenant finish work, estimated at $1,000,000 for
\nthe third floor, prior to prospective sale to the REIT.<\/p>\n
-18-
\n 31
\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
\n improved property, which is physically possible, appropriately
\n supported, financially feasible, and that results in the
\n highest value”<\/p>\n
[The Appraisal of Real Estate, P. 45, 10th Ed. published by
\n The 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
\n for 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
-19-
\n 32
\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 “COI, Conditional Office and Institutional”. Permitted uses in
\nthis general zoning category vary widely. Potential legal uses would include
\nsome retail and restaurants, office\/institutional, hotels, hospitals and other
\nmedically-oriented uses. The subject’s conditional zoning provided for the
\nconstruction of the subject professional office building and the adjacent
\nhospital. We assume that variances for setbacks and parking were received
\nprior to construction.<\/p>\n
Surrounding uses include the hospital, other professional office uses, some
\napartments and some old 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. New hospital
\nrelated development in the subject area and near other surrounding hospitals
\nindicates that new medical development is financially feasible. HealthSouth
\nMedical Center, UAB Medical Center and St. Vincent Medical Center have all
\nrecently built new medical office facilities. Office business-use facilities,
\nhowever, are generally over-built in Birmingham, as is the case in other major<\/p>\n
-20-
\n 33
\nmetropolitan areas. General business space is not considered financially
\nfeasible in the subject market at this time.<\/p>\n
MAXIMALLY 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 medical-related development is financially
\nfeasible. Based on this analysis, the current highest and best use of the
\nland, if vacant, would be for office\/institutional development based on the
\ngrowth needs of the area hospitals.<\/p>\n
As Improved<\/p>\n
The subject site is currently improved with a 81,800 rentable square foot
\nprofessional 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 modify existing improvements. The improvements were
\nrecently constructed and are considered functional. The building could be
\nconverted to additional hospital space. Recent trends in the hospital business
\ncall for more outpatient business and less inpatient stays. Besides, a new
\nhospital was constructed with the subject building, and additional hospital
\ncapacity is not needed.<\/p>\n
LEGALLY PERMISSIBLE<\/p>\n
The building, as improved, is assumed to be a legal conforming use, since the
\nproperty was recently constructed and received an occupancy permit. Under the
\ncurrent zoning, the property could remain as it is, be torn down or renovated.<\/p>\n
-21-
\n 34
\nFINANCIALLY FEASIBLE<\/p>\n
The highest and best use of the land, if vacant, was to develop with an office\/
\ninstitutional 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. The only
\nfinancially feasible use of the existing improvements is it current use as
\nprofessional office space.<\/p>\n
MAXIMALLY PRODUCTIVE<\/p>\n
The maximally productive use for the existing property is the financially
\nfeasible use that produces the greatest property value. The exist use was the
\nonly financially feasible use. The highest and best use, as improved, is the
\nproperty’s current use.<\/p>\n
-22-
\n 35
\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
-23-
\n 36
\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
-24-
\n 37
\nLand Comparable Number 1<\/p>\n
Parcel Number: 29-01-3-008-7<\/p>\n
Location: East side of 13th Street South across from the
\n new Alabama Sports Medicine and Orthopedic
\n Center and the new HealthSouth Hospital.<\/p>\n
Size: 7,000 square feet<\/p>\n
Sale Date: April 29, 1993<\/p>\n
Deed Book\/Page: 4544\/195<\/p>\n
Grantor: Randall J. Westbrook<\/p>\n
Grantee: HealthSouth Medical Center, Inc.<\/p>\n
Sale Price: $135,000<\/p>\n
Price Per Square Foot: $19.29<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Zoning: Office\/Institutional<\/p>\n
Utilities: All utilities are available.<\/p>\n
Comments: This parcel was part of 15 parcels assembled from
\n 1990-1992 for the construction of the Sports
\n Medicine Institute and additional parking. The
\n average price for the 15 parcels was $18.16 per
\n square foot. The Grantor in this transaction is
\n an employee of the Grantee that acquired the
\n property on July 10, 1992, from Dwain Pitts, et
\n al, for the same price [Deed Book 4313\/Page 978].<\/p>\n
-25-
\n 38
\nLand Comparable Number 2<\/p>\n
Parcel Number: 29-01-3-010-4<\/p>\n
Location: West side of 12th Street South adjacent to an
\n existing parking lot across from the old entrance
\n to the HealthSouth Medical Center.<\/p>\n
Size: 8,160 square feet<\/p>\n
Sale Date: April 29, 1993<\/p>\n
Deed Book\/Page: 4544\/197<\/p>\n
Grantor: Vicki E. Owens<\/p>\n
Grantee: HealthSouth Medical Center, Inc.<\/p>\n
Sale Price: $66,000<\/p>\n
Price Per Square Foot: $8.09<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Utilities: All utilities are available.<\/p>\n
Comments: This parcel was purchased for future parking
\n needs by the hospital. The hospital purchased
