\nGENERAL DATA<\/p>\nEffective Date of Value: March 1, 1994<\/p>\n
Date of Report: March 1, 1994<\/p>\n
Property Identification\/ Midway Medical Plaza
\n Location: 5901 West Olympic Boulevard
\n Los Angeles, California<\/p>\n
Parking Structure
\n 5975 West Olympic Boulevard
\n Los Angeles, California<\/p>\n
Interest Appraised: Leased Fee Estate<\/p>\n
Gross Building Area: MOB – 95,040 square feet
\n Parking Structure – 199,340 square feet<\/p>\n
Net Leasable Area: MOB – 87,008 square feet<\/p>\n
Improvements Description: MOB – Five-story, concrete frame
\n structure containing approximately 95,940
\n gross square feet and 87,008 net square
\n feet built in 1985.<\/p>\n
Parking Structure – Seven-story, steel
\n frame structure containing 199,340 square
\n feet and 755 parking spaces, built in 1984.<\/p>\n
Subject Land Size: MOB Site – 25,825 SF, or 0.59 acres.
\n Parking Site – 28,224 SF, or 0.65 acres.<\/p>\n
MOB Structure Occupancy: 95.74%<\/p>\n
CONCLUSIONS<\/p>\n
Cost Approach: $19,200,000<\/p>\n
Sales Comparison Approach: $19,860,000<\/p>\n
Income Approach: $21,420,000<\/p>\n
Final Value Estimate: $21,420,000
\n ===========
\n<\/c><\/s><\/table>\n
11
\n TABLE OF CONTENTS<\/p>\n
Page
\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 2
\n Property Rights Appraised 2
\n Definition of Value 2
\n Ownership History 3
\n History and Nature of the Business Environment 3
\n Reasonable Exposure Time 6 <\/p>\n
DESCRIPTIVE DATA 7
\n Regional Description 7
\n Neighborhood Description 10
\n Zoning 11
\n Real Estate Taxes and Assessments 12
\n Site Descriptions 13
\n Buildings and Land Improvements Description 14 <\/p>\n
HIGHEST AND BEST USE 16 <\/p>\n
VALUATION SECTION 20
\n Valuation Methodology 20
\n Cost Approach 21
\n Sales Comparison Approach 34
\n Income Approach 43 <\/p>\n
CORRELATION AND CONCLUSION 45 <\/p>\n
12
\n TABLE OF CONTENTS<\/p>\n
EXHIBIT SECTION<\/p>\n
Exhibit A – Professional Qualifications
\nExhibit B – Legal Description
\nExhibit B – Metropolitan Area Map
\nExhibit C – Neighborhood Map
\nExhibit D1 – Plat Map – Medical Office Building
\nExhibit D2 – Plat Map – Parking Structure
\nExhibit E – Building Description
\nExhibit F – Land Improvements Description
\nExhibit G – Subject Photographs
\nExhibit H – Improved Sales Photographs<\/p>\n
13
\n INTRODUCTION<\/p>\n
PROPERTY IDENTIFICATION<\/p>\n
The subject property is known as the Midway Medical Plaza, which is located at
\n5901 West Olympic Boulevard in Los Angeles, California. This building is a
\nfive-story medical office structure, which is located on an 0.59-acre site.
\nThe building was constructed in 1985 and contains 95,040 gross square feet and
\n87,008 net rentable square feet. The building is presently 95.74 percent
\nleased. In addition to the medical office building, the adjacent parking
\nstructure is included in this appraisal analysis. The parking structure is a
\nseven-story structure which contains 199,340 square feet. The building was
\nconstructed in 1984 and is located at 5975 West Olympic Boulevard, Los Angeles,
\nCalifornia on an 0.65-acre site.<\/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 March 1, 1994,
\nthe 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 buyers
\nare considering the purchase of several professional office buildings for the
\npurpose of establishing a real estate investment trust (REIT). The subject
\nproperty would be included in these purchases. It is our understanding that
\nthe REIT will involve mortgage financing.<\/p>\n
-1-
\n 14<\/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
\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
-2-
\n 15<\/p>\n
o Both parties are well informed or well advised, and acting in
\n what they consider their own best interests;<\/p>\n
o A reasonable time is allowed for exposure in the open market;<\/p>\n
o Payment is made in terms of cash in U.S. dollars or in terms
\n of financial arrangements comparable thereto; and<\/p>\n
o The price represents the normal consideration for the property
\n sold unaffected by special or creative financing or sales
\n concessions granted by anyone associated with the sale.”<\/p>\n
[The Appraisal of Real Estate, p. 21, 10th Ed., published by The
\n Appraisal Institute].<\/p>\n
OWNERSHIP HISTORY<\/p>\n
The subject properties were acquired by Summit Acquisition, Inc. on April 30,
\n1980 from Midway Hospital. On the same date, Summit Acquisition, Inc.
\ntransferred the properties to Summit Properties, a California General
\nPartnership. In 1983 the properties were transferred to OrNda HealthCorp in
\nconjunction with the purchase of the entire hospital complex. A segregated
\nvalue of the assets appraised has not transpired in the past three years.<\/p>\n
HISTORY AND NATURE OF THE BUSINESS ENVIRONMENT<\/p>\n
United States Economic Performance and Outlook<\/p>\n
The value of the business enterprise is influenced by potential returns
\navailable from alternative investments. These return expectations are affected
\nby economic conditions as they impact the ability of a business enterprise to
\ngenerate a return on its invested capital. Perhaps the most important economic
\nindicator affecting potential investor returns is the aggregate demand for
\ngoods and services. Aggregate demand is measured by a country’s Gross Domestic
\nProduct (GDP), which is the sum of all domestic expenditures for consumption,
\ngovernment services, and net exports.<\/p>\n
-3-
\n 16<\/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 annual increase compared to a 4.0 percent increase during
\n1991. The GDP Deflator is currently estimated at 2.5 percent for 1993.<\/p>\n
The Federal Reserve Bank has adopted a relatively easier monetary policy as a
\nresult of the recession. Interest rates, as represented by long-term Treasury
\nbond yields, declined approximately ten basis points compared to rates existing
\na year earlier. Long-term corporate bond rates have also decreased and the
\nFederal Reserve’s discount rate reductions have prompted commercial banks to
\nlower their prime lending rate to 6.0 percent. Selected monetary statistics
\nare presented in the following table.<\/p>\n
-4-
\n 17<\/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
1993 1994 1995<\/p>\n
Real GDP 2.6% 3.3% 3.3%
\nPersonal Consumption Expenditures 3.0% 2.7% 2.3%
\nFederal Government Purchases (4.8%) (5.8%) (4.0%)
\n30-Year Treasury Bond Yields 6.6% 6.6% 6.8%
\nPrime Rate 6.0% 6.2% 6.4%
\nConsumer Price Index 3.1% 3.2% 3.3%<\/p>\n
In summary, these factors play an important part in determining the supply and
\ndemand for real property, and, indirectly, the value of properties. Most of
\nthe forces discussed<\/p>\n
-5-
\n 18<\/p>\n
above are indicating an on-going soft demand for many types of commercial real
\nestate. This soft demand has caused some property values to remain flat and
\nsome to decline. The lower interest rates in recent periods, however, are
\nserving 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
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\n 19
