{"id":41879,"date":"2015-09-17T11:25:58","date_gmt":"2015-09-17T16:25:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/contracts\/uncategorized\/appraisal-of-larkin-7000-building-south-miami-fl-healthsouth.html"},"modified":"2015-09-17T11:25:58","modified_gmt":"2015-09-17T16:25:58","slug":"appraisal-of-larkin-7000-building-south-miami-fl-healthsouth","status":"publish","type":"corporate_contracts","link":"https:\/\/corporate.findlaw.com\/contracts\/land\/appraisal-of-larkin-7000-building-south-miami-fl-healthsouth.html","title":{"rendered":"Appraisal of Larkin 7000 Building (South Miami, FL) – HealthSouth Corp."},"content":{"rendered":"\n AN APPRAISAL OF\n LARKIN 7000 BUILDING\n SOUTH MIAMI, FLORIDA\n 2\n\nHealthSouth Corporation\nFebruary 11, 1994\nPage Two\n\n\n\n o Buyer and seller are typically motivated;\n\n o Both parties are well informed or well advised, and acting in\n what they consider their own best interests;\n\n o A reasonable time is allowed for exposure in the open market;\n\n o Payment is made in terms of cash in U.S. dollars or in terms \n of financial arrangements comparable thereto; and\n\n o The price represents the normal consideration for the \n property sold unaffected by special or creative financing or \n sales concessions granted by anyone associated with the sale.\"\n\n [The Appraisal of Real Estate, p. 21, 10th Ed., published by The\n Appraisal Institute.]\n\n\nThe subject property includes a seven-story professional office building which\ncontains 120,981 gross square feet and 106,400 net rentable square feet\nincluding common area allocations. In addition, the subject site contains a\nsix-story parking structure connected to the office building with open\nwalkways. The subject is located on a 48,687 square foot land site. The\nbuilding is a Class B structure with glass and stucco exterior finishes The\nbuilding was originally constructed in 1973 with a total renovation of the\nstructure occurring in 1989-1990. The building is currently 77 percent\noccupied with \"move-ins\" anticipated over the next three months to fill the\nbuilding to a 89 percent occupancy level.\n\nIn arriving at the opinion expressed in this report, it is assumed that the\ntitle to the property is free and clear and held under responsible ownership.\nThe information furnished us by others is believed to be reliable, but no\nresponsibility for its accuracy is assumed. The value reported herein is based\nupon the integrity of the information provided.\n\nBased upon the procedures, assumptions and conditions outlined in this report,\nwe estimate the market value of the leased fee interest in the Larkin 7000\nBuilding, as of September 29, 1993, to be:\n\n $13,500,000\n ===========\n 3\nHealthSouth Corporation\nFebruary 11, 1994\nPage Three\n\n\n\nWe have no responsibility to update our report for events and circumstances\noccurring after the date of this report.\n\nNeither the whole, nor any part of this appraisal or any reference thereto may\nbe included in any document, statement, appraisal or circular without Valuation\nCounselors Group, Inc.'s prior written approval of the form and context in\nwhich it appears.\n\nThis appraisal report consists of the following:\n\n o This letter outlining the services performed;\n\n o Certification of the appraiser;\n\n o A Statement of Facts and Limiting Conditions;\n\n o A Summary of Salient Facts and Conclusions;\n\n o A Narrative section detailing the appraisal of the property; \n and\n\n o An Exhibit section containing supplementary data.\n\nA copy of this report and the working papers from which it was prepared will be\nkept in our files for eight years.\n\n Respectfully submitted,\n\n VALUATION COUNSELORS GROUP, INC.\n\n\n \/s\/ Patrick J. Simers\n ---------------------\n Patrick J. Simers\n Managing Director\n\n 4\n APPRAISER CERTIFICATION\n\n\nI, the undersigned, do hereby certify that to the best of my knowledge and\nbelief:\n\n The statements of fact contained in this report are true and correct.\n\n The reported analyses, opinions, and conclusions are limited only by\n the reported assumptions and limiting conditions and are our personal,\n unbiased professional analyses, opinions, and conclusions.\n\n I have no present or prospective interest in the property that is the\n subject of this report, and have no personal interest or bias with\n respect to the parties involved.\n\n My compensation is not contingent on an action or event resulting from\n the analyses, opinions, or conclusions in or the use of this report.\n\n My analyses, opinions, and conclusions were developed, and this report\n has been prepared in conformity with the requirements of the Code of\n Professional Ethics, the Appraisal Institute, American Society of\n Appraisers, and the Uniform Standards of Professional Appraisal\n Practice.\n\n The use of this report is subject to the requirements of the Appraisal\n Institute and American Society of Appraisers relating to review by its\n duly authorized representatives.\n\n I have made a personal inspection of the property that is the subject\n of this report.\n\n No one provided significant professional assistance to the person\n signing this report.\n\n\n\n\n \/s\/ Patrick J. Simers\n ---------------------\n Patrick J. Simers\n Managing Director\n 5\n STATEMENT OF FACTS AND LIMITING CONDITIONS\n\n\nValuation 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:\n\nAppraisals 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.\n\nAppraisal 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.\n\nNo 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.\n\nIt 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.\n\nIn 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 6\n STATEMENT OF FACTS AND LIMITING CONDITIONS\n\n\nNo 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.\n\nInformation 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.\n\nIt 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.\n\nNo 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.\n\nThe 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.\n\nNeither 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.\n\nUnless otherwise noted, Valuation Counselors Group, Inc. assumes that there\nwill be no changes in tax regulations.\n\nNo 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 7\n STATEMENT OF FACTS AND LIMITING CONDITIONS\n\n\nThe 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.\n\nA copy of this report and the working papers from which it was prepared will be\nkept in our files for eight years.\n 8\n SUMMARY OF SALIENT FACTS AND CONCLUSIONS\n\n\n\nGENERAL DATA\n\nEffective Date of Value: September 29, 1993 \n \nLast Date of Inspection: September 29, 1993 \n \nProperty Identification: Larkin 7000 Building \n \nProperty Location: 7000 Southwest 62nd Avenue, \n South Miami, Florida \n \nInterest Appraised: Leased Fee Estate \n \nGross Building Area: 120,981 square feet \n \nNet Rentable Area: 106,400 square feet \n \nSubject Land Size: 48,687 square feet, or \n 1.12 acres \n \nImprovements Description: Seven-story, steel frame and \n concrete structure, Class B \n professional office building \n that was constructed in 1973 \n with a total renovation in \n 1989-1990.\n \n \n Six-story concrete parking \n deck containing 124,791 square \n feet for 345 vehicles. \n \nOccupancy Percentage: 77% \n \n \nCONCLUSIONS \n\n \nCost Approach: $13,450,000 \n \nDirect Sales Comparison Approach: $10,640,000 \n \nIncome Approach: $13,500,000 \n \n \nFinal Value Estimate: $13,500,000 \n =========== \n 9\n TABLE OF CONTENTS\n\n\n\n Page\n ----\nTransmittal Letter\nAppraiser Certification\nStatement of Facts and Limiting Conditions\nSummary of Salient Facts and Conclusions\n\nINTRODUCTION 1\n Property Identification 1\n Purpose and Effective Date of the Appraisal 1\n Function of the Appraisal 1\n Scope of the Appraisal 1\n Property Rights Appraised 2\n Definition of Value 2\n History of the Property 3\n History and Nature of the Business Environment 3\n\nDESCRIPTIVE DATA 6\n Regional Analysis 6\n Neighborhood Analysis 10\n Zoning 11\n Real Estate Taxes and Assessments 11\n Site Analysis 11\n Building and Site Improvements 12\n \nHIGHEST AND BEST USE 15\n \nVALUATION SECTION 19\n Valuation Methodology 19\n Cost Approach 20\n Direct Sales Comparison Approach 30\n Income Approach 40\n \nCORRELATION AND CONCLUSION 42\n 10\n TABLE OF CONTENTS\n\n\n\n\nEXHIBIT SECTION\n\nExhibit A - Professional Qualifications\nExhibit B - Legal Description\nExhibit C - Metropolitan Area Map\nExhibit D - Neighborhood Map\nExhibit E - Tax Plat Map\nExhibit F - Land Sale Location Map\nExhibit G - Building Descriptions\nExhibit H - Land Improvements Description\nExhibit I - Subject Photographs\nExhibit J - Lease\n \n 11\n INTRODUCTION\n\nPROPERTY IDENTIFICATION\n\nThe subject of this appraisal is the Larkin 7000 Building located at 7000\nSouthwest 62nd Avenue, South Miami, Florida. The subject property includes a\nseven-story professional office building which contains 120,981 gross square\nfeet and 106,400 net rentable square feet including common area allocations.