\n the property based solely on land value and
\n considered the forty year old house on the site
\n to be only a temporary use until additional
\n parking is needed. The Grantor in this
\n transaction is an employee of the Grantee
\n that acquired the property on October 30,
\n 1992 from Robert Vests for the same price
\n [Deed Book 4410\/Page 819].<\/p>\n
-26-
\n 39
\nLand Comparable Number 3<\/p>\n
Parcel Number: 29-01-3-005-3<\/p>\n
Location: Northeast corner of 12th Street South and 11th
\n Avenue South, one block north of the
\n HealthSouth Medical Center.<\/p>\n
Size: 45,600 square feet<\/p>\n
Sale Date: November 13, 1990<\/p>\n
Deed Book\/Page: 3972\/250<\/p>\n
Grantor: Eleventh Avenue United Methodist Church<\/p>\n
Grantee: HealthSouth Medical Center, Inc.<\/p>\n
Sale Price: $1,500,000<\/p>\n
Price Per Square Foot: $32.89<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Zoning: Office\/Institutional<\/p>\n
Utilities: All utilities are available.<\/p>\n
Comments: This parcel was a church before being sold to
\n HealthSouth. Part of the improvements have been
\n removed and the site is used as overflow parking
\n by the hospital. The remainder of the building
\n is scheduled to be removed in the near future.<\/p>\n
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\n 40
\nLand Comparable Number 4<\/p>\n
Location: Northeast corner of 17th Street and 11th Avenue
\n approximately one-quarter mile south of the
\n University of Alabama Medical Center and
\n one-half-mile northeast of the subject.<\/p>\n
Size: 16,000 square feet<\/p>\n
Sale Date: January 2, 1990<\/p>\n
Deed Book\/Page: 3951\/388<\/p>\n
Grantor: Jo Anne Jackson<\/p>\n
Grantee: Board of Trustees of University of Alabama<\/p>\n
Sale Price: $240,000<\/p>\n
Price Per Square Foot: $15.00<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Zoning: Office\/Institutional<\/p>\n
Utilities: All utilities are available.<\/p>\n
Comments: This parcel contains an old doctor’s building
\n that is boarded up and no longer used. The
\n building does not contribute any value.<\/p>\n
-28-
\n 41
\nLand Comparable Number 5 – Current Listing<\/p>\n
Location: Northwest corner of 19th Street and 5th Avenue
\n South, just north of the University of Alabama
\n Medical Center (UAB).<\/p>\n
Size: 56,000 square feet<\/p>\n
Owner: Mr. Hill<\/p>\n
Asking Price: $3,080,000<\/p>\n
Price Per Square Foot: $55.00<\/p>\n
Shape: Retectangular<\/p>\n
Zoning: M-1 Light Industrial, but permitted for the
\n construction of an 11-story, 220,000 square foot
\n office building.<\/p>\n
Utilities: All utilities are available.<\/p>\n
Comments: This vacant parcel is across from UAB and a high
\n rise apartment building that is currently under
\n construction. The owner has been offered
\n approximately $35 per foot.<\/p>\n
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\n 42
\nA summary of the land sales and listing is shown as follows:<\/p>\n
SUMMARY OF LAND COMPARABLES<\/p>\n
LAND SALE SIZE PRICE
\n COMP LOCATION DATE (SF) PER SF<\/p>\n
1 13th Street South 04\/93 7,000 $19.29
\n 2 12th Street South 04\/93 8,160 $ 8.09
\n 3 12th Street South 11\/90 45,600 $32.89
\n 4 17th Street 01\/90 16,000 $15.00
\n 5 19th Street Listing 56,000 $55.00
\nSUBJECT 11TH AVENUE SOUTH 108,900<\/p>\n
Discussion of Land Comparables<\/p>\n
LAND COMPARABLE 1 was one parcel of 15 that were assembled by the hospital
\naround what is now the American Sports Medicine Institute. Downward
\nadjustments are indicated because of the more level topography of this
\ncomparable parcel and because of its smaller size. The adjustments are shown
\non a Land Sale Adjustment Grid at the end of this discussion. The adjusted
\nprice per square foot of this comparable is $16.40 per square foot.<\/p>\n
LAND COMPARABLE 2 was a parcel containing an old house. The site was purchased
\nby the hospital for future parking needs of the hospital. The improvements
\nwere not considered to have any significant value. A large upward adjustment
\nis indicated because of the inferior location of this parcel compared to the
\nsubject that is adjacent to the hospital. Downward adjustments are indicated
\nbecause of the comparable’s level topography and its smaller size. The
\nadjusted price per square foot of this comparable is $9.30.<\/p>\n
-30-
\n 43
\nLAND COMPARABLE 3 was a 45,600 square foot parcel north of the hospital that
\ncontained a Methodist Church. The church has relocated and the land is being
\nused for hospital overflow parking. The remaining building is reportedly
\nscheduled to be removed in the near future. Downward adjustments are indicated
\nbecause of the declining economy since this purchase and because of the level
\ntopography of this site. The adjusted price for this comparable is $28.12 per
\nsquare foot.<\/p>\n
LAND COMPARABLE 4 is a parcel that UAB purchased for future parking or
\ndevelopment. It is located one-quarter-mile south of the UAB campus. An
\nupward adjustment is indicated due to the inferior location of this comparable.
\nA downward adjustment is indicated for size. The adjusted price per square
\nfoot of this comparable is $14.85.<\/p>\n
LAND COMPARABLE 5 is the current listing of a site just north of UAB Medical
\nCenter. This site is zoned for high rise development. A significant downward
\nadjustment is indicated because this is a listing rather than an actual sale.