\n DESCRIPTIVE DATA<\/p>\n
REGIONAL DESCRIPTION<\/p>\n
GENERAL DATA<\/p>\n
This section of our report summarizes the socioeconomic characteristics of the
\nmarket area to provide a frame of reference for our subsequent analysis.<\/p>\n
The subject property is located in the mid-city section of the city and county
\nof Los Angeles, in the state of California. The mid- city section is situated
\napproximately 6.25 miles west of the downtown Los Angeles Civic Center. As a
\npoint of reference, this area is referred to as Zip Code Area 90019 in our
\nregional analysis.<\/p>\n
DEMOGRAPHIC ANALYSIS<\/p>\n
Demographic data was obtained from Urban Decision Systems for Los Angeles
\nCounty and the Zip Code Area 90019. The following table shows the demographic
\ntrends of the county and 90019 from 1980 through projected 1995.<\/p>\n
DEMOGRAPHIC TRENDS OF LOS ANGELES COUNTY AND ZIP CODE AREA 90019<\/p>\n
1980 1990 ANNUAL % ANNUAL 1995 ANNUAL %
\n CENSUS CENSUS CHANGE 80-90 (PROJECTED) CHANGE 90-95<\/p>\n
LOS ANGELES COUNTY
\nPopulation 7,477,503 8,758,093 1.6% 9,419,223 1.5%
\nHouseholds 2,730,469 2,974,734 0.9% 3,096,420 0.8%
\nHousehold Size 2.74 2.94 3.04
\nMedian Age 31.7
\nZIP CODE AREA 90019
\nPopulation 53,63 2 62,766 1.6% 67,710 0.8%
\nHouseholds 21,69 8 24,248 1.1% 25,527 1.0%
\nHousehold Size 2.4 2 2.57 2.63
\nMedian Age 33.4 <\/p>\n
-7-
\n 20<\/p>\n
In Los Angeles County, total population increased from 7,477,503 in 1980 to
\n8,758,093 in 1990, which represents an increase of 1.6 percent on an annual
\ncompounded basis. In comparison, the change in total population in Zip Code
\nArea 90019 was from 53,632 in 1980 to 62,766 in 1990. This change in
\npopulation is also 1.6 percent per year.<\/p>\n
Total number of households at both geographical levels increased at a slower
\nrate than their population counterparts. This implies an increase in the total
\nnumber of persons per household. At the county level, average household size
\nincreased from 2.74 persons to 2.94. In comparison, average household size is
\nsmaller at the city level. Between 1980 and 1990, average household size in
\nZip Code Area 90019 changed from 2.42 to 2.57 persons.<\/p>\n
Slow population growth is anticipated between 1990 and 1995. Total population
\nin Los Angeles County is projected to increase at an annual rate of 1.5
\npercent, thus indicating a total estimate of 9,419,223 by the year 1995. For
\nZip Code Area 90019, annual growth rate is expected to be the same at 1.5
\npercent per year. By 1995, total population in Zip Code Area 90019 is expected
\nto be 67,710.<\/p>\n
The current median age of residents in Zip Code Area 90019 is older than that
\nof the county, 33.4 years versus 31.7 years, respectively. The median age
\nnationwide is 33 years.<\/p>\n
ECONOMIC INDICATORS<\/p>\n
Between 1980 and 1990, median annual household income in Los Angeles County
\nincreased from $17,563 to $30,525, or 5.7 percent on an annual compounded
\nbasis. During the same period, the median annual household income in Zip Code
\nArea 90019 increased from $12,818 in 1980 to $26,140 in 1990, an annual
\ncompounded increase of 7.4 percent. Projections to 1995 for the county
\nindicate an increase of 4.0 percent on an annual compounded basis. The
\nprojected income for Zip Code Area 90019 indicates an increase to $28,860 to
\n2.0 percent per year on an annual compounded basis.<\/p>\n
21<\/p>\n
WORK FORCE, TRADE, INDUSTRY<\/p>\n
According to the State of California Employment Development Department, the
\nhighest employment demand in 1990 within Los Angeles County derived from
\nservice industries, accounting for 29 percent of the total number of persons
\nemployed. Manufacturing accounted for the second largest industry with 20
\npercent, followed by retail trade (15.3%), and government (12.5%). Between
\n1989 and 1990, services, government and FIRE (finance, insurance and real
\nestate), experienced the largest growth in employment increases.<\/p>\n
Between 1986 and 1990, the total number of unemployed and the associated
\nunemployment rates are presented below:<\/p>\n
PERCENTAGE
\nYEAR NUMBER UNEMPLOYMENT<\/p>\n
1990 255,000 5.8
\n1989 196,300 4.6
\n1988 203,000 4.9
\n1987 243,600 5.9
\n1986 204,000 6.7<\/p>\n
Since 1986, the unemployment rate has been between 4.6 percent and 6.7 percent.
\nHowever, not shown is the current employment picture in Los Angeles. The
\nrecession has caused numerous large companies such as Hughes Aircraft to layoff
\na large percentage of their work force. The unemployment rate is greater than
\nthe 1990 level of 5.8 percent.<\/p>\n
Summary<\/p>\n
It is questionable how many years it will take for the local economy to
\nstabilize and start showing some type of improvement. Major construction in
\nthe county has slowed due to lack of demand and because the lenders are not
\nmaking construction money available<\/p>\n
-9-
\n 22<\/p>\n
to the developers. It is projected that many of the aerospace companies will
\ncontinue to layoff more workers over the next year. While some parts of the
\ncountry are showing signs of revitalization, it is forecasted that California,
\nand in particular southern California, will lag behind since it was the last
\npart of the country to experience the recession.<\/p>\n
NEIGHBORHOOD DESCRIPTION<\/p>\n
The subject properties are situated on the north side of West Olympic
\nBoulevard, on the east and west side of Genesee Avenue, on the east side of
\nSpaulding Avenue, and on the west side of Ogden Drive. The subject properties
\nlie just east of the intersection of three major arteries; West Olympic and San
\nVicente Boulevards and Fairfax Avenue.<\/p>\n
Olympic Boulevard is 100 feet wide, asphalt-paved with curbs, gutters,
\nsidewalks and street lights. Improvements along Olympic Boulevard in the
\nsubject neighborhood consist of commercial structures at Fairfax Avenue and
\nOlympic Boulevard, the subject medical office building, parking structure,
\nhospital and parking lots to the east, the West Side Jewish Center and
\nmulti-family dwellings east and beyond.<\/p>\n
San Vicente Boulevard is 150 feet wide, asphalt-paved with landscaped median,
\ncurbs, gutters, sidewalks and street lights. Improvements along San Vicente
\nBoulevard in the subject neighborhood consist of commercial structures at
\nFairfax Avenue and San Vicente Boulevard, the subject hospital and parking
\nlots, small medical office buildings to the east, the West Side Jewish Center
\nand multi-family dwellings east and beyond.<\/p>\n
Ogden, Genesee, Spaulding and Alandele Avenues are minor residential roadways
\naveraging 50 feet wide, and are asphalt-paved with curbs, gutters, sidewalks
\nand street lights. These streets are improved with the subject medical office
\nbuilding, parking structure, parking lots, the SCCIS and a triplex near and at
\ntheir intersections with Olympic Boulevard. The balance of the improvements
\nalong these streets consist of single-family dwellings. Fairfax Avenue is 100
\nfeet wide, asphalt-paved with curbs, gutters, sidewalks and street lights.