\nIn addition, the subject site contains a six-story parking structure connected\nto the office building with open walkways. The subject is located on a 48,687\nsquare foot land site. The building is a Class B structure with glass and\nstucco exterior finishes. The building was originally constructed in 1973 with\na total renovation of the structure occurring in 1989-1990. The building is\ncurrently 77 percent occupied with \"move-ins\" anticipated over the next three\nmonths to fill the building to a 89 percent occupancy level.\n\nPURPOSE AND EFFECTIVE DATE OF THE APPRAISAL\n\nThe purpose of this appraisal is to estimate the market value of the real\nproperty identified above. The effective date of valuation is September 29,\n1993, the date of our last inspection.\n\nFUNCTION OF THE APPRAISAL\n\nThe report is to be used for internal financial valuation purposes. The owners\nare considering the sale of nine professional office buildings for the purpose\nof establishing a real estate investment trust (REIT).\n\nSCOPE OF THE APPRAISAL\n\nThis 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\nfinal value conclusion considering the relevancy and quality of data presented\nin each of the approaches.\n\n\n\n\n\n -1-\n 12\nPROPERTY RIGHTS APPRAISED\n\nThe property right appraised herein is the Leased Fee Estate.\n\n\"Leased Fee Estate\" is:\n\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.\"\n\n [The Appraisal of Real Estate, p. 123, 10th Ed., published by The\n Appraisal Institute.]\n\n\nDEFINITION OF VALUE\n\nFor the purpose of this valuation, \"market value\" is defined as follows:\n\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:\n\n o Buyer and seller are typically motivated;\n\n o Both parties are well informed or well advised, and acting \n in what they consider their own best interests;\n\n o A reasonable time is allowed for exposure in the open market;\n\n o Payment is made in terms of cash in U. S. dollars or in terms\n of financial arrangements comparable thereto; and\n\n o The price represents the normal consideration for the \n property sold unaffected by special or creative financing or \n sales concessions granted by anyone associated with the sale.\"\n\n [The Appraisal of Real Estate, p. 21, 10th Ed., published by The\n Appraisal Institute.]\n\n\n\n\n\n -2-\n 13\nHISTORY OF THE PROPERTY\n\nThe subject was originally constructed in 1973 to serve the hospitals in the\nimmediate region. In November of 1988, Juana Corp. purchased the building\nfrom One Seven Thousand Place Corp. for $7,876,100. The building's occupancy\nat this time was falling and Juana Corp. mortgaged the property in order to\nmodernize and renovate the structure to be competitive with new modern\nstructures in the subject's region. During this renovation period, the\nproperty owners defaulted on the notes and the property was placed in\nreceivership under the management of the Resolution Trust Corporation. The\nproperty was subsequently purchased from HealthSouth Rehabilitation Corporation\nfor $6,500,000 in August of 1992. The overall occupancy at the time of\nHealthSouth's acquisition was under 50 percent.\n\nThe subject professional office building has reportedly not been marketed for\nsale and is not currently under an agreement of sale. No other deed transfers\nwere noted in the last three years. A title search is recommended for official\ndetermination.\n\n\nHISTORY AND NATURE OF THE BUSINESS ENVIRONMENT\n\nUnited States Economic Performance and Outlook\n\nThe value of the business enterprise value 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.\n\nAs of the valuation date, the United States economy is currently mired in a\nperiod of slow economic growth. Gross Domestic Product (GDP) increased at a\n2.1 percent annual rate during 1992 after declining (1.2%) during 1991. The\nGDP was 0.7 percent and 1.6 percent, respectively, for the first and second\nquarters of 1993, or an annualized rate of 1.1 percent.\n\n\n\n\n\n -3-\n 14\nThe 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.\n\nThe value of the business enterprise value 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.\n\nThe economic downturn has resulted in sharply lower inflation. The Consumer\nPrice Index (CPI) ended 1992 with a 3.0 percent increase compared to a 4.2\npercent increase during 1991. The CPI for 1993 is currently estimated at 3.3\npercent. The GDP Deflator, a much broader price level index, ended 1992 with a\n2.6 percent annual increase compared to a 4.0 percent increase during 1991.\nThe GDP Deflator is currently estimated at 2.5 percent for 1993.\n\nThe 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.\n\n\n INTEREST RATES AND SELECTED STATISTICS\n\n JUNE 30, 1993 JANUARY 2, 1992\n\n Federal Fund Rate 3.0% 3.9% \n 90-Day Treasury Bill Rate 3.1% 3.9% \n 30-Year Treasury Bond 6.9% 7.5% \n Aaa Bond Yield 7.4% 8.2% \n Prime Rate 6.0% 6.5% \n\n\n\n\n\n -4-\n 15\nEconomic Outlook\n\nAccording to Value Line's Quarterly Economic Review, dated June 30, 1993, the\neconomic recovery is now two years old, but shows much slower growth than\nnormal for a mature recovery. Among factors cited by Value Line for\ncontributing to the slow growth are \"high debt, stagnant personal income, low\nconsumer confidence and a troubling unemployment rate\". Value Line's Quarterly\nEconomic Review identified the following estimates for selected economic\nstatistics from 1993 to 1995.\n\n\n 1993 1994 1995\n\n Real GDP 2.7% 3.2% 3.3%\n Personal Consumption Expenditures 2.8% 2.7% 2.5%\n Federal Government Purchases (5.2%) (3.0%) (4.0%)\n 30-Year Treasury Bond Yields 7.1% 7.2% 7.2%\n Prime Rate 6.0% 6.3% 6.7%\n Consumer Price Index 3.5% 3.5% 3.6%\n \n\n\n\n\n -5-\n 16\n DESCRIPTIVE DATA\n\nREGIONAL ANALYSIS\n\nSouth Miami is located on the southwest border of Coral Gables in Dade County,\nFlorida. The area is generally known for its fine residential areas,\neducational facilities, its quality of life, and is one of the nation's leading\nlocations for multi-national corporate headquarters.\n\nTrends in population, housing, employment and income are contributing social\nand economic forces that impact property values. Each of these elements is\ndiscussed separately.\n\nPOPULATION\n\nThe Dade County region encompasses 26 municipalities with an estimated 1992\npopu-lation of 1,982,901. This figure represents a growth estimate of\napproximately 22 percent over 1980 levels. The subject facility is located in\nthe eleventh largest munici-pality in the county and presently has an estimated\npopulation of 10,459. It is antici-pated, by the year 2000, that the\npopulation will continue to expand in the county to an estimated 2,201,836 with\nindividual communities in the region sharing in this growth.\n\nThe median age of the population in the community is estimated at 35.5 with 21\npercent of the population represented at under 18 years of age and 13 percent\nof the population represented above 65 years of age. This compares to an\noverall median age of 34.2 for the county with 24 percent of the population\nrepresented at under age 18 and 14 percent of the population over the age of\n65. This would tend to indicate that the South Miami region is occupied by\nfamilies with members older than the average in the county.