\n JANUARY 6, 1994 JANUARY 2, 1992<\/p>\n
\n Federal Fund Rate 3.0% 3.9%
\n 90-Day Treasury Bill Rate 3.1% 3.9%
\n 30-Year Treasury Bond 6.4% 7.5%
\n Aaa Bond Yield 6.9% 8.2%
\n Prime Rate 6.0% 6.5%
\n<\/c><\/c><\/s><\/caption>\n<\/table>\nEconomic Outlook<\/p>\n
According to Value Line’s Quarterly Economic Review, dated December 24, 1993,
\nthe economic recovery is now 2.5 years old, but shows much slower growth than
\nnormal for a mature recovery. Among factors cited by Value Line for
\ncontributing to the recent slow growth are “high debt, stagnant personal
\nincome, low consumer confidence and a troubling unemployment rate”. Recent
\nimprovements have focussed on the auto, machinery, steel, housing and specialty
\nretailer market segments. Value Line cautions, however, that the recent
\nimprovements in the economy are being limited by a slow job growth base. Value
\nLine’s Quarterly Economic Review identified the following estimates for
\nselected economic statistics from 1993 to 1995.<\/p>\n
\n\n 1993 1994 1995<\/p>\n
\n Real GDP 2.6% 3.3% 3.3%
\n Personal Consumption Expenditures 3.0% 2.7% 2.3%
\n Federal Government Purchases (4.8%) (5.8%) (4.0%)
\n 30-Year Treasury Bond Yields 6.6% 6.6% 6.8%
\n Prime Rate 6.0% 6.2% 6.4%
\n Consumer Price Index 3.1% 3.2% 3.3%
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nIn summary, these factors play an important part in determining the supply and
\ndemand for real property, and, indirectly, the value of properties. Most of
\nthe forces discussed above are indicating an on-going soft demand for many
\ntypes of commercial real estate. This soft demand has caused some property
\nvalues to remain flat and some to decline.<\/p>\n
-5-
\n 17
\nThe lower interest rates in recent periods, however, are serving to stabilize
\ncommercial 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 six to eight months.<\/p>\n
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\n 18
\n DESCRIPTIVE DATA<\/p>\n
REGIONAL AND CITY ANALYSIS<\/p>\n
The subject property is located in the City of St. Louis, St. Louis County,
\nMissouri. More specifically, the property is located in the western central
\nsection of the city.<\/p>\n
The City of St. Louis is located within the St. Louis Consolidated Metropolitan
\nStatistical Area (CMSA). The CMSA is located near both the geographic and
\npopulation centers of the United States and has a current population of
\n1,942,000. The 1980 census indicated that the St. Louis consolidated area had
\nexperienced a population decline since 1970, however, the 1990 census indicated
\nthat the population has recovered somewhat during more recent years with the
\nSt. Louis CMSA currently ranked fifteenth in population in the nation. The St.
\nLouis regional population was 2,444,000 at the 1990 census reporting period.
\nThis level reflects an increase of approximately 67,000 people, or 2.8 percent,
\nsince the 1980 census. The current population is reported at 2,452,000.<\/p>\n
Population growth figures, both actual and projected, for the Missouri counties
\nof the St. Louis CMSA and City of St. Louis, are as follows:<\/p>\n
\n\n Actual Projected <\/p>\n 1960 1970 1980 1990 2000<\/p>\n
\n St. Louis 703,532 951,353 974,177 993,529 1,035,852
\n St. Charles 52,970 95,954 144,107 212,907 250,797
\n Jefferson 66,377 105,248 146,183 171,380 201,880
\n Franklin 44,566 55,116 71,233 80,603 91,117
\n St. Louis City 750,026 622,236 452,804 396,685 357,971
\n<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nAccording to the above population table, St. Charles County had the greatest
\nincrease in population of the Missouri counties in the CMSA and the City of St.
\nLouis. Additionally, St. Charles County has the greatest growth rate of all
\ncounties in the state of Missouri. The 47.7 percent increase is attributable
\nto the three largest incorporated areas in St. Charles County, St. Peters, St.
\nCharles and O’Fallon, ranked first, third and fifth, respectively, in the top
\nten total gain increase in population of incorporated areas.<\/p>\n
-7-
\n 19
\nReciprocally, the City of St. Louis ranked first of the bottom 10 incorporated
\nplaces in Missouri that had a loss in population.<\/p>\n
The Missouri portion of the CMSA area is located on the eastern edge of the
\nstate of Missouri near the confluence of the Missouri and Mississippi Rivers.