\nImprovements consist of commercial structures and Westside Hospital, a 91-bed
\nacute care facility approximately two blocks from the subject properties.<\/p>\n
-10-
\n 23<\/p>\n
Conclusion<\/p>\n
The neighborhood is mature with improvements construction dating from the late
\n1920s forward. While the riots of April 1992 affected adjacent neighborhoods,
\nthe subject neighborhood was not affected and remains well maintained and in
\ngood condition. The presence of the hospital and associated properties creates
\na healthcare campus and enhances the community in which it serves. Access to
\nthe subject neighborhood from the Southern California freeway system is good
\nvia the I-10 Freeway\/Fairfax Avenue interchange, approximately two miles south
\nof the subject property.<\/p>\n
ZONING<\/p>\n
The subject sites are zoned by the city of Los Angeles as C2-1, Commercial.<\/p>\n
The following is a description of, and lot restrictions for, each of the zoning
\nregulations:<\/p>\n
C2-1 zoning allows uses such as C1.5 zone uses; department stores,
\n theaters, broadcasting studios, parking buildings, parks and
\n playgrounds and R4 uses, retail, limited manufacturing, hospitals,
\n clinics, auto services, contractors, churches and schools.<\/p>\n
Minimum Lot Size – None for commercial use<\/p>\n
Minimum Lot Width – Forty feet for commercial use<\/p>\n
Size Yards – None for commercial uses<\/p>\n
Maximum Building Height – None<\/p>\n
Parking – One space per 500 SF of building
\n area. Hospitals require two spaces
\n for each patient bed.<\/p>\n
The subject improvements are legal uses.<\/p>\n
-11-<\/p>\n
24<\/p>\n
Easements\/Encroachments\/Restrictions<\/p>\n
We are not aware of any easements, encroachments or restrictions that would
\nadversely affect the development of the subject sites.<\/p>\n
Flood Zone<\/p>\n
The subject properties are located in Community Panel No. 060137007D, February
\n4, 1987, Zone C (an area of minimal flooding).<\/p>\n
Earthquake Zone<\/p>\n
According to the California Department of Conservation, Division of Mines and
\nGeology, the subject is not located in an Alquist- Prolo Special Study zone.
\nThis indicates that there are no active fault lines at the intersection of San
\nVicente Boulevard, Olympic Boulevard and Fairfax Avenue.<\/p>\n
Legal Descriptions<\/p>\n
The legal descriptions for the subject properties are included in the Exhibit
\nSection of this report.<\/p>\n
REAL ESTATE TAXES AND ASSESSMENTS<\/p>\n
The subject properties are assessed by Los Angeles County for the 1992\/1993 tax
\nyear at 100 percent of market value. The tax rate for this area is $1.05307
\nper $100 of assessed value plus special assessments. The assessment and taxes
\napplicable to the subject properties are shown as follows:<\/p>\n
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\n 25<\/p>\n
PARCEL NO. 5086-024-025 (MEDICAL OFFICE BUILDING)<\/p>\n
Assessed Value:
\n Land $ 915,008
\n Buildings 12,207,912
\n ———–
\n Total $13,122,920<\/p>\n
Taxes: $138,193.78<\/p>\n
PARCEL NO. 5086-019-009 (PARKING STRUCTURE)<\/p>\n
Assessed Value:
\n Land $ 982,734
\n Buildings 5,696,979
\n ———–
\n Total $ 6,679,713<\/p>\n
Taxes: $ 72,062.26<\/p>\n
SITE DESCRIPTIONS<\/p>\n
For the purpose of our analyses, we have described the subject sites as
\nfollows:<\/p>\n
MEDICAL OFFICE BUILDING SITE<\/p>\n
The medical office building (MOB) site consists of one parcel containing 0.59
\nacres, or approximately 25,825 square feet. It is an irregularly-shaped site
\nwith approximately 221 frontage feet on the north side of Olympic Boulevard,
\n112 frontage feet on the west side of Spaulding Avenue and 112 frontage feet on
\nthe east side of Genesee Avenue. The frontage on Olympic Boulevard is
\ninterrupted by a 1,279 square foot, wedge-shaped site belonging to others.<\/p>\n
-13-<\/p>\n
26
\nPARKING STRUCTURE SITE<\/p>\n
This site consists of one parcel containing 0.65 acres, or approximately 28,224
\nsquare feet. The site is nearly rectangular in shape with 254 frontage feet on
\nthe north side of Olympic Boulevard, 112 frontage feet on the west side of
\nGenesee Avenue and 112 frontage feet on the east side of Ogden Avenue.<\/p>\n
Both of the sites are level at street grade. However, commencing at about
\nGenesee Avenue, the terrain ascends upward gently to the crest of a hill
\nseveral blocks to the east.<\/p>\n
All of the usual and necessary utilities are available to the subject site from
\nthe following suppliers:<\/p>\n
Electricity – Southern California Edison Company
\n Gas – Southern California Gas Company
\n Water – City of Los Angeles
\n Sewer – City of Los Angeles
\n Telephone – Pacific Bell<\/p>\n
Summary<\/p>\n
The site are well suited to their improvements. The medical office building
\nhas good street visibility from both Olympic and San Vicente Boulevards and
\nFairfax Avenue with good access to the parking structure and parking lots.<\/p>\n
BUILDINGS AND LAND IMPROVEMENTS DESCRIPTION<\/p>\n
The subject properties are comprised of the medical office building and the
\nparking structure. These improvements are described as follows:<\/p>\n
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\n 27<\/p>\n
Buildings<\/p>\n
MEDICAL OFFICE BUILDING<\/p>\n
This building is a five-story, concrete frame structure containing 95,940 gross
\nsquare feet and 87,008 net leaseable square feet. It was constructed in 1985.
\nThe building is constructed upon a reinforced concrete foundation under masonry
\nwith metal and glass panel exterior walls with a flat lightweight concrete roof
\nwith an insulated rolled cover. The interior of the building is divided into
\nthe lobby, a pharmacy and office suites. There are three five-stop elevators.