\n\nThe racial and ethnic distribution of members in the South Miami community is\nestimated at 66.8 percent white, 29.6 percent black, and the remaining 3.6\npercent other races. It is estimated that the hispanic community in South\nMiami is represented as 23.8 percent of the overall population. These figures\nwould tend to indicate that the South Miami community is similar in ethnic\ndiversification as computed to the Dade County region which is 72.9 percent\nwhite, 20.6 percent black, and 6.5 percent other, with the hispanic population\nrepresented at 49.2 percent.\n\n\n\n\n\n -6-\n 17\n POPULATION GROWTH BY MUNICIPALITY\n\n 1980 1992* %\n POPULATION POPULATION GROWTH\n\nDADE COUNTY 1,625,509 1,982,901 22.0\nMiami 346,865 359,973 3.8\nHialeah 145,254 195,579 34.6\nMiami Beach 96,298 93,461 -2.9\nNorth Miami 42,566 50,090 17.7\nCoral Gables 43,241 40,700 -5.9\nNorth Miami Beach 36,553 35,268 -3.5\nHomestead 20,668 27,087 31.1\nOpa-Locka 14,460 15,255 5.5\nSweetwater 8,251 14,096 70.8\nMiami Springs 12,350 13,230 7.1\nSouth Miami 10,944 10,459 -4.4\nMiami Shores 9,244 10,097 9.2\nHialeah Gardens 2,700 9,259 242.9\nKey Biscayne** - 8,897 N\/A\nFlorida City 6,174 6,067 -1.7\nWest Miami 6,076 5,712 -6.0\nNorth Bay Village 4,920 5,550 12.8\nBay Harbor Islands 4,869 4,721 -3.0\nSurfside 3,763 4,204 11.7\nBiscayne Park 3,088 3,081 -0.2\nBal Harbor 2,973 3,033 2.0\nEl Portal 2,055 2,461 19.8\nVirginia Gardens 2,098 2,199 4.8\nMedley 537 821 52.9\nGolden Beach 612 805 31.5\nIndian Creek Village 103 44 -57.3\nIslandia 12 13 8.3\nUnincorporated Dade 799,053 1,060,739 32.7\n\n* Population estimates, subject to revision. ** Key Biscayne incorporated in\nJune 1991.\n\nSOURCE: Dade County Planning Department, and Bureau of Economic Research.\n\n\n -7-\n 18\n DADE COUNTY\n POPULATION GROWTH\n 1950-2000\n YEAR POPULATION GROWTH\n\n 1950 495,100 - \n 1955 709,800 43%\n 1960 935,000 32%\n 1965 1,097,200 17%\n 1970 1,267,800 16%\n 1975 1,452,000 15%\n 1980 1,625,800 12%\n 1985 1,775,000 9%\n 1990 1,937,094 9%\n 1991* 1,961,694 1%\n 1992* 1,982,901 1%\n 1995** 2,083,555 5%\n 2000** 2,201,836 6%\n\n *Estimate of population, subject to revision\n\n **Projection of population, which is subject to annual adjustment.\n\nSOURCE: Dade County Planning Department; Bureau of Economic and Business\nResearch, and U.S. Dept. of Commerce\n\n\n -8-\n 19\nHOUSING\n\nThe growth of the region's population has helped to foster a steady residential\nmarket. The total household units have increased over the past four decades\nfrom 348,946 in 1960 to 771,288 in 1990. This represents an overall increase\nof 121.0 percent over the period and an annual compound rate of growth of 2.0\npercent. The Dade County real estate market reached its peak in 1980 with over\n50,145 residences sold. This figure has dipped and climbed over the past\ndecade, but has generally declined with 36,521 sales reported in 1992. Average\nhome prices in the region have generally increased though, indicating that the\narea has generally been built-out and that demand in the area remains strong.\nFrom 1980 through 1992 the average single-family residential home price\nincreased 58.3 percent. The average condominium residence price increased 94.2\npercent.\n\nEMPLOYMENT\n\nEmployment growth grew rapidly in the region from 1980 through 1988 when it\nappeared to hit its peak at 891,788. From 1980 through 1988 this represented\nan overall growth of 18.69 percent. In 1992 the employment in the region was\nestimated at 878,028, or a drop of 1.54 percent. This rate of employment\nappears to be stabilized and one would not anticipate further large drops in\nthis figure. The labor force in the area has continued to increase with an\noverall growth rate of 19.4 percent over the period 1980 through 1992. The\npresent labor force is estimated at 976,024. During the 1980s, the average\nannual unemployment rate ranged from a low of 5.3 percent to a high of 10.0\npercent with an overall average of 7.67 percent. The average unemployment at\nthe end of 1992 was estimated at 10.0 percent compared to 7.4 percent for the\nU.S.\n\nFrom 1980 through 1992 the diversity of the employment in the region has\ngreatly increased with 60,364 firms active in the Dade County market. This\nrepresents a 32.5 percent change over 1980 levels. The service industry is\nrepresented by the largest number of firms, with healthcare firms ranking as\nthe largest component of this sector. Wholesale and retail trade represents\nthe next largest employer in the region. The remaining sectors, which follow\nin number of companies in their respective order, include finance\/real estate,\nconstruction, manufacturing, transportation, communications, public utilities,\nand finally agriculture, forestry, and fishing.\n\n\n\n\n\n -9-\n 20\nAs of April 1993, the top five employers in the Dade County region were:\n\n Dade County Public Schools 38,310\n Metropolitan Dade County 23,000\n Federal Government 18,800\n State of Florida 14,900\n Publix Super Markets, Inc. 8,000\n\nINCOME\n\nThe per capita income in Dade County, Florida and the United States in 1990 was\n$17,823, $18,539, and $18,696, respectively.\n\nIn summary, the region of the subject property enjoyed rapid growth in the\nearly 1980s which has stabilized in the early 1990s. Its economic base is\ndiverse, which bodes well for stabilized growth patterns in the foreseeable\nfuture. The economy has recovered from Hurricane Andrew, which occurred in\n1992, and is well positioned to post economic gains.\n\n\nNEIGHBORHOOD ANALYSIS\n\nThe subject property is located in the center of South Miami approximately\nthree blocks west of the Central Business District. The immediate neighborhood\nof the subject property is characterized by healthcare development including\nthe HealthSouth Hospital adjacent to the subject and South Miami Hospital two\nblocks south of the subject.\n\nThe neighborhood boundaries include U.S. 1 which runs diagonally south and east\nof the subject property and the Palmetto Expressway which runs in a north-south\ndirection approximately two miles west of the subject. The northern boundary\nof the subject's neighborhood extends to Southwest 56th Street.\n\nThe residential neighborhoods surrounding the subject are diverse in character\nwith the residential area north of the subject generally consisting of lower\nincome families with the areas immediately west and south of the subject\nexperiencing higher income families.\n\n\n\n\n\n -10-\n 21\nThe general neighborhood of the subject can be classified as stable and\nproviding a good location for a medical office structure serving the medical\ncommunity in the immediate area of the subject.\n\n\nZONING\n\nThe subject property is zoned \"GR\" by the City of South Miami. This zoning\ndistrict generally allows for the development of commercial properties,\nincluding office, retail and institutional uses. The minimum lot size is\n10,000 square feet with a minimum of 100 feet of frontage. Setback\nrequirements include 20 feet, front; 15 feet, rear; and 15 feet for any side\ntoward a street. The height limitation is presently 30 feet, or two stories.\nA site's maximum improvement ratio is 85 percent.\n\nThe subject site's use has been \"grandfathered\" in due to its height and\nimprovement ratio. A letter of zoning compliance from the City of South Miami\nis recommended for an official determination regarding any zoning conformity\nissues.\n\n\nREAL ESTATE TAXES AND ASSESSMENTS\n\nThe subject property is situated in South Miami and is subject to the taxing\nauthority of the city and Dade County. Commercial properties in the City and\nCounty are assessed at 100 percent of tax-appraised value for tax purposes.\nThe 1993 millage rate was $28.60 per $1,000 of assessed value.\n\nThe total tax-appraised value of the subject is $5,200,000. The total City and\nCounty property taxes due in 1993 were $148,720.\n\n\nSITE ANALYSIS\n\nThe subject site is an L-shaped parcel which fronts 220 lineal feet on the west\nside of Southwest 62nd Avenue and 114 lineal feet on the south side of\nSouthwest 70th Street. The subject site's southern border extends 295 heading\nin a westerly direction from Southwest 62nd Avenue. The rear section of the\nsite contains 130 lineal feet and\n\n\n\n\n\n -11-\n 22\nborders a single-family residential home to its rear. The subject site\ncontains 48,687 square feet.