\nDownward adjustments are also indicated for location, topography and due to the
\nsuperior zoning density of this site. The adjusted price per square foot of
\nthis comparable is $32.73 per square foot. <\/p>\n
The adjusted land prices range from $9.30 per square foot to $32.73 per
\nsquare foot, with the prices of the most comparable sites being in the middle
\nof this range. The arithmetic mean adjusted price per square foot was $20.28.
\nThe average price per square foot for the land assembled around what is now the
\nAmerican Sports Medicine Institute (ASMI) was $18.16 per square foot. The
\nsubject site is a better location because it is closer to the hospital. The
\nsubject 2.5-acre site, however, is larger than the ASMI site, and a net
\ndownward adjustment is indicated for comparison for this reason. Based on our
\nanalysis of the subject versus these comparables, it is our opinion that a land
\nprice of $17.00 per square is representative of the subject site. The subject
\nland value is estimated as follows:<\/p>\n
108,900 SF x $17.00\/SF = $1,851,300<\/p>\n
Rounded to: $1,850,000
\n ==========<\/p>\n
-31-
\n 44<\/p>\n
\n\n L A N D S A L E A D J U S T M E N T G R I D
\n HealthSouth Professional Building #2
\n Birmingham, Alabama <\/p>\n
Subject Land Comp Land Comp Land Comp Land Comp Land Comp
\n
\n Element #1 #2 #3 #4 #5 <\/p>\nSale Price\/SF $19.29 $8.09 $32.89 $15.00 $55.00 <\/p>\n
Property Rights Fee Simple Same Same Same Same Same
\n Adjustment
\n ———————————————————–
\nAdjusted Price\/SF $19.29 $8.09 $32.89 $15.00 $55.00 <\/p>\n
Financing Cash Cash Cash Cash Cash Cash
\n Adjustment
\n ———————————————————–
\nAdjusted Price\/SF $19.29 $8.09 $32.89 $15.00 $55.00 <\/p>\n
Conditions of Sale None None None None Listing
\n Adjustment -15%
\n ———————————————————–
\nAdjusted Price\/SF $19.29 $8.09 $32.89 $15.00 $46.25 <\/p>\n
Market\/Time Effective
\n Adjustment Sep-93 0% 0% -10% -10% 0%
\n ———————————————————–
\nAdjusted Price\/SF $19.29 $8.09 $29.60 $13.50 $46.25 <\/p>\n
Other Adjustments:
\n Location Adjustment 0% 30% 0% 20% -15%
\n Topography Adjustment -5% -5% -5% 0% -5%
\n Size Adjustment 44,616 -10% -10% 0% -10% 0%
\n Zoning Adjustment 0% 0% 0% 0% -10%
\n Net Other Adjustments -15% 15% -5% 10% -30%<\/p>\n
FINAL ADJUSTED PRICE PER SF $16.40 $9.30 $28.12 $14.85 $32.73
\n =========================================================== <\/p>\n
<\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-32-
\n 45
\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. A schedule at the end of this section derived from the Marshall
\nValuation Services shows the estimated replacement cost by category for the
\nsubject building plus estimates of all forms of depreciation.<\/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 45 to 50 years. For the subject Class B+
\n building, we have assumed an economic life of 50 years.<\/p>\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
-33-
\n 46
\nMarshall Valuation Services, Inc. was used to estimate the overall economic
\nlife of the improvements. The assignment of economic lives assumed that,
\nexcept for the building shell and foundation, building components would be
\nreplaced periodically over the life of the building.<\/p>\n
Physical Depreciation<\/p>\n
The amount of physical depreciation and obsolescence in the subject building is
\nminimal due to its young age. Observation of the subject property indicated
\nthat the structure and related component parts have been adequately maintained
\nthrough a continuous maintenance service program.<\/p>\n
The subject property was constructed in 1990-1991, and it is in excellent
\ncondition. It is judged that the subject has an effective age equal to its
\nactual age of three years. The remaining useful life is estimated to be 47
\nyears. This translates into a physical depreciation estimate of 6.0 percent (3
\nyears divided by 50 years). The amount of depreciation attributable to the
\nproperty has been estimated on a straight-line basis, which is founded on the
\nassumption that depreciation of a property occurs equally throughout its
\neconomic 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 three years and a remaining useful life of
\n17 years. Therefore, the depreciation rate attributable to the site
\nimprovements on a straight-line basis is estimated to be 15.0 percent.