\nHeating and ventilating consists of a computerized double-duct, vari-volume
\nsystem. The building appears to be in good condition and the mechanical
\ncomponents appear to be in working order.<\/p>\n
PARKING STRUCTURE<\/p>\n
This building is a seven-story, concrete and steel frame structure containing
\n199,340 square feet. It was constructed in 1984. The building is constructed
\nupon a reinforced concrete foundation under masonry exterior walls with
\nconcrete floors. The structure has 755 parking spaces, a seven-stop elevator,
\na steel stairwell, electric gates and a kiosk. The parking structure appears
\nto be in good condition.<\/p>\n
Land Improvements<\/p>\n
Land improvements consist of a concrete patio at the front of the structure
\nwith concrete planters and benches and outdoor lighting. There is minimal
\nlandscaping with an automatic sprinkler system.<\/p>\n
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\n 28
\n HIGHEST AND BEST USE<\/p>\n
The Appraisal Institute defines “highest and best use” as follows:<\/p>\n
“The reasonably probable and legal use of vacant land or an improved
\n property, which is physically possible, appropriately supported,
\n financially feasible, and that results in the highest value”<\/p>\n
[The Appraisal of Real Estate, P. 45, 10th Ed. published by The
\n Appraisal Institute.]<\/p>\n
The four categories of highest and best use analysis are:<\/p>\n
1. Physically Possible – Uses which are physically possible for
\n the site and improvements being analyzed.<\/p>\n
2. Legally Permissible – Uses permitted by zoning and deed
\n restrictions applicable to the site and improvements being
\n analyzed.<\/p>\n
3. Financially Feasible – This step identifies if the physically
\n possible and legally permitted alternatives produce a net
\n income equal to or greater than the amount needed to satisfy
\n operating expenses.<\/p>\n
4. Maximally Productive – This step clarifies which of the
\n financially feasible alternatives provides the highest value
\n consistent with the rate of return warranted by the market for
\n a particular use.<\/p>\n
There are two types of highest and best use: THE HIGHEST AND BEST USE OF LAND
\nAS VACANT and THE HIGHEST AND BEST USE OF A PROPERTY AS IMPROVED. Both types
\nare discussed as follows using the four categories of highest and best use.<\/p>\n
-16-
\n 29<\/p>\n
As Vacant<\/p>\n
The purpose of this analysis, given the sites ares 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 sites are adequate for the development of a
\nlimited number of uses. These would include the development of residential,
\ncommercial, and office\/institutional uses. The small sizes of the parcels
\nwould preclude the development of any industrial use.<\/p>\n
LEGALLY PERMISSIBLE<\/p>\n
The subject parcels are zoned C2-1, Commercial. This zoning designation allows
\nfor the development of most commercial uses including stores, theaters, parking
\nbuildings retail use, hospitals and multi-family residential uses, etc. This
\nuse would not allow the development of industrial properties and single-family
\ndevelopment.<\/p>\n
Surrounding use patterns of the subject sites include the hospital campus,
\nWestside hospital, and small businesses such as fast food restaurants, dry
\ncleaners, florists, etc.<\/p>\n
FINANCIALLY FEASIBLE<\/p>\n
Having established that the sites are physically suited and legally permitted
\nfor the development of medical office building space and parking structure, the
\nnext consideration is economic feasibility. Financially feasible uses for the
\nsite, if vacant, are those uses that would generate an economic return to the
\nland. The subject structures serve the adjacent hospital which has served the
\ncommunity for 20 years. The surrounding uses of the subject would suggest that
\neconomically feasible uses would be related to support of the healthcare
\nbusiness community.<\/p>\n
-17-
\n 30<\/p>\n
MAXIMALLY PRODUCTIVE<\/p>\n
The maximally productive use is a financially feasible use that would produce
\nthe greatest land value. Medical office and parking uses are physically
\nfeasible and legally permissible. Based on this analysis, the highest and best
\nuse of the land, if vacant, would be for the development of their current use
\nfor the support of the hospital campus.<\/p>\n
As Improved<\/p>\n
The subject sites are currently improved with a 95,040 square foot medial
\noffice building and 199,340 square foot parking structure. 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 improvements and replace them with new improvements, or to
\nmodify existing improvements. The improvements were recently constructed and
\nconsidered functional. The medical office building could be converted to
\nancillary space for the adjacent hospital facility or converted to more typical
\noffice space. It would be anticipated that, due to recent trends in hospital
\ncare, that ancillary development would be its most likely alternative
\nconversion. The parking structure can be converted to alternative use but the
\ncost may be prohibitive, and use of the parking structure is necessary to
\ncontinue to support the medical office building and the hospital enterprise.<\/p>\n
LEGALLY PERMISSIBLE<\/p>\n
The buildings, as improved, are assumed to be a legal conforming use, since the
\nproperties were recently constructed and received an occupancy permit. Under
\nthe current zoning, the property could remain as it is, be torn down, or
\nrenovated.<\/p>\n
-18-
\n 31<\/p>\n
FINANCIALLY FEASIBLE<\/p>\n
As improved, the structures provide significant support to the neighboring
\nhospital facility which gives support to their economic existence in their
\npresent use as-built. The office building is presently 95.74 percent occupied
\nwith physicians who practice at the neighboring hospital facility. It appears
\nthat the improvements in their present use represent the most financially
\nfeasible use of the subjects.<\/p>\n
MAXIMALLY PRODUCTIVE<\/p>\n
The maximally productive use for the existing properties are the financially
\nfeasible uses that produces the greatest property value. The existing use was
\nthe only financially feasible use. The highest and best use, as improved, is
\nthe properties’ current use.<\/p>\n
-19-
\n 32<\/p>\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
-20-
\n 33
\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
-21-
\n 34<\/p>\n
Land Comparable Number 1 <\/p>\n
APN Number: 5521-007-019<\/p>\n
Location: South side of Melrose Avenue one-half block
\n west of Ardmore.<\/p>\n
Size: 0.148 acres, or 6,460 square feet<\/p>\n
Sale Date: January 28, 1992<\/p>\n
Document Number: 142216<\/p>\n
Grantor: Mr. and Mrs. Zalman and Esther Roth<\/p>\n
Grantee: Mr. and Mrs. Kyung Hee and In Kyu Lee<\/p>\n
Sale Price: $265,000<\/p>\n
Price Per Square Foot: $41.02<\/p>\n
Terms of Sale: Cash and seller financing at market rates.<\/p>\n
Shape: Rectangular<\/p>\n
Utilities: All Available<\/p>\n
Zoning: C2-2<\/p>\n
-22-
\n 35<\/p>\n
Land Comparable Number 2<\/p>\n
APN Number: 5535-029-010<\/p>\n
Location: North side of Melrose Avenue one-half block
\n west of Hobart<\/p>\n
Size: 0.149 acres, or 6,500 square feet<\/p>\n
Sale Date: December 19, 1992<\/p>\n
Document Number: 2439104, 2439105<\/p>\n
Grantor: Charlotte Reed, et al<\/p>\n