\n\nThe topography of the site is level and at street grade throughout. The\neastern half of the site along Southwest 62nd Avenue is improved with the\noffice structure with the western or rear portion of the site improved with the\nparking deck. The subject site enjoys good visibility and frontage along\nSouthwest 62nd Avenue. The subject site is accessed from the southern\nright-of-way of Southwest 70th Street. Vehicles exit through a drive-through\non the first floor of the building which exits on the east side of Southwest\n62nd Avenue.\n\nUtilities serving the site include water, sewer, telephone, gas and\nelectricity. Police services and fire protection are located in the\nneighborhood.\n\nOther site improvements consists of general landscaping, asphalt paving,\nconcrete paving and curbing, some trees and general signage.\n\nWe 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.\n\nTo our knowledge, no environmental study has been conducted on the subject\nsite. As appraisers, we are not qualified to detect hazardous materials.\nConsequently, our report assumes that there are no environmentally hazardous\nmaterials in the site or building that would adversely affect the subject\nproperty's value.\n\n\nBUILDING AND SITE IMPROVEMENTS\n\nBuilding\n\nThe Larkin 7000 Building was originally constructed in 1973 with a total\nrenovation in 1989-1990. The building contains 120,981 gross square feet and\n106,400 net rentable square feet. The building, during our site visit, was 77\npercent occupied.\n\nThe building is a seven-story, reinforced concrete Class B office structure.\nThe exterior walls of the structure include glass panels and styrofoam stucco\nnon-load bearing panels.\n\n\n\n\n\n -12-\n 23\nThe first floor of the structure is concrete with a portion of the first floor\nopen to allow for a vehicle exit. Upper floors including the roof are concrete\npanels supported on metal framing. There is mechanical penthouse on the roof\nof the structure which houses the elevator mechanicals and the chilling units.\n\nInterior finishes in the building are generally excellent quality accommodating\nphysician suites which range in size from 1,000 to 11,600 square feet. Ceiling\nfinishes throughout the structure include drop down acoustical panels except\nfor the main entrance which included reflective panels. Physician suites\ngenerally contain high grade carpeting in patient waiting areas with vinyl tile\nfound in examination areas. The first floor entrance contains marble floor\nfinishes. The physician suites include multiple plumbing tie-ins to\naccommodate aluminum basins, and private bath areas. Wall finishes primarily\nconsist of vinyl wall coverings with some areas painted. On each floor of the\nbuilding a woman's and men's public restroom is provided.\n\nThe building is cooled by a central chiller system. During our site inspection\nthe building was replacing its original chiller with two new 175-ton chillers.\nThe building's electric is provided in metal conduit and serves fluorescent and\nincandescent lighting. The building has a pass key security system and\nemergency power generator. The building is served by three elevators.\n\nAdjacent to the office building and connected through open walkways is a\nsix-story concrete parking structure. The parking deck contains 124,791 square\nfeet including the walkways and houses spaces for 345 vehicles. The parking\ngarage does not contain an elevator and contains minimum lighting. The parking\ngarage has metal screens on three sides with concrete panels and dryvit on its\nnorth face.\n\n\nSite Improvements\n\nSite improvements include concrete walkways which surround the structure and\nconcrete drives to the parking and exit areas.\n\nMore detail descriptions of the building and site improvement are included in\nthe Exhibit section of this report.\n\n\n\n\n\n -13-\n 24\nCONDITION OF IMPROVEMENTS AND OBSOLESCENCE\n\nThe building is in good overall condition. It appears to have been adequately\nmaintained. No significant deferred maintenance was indicated from the\nappraiser's inspection of the property. There does not appear to be any\nfunctional or economic obsolescence.\n\n\n\n\n\n -14-\n 25\n HIGHEST AND BEST USE\n\n\nThe Appraisal Institute defines \"highest and best use\" as follows:\n\n \"The reasonably probable and legal use of vacant land or an improved\n property, which is physically possible, appropriately supported,\n financially feasible, and that results in the highest value\"\n\n [The Appraisal of Real Estate, p. 45, 10th Ed. published by The\n Appraisal Institute.]\n\nThe four categories of highest and best use analysis are:\n\n 1. Physically Possible - Uses which are physically possible for the\n site and improvements being analyzed.\n\n 2. Legally Permissible - Uses permitted by zoning and deed \n restrictions applicable to the site and improvements being \n analyzed.\n\n 3. Financially Feasible - This step identifies if the physically \n possible and legally permitted alternatives produce a net income \n equal to or greater than the amount needed to satisfy operating\n expenses.\n\n 4. Maximally Productive - This step clarifies which of the \n financially feasible alternatives provides the highest value \n consistent with the rate of return warranted by the market for a \n particular use.\n\nThere 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.\n\n\n\n\n\n -15-\n 26\nAs Vacant\n\nThe 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.\n\n\nPHYSICALLY POSSIBLE\n\nThe 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.\n\n\nLEGALLY PERMISSIBLE\n\nAs stated earlier in the Zoning section of this report, the property is\ncurrently zoned \"GR\" Commercial Retail. Permitted uses in this general zoning\ncategory vary widely. Potential legal uses would include most retail and\nrestaurants, office\/institutional uses, and hotels.\n\nSurrounding uses include the hospital, other professional office uses, some\napartments and some old single-family residential properties. These use\npatterns would likely preclude industrial or future single-family development\non the site.\n\n\nFINANCIALLY FEASIBLE\n\nHaving established that the site is physically suited for and legally\nrestricted to retail\/office development, the next consideration is economic\nfeasibility. Financially feasible uses for the site, if vacant, are those uses\nthat would generate an economic return to the land. New hospital related\ndevelopment on the north and east sides of the building indicate that new\ndevelopment is financially feasible. HealthSouth Medical Center is planning an\nadditional office building across the street.\n\n\n\n\n\n -16-\n 27\nMAXIMALLY PRODUCTIVE\n\nThe maximally productive use is a financially feasible use that would produce\nthe greatest land value. Office\/retail use is physically possible and legally\npermissible, and new development is financially feasible. Based on this\nanalysis, the current highest and best use of the land, if vacant, would be for\noffice\/institutional development.\n\n\nAs Improved\n\nThe subject site is currently improved with a 106,400 rentable square foot\noffice building, with an adjacent parking deck and associated site\nimprovements. The purpose of this discussion is to determine whether to leave\nthe improvements as they are, to modify the improvements or to remove the\nimprovements.\n\n\nPHYSICALLY POSSIBLE\n\nIt would obviously be physically possible to leave the improvements as they\nare, to demolish the existing improvements and replace them with new\nimprovements, or to make minor repairs to the deferred maintenance items on the\nproperty. The improvements are considered functional.\n\n\nLEGALLY PERMISSIBLE\n\nThe improvements, as improved, are a legal non-conforming use according to the\nCity of South Miami, zoning guidelines. Under the zoning, the property could\nremain as it is, be torn down or renovated.