\nEntrepreneurial profit and miscellaneous replacement costs are depreciated at a
\nblended depreciate rate.<\/p>\n
The subject building and site improvement replacement costs, excluding
\nentrepreneurial profit, were calculated to be $11,756,873. Replacement costs
\nnormally include an entrepreneurial profit of 10 percent to 15 percent to
\ninduce the property owner to undergo the development. Entrepreneurial
\noverhead, profit and miscellaneous fees were estimated at 10 percent of base
\nbuilding costs, or $1,125,582. The total replacements costs via the Marshall
\nValuation Service, including the entrepreneurial profit, is $12,882,455, or
\n$117.45 per gross square foot of building area.<\/p>\n
-34-
\n 47
\nThe actual construction costs for the subject building by itself were not
\navailable. The building was constructed at the same time as the adjacent
\nhospital building. The total cost for the hospital and medical building was
\nreported to be $28.5 million. The subject building represents approximately 45
\npercent of the combined gross building area for both the subject medical
\nbuilding and the hospital. The $11,756,873 in building and site costs for the
\nsubject property is approximately 41 percent of the combined costs for the
\nhospital and professional office building. This seems appropriate since the
\nhospital costs are estimated to be slightly higher than the office building
\ncosts.<\/p>\n
Total depreciation is estimated at $754,896, based on 6.0 percent depreciation
\nof building replacement costs and 15.0 percent depreciation of site
\nimprovements. There was no functional or economic obsolescence indicated since
\nthe property is new. The total depreciated value of the subject replacement
\ncosts is $12,127,559. The $1,850,000 land value is added to the depreciated
\nreplacement costs, for a final Cost Approach value of $13,977,559.<\/p>\n
Cost Approach Conclusion<\/p>\n
Based on the investigation as previously defined, the market value of the
\nsubject property by the Cost Approach, as of February 2, 1994, is rounded to:<\/p>\n
$13,980,000
\n ===========<\/p>\n
-35-
\n 48<\/p>\n
SUMMARY OF TOTAL PROJECT DEVELOPMENT COSTS
\n HEALTHSOUTH PROFESSIONAL BUILDING #2<\/p>\n
\n MARSHALL
\n DOLLARS
\n
\nSite Preparation $ 47,314
\nFoundation $ 291,754
\nFrame $ 1,186,759
\nExterior Walls $ 431,541
\nFloors $ 749,783
\nRoof $ 218,536
\nRoof Cover $ 119,152
\nPart. & Blt. in $ 2,172,800
\nCeilings $ 592,009
\nFloor Coverings $ 835,173
\nPlumbing $ 994,816
\nHVAC $ 1,372,122
\nElectrical $ 1,509,224
\nOther Features $ 613,508
\n ———–
\nTotal Building Costs $11,134,491
\nSite Improvement Costs $ 121,330
\n ———–
\nTotal Cost $11,255,821<\/p>\nArchitect’s Fees Plans and Specs. (Of Building Costs) 3.00% $ 334,035
\nArchitect’s Fees, Supervision (Of Building Costs) 1.50% $ 167,017
\nEntrepreneural Overhead, Profit, 10.00%
\n and Other Miscellaneous Fees (Of Total Costs) $ 1,125,582
\n ———–
\nTotal Other Costs $ 1,626,634 <\/p>\n
Total Project Cost $12,882,455<\/p>\n
Accrued Depreciation:
\n Building Costs 6.0% (3\/50 YEARS) $668,069 <\/p>\n
Site Costs 15.0% (3\/20 Years) $18,200 <\/p>\n
Enterpreneural Profit 6.1% (Blended Rate) $68,627
\n ———-
\n Total Physical Depreciation $754,896 <\/p>\n
Total Functional & Economic Obsolescence $0
\n ———
\nLess Total Depreciation (All Forms) $ (754,896)
\n ———–
\nDepreciated Building & Site Improvement Costs $12,127,559<\/p>\n
Plus Land Value $ 1,850,000
\n ———–
\nDEPRECIATED COST APPROACH VALUE $13,977,559<\/p>\n
ROUNDED: $13,980,000
\n =========== <\/p>\n
<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-36-
\n 49
\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 seven professional office building
\nsales which 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
-37-
\n 50
\nIMPROVED SALE NUMBER 1<\/p>\n
GENERAL SALE DATA <\/p>\n
Location: 1770 Independence Court, Homewood,
\n Jefferson County, Alabama
\nDate of Sale: March 9, 1993
\nDeed Book\/Page: 4223\/115
\nGrantor: Brookwood Medical & Dental Group
\nGrantee: Proxy Land Development Corporation
\nSale Price: $850,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 92,200 square feet
\nBuilding Size: 7,808 square feet – gross
\n 6,928 square feet – leasable
\nYear Built: 1984
\nOccupancy at Sale: 100%<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $100,456 $14.50
\nVacancy Allowance @ 5%: $ 5,023 $ 0.73
\n ——– ——
\nEffective Gross Income: $ 95,433 $13.77
\nEstimated Expenses @ $4.00: $ 27,712 $ 4.00
\n ——- ——
\nNet Operating Income: $ 67,721 $ 9.77<\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 122.69
\nStabilized Overall Rate: 8.0%
\nEGIM: 8.91<\/p>\n
COMMENTS<\/p>\n
The Grantor was an affiliate of HealthSouth Medical Center. The hospital paid
\nmore than market value for the building, so the Grantee\/physician would move
\nhis surgical practice to the HealthSouth Medical Center. The location and
\nbuilding quality for this comparable are very inferior to the subject property.<\/p>\n
-38-
\n 51
\nIMPROVED SALE NUMBER 2<\/p>\n
GENERAL SALE DATA <\/p>\n
Location: West side of 20th Street South at the
\n address 908 20th Street South in
\n Birmingham, Alabama
\nDate of Sale: December 20, 1991
\nDeed Book\/Page: 4166\/170
\nGrantor: The Byrd Company, Inc.