\nThis site was originally chosen by French traders in the mid-1700s because of
\nits favorable location on the waterway system of the central North American
\ncontinent. Their foresight and vision have been vindicated by the fact that
\nover 200 years have passed and St. Louis is still the leading port on the
\nMississippi River, second largest rail hub and sixth busiest air traffic point
\nin the nation. These location factors also make it a major industrial center.
\nThe port of St. Louis is the busiest inland port in the nation. In addition,
\nthe St. Louis district constitutes the second largest railroad terminal in the
\ncountry, surpassed only by Chicago. The CMSA of St. Louis is served by 14
\ntrunk-line railroads and five switching lines, with Amtrak providing passenger
\nservice to a variety of cities throughout the nation. Trucking service is
\navailable with more than 200 common carrier truck lines and numerous local
\nlines operating in the area. Four interstate highways serve the area, with
\nInterstate 70 linking Washington, D.C. with the west via Kansas City and
\nDenver; Interstate 55 running from Chicago to New Orleans; Interstate 44
\nconnecting St. Louis with Interstate 40 at Oklahoma City and continuing through
\npoints southwest to Los Angeles, and Interstate 64 traveling inland from
\nVirginia to St. Louis. Additionally, Interstates 270 and 255 serve as
\ncircumferential highways in the metropolitan area.<\/p>\n
Airline service is available from Lambert – St. Louis International Airport.
\nTen scheduled passenger airlines, three commuter lines, one all-cargo airline,
\ntwo air freight cartage agents and 14 air freight forwarders operate from the
\nairport. In addition to Lambert-St. Louis International Airport, there are six
\ngeneral aviation airports serving the area.<\/p>\n
The area enjoys a diversified economy, being a major financial, manufacturing,
\ntelecommunications, and trade and distribution center serving the central
\nUnited States. St. Louis is headquarters for six of the Fortune 100
\ncorporations and ten of the Fortune 500 companies.<\/p>\n
-8-
\n 20
\nThe following are the largest employers in the St. Louis CMSA area with their
\nrespective number of employees:<\/p>\n
Number of
\n Company Employees <\/p>\n
McDonnell Douglas 30,000
\n Scott Air Base, IL 13,512
\n McDonald’s Restaurant 13,279
\n Schnuck Markets, Inc. 12,000
\n Southwestern Bell 10,800
\n U.S. Postal Service 10,442
\n Washington University 8,013
\n Trans World Airlines 7,463
\n Barnes Hospital 7,025
\n National Supermarkets 6,890
\n St. Louis University 6,685
\n May Department Stores 6,500
\n St. Louis Board of Education 6,127
\n SSM Health Care Systems 6,000
\n Sisters of Mercy Health System 5,714<\/p>\n
As indicated above, the area’s largest employer is McDonnell Douglas
\nCorporation, with approximately 30,000 St. Louis area employees. Other
\nnationwide firms headquartered in the area include Anheuser-Busch Co., Inc.,
\nRalston Purina Company, Pet, Inc., Peabody Coal Company, and Graybar Electric.<\/p>\n
In addition to their headquarters, and research and chemical manufacturing
\nfacilities, international high tech giant Monsanto also established a major
\nsilicon chip manufacturing facility in the area, since sold to a German combine
\nand know as Monsanto Electronic Materials Corporation (MEMC). Furthermore, the
\nSt. Louis area is second only to Detroit in automobile manufacturing.<\/p>\n
-9-
\n 21
\nIt should be noted that there is no one dominant segment of the economy; it is
\na diverse employment base. As indicated by the following table, each industry
\nis well represented in the St. Louis MSA.<\/p>\n
\n Employment – St. Louis, MSA
\n June, 1993 <\/p>\n\n Total Percentage
\n Employment of Total <\/p>\n
\n Construction & Mining 50,400 4.4
\n Manufacturing 193,600 16.8
\n Transportation & Public Utilities 77,700 6.7
\n Trade 280,400 24.3
\n Finance, Insurance & Real Estate 73,900 6.4
\n Services 344,300 29.9
\n Government 131,900 11.4
\n ——— —–
\n Total 1,152,200 100.0
\n<\/c><\/c><\/s><\/caption>\n<\/table>\nIn keeping with the national trend of the times, the manufacturing sector,
\nhistorically a strong one in St. Louis, is losing ground to service-based
\nindustries. Between 1983 and 1987, non-manufacturing employment increased at
\nan annual compound rate of approximately 3.6 percent, while Department of Labor
\nfigures show employment in manufacturing industries decreased approximately 1.1
\npercent.<\/p>\n
According to Employment Security, a division of the Missouri Department of
\nLabor and Industrial Relations, the St. Louis Metropolitan area, as of June,
\n1993 had a civilian labor force of 1,285,504 people with a total employment of
\n1,209,658. The unemployment rate, currently 5.9 percent, is down from 6.5
\npercent for the same reporting period in 1993. The current unemployment rate
\nof 5.9 percent for the state of Missouri is also down, from 6.3 percent, for
\nthe same reporting period in 1992.<\/p>\n
In summary, the St. Louis CMSA is a progressive and active market area with a
\nwell-diversified and stable economic base. The migration and in-migration
\npatterns are typical of those in other large CMSAs with active suburban areas.