\n\n\nFINANCIALLY FEASIBLE\n\nThe highest and best use of the land, if vacant, was to develop with an\noffice\/institutional use based on the adjacent hospital's growth needs. Of the\nphysically possible and legally permissible changes that could be made to the\nexisting facility, demolishing the building would significantly reduce the\ncurrent asset value, and would\n\n\n\n\n\n -17-\n 28\nnot be financially feasible. It would, however, be financially feasible to\ncorrect any deferred maintenance. Due to present height limitations and\nbuild-out ratios, the building's present configuration represents an economic\nadvantage to the property.\n\n\nMAXIMALLY PRODUCTIVE\n\nThe maximally productive use for the existing property is the financially\nfeasible use that produces the greatest property value. The only financially\nfeasible use is to correct any deferred maintenance that currently exists.\nThis will enable to the property to remain competitive in the leasing market.\nThe highest and best use, as improved, is to not make any major changes to the\ncurrent asset use. The improvements represent the current highest and best use\nof the property.\n\n\n\n\n\n -18-\n 29\n VALUATION SECTION\n\n\nVALUATION METHODOLOGY\n\nThere are three principal methods to estimate the market value of the assets of\nthe subject property. These are summarized as follows:\n\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.\n\n DIRECT SALES COMPARISON APPROACH: The principle of substitution also\n says that market value can be estimated as the cost of acquiring an\n equally desirable substitute property, assuming no costly delay in\n making the substitution. This method analyses the sales of other\n comparable improved properties. Since two properties are rarely\n identical, the necessary adjustments for differences in quality,\n location, size, services and market appeal are a function of appraisal\n experience and judgment.\n\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.\n\nConsideration 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.\n\n\n\n\n\n -19-\n 30\n COST APPROACH\n\n\nIn 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.\n\nThe cost analysis involves three basic steps:\n\n o Land value estimate.\n\n o Estimated replacement cost of the improvements.\n\n o Estimation of the accrued depreciation from all causes.\n\nThe 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.\n\n\nLand Valuation\n\nLand valuation, assuming the site is vacant, is based upon the following steps:\n\n o A comparison with recent sales and\/or asking prices for \n similar land.\n\n o Interviews with reliable real estate brokers and other \n informed sources who are familiar with local real estate\n activity.\n\n o Our experience in estimating land values.\n\nThe 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.\n\n\n\n\n\n -20-\n 31\nLand Comparable Number 1\n\n\nFolio Number: 09-4025-028-1970, 1980, 1990, 2020, 2030, 2040,\n and 2041 \n \nLocation: 5965 SW 70th Street \n \nSize: 65,550 square feet \n \nSale Date: May 1991 \n \nDeed Book\/Page: 15020-0214 \n \nGrantor: Francisco Montana and W. Rosario \n \nGrantee: Mauricio Montana \n \nSale Price: $1,100,000 \n \nPrice Per Square Foot: $16.78 \n \nTerms of Sale: All Cash \n \nShape: Rectangular \n \nZoning: South Miami Commercial \n \nUtilities: All utilities are available \n \nComments: Property is two blocks east of subject and\n is presently improved with a five-story \n parking garage.\n\n\n\n\n\n -21-\n 32\nLand Comparable Number 2\n\n\nFolio Number: 09-4025-028-1940, 1960\n\nLocation: 6920 SW 59th Avenue\n\nSize: 9,450 square feet\n\nSale Date: April 29, 1993\n\nDeed Book\/Page: 15795-3698\n\nGrantor: Imperial Bank\n\nGrantee: A. Building, Inc.\n\nSale Price: $140,000\n\nPrice Per Square Foot: $14.81\n\nTerms of Sale: All Cash\n\nShape: Rectangular\n\nUtilities: All utilities are available.\n\nComments: This parcel is presently vacant.\n\n\n\n\n\n -22-\n 33\nLand Comparable Number 3\n\n\nFolio Number: 03-4120-017-1580 \n \nLocation: Northeast corner of San Lorenzo and LeJeune\n Road, 4251 LeJeune Road \n \nSize: 21,805 square feet \n \nSale Date: February 1993 \n \nDeed Book\/Page: 15822-3213 \n \nGrantor: Commerce Bank \n \nGrantee: Goldcoast Partners Properties Co. \n \nSale Price: $650,000 \n \nPrice Per Square Foot: $29.80 \n \nTerms of Sale: All Cash \n \nShape: Rectangular \n \nZoning: Coral Gables Commercial \n \nUtilities: All utilities are available. \n \nComments: This parcel is presently being improved \n with an office building. \n\n\n\n\n\n -23-\n 34\nA summary of the land sales is shown as follows:\n\n\n SUMMARY OF LAND COMPARABLES\n\n LAND SALE SIZE PRICE\n COMP LOCATION DATE (SF) PER SF\n\n 1 5965 SW 70th Street 05\/91 65,550 $16.78\n 2 6920 SW 59th Avenue 04\/93 9,450 $14.81\n 3 4251 LeJeune Road 02\/93 21,805 $29.80\n SUBJECT 7000 SW 62ND AVENUE 46,687\n\n\nDiscussion of Land Comparables\n\nLAND COMPARABLE 1 is approximately two blocks east of the subject in a very\ncomparable neighborhood to the subject. This sale has been adjusted slightly\nupward due to the age of the sale. All factors for location, utility,\ntopography appear to be equal and no adjustment for these occurrences appeared\nwarranted. A slight upward adjustment is warranted for parcel size due to the\ncomparable's larger size. The adjustments are shown on a Land Sale Adjustment\nGrid at the end of this discussion. The adjusted price per square foot of this\ncomparable is $18.50 per square foot.\n\nLAND COMPARABLE 2 is approximately one block east of the subject in a very\ncomparable neighborhood to the subject. No time adjustments to this sale were\nmade. All factors for location, utility, topography appear to be equal and no\nadjustment for these occurrences appeared warranted. A slight downward\nadjustment is warranted for parcel size due to the comparable's smaller size.\nThe adjustments are shown on a Land Sale Adjustment Grid at the end of this\ndiscussion. The adjusted price per square foot of this comparable is $14.07\nper square foot.\n\nLAND COMPARABLE 3 is a similar size parcel located on a heavily travelled\nthoroughfare approximately one mile east of the subject property. No time\nadjustment was made to this sale. A significant downward adjustment to this\nsale was made for location. The adjusted price for this comparable is $17.88\nper square foot.\n\n\n\n\n\n -24-\n 35\n<\/pre>\n
\n\n Subject Land Comp Land Comp Land Comp
\n
\n Element #1 #2 #3<\/p>\n Sale Price\/SF $16.78 $14.81 $29.80<\/p>\n
Property Rights Fee Simple Same Same Same
\n Adjustment
\n —————————————————–
\n Adjusted Price\/SF $16.78 $14.81 $29.80<\/p>\n
Financing Cash Cash Cash Cash
\n Adjustment
\n —————————————————–
\n Adjusted Price\/SF $16.78 $14.81 $29.80<\/p>\n
Conditions of Sale None None None
\n Adjustment
\n —————————————————–
\n Adjusted Price\/SF $16.78 $14.81 $29.80<\/p>\n
Market\/Time 5% 0% 0%
\n Adjustment
\n —————————————————–
\n Adjusted Price\/SF $17.62 $14.81 $29.80<\/p>\n
Other Adjustments:
\n Location Adjustment 0% 0% -40%
\n Topography Adjustment 0% 0% 0%
\n Size Adjustment 5% -5% 0%
\n Zoning Adjustment 0% 0% 0%
\n Net Other Adjustments 5% -5% -40%<\/p>\n
FINAL ADJUSTED PRICE PER SF $18.50 $14.07 $17.88<\/p>\n
=====================================================
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-25-
\n 36
\nThe adjusted land prices range from $14.07 per square foot to $18.50 per square
\nfoot, with the prices of sales number one and two being the most representative
\nof the subject parcel. Based on our analysis of the subject versus these
\ncomparables, it is our opinion that a land price of $15.00 per square is
\nrepresentative of the subject site. The subject land value is estimated as
\nfollows:<\/p>\n
48,687 SF x $15.00\/SF = $730,385<\/p>\n
Rounded to: $730,000
\n ========<\/p>\n
Building 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. The total project replacement costs for the subject office and
\nparking garage is estimated to be $18,908,721.<\/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
-26-
\n 37
\n External (or Economic) Obsolescence: The loss in value caused by
\n forces outside the property itself. It can take many forms such as
\n excessive noise levels, traffic congestion, abnormally high crime
\n rates, or any other factors which affect a property’s ability to
\n produce an economic income, thereby causing a decline in desirability.