\nGrantee: Board of Trustees of the University of
\n Alabama
\nSale Price: $3,750,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 82,460 square feet
\nBuilding Size: 52,440 square feet – gross
\n 44,574 square feet – leasable
\nYear Built: 1964<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $624,036 $14.00
\nVacancy Allowance @ 10%: $ 62,404 $ 1.40
\n ——- —–
\nEffective Gross Income: $561,632 $12.60
\nEstimated Expenses @ $6.00\/SF $222,870 $ 5.00
\n ——– —–
\nNet Operating Income: $338,762 $ 7.60 <\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 84.13
\nStabilized Overall Rate: 9.0%
\nEGIM: 6.68<\/p>\n
COMMENTS<\/p>\n
This three-story building was purchased by the UAB Medical Center. A Medical
\nGenetics Center now occupies the facility. The current land value near the UAB
\ncampus is estimated at 40% to 45% of the total purchase price.<\/p>\n
-39-
\n 52
\nIMPROVED SALE NUMBER 3<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: 1260 Upper Hembree Road in
\n Roswell, Fulton County, Georgia
\nDate of Sale: November 20, 1991
\nDeed Book\/Page: 14752\/1-8
\nGrantor: Upper Hembree Associates II, Ltd.
\nGrantee: Medical Plaza, Inc.
\nSale Price: $4,525,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 1.65 acres (approximate)
\nBuilding Size: 32,500 square feet
\nYear Built: 1991
\nOccupancy at Sale: 100%<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income*: $671,125 $20.65
\nVacancy Allowance @ 5%: $ 33,556 $ 1.03
\n ——- —–
\nEffective Gross Income: $637,569 $19.62
\nEstimated Expenses @ $6.00\/SF $178,750 $ 5.50
\n ——– —–
\nNet Operating Income: $458,819 $14.12 <\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 139.23
\nStabilized Overall Rate: 10.1%
\nEGIM: 7.10<\/p>\n
COMMENTS<\/p>\n
This property included three buildings containing 12,400 SF, 12,000 SF and
\n8,100 SF. The first two buildings were leased to North Fulton Hospital for
\nseven years. The first 12,400 SF was leased for $16.00\/SF net, and the other
\n12,000 SF was leased for $16.25\/SF net. The tenants were responsible for all
\ncosts but structural maintenance and management.<\/p>\n
* The rents were adjusted upward $4.50\/SF for gross comparison.<\/p>\n
-40-
\n 53
\nIMPROVED SALE NUMBER 4<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: 2519 Galiano Street, Miami, Dade
\n County, Florida
\nDate of Sale: December 29, 1992
\nDeed Book\/Page: 15762\/4643
\nGrantor: American Equeties No. 2, Inc.
\nGrantee: CAC Properties, Inc.
\nSale Price: $12,521,000
\nTerms of Sale: Third-party financing had no impact on the
\n purchase price<\/p>\n
PROPERTY DATA <\/p>\n
Parcel Number: 03-4117-005-1340 & 1330
\nBuilding Size: 139,500 square feet
\nYear Built: 1986<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $2,511,000 $18.00
\nVacancy Allowance: $ 376,650 $ 2.70
\n ———- ——
\nEffective Gross Income: $2,134,350 $15.30
\nEstimated Expenses @ $6.00\/SF: $ 837,000 $ 6.00
\n ———- ——
\nNet Operating Income: $1,297,350 $ 9.30<\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 89.76
\nStabilized Overall Rate: 10.4%
\nEGIM: 5.87<\/p>\n
COMMENTS<\/p>\n
This building has six stories of office space over seven stories of parking
\ndeck. The building was purchased by the primary tenant in the building. This
\nbuilding is not adjacent to a hospital. Sun Bank has bank space in the bottom
\nfloor of the building.<\/p>\n
-41-
\n 54
\nIMPROVED SALE NUMBER 5<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: 5 West Sample Road in Pompano
\n Beach, Broward County, Florida
\nDate of Sale: July 5, 1991
\nDeed Book\/Page: 18536\/769
\nGrantor: Robert T. Held, Sr.
\nGrantee: William J. Rand, et al
\nSale Price: $3,150,000
\nTerms of Sale: Third-party conventional financing had no
\n impact on price.
\nPROPERTY DATA <\/p>\n
Land Size: 15,000 square feet
\nBuilding Size: 27,500 square feet – gross
\n 25,000 SF estimated leasable
\nYear Built: 1991
\nOccupancy at Sale: Build-to-suit for Rand Eye Institute<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $450,000 $18.00
\nVacancy Allowance @ 5%: $ 22,500 $ 0.90
\n ——- —–
\nEffective Gross Income: $427,500 $17.10<\/p>\n
Estimated Expenses @ $5.00: $125,000 $ 5.00
\n ——– —–
\nNet Operating Income: $302,500 $12.10<\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 126.00
\nStabilized Overall Rate: 9.6%
\nEGIM: 7.37<\/p>\n
COMMENTS<\/p>\n
This is a three-story, Class B, reflective glass and concrete building is
\nlocated in the northeast quadrant of the intersection of I-95 and Samples Road
\nnear the campus of the North Broward Medical Center.<\/p>\n
-42-
\n 55
\nIMPROVED SALE NUMBER 6<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: 9750 N.W. 33rd Street in Coral
\n Springs, Broward County, Florida
\nDate of Sale: September 19, 1991
\nDeed Book\/Page: 18762\/194
\nGrantor: Central Medical Plaza Associates, Inc.