\nIt is our opinion that the area will continue to maintain and encourage an
\nincreasing development pace, and that the general economy and property values
\nwill start to realize and experience moderate growth for the foreseeable
\nfuture.<\/p>\n
-10-
\n 22
\nOFFICE MARKET DATA – ST. LOUIS AREA<\/p>\n
The St. Louis area office market is segmented into six markets, downtown,
\nClayton, west county, south county, north county and St. Charles.<\/p>\n
In 1993 the six office markets combined had a total of 38,336,000 square feet
\nof net rentable office area with 6,977,000 square feet available indicating an
\noverall average occupancy of 81.8 percent. The following table illustrates the
\noffice space summary for the six markets:<\/p>\n
\n\n 1993 OFFICE SPACE FOR ST. LOUIS AREA
\n (SQUARE FEET IN THOUSANDS)<\/p>\n NET AVAILABLE AVERAGE
\n RENTABLE RENTABLE OCCUPANCY
\n MARKET SECTOR AREA (SF) AREA (SF) PERCENT<\/p>\n
\n Downtown 14,834 3,931 73.5
\n Clayton 4,564 758 83.4
\n West County 13,572 1,656 87.8
\n South County 2,099 168 92.0
\n North County 2,895 428 85.2
\n St. Charles 402 28 93.1
\n TOTAL 38,366 6,969 81.8
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nThe above table reflects the net rentable area and available rentable
\narea and resulting average occupancy for all types of office space in
\nthe St. Louis area. As indicated, the downtown market, the largest
\nof the office markets, has the greatest vacancy rate at 26.5 percent.
\nThe remaining markets combined, comprising the suburban market, has a
\nvacancy rate of 12.9 percent. The market area the subject property
\nis located in, the south county market, reported a vacancy rate for
\nall types of office area of 8 percent.<\/p>\n
The majority of the occupancy rates reported reflect an increase from the
\nprevious reporting period. Overall, the metropolitan area is seeing little or
\nno new construction resulting in office area vacancies going down.
\nAdditionally, by occupying existing buildings the rental rates are starting to
\nincrease after having been stable for the past<\/p>\n
-11-
\n 23
\ntwo years; according to building owners these rates are starting to reach a
\nreasonable level.<\/p>\n
In 1993, office rental rates were low prompting tenants to absorb large
\ncontiguous blocks of office space. The complete shut-down of speculative
\noffice construction, combined with positive net absorption, continues to reduce
\nthe available number of large contiguous blocks of space. No other market
\ncharacteristic seems to surprise tenants more than the limited selection of
\nClass A buildings with large contiguous blocks of space available. The
\ndwindling supply of large blocks of Class A space is most apparent in suburban
\nSt. Louis County. After hitting a peak of 16 blocks in 1992 only 7 blocks of
\n20,000 square feet of contiguous Class A space were available by mid-1993.
\nAccording to the Turley Martin Office Report “the market is already tight for
\nlarge tenants and is limited for mid-size tenants. As a result, owners with
\nlarger blocks of space in some sub-markets are setting higher lease rates.”