\n Other forms of economic obsolescence may include governmental
\n restrictions, excessive taxes, or economic trends.<\/p>\n
Economic Life: The economic life of a good quality medical office
\n buildings is typically 40 to 50 years. For the subject Class B
\n building, we have assumed an economic life of 45 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
Marshall Valuation Services, Inc., and the actual experience of other buildings
\nin the market, were use to estimate the overall economic life of the
\nimprovements. The assignment of economic lives assumed that, except for the
\nbuilding shell and foundation, building components would be replaced
\nperiodically over the life of the building.<\/p>\n
Physical Depreciation<\/p>\n
The amount of physical depreciation and obsolescence in the subject building is
\njudged normal for a building of this age. Observation of the subject property
\nindicated that the structure and related component parts have been adequately
\nmaintained through a continuous maintenance service program.<\/p>\n
The subject property was originally constructed in 1973 with extensive
\nrenovations occurring in 1989 and 1990, and it is in average to good condition.
\nAfter taking into consideration all significant physical factors affecting the
\nsubject property, it is judged that the subject office building and parking
\ngarage has an effective age equal to 15 years. The remaining useful life is
\nestimated to be 30 years. This translates into a physical depreciation
\nestimate of 33 percent (15 years divided by 45 years). The amount of
\ndepreciation attributable to the property has been estimated on a straight-line
\nbasis, which is founded on the assumption that depreciation of a property
\noccurs equally throughout its economic life.<\/p>\n
-27-
\n 38
\nThe 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 15 years with an effective age of seven years and a remaining useful life of
\nfive years. Therefore, the depreciation rate attributable to the site
\nimprovements on a straight-line basis is estimated to be approximately 66
\npercent. Entrepreneurial profit and miscellaneous replacement costs are
\ndepreciated at a blended depreciate rate.<\/p>\n
The total depreciated value for the office building and parking garage is
\nestimated to be $12,668,843.<\/p>\n
Cost Approach Conclusion<\/p>\n
The schedule on the following page is a summary of the estimated replacement
\ncost by category for the subject building plus estimates of all forms of
\ndepreciation.<\/p>\n
Based on the investigation as previously defined, the market value of the
\nsubject property by the Cost Approach, as of September 29, 1993, is:<\/p>\n
$13,450,000
\n =========== <\/p>\n
-28-
\n 39
\n SUMMARY OF REPLACEMENT COSTS<\/p>\n
TOTAL RECAPITULATION: LARKIN 7000 BUILDING<\/p>\n
\n
\n Excavation and Site Preparation $ 5,495
\n Foundation 334,491
\n Frame 1,675,325
\n Exterior Walls 1,194,146
\n Floors 1,090,101
\n Roof 153,848
\n Roof Cover 48,642
\n Partitioning and Built-In Items 3,512,643
\n Ceilings 870,390
\n Floor Coverings 659,942
\n Plumbing 978,566
\n Heating, Ventilation and Air Conditioning (Net) 802,001
\n Electrical 1,770,621
\n Other Features 404,109
\n ———–
\n Total Labor, Materials, Incidentals and Profit $13,500,320
\n Architect Fees, Plans and Specifications $ 472,511
\n Architect Fees, Supervision 405,010
\n Add: Miscellaneous Fees 1,437,784
\n ———–
\n Total Replacement of Cost Medical Office Building $15,815,625
\n Parking Garage (see Exhibits) $ 3,093,096
\n ———–
\n Total Reproduction Cost Buildings $18,908,721
\n Less: Depreciation at 15\/45 (33%) (6,239,878)
\n ———–
\n Total Depreciated Value of Improvements $12,668,843
\n Total Replacement Cost of Land Improvements $100,000
\n Less: Depreciation at 10\/15 (66%) (66,000)
\n ——–
\n Total Depreciated Value of Land Improvements $ 34,000
\n Add: Value of Land as Vacant 730,000
\n ———–
\n $13,432,843<\/p>\n Rounded to: $13,450,000
\n ===========
\n<\/c><\/c><\/s><\/table>\n
-29-
\n 40
\n DIRECT SALES COMPARISON APPROACH<\/p>\n
The Direct Sales Comparison Approach is based upon the principle of
\nsubstitution; that is, when a property is replaceable in the market, its value
\ntends to be set at the cost of acquiring an equally desirable substitute
\nproperty, assuming there is no costly delay in making the substitution. Since
\ntwo properties are rarely identical, the necessary adjustments for differences
\nin quality, location, size, services and market appeal are a function of
\nappraisal experience and judgment.<\/p>\n
The Direct Sales Comparison Approach gives consideration to actual sales of
\nother similar properties with adjustments as previously stated. The sales
\nprices are analyzed in common denominators and applied to the subject property
\nin respective 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 three 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
-30-
\n 41
\nOFFICE BUILDING SALE NUMBER 1<\/p>\n
PROPERTY IDENTIFICATION<\/p>\n
Building Name: Professional Arts Center
\nAddress: 1150 NW 14th Street, Miami, Dade County,
\n Florida
\nFolio Number: 01-3135-062-0010
\nBrief Legal: All of SECOND ADDITION TO MEDICAL CENTER, PB
\n 123, Pg. 28, Public Records of Dade County,
\n Florida
\nSubmarket: Civic Center <\/p>\n
TRANSACTION DATA <\/p>\n
Date of Sale: September 1992
\nGrantor: Clifford Rosen as Trustee for the Professional
\n Arts Center Partnership
\nGrantee: University of Miami
\nInterest Conveyed: Fee Simple subject to leases
\nO.R. Book\/Page: 15666\/3436
\nNominal Sales Price: $10,850,000
\nCash Equivalent: $8,850,000
\nTerms of Sale: All Cash. The sale includes approximately 2
\n acres of excess land which was valued in a
\n recent appraisal at $2,000,000. For
\n purposes of deriving appraisal indicators, we
\n have deducted this amount from the sale price
\n to derive an estimated amount attributable to
\n the building.