\nGrantee: Gary V. Caplan, Trustee
\nSale Price: $4,790,200
\nAdjusted Sale Price: $4,550,500
\nTerms of Sale: Seller provided a 75% mortgage. The
\n sale price was adjusted downward 5%
\n for cash equivalency.<\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 3.5 acres
\nBuilding Size: 48,031 square feet – gross
\n 43,500 sf leasable
\nYear Built: 1988
\nOccupancy at Sale: 95%<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $891,750 $20.50
\nVacancy Allowance @ 10%: $ 89,175 $ 2.05
\n ——- ——
\nEffective Gross Income: $802,575 $18.45 <\/p>\n
Estimated Expenses @ $6.00: $261,000 $ 6.00
\n ——- ——
\nNet Operating Income: $541,575 $12.45 <\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 104.61
\nStabilized Overall Rate: 11.9%
\nEGIM: 5.67<\/p>\n
COMMENTS<\/p>\n
This is a two-story, steel frame medical office building that was constructed
\nin 1988. It is located east if University Road and northwest of the Coral
\nSprings Medical Center. This sale occurred in the recession of 1991 when
\nconventional financing was difficult to obtain.<\/p>\n
-43-
\n 56
\nIMPROVED SALE NUMBER 7<\/p>\n
GENERAL SALE DATA<\/p>\n
Location: South side of SW 8th Street at 4950
\n SW 8th Street in Coral Gables, Dade
\n County, Florida
\nDate of Sale: January 6, 1992
\nDeed Book\/Page: 15338\/2902
\nGrantor: Abbey Health Services Inc.
\nGrantee: Kendall Health Care Group, Inc.
\nSale Price: $10,500,000
\nTerms of Sale: Third-party financing had no impact
\n on the purchase price.<\/p>\n
PROPERTY DATA <\/p>\n
Land Size: 21,250 square feet
\nBuilding Size: 37,100 square feet – leasable
\nYear Built: 1985<\/p>\n
STABILIZED OPERATING DATA
\n Dollars Per SF
\n ——- ——
\nEstimated Gross Income: $593,600 $16.00<\/p>\n
Vacancy Allowance @ 10%: $ 59,360 $ 1.60
\n ——– ——
\nEffective Gross Income: $534,240 $14.40<\/p>\n
Estimated Expenses @ $5.00\/SF $185,500 $ 5.00
\n ——– ——
\nNet Operating Income: $348,740 $ 9.40<\/p>\n
MARKET VALUE INDICATORS <\/p>\n
Sale Price Per Square Foot: $ 94.34
\nStabilized Overall Rate: 9.9%
\nEGIM: 5.90<\/p>\n
COMMENTS<\/p>\n
This building has two stories of office space above a covered, open-air parking
\nlot. This location is near the Vencor Hospital. The building was reported to
\nbe 100% occupied at the time of sale.<\/p>\n
-44-
\n 57
\nThese seven sales are summarized as follows:<\/p>\n
SUMMARY OF IMPROVED SALES<\/p>\n
\n\nSALE RENTABLE PRICE PER
\n NO. ADDRESS (SQUARE FEET) SALE PRICE SQUARE FOOT <\/p>\n
\n 1 Independence Court 6,928 $ 850,000 $122.69
\n Birmingham, Alabama
\n 2 20th Street South 44,574 $ 3,750,000 $ 84.13
\n Birmingham, Alabama
\n 3 1260 Upper Hembree 32,500 $ 4,525,000 $139.23
\n Roswell, Georgia
\n 4 2519 Galiano Street 139,500 $12,521,000 $ 89.76
\n Miami, Florida
\n 5 5 West Sample Road 25,000 $ 3,150,000 $126.00
\n Pompano Beach, Florida
\n 6 9750 N.W. 33rd Street 43,500 $ 4,670,200 $107.60
\n Coral Springs, Florida
\n 7 4950 SW 8th Street 37,100 $ 10,500,000 $ 94.34
\n Coral Springs, Florida
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nThe unadjusted prices of these comparables range from $89.76 per square foot to
\n$153.33 per square foot. Each of the comparables will be discussed and
\nadjusted for comparisons with the subject property. An Improved Sales
\nAdjustment Grid is shown at the end of this section.<\/p>\n
IMPROVED SALE 1 is a Class C professional office building that is located near
\nthe Brookwood Medical Center. An affiliate of HealthSouth Medical Center
\npurchased this building to entice its physician\/owner to move his practice to
\ntheir facility. This transaction was reportedly at a market value price.
\nHowever, a downward adjustment is still indicated because the building was not
\nmarketed as a vacant building due to this relationship. A downward adjustment
\nto the price per square foot is indicated because of the smaller size of this
\ncomparable. The building is located at the end of a steep winding road, and
\nhas poor visibility. An upward adjustment is indicated due to this inferior
\nlocation compared to the subject. Large upward adjustments to this comparable
\nare also indicated because of the subject’s superior construction quality and
\nbecause the<\/p>\n
-45-
\n 58
\nsubject building is newer than this comparable. The adjusted price per square
\nfoot of this comparable is $130.36.<\/p>\n
IMPROVED SALE 2 is the sale of a building purchased by UAB to use as a Medical
\nGenetics Center. Upward adjustments are indicated because of the subject’s
\nsuperior location and quality, and because of the older age of this comparable.
\nAn upward adjustment is indicated because this sale occurred during the
\nrecession in 1991 when property values were declining and financing restricted.