Grantee: Mr. and Mrs. Mansour and Prichehr Benlevy<\/p>\n
Sale Price: $330,000<\/p>\n
Price Per Square Foot: $50.77<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Utilities: All Available<\/p>\n
Zoning: C2-2<\/p>\n
-23-
\n 36<\/p>\n
Land Comparable Number 3<\/p>\n
APN Number: 5523-012-014<\/p>\n
Location: Northwest corner of Larchmont
\n Boulevard and Clinton Avenue<\/p>\n
Size: 0.16 acres, or 7,000 square feet<\/p>\n
Sale Date: December 17, 1992<\/p>\n
Document Number: 2368714, 2368715<\/p>\n
Grantor: Mary Auerback, et al<\/p>\n
Grantee: Ellis C. Wong<\/p>\n
Sale Price: $550,000<\/p>\n
Price Per Square Foot: $78.57<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Utilities: All Available<\/p>\n
Zoning: C2-1<\/p>\n
Comments: Currently being utilized for
\n medical\/dental office.<\/p>\n
-24-
\n 37<\/p>\n
Land Comparable Number 4<\/p>\n
APN Number: 5088-014-005,006<\/p>\n
Location: South side of Wilshire Boulevard, one
\n block west of Crescent Heights Boulevard<\/p>\n
Size: 0.45 acres, or 19,800 square feet<\/p>\n
Sale Date: December 31, 1992<\/p>\n
Document Number: 2455200<\/p>\n
Grantor: Nedjatollah Zarabi, et al<\/p>\n
Grantee: 6300 Wilshire Associates<\/p>\n
Sale Price: $2,000,000<\/p>\n
Price Per Square Foot: $101.01<\/p>\n
Terms of Sale: All Cash<\/p>\n
Shape: Rectangular<\/p>\n
Utilities: All Available<\/p>\n
Zoning: C4-4<\/p>\n
Comments: Currently being utilized for surface
\n parking with owner wishing to place
\n parking structure on site.<\/p>\n
-25-
\n 38
\nA summary of the land sales is shown as follows:<\/p>\n
\n\n SUMMARY OF LAND COMPARABLES<\/p>\n LAND SALE SIZE PRICE
\nCOMPARABLE LOCATION DATE (SF) PER SF
\n
\n 1 Melrose\/Ardmore 01\/92 6,460 $41.02
\n 2 Melrose\/Hobart 12\/92 6,500 $50.77
\n 3 Larchmont\/Clinton 12\/92 7,000 $78.57
\n 4 Wilshire\/Crescent Heights 12\/92 19,800 $101.01
\n SUBJECT MOB SITE 28,825
\n PARKING STRUCTURE SITE 28,224
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nDiscussion of Land Comparables<\/p>\n
Due to the proximity and similar nature of the two subject sites, all
\ncomparisons which apply to the MOB site also apply to the parking structure
\nsite. An adjustment grid which summarizes our findings follows the parcel
\ndiscussions.<\/p>\n
LAND COMPARABLE NUMBER 1 is an older sale and must be adjusted downward for
\nmarket conditions as overall sale prices in the region have fallen over the
\nprior two years. The sale has an inferior location to the subject and has been
\nadjusted upward for this occurrence. The comparable’s size is smaller than the
\nsubject indicating further upward adjustments in comparison to the subject
\nsites. Overall, this sale has been adjusted upward in comparison to the
\nsubjects’ land parcels.<\/p>\n
LAND COMPARABLE NUMBER 2 is an older sale and must be adjusted downward for
\nmarket conditions as overall sale prices in the region have fallen over the
\nprior two years. The sale has an inferior location to the subject and has been
\nadjusted upward for this occurrence. The comparable’s size is smaller than the
\nsubject indicating further upward adjustments in comparison to the subject
\nsites. Overall, this sale has been adjusted upward in comparison to the
\nsubjects’ land parcels.<\/p>\n
-26-
\n 39<\/p>\n
LAND COMPARABLE NUMBER 3 is an older sale and must be adjusted downward for
\nmarket conditions as overall sale prices in the region have fallen over the
\nprior two years. The sale has an inferior location to the subject and has been
\nadjusted upward for this occurrence. The comparable’s size is smaller than the
\nsubjects, indicating further upward adjustments in comparison to the subject
\nsites. Overall, this sale has been adjusted upward in comparison to the
\nsubject’s land parcels.<\/p>\n
LAND COMPARABLE NUMBER 4 is an older sale and must be adjusted downward for
\nmarket conditions as overall sale prices in the region have fallen over the
\nprior two years. The sale has a superior location to the subject and has been
\nadjusted downward for this occurrence. The comparable’s size is similar to the
\nsubject negating any size adjustment. The sale has a superior zoning over the
\nsubject and downward adjustments for this occurrence have been made. Overall,
\nthis sale has been adjusted upward in comparison to the subjects’ land parcels.<\/p>\n
The adjusted sales prices per square foot of the comparables range from a low
\nof $47.99 to a high of $99.00 per square foot with an overall average of $70.35
\nper square foot. In our opinion, the subject sites would be valued at a value
\nrange slightly above the overall average, or $75.00 per square foot. This
\nwould indicate a total land value for the two parcels in the amount of:<\/p>\n
Medical Office Building Site $1,936,875
\n Parking Structure Site 2,116,800
\n ———-
\n TOTAL BOTH SITES $4,053,675<\/p>\n
-27-
\n 40<\/p>\n
L A N D S A L E A D J U S T M E N T G R I D
\n Midway Medical Office Building & Parking Garage
\n Los Angeles, California<\/p>\n
\n\n Subject Land Comp Land Comp Land Comp Land Comp
\n
\n Element #1 #2 #3 #4 <\/p>\nSale Price\/SF $ 41.02 $ 50.77 $ 78.57 $101.01 <\/p>\n
Property Rights Fee Simple Same Same Same Same
\n Adjustment
\n ————————————————–
\nAdjusted Price\/SF $ 41.02 $ 50.77 $ 78.57 $101.01 <\/p>\n
Financing Cash Cash Cash Cash Cash
\n Adjustment
\n ————————————————–
\nAdjusted Price\/SF $ 41.02 $ 50.77 $ 78.57 $101.01 <\/p>\n
Conditions of Sale None None None None
\n Adjustment
\n ————————————————–
\nAdjusted Price\/SF $ 41.02 $ 50.77 $ 78.57 $101.01 <\/p>\n
Market\/Time
\n Adjustment -10% -10% -10% -10%
\n ————————————————–
\nAdjusted Price\/SF $ 36.92 $ 45.69 $ 70.71 $ 90.91 <\/p>\n
Other Adjustments:
\n Location Adjustment 10% 15% 20% -10%
\n Topography Adjustment 0% 0% 0% 0%
\n Size Adjustment 20% 20% 20% 0%
\n Zoning Adjustment 0% 0% 0% -10%
\n Net Other Adjustments 30% 35% 40% -20% <\/p>\n
FINAL ADJUSTED PRICE PER SF $ 47.99 $ 61.69 $ 99.00 $ 72.73
\n ==================================================<\/p>\n
<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-28-
\n 41
\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
\ncalculator 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 50 years. For the subject building, we have
\n 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
-29-
\n 42<\/p>\n
Marshall 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 properties were constructed in 1984 and 1985, and are in good
\ncondition. It is judged that the subject buildings have an effective age equal
\nto eight years. The remaining useful life is estimated to be 42 years. This
\ntranslates into a physical depreciation estimate of 16 percent (8 years divided
\nby 50 years). The amount of depreciation attributable to the property has been
\nestimated on a straight-line basis, which is founded on the assumption that
\ndepreciation of a property occurs equally throughout its economic life.<\/p>\n
The elements which make up site improvements have shorter economic lives than
\nthe building. We have estimated the aggregate useful lives of these items to
\nbe 20 years with an effective age of three years and a remaining useful life of
\n12 years. Therefore, the depreciation rate attributable to the site
\nimprovements on a straight-line basis is estimated to be 40 percent.