\nMarketing Time: Unknown. The property had been widely
\n marketed, but was off the market for a time.
\nOccupancy at Sale: 99% <\/p>\n
PROPERTY DESCRIPTION <\/p>\n
Land Area: 69,217 square feet, or 1.589 acres
\nYear Built: 1965
\nGross Building Area: 87,442 square feet
\nRentable Area: 81,485 square feet
\nLand to Building Ratio: 0.79:1
\nNumber of Stories: Seven
\nAverage Floor Plate: 11,700 square feet
\nNumber of Elevators: Three (one serving floors 6 & 7 only)
\nParking: 238 surface spaces, or 3.5 spaces per 1,000
\n SFRA <\/p>\n
-31-
\n 42
\nOFFICE BUILDING SALE NUMBER 1 (CONTINUED)<\/p>\n
Construction Type: Average quality, architectural Class
\n “B” building. Exterior curtain walls
\n consist of plat glass in aluminum
\n frames and precast concrete panels
\n which form a non-repetitive bas-
\n relief sculpture. The site totals
\n 156,337 square feet or 3.589 acres,
\n of which approximately 2.0 acres is
\n considered to be excess.<\/p>\n
FINANCIAL DATA (BASED ON EXAMINATION OF HISTORIC NUMBERS AND PROJECTIONS IN A
\nRECENT APPRAISAL)<\/p>\n
Gross Revenues: $1,600,000 or $19.64\/SFRA
\nLess Vacancy & Loss: 30,000 or 0.37\/SFRA
\n ———- ——
\nEffective Gross Income: $1,570,000 or $19.27\/SFRA
\nLess Expenses: 645,000 or 7.92\/SFRA
\n ——— ——
\nNet Operating Income: $925,000 or $11.35\/SFRA<\/p>\n
APPRAISAL INDICATORS<\/p>\n
Price Per SFRA: $108.61
\nEffective Gross Income
\n Multiplier: 5.64
\nOverall Rate: 10.45%
\nEquity Dividend Rate: 10.45%<\/p>\n
COMMENTS<\/p>\n
This was a purchase by the University of Miami which previously occupied
\napproximately 33.5% of the building’s space. The University has a major
\ncommitment in the Civic Center area and will most likely occupy more of the
\nbuilding as leases with other parties expire.<\/p>\n
-32-
\n 43
\nOFFICE BUILDING SALE NUMBER 2<\/p>\n
\n
\nPROPERTY IDENTIFICATION<\/p>\nBuilding Name: Kingston Plaza
\nAddress: 8251 West Broward Boulevard, Broward County, Florida
\nFolio Number: Kingston Properties, 81-7B, Lots A & B
\nSubmarket: Plantation<\/p>\n
TRANSACTION DATA<\/p>\n
Date of Sale: August 1992
\nGrantor: G. Heydasch and I. Heydasch, Trs.
\nGrantee: Kingston Plaza, Inc. (Max Richards, President)
\nInterest Conveyed: Fee Simple subject to leases
\nO.R. Book\/Page: Not recorded
\nNominal Sales Price: $2,750,000
\nTerms of Sale: Assumed mortgage of $2.4 million and paid $350,000 in cash.
\nMarketing Time: This property has been on the market since 1985
\nOccupancy at Sale: 82%<\/p>\n
PROPERTY DESCRIPTION<\/p>\n
Land Area: 121,532 square feet, or 2.79 acres
\nYear Built: 1975
\nGross Building Area: 52,606 square feet
\nRentable Area: 50,449 square feet
\nLand to Building Ratio: 2.30:1
\nNumber of Stories: Five
\nAverage Floor Plate: Not available
\nNumber of Elevators: One
\nParking: Adequate surface parking
\nConstruction Type: Concrete block with stucco<\/p>\n
FINANCIAL DATA<\/p>\n
* Net Operating Income: $280,000 or $5.55\/SFRA<\/p>\n
* NOI inclusive of reserves
\n<\/c><\/s><\/table>\n
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\n 44
\nOFFICE BUILDING SALE NUMBER 2 (CONTINUED)<\/p>\n
APPRAISAL INDICATORS<\/p>\n
Price Per SFRA: $54.51
\nOverall Rate: 10.18%<\/p>\n
COMMENTS<\/p>\n
This medical office building is uniquely located adjacent to Humana Hospital.
\nIt also has good frontage along Broward Boulevard, a major east\/west
\nthoroughfare. The broker involved the sale informed that the property was due
\nfor a $300,000 to $400,000 facelift. This is the first time that the occupancy
\nlevel has dropped to the eighty percentile. Before the previous owner passed
\naway (two years ago), the property maintained an occupancy level of 100%. Of
\nthe few parties involved in the sale, two were physicians. Apparently, these
\nphysicians did not base their judgment on the net operating income generated by
\nthe property. Instead, more emphasis was placed on the property’s locational
\nadvantages. This property is currently 100% occupied by physicians connected
\nwith Humana Hospital.<\/p>\n
-34-
\n 45
\nOFFICE BUILDING SALE NUMBER 3<\/p>\n
\n
\nPROPERTY IDENTIFICATION<\/p>\nBuilding Name: Miami Medical Arts
\nAddress: 6201 S.W. 70th Street, Miami, Dade County, Florida
\nFolio Number: 09-4025-022-0260
\nBrief Legal: Lots 3-5, and East 35 feet of South 100 feet of Lot 6 and North 20 feet of East 25 feet of
\n Lot 6 and North 20 feet of East 25 feet of Lot 6 and South 30 feet of east 25 feet of Lot
\n 12 less East 10 feet of Lots 3-5 of COCOPLUM TERRACE, Plat Book 25 at Page 4, Official<\/p>\n
Records of Dade County
\nSubmarket: South Miami<\/p>\n
TRANSACTION DATA<\/p>\n
Date of Sale: October 1990
\nGrantor: Mr. Steven Raskin
\nGrantee: Mr. Donald Flitman and Mr. John E. Swift, Trustee
\nInterest Conveyed: Fee Simple subject to leases
\nO.R. Book\/Page: 14741\/2376
\nNominal Sales Price: $1,100,000
\nTerms of Sale: The buyer gave a down payment of $200,000. The previous owners gave a PMM wraparound of
\n $900,000 at 10%. This PMM is a seven-year interest only which expires at the same time
\n the first mortgage expires. Presently, the balance on the first mortgage is $250,000.
\nMarketing Time: Unknown
\nOccupancy at Sale: 100%<\/p>\n
PROPERTY DESCRIPTION<\/p>\n
Land Area: 21,000+ square feet, or 0.48 acres
\nYear Built: 1972
\nGross Building Area: 18,780 square feet
\nRentable Area: 16,250 square feet
\nLand to Building Ratio: 0.12:1
\nNumber of Stories: Five
\nAverage Floor Plate: Not available
\nNumber of Elevators: Two
\nParking: Surface parking.
\nConstruction Type: Average quality, Class “B” medical building.