\nThe adjusted price for this comparable is $123.67 per square foot.<\/p>\n
IMPROVED SALE 3 was the sale of a three-building professional office facility
\nthat is located approximately one-quarter-mile from the North Fulton Medical
\nCenter in Roswell, Georgia. A downward adjustment is indicated because 80
\npercent of this facility was net leased to the hospital. A downward adjustment
\nis also indicated due to the smaller size of this comparable. Upward
\nadjustments are indicated for location and quality of improvements. The
\nadjusted price per square foot of this comparable is $153.15.<\/p>\n
IMPROVED SALE 4 was the December 1992 sale of a 139,500 square foot
\nprofessional office building located in Miami, Florida. The sale was to the
\nmain tenant in the building, a healthcare plan operated by Ramsay. An upward
\nadjustment is indicated because this tenant has such a large economic impact on
\nthe property, and because the sellers were reportedly very motivated to sell.
\nAn upward adjustment to the price per foot of this comparable is indicated
\nbecause the building is larger than the subject property. A further upward
\nadjustment is indicated because the subject building is adjacent to a hospital
\nand this comparable facility is not near a hospital. The adjusted price per
\nsquare foot of this comparable is $123.87.<\/p>\n
IMPROVED SALE 5 is a Class B professional office building that is located in
\nPompano Beach near the North Broward Medical Center. This building was
\nconstructed for use by the Rand Eye Institute. An upward adjustment is
\nindicated because this sale occurred during the recession in 1991 when property
\nvalues declining and financing restricted. Upward adjustments are also
\nindicated for location and quality of the improvements. The adjusted price per
\nsquare foot of this comparable is $138.92.<\/p>\n
-46-
\n 59
\nIMPROVED SALE 6 was the September 1991 sale of a professional office facility
\nthat is located northwest of the Coral Springs Medical Center. The sale price
\nwas adjusted downward for cash equivalency because of seller financing. Upward
\nadjustments are indicated due to the improving property values and the economy
\nsince this sale, and because of the subject’s superior location and superior
\nquality of improvements. The adjusted price per square foot of this comparable
\nis $137.30.<\/p>\n
IMPROVED SALE 7 was January 1992 sale of a medical building located near the
\nVencor Hospital in Coral Gables, Florida. Small upward adjustments to the
\nprice per square foot of this comparable are indicated for location and size.
\nUpward adjustment are also indicated due to the older age of this comparable
\nand the subject’s superior quality of improvements. The adjusted price per
\nsquare foot of this comparable is $122.64.<\/p>\n
The adjusted prices per square foot range from $122.64 to $153.15, with an
\narithmetic adjusted price of $132.84. The adjusted price for the comparable
\nrequiring the least adjustments was $138.92 per square foot. An adjusted price
\nof $135.00 per square foot is representative of the subject property. Based on
\nthis analysis, the market value of the subject property by the Sales Comparison
\nApproach, as of February 2, 1994, the effective date of this report, is
\ncalculated as follows:<\/p>\n
81,800 SF x $135.00\/SF = $11,043,000<\/p>\n
Rounded to: $11,045,000
\n ===========<\/p>\n
-47-
\n 60<\/p>\n
I M P R O V E D S A L E A D J U S T M E N T G R I D
\n HealthSouth Professional Building #2
\n Birmingham, Alabama<\/p>\n
\n\n Improved Improved Improved Improved Improved Improved Improved
\n Subject Sale Sale Sale Sale Sale Sale Sale
\n Element #1 #2 #3 #4 #5 #6 #7
\n
\nSale Price\/SF $122.69 $84.13 $139.23 $ 89.76 $126.00 $110.12 $ 94.34 <\/p>\nProperty Rights Fee Simple Same Same Same Same Same Same Same
\n Adjustment ($5.51)
\n ———————————————————————————–
\nAdjusted Price\/SF $122.69 $84.13 $139.23 $ 89.76 $126.00 $110.12 $ 94.34 <\/p>\n
Financing Cash Cash Cash Cash Cash Seller Cash Cash
\n Adjustment
\n ———————————————————————————–
\nAdjusted Price\/SF $122.69 $84.13 $139.23 $ 89.76 $126.00 $104.61 $ 94.34<\/p>\n
Conditions of Sale Relationship None None Mjr.Teant None None None
\n Adjustment -10.0% 5.0% 15.0% 5.0% 5.0%
\n ———————————————————————————
\nAdjusted Price\/SF $104.29 $88.34 $139.23 $103.22 $132.30 $109.84 $ 94.34<\/p>\n
Market\/Time Effective
\n Adjustment Feb – 94 0% 0% 0% 0% 0% 0% 0%
\n ———————————————————————————
\nAdjusted Price\/SF $104.29 $88.34 $139.23 $103.22 $132.30 $109.84 $ 94.34 <\/p>\n
Other Adjustments
\n Location Adjustment 25% 20% 10% 5% 5% 10% 5%
\n Age\/Condition Adjustment 0% 5% 0% 5% 0% 0% 10%
\n Size Adjustment -25% 0% -5% 10% -10% 0% 5%
\n Quality Adjustment 25% 15% 10% 0% 10% 15% 10%
\n Leasing
\n Other Adjustment 0% 0% -5% 0% 0% 0% 0%<\/p>\n
Net Other Adjustments 25% 40% 10% 20% 5% 25% 30%<\/p>\n
FINAL ADJUSTED PRICE PER SF $130.36 $123.67 $153.15 $123.87 $138.92 $137.30 $122.64
\n ==================================================================================<\/p>\n
Arithmetic Mean Adjusted Price\/SF: $132.84
\n ============
\n<\/c><\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
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\n 61
\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 is one of several professional office buildings that
\nHealthSouth is selling for the purpose of establishing a real estate investment
\ntrust (REIT). HealthSouth Corporation, the seller, will provide a net rental
\nguarantee, in the form of a master lease. The REIT, as the new property owner,