\nThe following table illustrates the Class A office space summary for the six
\nmarkets comprising the St. Louis area office market:<\/p>\n
\n\n 1993 CLASS A OFFICE SPACE FOR ST. LOUIS AREA
\n (SQUARE FEET IN THOUSANDS)<\/p>\n NET AVAILABLE AVERAGE
\n RENTABLE RENTABLE OCCUPANCY
\n MARKET SECTOR AREA (SF) AREA (SF) PERCENT<\/p>\n
\n Downtown 7,282 1,027 85.9
\n Clayton 3,232 514 84.1
\n West County 7,786 926 88.1
\n South County 718 13 98.2
\n North County 1,731 242 86.0
\n St. Charles 109 8 93.1
\n TOTAL 20,858 2,730 86.9
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nAs indicated above, Class A office space approximates 54 percent of all office
\nspace in the St. Louis area. The Clayton area, the seat of St. Louis County,
\nhas the highest concentration of Class A office space while St. Charles,
\ngeographically divided from St. Louis County by the Missouri River, has the
\nleast amount of Class A office space.<\/p>\n
-12-
\n 24
\nSouth St. Louis County, the area the subject property is located in, has the
\nsecond lowest amount of Class A office space.<\/p>\n
The overall average occupancy rate for Class A office space in the St. Louis
\narea is 86.9 percent compared with 81.8 percent of all office space. Clayton,
\nthe area with the highest concentration of Class A office space has the lowest
\naverage occupancy at 84.1 percent while South County has the highest occupancy
\nrate at 98.2 percent. As indicated by the second lowest amount of Class A
\nspace and the highest occupancy rate the South St. Louis County area has a good
\nbalance of supply and demand favoring the building owners.<\/p>\n
With little or no new office building construction it is expected that
\noccupancy rates throughout the St. Louis area will continue to increase.<\/p>\n
The increasing occupancy rates have had a positive affect on rental rates as
\nwell. With the decreasing supply of office space building owners are having to
\nmake less concessions than before to attract tenants. Asking rental rates in
\nClass A buildings typically range from $16 to $22 per square foot for full
\nservice. At one time, substantial concessions were decreasing the asking rents
\nby up to 30 percent over a five to seven-year lease. According to the 1993
\nUrban Land Institute Profiles standard lease terms for new office space for the
\nSt. Louis area are:<\/p>\n
Original Lease Length: Five years <\/p>\n
Number of Renewals: One<\/p>\n
Length of Renewal Term: Five years <\/p>\n
Free Rent: None, however substantial services are
\n included in base rent. <\/p>\n
Escalation Clauses: Rents adjusted annually by operating expenses. <\/p>\n
Tenant Improvement
\n Allowances: $12 – $14 per square foot over the life of
\n the lease. <\/p>\n
Pass-Through Expenses: Taxes, insurance, utilities, common area
\n maintenance above base amount or base year.<\/p>\n
-13-
\n 25
\n Concessions: 15-30 percent off face rent, extra tenant
\n improvement allowance, moving expenses.<\/p>\n
As indicated above, the asking rental rates in Class A office buildings is
\nbetween $16 to $22 per square foot. The following table reflects the asking
\nrental rates for office buildings in the Interstate 44\/South St. Louis County
\narea:<\/p>\n
\n\n YEAR BUILT NO. OF BUILDING ASKING
\n BUILDING\/LOCATION FLOORS SIZE (SF) RENT <\/p>\n
\n Laumeier II 1990 4 118,000 $19.50
\n 3636 S. Geyer Road
\n Laumeier I 1987 4 112,000 $19.50
\n 3630 S. Geyer Road
\n Sunset Office II 1984 4 90,000 $18.50
\n 10733 Sunset Office Drive
\n Southwest Executive Ctr 1982 3 76,400 $17.50
\n 9735 Landmark Parkway R 1986
\n Laumeier III 1990 3 52,000 $19.50
\n 3660 S. Geyer Road
\n Laumeier IV 1990 3 50,800 $19.50
\n 3666 S. Geyer Road
\n Clubs Center Office Bldg. 1989 4 44,000 $16.00 –
\n 12300 Old Tesson Road $18.00
\n 10825 Watson Building 1978 2 40,000 $16.50
\n 10825 Watson Road R 1990
\n Sunmark Building 1975 2 40,000 $16.50
\n 10795 Watson Road
\n<\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n -14-
\n 26
\nNEIGHBORHOOD DESCRIPTION<\/p>\n
As previously stated, the subject St. Louis Comprehensive and Ambulatory Care
\nFacility is located in St. Louis County. The location can more accurately be
\ndescribed as being on the west side of Tesson Ferry Road (Missouri State
\nHighway 21) two miles south of Interstate 270 in the southwestern section of
\nSt. Louis County.<\/p>\n
The neighborhood is generally defined as that area lying on both sides of
\nTesson Ferry Road to the south of Interstate 270 being bounded on the east by
\nInterstate 55 and on the west by the Meramec River.<\/p>\n
The neighborhood area is comprised of a well-balanced blend of residential,