\nEntrepreneurial profit and miscellaneous replacement costs are depreciated at a
\nblended depreciate rate.<\/p>\n
The subject building and site improvement replacement costs were calculated to
\nbe $18,040,373. Replacement costs normally include an entrepreneurial profit
\nof 10 percent to 15 percent to induce the property owner to undergo the
\ndevelopment. Entrepreneurial overhead, profit and miscellaneous fees were
\nestimated at 10 percent.<\/p>\n
-30-
\n 43<\/p>\n
Total depreciation is estimated at $2,894,579, based on 16 percent depreciation
\nof building replacement costs and 40 percent depreciation of site improvements.
\nThere was no functional or economic obsolescence indicated. The total
\ndepreciated value of the subject replacement costs is $15,145,794. The
\n$4,053,675 land value is added to the depreciated replacement costs, for a
\nfinal Cost Approach value of $19,199,469.<\/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 March 1, 1994, is rounded to:<\/p>\n
$19,200,000
\n ===========<\/p>\n
-31-
\n 44
\nCOST APPROACH SUMMARY
\nMEDICAL OFFICE BUILDING<\/p>\n
\n
\nReplacement Cost New
\n Direct Costs:
\n Main Structure –
\n Base Square Foot Cost $ 69.00
\n Adjustments to Base Cost
\n Elevators 4.00
\n Sprinklers 1.50
\n Number of Stories Multiplier 1.00
\n Perimeter Multiplier 1.00
\n ———
\n Adjusted Base Cost $ 74.50
\n Current Cost Multiplier 1.00
\n Local Multiplier 1.20
\n Final Base Cost $ 89.40 Per Sq. Ft.
\n Gross Building Area 95,940 Square Feet
\n ———
\n Total Building Cost $8,577,036<\/p>\n Site Improvements
\n Surface Parking $ 0
\n Other 20,000
\n ——-<\/p>\n
Total Site Improvement Costs $ 20,000<\/p>\n
Total Replacement Cost New Before Indirect
\n Costs and Entrepreneurial Profit $8,597,036
\n ———-<\/p>\n
Estimate of Indirect Costs and
\n Entrepreneurial Profit
\n Indirect Costs
\n Financing Points $ 180,068
\n Property Taxes on Land
\n During Construction 28,038
\n Entrepreneurial Profit 880,511
\n ———-
\n $1,088,617<\/p>\n
Total Replacement Cost New $9,685,653<\/p>\n
Estimates of Depreciation
\n Buildings $1,546,099
\n Site Improvements 9,013
\n ———–
\n Total Depreciation $1,555,112<\/p>\n
Summary:
\n Total Depreciated
\n Medical Office Building Replacement Depreciation Cost
\n ———– ———— ———–<\/p>\n
Building $9,663,120 $1,546,099 $8,117,021
\n Land Improvements 22,533 9,013 13,520
\n ———- ———- ———-
\n Total Medical Office Building $9,685,653 $1,555,112 $8,130,541
\n Add: Land Value 1,936,875
\n ———- <\/p>\n
TOTAL ESTIMATED VALUE VIA THE COST APPROACH $10,067,416
\n ===========
\n<\/c><\/c><\/c><\/s><\/table>\n
-32-
\n 45<\/p>\n
COST APPROACH SUMMARY
\nPARKING STRUCTURE<\/p>\n
\n
\nReplacement Cost New
\n Direct Costs:
\n Main Structure –
\n Base Square Foot Cost $ 30.00
\n Adjustments to Base Cost
\n Elevators 0.00
\n Sprinklers 1.50
\n Number of Stories Multiplier 1.00
\n Perimeter Multiplier 1.00
\n ———
\n Adjusted Base Cost $ 31.50
\n Current Cost Multiplier 0.98
\n Local Multiplier 1.20
\n Final Base Cost $ 37.04 Per Sq. Ft.
\n Gross Building Area 199,340 Square Feet
\n ———
\n Total Building Cost $7,384,351<\/p>\n Site Improvements
\n Surface Parking $ 0
\n Other 10,000
\n ——
\n Total Site Improvement Costs $ 10,000
\n Total Replacement Cost New Before Indirect
\n Costs and Entrepreneurial Profit $7,394,351
\n ———-<\/p>\n
Estimate of Indirect Costs and
\n Entrepreneurial Profit
\n Indirect Costs
\n Financing Points $ 166,502
\n Property Taxes on Land
\n During Construction 34,379
\n Entrepreneurial Profit 759,488
\n ——–
\n $ 960,369<\/p>\n
Total Replacement Cost New $8,354,720<\/p>\n
Estimates of Depreciation
\n Buildings $1,334,947
\n Site Improvements 4,520
\n ———-
\n Total Depreciation $1,339,467<\/p>\n
Summary:
\n Total Depreciated
\n Parking Structure Replacement Depreciation Cost
\n ———– ———— ————–
\n Building $8,343,421 $1,334,947 $7,008,474
\n Land Improvements 11,299 4,520 6,779
\n ———- ———- ———-
\n Total Parking Structure $8,354,720 $1,339,467 $7,015,253
\n Add: Land Value 2,116,800
\n ———-<\/p>\n
TOTAL ESTIMATED VALUE VIA THE COST APPROACH $9,132,053
\n ==========<\/p>\n
<\/c><\/c><\/c><\/s><\/table>\n
-33-
\n 46
\n SALES COMPARISON APPROACH<\/p>\n
The Sales Comparison Approach is based upon the principle of substitution; that
\nis, when a property is replaceable in the market, its value tends to be set at
\nthe cost of acquiring an equally desirable substitute property, assuming there
\nis no costly delay in making the substitution. Since two properties are rarely
\nidentical, the necessary adjustments for differences in quality, location,
\nsize, services and market appeal are a function of appraisal experience and
\njudgment.<\/p>\n
The Sales Comparison Approach gives consideration to actual sales of other
\nsimilar properties with adjustments as previously stated. The sales prices are
\nanalyzed in common denominators and applied to the subject property in
\nrespective categories to be indicative of market value.<\/p>\n
The unit of comparison used in this analysis is the price per square foot,
\nwhich is the gross purchase price of the building divided by the net leasable
\narea in the building. The following sales are considered to be representative
\nof market activity and conditions as of the valuation date. Unless otherwise
\nindicated, the sales involved arm’s length transactions that conveyed a fee
\nsimple interest, and only real property was included in the transactions.