\nwill receive the net rental master lease rate per square foot of rentable
\noffice area, regardless 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 HealthSouth leasing
\nflexibility for the office space. HealthSouth can lease office space to
\nvarious physicians at different rates and terms, or they can use the office
\nspace for hospital purposes.<\/p>\n
The appraisers received a draft of the form of master lease agreement, but the
\nactual master lease agreement for each property are not yet available. For the
\npurpose of our Income Approach, the gross income will be the master lease rate
\nfor each property times the rentable building area. We reserve the right to
\nmodify the Income Approach valuation if the actual master lease for each
\nproperty differs significantly from the draft lease presented to us.<\/p>\n
As discussed earlier, this report assumes that the tenant finish work on the
\ntop floor of this building will be completed prior to the prospective sale to
\nthe REIT.<\/p>\n
The master lease rate for the subject property will be $13.00 per square foot
\nof net rentable area. The gross income for the subject property is calculated
\nas follows:<\/p>\n
81,800 SF x $13.00\/SF = $1,063,400<\/p>\n
-49-
\n 62
\nThe subject appraisal assumes 100 percent of the income is guaranteed through
\nthe master lease agreement. Since the leased fee interest is being appraised,
\nthere is no deduction for vacancy or credit loss.<\/p>\n
Since 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$53,170, based on the management experience of other properties. The net
\noperating income for the property is $1,063,400 less $53,170, or $1,010,230.<\/p>\n
The estimated direct capitalization rates, or overall rates (OARs), for the
\nseven improved sale comparables presented in the Sales Comparison Approach
\nSection of this report ranged from 8.0 percent to 11.9 percent. Two of the
\ncapitalization rates in the upper end of this range represent sales that
\noccurred in 1991 when sales and financing availability were restricted. In
\nImproved Sale #4, with a high estimated capitalization rate of 10.4 percent,
\nthe buyer was the major tenant in the building, and the sale was reportedly not
\ncompletely an arms length sale. The estimated capitalization rates for the two
\nBirmingham properties were 8.0 percent and 9.0 percent. None of the comparable
\nsales were professional office buildings physically adjacent to hospitals.
\nThis decreases the risks and reflects a higher potential value for the subject
\nproperty. Based on the comparables and this discussion, a capitalization rate
\nof 8.5 percent is considered appropriate for the property.<\/p>\n
It is, therefore, 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
$1,010,230\/.085 = $11,885,059<\/p>\n
Rounded to: $11,900,000
\n ===========<\/p>\n
-50-
\n 63
\n CORRELATION AND CONCLUSION<\/p>\n
We have considered three approaches to value in order to estimate the value of
\nthe HealthSouth Professional Building #2. The values derived from the three
\napproaches are summarized as follows:<\/p>\n
Cost Approach . . . . . . . . . . . . . . . . . . . $13,980,000
\n Sales Comparison Approach . . . . . . . . . . . . . $11,045,000
\n Income Approach . . . . . . . . . . . . . . . . . . $11,900,000<\/p>\n
The Cost Approach involved a detailed analysis of the individual components of
\nthe property. These costs were estimated using reliable sources. The Cost
\nApproach provides a good indicator of the current replacement cost for new and
\nspecial purpose properties such as the subject. This approach is
\nrepresentative of the value in use as part of the hospital complex. The Cost
\nApproach, however, does not necessarily reflect the value that investors and
\nusers would be willing to pay if the property were to be sold. Overall, this
\napproach is considered only a fair indicator of value.<\/p>\n
The Sales Comparison Approach is based on the price that investors and
\nowner\/occupants have recently paid for comparable professional office
\nbuildings. The quality and quality of data available in this approach was
\nconsidered good, but several of the comparable sales differed in size from the
\nsubject and were in other geographic locations outside the Birmingham market.
\nNone of the comparable sales were professional office buildings that were
\nphysically contiguous to a hospital, which would indicate a higher value
\nbecause of lower leasing risks. The appraisers only consider this approach to
\nbe a fair indicator of value for the subject property for this reason.<\/p>\n
The Income Approach normally provides the most reliable value estimate for
\nmulti-tenant professional office buildings. The value of the property is
\nstrongly related to the expected income stream of the property. Although the
\nbuyers of professional office buildings are usually owner\/occupants, these
\nbuyers are generally aware of the property’s cash flow potential and its value
\nfrom an investor’s perspective. For this reason, the Income Approach is
\nconsidered the best indicator of value for the subject.<\/p>\n
-51-
\n 64
\nBased on this analysis, it is our opinion that the market value of the
\nHealthSouth Professional Building #2, as of February 2, 1994, subject to the
\nHealthSouth master lease, and based on the assumptions and limiting conditions
\nin this report, is the Income Approach value of:<\/p>\n
$11,900,000
\n ===========<\/p>\n
The values derived in the other approaches support the Income Approach value as
\nthe final value.<\/p>\n
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