\n<\/c><\/s><\/table>\n
-35-
\n 46
\nOFFICE BUILDING SALE NUMBER 3 (CONTINUED)<\/p>\n
APPRAISAL INDICATORS<\/p>\n
Price Per SFRA: $67.69
\nOverall Rate: N\/A<\/p>\n
COMMENTS<\/p>\n
This comparable is considered a distressed sale because it was the liquidation
\nof assets of a partnership. The building was developed by the partnership and
\nhad not changed hands since 1972. It has a history of stable occupancy, with
\nsome tenants leasing space since the opening. The buyer stated that his law
\nfirm intended to pay $16 per square foot for approximately 2,000 square feet.<\/p>\n
-36-
\n 47
\n SUMMARY OF IMPROVED SALES<\/p>\n
\n\n SALE RENTABLE PRICE PER
\n NUMBER NAME\/LOCATION (SQUARE FEET) SALE PRICE SQUARE FOOT
\n
\n 1 Professional Arts Center 81,485 $8,850,000 $108.61
\n Miami, Florida
\n 2 Kingston Plaza 50,449 $2,750,000 $54.51
\n Broward County, Florida
\n 3 Miami Medical Arts 16,250 $1,100,000 $67.69
\n Miami, Florida
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nThe unadjusted prices of these comparables range from $54.51 per square foot to
\n$108.61 per square foot. Each of the comparables will be discussed and
\nadjusted for comparison with the subject property. An Improved Sales
\nAdjustment Matrix is shown on the following page.<\/p>\n
SALE 1 is an average quality Class B professional office building which serves
\nan adjacent hospital. The sale was an arm’s length transaction with no
\nnon-market financing considerations. An initial adjustment to the sale was
\nmade for the excess land associated with the sale. No adjustments were deemed
\nnecessary for location, occupancy, or building condition. A slight downward
\nadjustment has been made for building size. Overall, the adjusted sales price
\nper square foot is estimated at $103.18.<\/p>\n
SALE 2 is an average quality Class C structure which serves an adjacent
\nhospital. The sale was an arm’s length transaction with financing provided at
\nmarket rates. Significant upward adjustments to this sale are warranted for
\nits inferior occupancy and building quality. A downward adjustment has been
\nmade for building size. The adjusted sales price per square foot is estimated
\nat $65.41.<\/p>\n
SALE 3 is an average quality Class B structure which serves medical and
\nprofessional tenants. The sale was initially adjusted upward for the sale’s
\ncondition, as it was considered a distressed sale. Further upward adjustments
\nwere made to account for the depressed market condition which existed in 1990.
\nNo adjustments were warranted for location or occupancy. An upward adjustment
\nhas been applied for condition. A downward adjustment has been applied for
\nsize. The adjusted price per square foot is estimated at $89.46.<\/p>\n
-37-
\n 48<\/p>\n
Improved Sale Adjustment Matrix<\/p>\n
\n
\n Sale Price\/SF $108.61 $54.51 $67.69
\n Property Right Adjustment Same Same Same<\/p>\n Adjusted Price\/SF $108.61 $54.51 $67.69<\/p>\n
Financing Adjustment Cash Equivalent Cash
\n Adjusted Price $108.61 $54.51 $67.62<\/p>\n
Conditions of Sale Arm’s Length Arm’s Length Distressed
\n Adjustment – – 20%<\/p>\n
Adjusted Price\/SF $108.61 $54.51 $81.14<\/p>\n
Market\/Time Adjustment 0.00 – 5%
\n Adjusted Price\/SF $108.61 $54.51 $85.20<\/p>\n
Other Adjustments:<\/p>\n
Location 0 0 0<\/p>\n
Occupancy 0 +15% 0
\n Construction Quality 0 +10% +10%<\/p>\n
Size -5% -5% -5%
\n — —- —-
\n Net Other Adjustments -5% 20% 5%<\/p>\n
Final Adjusted Price\/SF $103.18 $65.41 $89.46
\n<\/c><\/c><\/c><\/s><\/table>\n
-38-
\n 49
\nThe adjusted prices per square foot range from $65.41 to $103.18 with the most
\ncomparable sales at the upper end of the range. Based on this analysis, the
\nmarket value of the subject property by the Direct Sales Comparison Approach,
\nas of September 29, 1993, is calculated as follows:<\/p>\n
106,400 SF x $100.00\/SF =<\/p>\n
$10,640,000<\/p>\n
-39-
\n 50
\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 nine 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 the master lease agreement, but
\nthe actual master lease agreements for each property are not yet available.
\nFor the purpose of our Income Approach, the gross income will be the master
\nlease rate for each property times the rentable building area. We reserve the
\nright to modify the Income Approach valuation if the actual master lease for
\neach property differs significantly from the draft lease presented to us.<\/p>\n
The gross income for the subject property is calculated as follows:<\/p>\n
106,400 SF x $14.00\/SF = $1,489,600<\/p>\n
The subject appraisal assumes that 100 percent of the income is guaranteed
\nthrough the master lease agreement. Since the leased fee interest is being
\nappraised, there is no deduction for vacancy or credit loss.<\/p>\n
-40-
\n 51
\nSince the master lease provides for an income level to the REIT net of all
\noperating expenses, the only out-of-pocket expenses to the REIT will be
\naccounting, legal and internal administration or management expenses. These
\nmanagement expenses are estimated at 5.0 percent of effective gross income, or
\n$74,480, based on the management experience of other properties. The net
\noperating income for the property is $1,489,600 less $74,480, or $1,415,120.<\/p>\n
The estimated direct capitalization rates, or overall rates (OARs), for the
\nthree improved sale comparables presented in the Direct Sales Comparison
\nSection of this report are summarized as follows:<\/p>\n
\n\n Sale No. Property Location Sale Date OAR (%) <\/p>\n
\n 1 Professional Arts Center September 1992 10.45
\n Miami, Florida
\n 2 Kingston Plaza August 1992 10.18
\n Broward County, Florida
\n 3 Miami Medical Arts October 1990 N\/A
\n Miami, Florida
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nThe direct capitalization, or overall rates, for these comparables ranged from
\n10.18 percent to 10.45 percent.<\/p>\n
A capitalization rate at 10.5 percent is considered appropriate.<\/p>\n
Therefore, it is our opinion that the market value of the subject property by
\nthe Income Approach is calculated and rounded as follows:<\/p>\n
Net Operating Income\/OAR = Estimated Value<\/p>\n
$1,415,120\/.105 = $13,477,333<\/p>\n
Rounded to: $13,500,000
\n ===========<\/p>\n
-41-
\n 52
\n CORRELATION AND CONCLUSION<\/p>\n
We have considered three approaches to value in order to estimate the value of
\nthe Larkin 7000 Building. The three approaches are summarized as follows:<\/p>\n
Cost Approach . . . . . . . . . . . . . . . . . . . . . $13,450,000
\n Direct Sales Comparison Approach . . . . . . . . . . . . $10,640,000
\n Income Approach . . . . . . . . . . . . . . . . . . . . $13,500,000<\/p>\n
The Cost Approach involved a detailed analysis of the individual components of
\nthe property. These costs were estimated using sources which were considered
\nto be reliable. However, estimating the replacement cost and all forms of
\ndepreciation for an older building is unreliable. For these reasons, this
\napproach is considered only a fair indicator of value for the subject property.<\/p>\n
The Direct Sales Comparison Approach is based on the price that investors and
\nowner-occupants have recently paid for comparable professional office
\nbuildings. The quantity and quality of data available in this approach was
\nconsidered good. The appraisers only consider this approach to be a fair
\nindicator of value for the subject property.<\/p>\n
The Income Approach normally provides the most reliable value estimate for
\nprofessional office buildings such as the subject. Although many buyers of
\nprofessional office buildings are owner\/occupants, these buyers are generally
\naware of a property’s cash flow potential and its value from an investor’s
\nperspective. For this reason, the Income Approach is considered the best
\nindicator of value for the subject property.<\/p>\n
Based on this analysis, it is our opinion that the market value of the Larkin
\n7000 Building, as of September 29, 1993, and based on the assumptions and
\nlimiting conditions in this report, is:<\/p>\n
$13,500,000
\n ===========<\/p>\n
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