\nAlso, all purchase prices quoted in this report represent all cash sales unless
\nseller financing is noted and the sale prices adjusted for cash equivalency.<\/p>\n
In our analysis, we obtained details on four professional office building sales
\nwhich have occurred over the past two years. The terms of the sale and
\nsignificant data was verified to the extent possible by county deed records and
\nwith parties to the transaction. Information on these sales is shown on the
\nfollowing pages:<\/p>\n
-34-
\n 47
\nIMPROVED SALE NUMBER 1<\/p>\n
\n
\nGENERAL SALE DATA<\/p>\nLocation: 8920 Wilshire Boulevard, Beverly Hills, California
\nDate of Sale: January 15, 1993
\nDocument Number: 0102008
\nGrantor: Julio Liberman, et al
\nGrantee: Advent Realty Limited Partnership II
\nSale Price: $7,500,000
\nAdjusted Sales Price: $10,500,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA<\/p>\n
Land Size: .536 acres
\nBuilding Size: 99,000 square feet of net rentable area
\nYear Built: 1964
\nOccupancy at Sale: 70%<\/p>\n
STABILIZED OPERATING DATA<\/p>\n
Estimated Gross Income $2,376,000
\nVacancy Allowance at 10% 237,600
\n ———-
\nEffective Gross Income $2,138,400
\nEstimated Expenses @ 38% 812,592
\n ———-
\nNet Operating Income $1,325,808 <\/p>\n
MARKET VALUE INDICATORS<\/p>\n
Sales Price Per Square Foot: $ 106.06
\nStabilized Overall Rate: 12.6 %
\n<\/s><\/s><\/table>\n
COMMENTS<\/p>\n
The facility was purchased at low overall occupancy and needed substantial
\nrenovation work in order make the facility marketable. The cost of this
\nrenovation was estimated at $3,000,000.<\/p>\n
-35-
\n 48
\nIMPROVED SALE NUMBER 2<\/p>\n
\n
\nGENERAL SALE DATA<\/p>\nLocation: 6840, 6850 Sepulveda Boulevard, Van Nuys, California
\nDate of Sale: June 25, 1993
\nDocument Number: 1216157
\nGrantor: Valley Presbyterian Hospital
\nGrantee: Healthcare Realty Trust, Inc.
\nSale Price: $5,250,000
\nAdjusted Sales Price: $5,250,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA<\/p>\n
Land Size: 1.9 acres
\nBuilding Size: 29,040 square feet of net rentable area
\nYear Built: 1961
\nOccupancy at Sale: 100%<\/p>\n
STABILIZED OPERATING DATA<\/p>\n
Income Data: Not Available<\/p>\n
MARKET VALUE INDICATORS<\/p>\n
Sales Price Per Square Foot: $180.78
\nStabilized Overall Rate: 8.2 %<\/p>\n
<\/c><\/s><\/table>\n
COMMENTS<\/p>\n
The facility is presently utilized as a surgery center and has an interior
\nbuild-out superior to the subject. The building is leased on a triple net
\nbasis.<\/p>\n
-36-
\n 49<\/p>\n
IMPROVED SALE NUMBER 3<\/p>\n
\n
\nGENERAL SALE DATA<\/p>\nLocation: 15211, Vanowen St. Van Nuys, California
\nDate of Sale: June 25, 1993
\nDocument Number: 1216158
\nGrantor: Valley Presbyterian Hospital
\nGrantee: Healthcare Realty Trust, Inc.
\nSale Price: $7,450,000
\nAdjusted Sales Price: $7,450,000
\nTerms of Sale: All Cash<\/p>\n
PROPERTY DATA<\/p>\n
Land Size: 1.111
\nBuilding Size: 47,042 square feet of gross rentable area
\nYear Built: 1981
\nOccupancy at Sale: 100%<\/p>\n
STABILIZED OPERATING DATA<\/p>\n
Income Data: Not Available<\/p>\n
MARKET VALUE INDICATORS<\/p>\n
Sales Price Per Square Foot: $158.37<\/p>\n
<\/c><\/s><\/table>\n
COMMENTS<\/p>\n
The facility is presently utilized as a surgery center and has an interior
\nbuild-out superior to the subject. The subject is leased on a triple net
\nbasis.<\/p>\n
-37-
\n 50
\nIMPROVED SALE NUMBER 4<\/p>\n
\n
\nGENERAL SALE DATA<\/p>\nLocation: Sherman Oaks Medical Plaza, 4955 Van Nuys, Boulevard, Sherman Oaks, California
\nDate of Sale: February 23, 1993
\nDocument Number: 0342432
\nGrantor: Pacprop, Inc.
\nGrantee: Arthur Gilbert
\nSale Price: $8,500,000
\nAdjusted Sales Price: $8,500,000
\nTerms of Sale: Cash to Seller<\/p>\n
PROPERTY DATA<\/p>\n
Land Size: 1.619 acres
\nBuilding Size: 72,000 square feet of net rentable area
\nYear Built: 1968
\nOccupancy at Sale: 97%<\/p>\n
STABILIZED OPERATING DATA<\/p>\n
Estimated Gross Income $1,529,280
\nVacancy Allowance at 15% 229,392
\n ———-
\nEffective Gross Income 1,299,888
\nEstimated Expenses 491,260
\n ———
\nNet OperatinIncome $ 808,628 <\/p>\n
MARKET VALUE INDICATORS<\/p>\n
Sales Price Per Square Foot: $118.06
\nStabilized Overall Rate: 9.51%<\/p>\n
<\/c><\/s><\/table>\n
COMMENTS<\/p>\n
The facility was purchased at high overall occupancy which is not anticipated
\nto be sustainable. Parking lot is located on leased land parcel which was not
\nincluded in sale.<\/p>\n
-38-
\n 51<\/p>\n
\n\n SUMMARY OF IMPROVED SALES<\/p>\n SALE RENTABLE SALE PRICE
\nNUMBER ADDRESS SF PRICE PER SF
\n
\n 1 8920 Wilshire Boulevard 99,000 $10,560,000 $106.06
\n Beverly Hills, CA
\n 2 6840, 6850 Sepulveda Boulevard 29,040 $ 5,250,000 $180.78
\n Van Nuys, CA
\n 3 15211 Vanowen Street 47,042 $ 7,450,000 $158.37
\n Van Nuys, CA
\n 4 4955 Van Nuys Boulevard 72,000 $ 8,500,000 $118.06
\n Sherman Oaks, CA
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nThe unadjusted prices of these comparables range form $106.06 per square foot
\nto $180.78 per square foot. Each of the comparable 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 NUMBER 1 is a Class B structure which was constructed in 1964.
\nThe sale was initially adjusted upward for the renovation costs incurred by the
\nbuyer immediately upon occupancy. The subject’s location is slightly inferior
\nto the comparable’s and a downward adjustment for this occurrence has been
\nmade. The sale had a very low occupancy at the time of sale which would
\nnecessitate that an upward adjustment be made. The age of the comparable is
\nsignificantly above the subject’s and additional upward adjustments were made
\nfor this occurrence. The adjusted sale price of the comparable was $121.97.<\/p>\n
-39-
\n 52<\/p>\n
IMPROVED SALE NUMBER 2 is a Class C structure which was constructed in 1961.
\nThis comparable is associated with the neighboring hospital and was sold on a
\nsale leaseback arrangement on a triple net master lease arrangement. The lease
\nterms were not disclosed. This sale’s location is considered slightly inferior
\nto the subject’s and an upward adjustment for this occurrence has been made.
\nThe sale is significantly smaller than the subject and a downward adjustment
\nhas been made to account for this fact. Due to the older age of the
\ncomparable, additional upward adjustments have been made. The adjusted sale
\nprice of the comparable is $180.78.<\/p>\n
IMPROVED SALE NUMBER 3 is a Class B structure which was constructed in 1981.
\nThis comparable is associated with the neighboring hospital and was sold on a
\nsale leaseback arrangement on a triple net master lease arrangement. The lease
\nterms were not disclosed. This sale’s location is considered slightly inferior
\nto the subject’s and an upward adjustment for this occurrence has been made.
\nThe sale is significantly smaller than the subject and a downward adjustment
\nhas been made to account for this fact. The sale is similar in age to the
\nsubject and no adjustment for age was considered warranted. The adjusted sale
\nprice of this comparable was estimated at $150.45.<\/p>\n
IMPROVED SALE NUMBER 4 is a Class B, seven-story, structure with an adjacent
\nthree-story parking garage. The parking garage is located on a land lease and
\nan upward adjustment for rights transferred has been made. An additional
\nupward adjustment has been made due to the older age of the comparable. No
\nother adjustments to this sale appeared warranted indicating an overall
\nadjusted price of $142.85 per square foot.<\/p>\n
The adjusted prices per square foot range from $121.97 to $180.78, with an
\noverall average of $149.01. It is our opinion, that the subject’s medical
\noffice building would sell at a price level above the overall average, or
\n$160.00 per square foot of rentable area. This would indicate a value for the
\nmedical office building of $13,921,280 ($160.00 x 87,008 square feet).<\/p>\n
The adjacent parking structure is utilized to support the office building and
\nthe adjacent medical complex. In our survey of medical office building
\ncomparables the number of parking spaces per 1,000 square feet of rentable area
\nranged from 0 to 6.7, with 3 to 4 spaces being typical. The number of spaces
\nrequired under the zoning law is 191. The subject parking garage, when
\ncompared to the medical office building’s rentable square<\/p>\n
-40-
\n 53<\/p>\n
feet, contains 8.67 spaces per 1,000 square feet of rentable area. It is our
\nbelief that an approximate ratio of 3.0 spaces per 1,000 square feet of
\nrentable area would be associated with the medical office building. This would
\nrepresent an overall utilization of the parking garage for the medical office
\nbuilding of approximately 35 percent. The remaining 65 percent of the parking
\ngarage represents an excess asset and its value should be added to our overall
\nmarket findings detailed previously. Based upon our analysis in the Cost
\nApproach, 60 percent of the parking garage’s value would be fairly represented
\nat $5,935,834.<\/p>\n
Based upon this analysis, the market value of the subject property by the Sales
\nComparison Approach, as of March 1, 1994, is reasonably represented in the
\nrounded amount of:<\/p>\n
$19,860,000
\n ===========<\/p>\n
-41-
\n 54<\/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 The Midway Medical Office Building
\n Los Angeles, California<\/p>\n
\n\n Subject Bldg Comp Bldg Comp Bldg Comp Bldg Comp
\n
\n Element #1 #2 #3 #4 <\/p>\nSale Price\/SF $106.06 $180.78 $158.37 $118.06 <\/p>\n
Property Rights Fee Simple Same Same Same Mixed
\n Adjustment 10%
\n ————————————————
\nAdjusted Price\/SF $106.06 $180.78 $158.37 $129.87 <\/p>\n
Financing Cash Cash Cash Cash Cash
\n Adjustment
\n ————————————————
\nAdjusted Price\/SF $106.06 $180.78 $158.37 $129.87 <\/p>\n
Conditions of Sale None None None None
\n Adjustment
\n ————————————————
\nAdjusted Price\/SF $106.06 $180.78 $158.37 $129.87 <\/p>\n
Market\/Time
\n Adjustment 0% 0% 0% 0%
\n ————————————————
\nAdjusted Price\/SF $106.06 $180.78 $158.37 $129.87 <\/p>\n
Other Adjustments:
\n Location Adjustment -5% 5% 5% 0%
\n Occupancy Adjustment 10% 0% 0% 0%
\n Size Adjustment 0% -15% -10% 0%
\n Age Adjustment 10% 10% 0% 10%
\n Net Other Adjustments 15% 0% -5% 10%<\/p>\n
FINAL ADJUSTED PRICE PER SF $121.97 $180.78 $150.45 $142.85
\n ================================================
\n<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-42-
\n 55<\/p>\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
\nCrescent Capital is purchasing for the purpose of establishing a real estate
\ninvestment trust (REIT). OrNda HealthCorp, the seller, will provide a net
\nrental guarantee in the form of a master lease. The REIT, as the new property
\nowner, will receive the net rental master lease rate per square foot of
\nrentable office area, regardless of the rental rates charged or received from
\nthe actual physician\/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 OrNda HealthCorp leasing
\nflexibility for the office space. OrNda HealthCorp 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 the property is not yet available. For the
\npurpose of our Income Approach, the gross income will be the master lease
\namount established for the entire development, or $2,142,223. 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 master lease rate implied for the subject property will be $24.62 per
\nsquare foot of net rentable area associated with the medical office building.
\nThis rental rate appears at market in comparison to the rates quoted for the
\nmarket sales comparisons. The gross income for the subject property is
\n$2,142,223.<\/p>\n
-43-
\n 56<\/p>\n
The subject appraisal assumes 100 percent of the income is guaranteed
\nthroughout the master lease agreement. Since the leased fee interest is being
\nappraised, there 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$107,111 based on the management experience of other properties. The net
\noperating income for the property is $2,142,223 less $107,111, or $2,035,112.<\/p>\n
The estimated direct capitalization rates, or overall rates (OARs), for the
\nimproved sale comparables presented in the Sales Comparison Approach section of
\nthis report ranged from 8.2 percent to 12.6 percent. In Improved Sale Number
\n1, with a high estimated capitalization rate of 12.6 percent, the buyer had to
\nput significant improvements in the site. Based on the comparables and this
\ndiscussion, a capitalization rate of 9.5 percent is considered appropriate for
\nthe 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
$2,035,112\/0.95 = $21,422,231<\/p>\n
Rounded to:<\/p>\n
$21,420,000
\n ===========<\/p>\n
-44-
\n 57<\/p>\n
CORRELATION AND CONCLUSION<\/p>\n
We have considered three approaches to value in order to estimate the value of
\nthe Midway Medical Plaza and its adjacent parking structure. The values
\nderived from the three approaches are summarized as follows:<\/p>\n
Cost Approach . . . . . . . . . . . . . . . . . . . $19,200,000
\n Sales Comparison Approach . . . . . . . . . . . . . $19,860,000
\n Income Approach . . . . . . . . . . . . . . . . . . $21,420,000<\/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 quantity of data available in this approach was
\nconsidered good, but several of the comparable sales differed in size from the
\nsubject and were significantly older than the subject. The comparable sales,
\nwhich were professional office buildings that were physically contiguous to a
\nhospital, appeared to sell at a higher value because of higher leasing risks.
\nThe appraisers only considered this approach to be a fair indicator of value
\nfor 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
-45-
\n 58
\nBased on this analysis, it is our opinion that the market value of the Midway
\nMedical Plaza and adjacent parking structure, as of March 1, 1994, subject to
\nthe OrNda HealthCorp lease, and based on the assumptions and limiting
\nconditions in this report, is the Income Approach value of:<\/p>\n
$21,420,000
\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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