\ncommercial and institutional properties with commercial, institutional,
\nprofessional and multi-family residential uses near the Interstate 270
\ninterchange and along the major thoroughfares and single-family residential use
\nin the outlying areas away from the major thoroughfares.<\/p>\n
Commercial uses in the immediate area are located primarily to the north along
\nTesson Ferry Road. These uses include those types of businesses serving
\npassing motorists as well as the area’s residential base. Commercial uses
\ninclude a McDonald’s and a Taco Bell fast-food restaurant, a gasoline station,
\nan automobile repair facility, a sit-down restaurant, a grocery store, banks
\nand two strip shopping centers.<\/p>\n
Institutional uses include the St. Anthony’s Hospital located on the west side
\nof Tesson Ferry Road approximately 1.5 miles north of the subject property, a
\nchurch and the Mehlville Fire Protection District fire house also to the north
\nand the Garden Villa South – Luxury Retirement Community and Delmar Gardens
\nSouth – Nursing and Rehabilitation Center to the south.<\/p>\n
Professional properties include medical office buildings at the St. Anthony’s
\nHospital complex, Tesson Grove Medical Center, numerous doctors offices, Nooter
\n– – Eriksen office building and the General American corporate offices located to
\nthe north of the subject property.<\/p>\n
Multi-family residential properties include the multi-story Village Royale
\nApartments directly to the east across Tesson Ferry Road, Southmoor Apartments
\nand Townhomes<\/p>\n
-15-
\n 27
\nadjacent to, and on the north of the subject property and the Cedar Run
\nApartment Complex at Suson Woods Drive to the south.<\/p>\n
While there are numerous single-family subdivisions in the area of the subject
\nproperty the newest single-family residential development is to the south and
\nwest at Suson Woods Drive and Tesson Ferry Road.<\/p>\n
The growth pattern in the area along Tesson Ferry Road has been progressing to
\nthe south, the natural growth pattern being experienced in St. Louis County,
\nfrom Interstate 270. This growth is expected to continue due to the abundance
\nof vacant land available to the south of the subject property.<\/p>\n
Like any high density commercial areas, good access has had a direct positive
\naffect on the commercial growth in the area. Tesson Ferry Road (Missouri State
\nHighway 21), an asphalt-surfaced, four-lane with center turning lane
\nthoroughfare, is a heavily travelled commuter route connecting Gravois Road
\n(Missouri State Highway 30) to the north with the small town of Glover,
\nMissouri to the south. Tesson Ferry Road intersects with the major
\nthoroughfares Lindbergh Boulevard (U.S. Route 61\/67), Interstate 270 and
\nMissouri State Highway 141 within the St. Louis Metropolitan Area. Like Tesson
\nFerry Road, Interstate 270 also provides direct access to the neighborhood
\narea, Interstate 270, linking with Interstate 255 is a circumfrential
\ninterstate serving the St. Louis Metropolitan Area. Access to the area is also
\nprovided by way of Missouri State Highway 141 traversing north to south through
\nthe western and southern sections of St. Louis County and in the general area
\nconnecting Interstate 44 to the north with Interstate 55 to the south.<\/p>\n
As stated above the neighborhood area is a well balanced blend of commercial,
\nprofessional, institutional and residential properties. Traffic along the
\nmajor thorough-fares is significant and the direct result of the fronting
\ncommercial businesses. The residential base in the area tends to support the
\ncommercial businesses as well as the institutional and professional uses. The
\nproperties in the area are well maintained indicating an economically stable
\narea. As stated above, there is vacant land available for continued
\ncommercial, institutional, professional and residential growth; this area is
\nwithin a natural growth corridor of St. Louis County.<\/p>\n
No detrimental conditions or hazards appear to exist in the subject
\nneighborhood or immediate area that would be considered to have a negative
\naffect on the St. Louis<\/p>\n
-16-
\n 28
\nComprehensive and Ambulatory Care Facility property or on properties in the
\nimmediate area.<\/p>\n
ZONING<\/p>\n
The subject property is zoned “C-8” – Planned Commercial District, by the St.
\nLouis County Department of Planning and Zoning. According to the zoning
\nordinance, “the C-8 Planned Commercial District encompasses areas where
\ndevelopments and uses permitted in any of the other “C” Commercial Districts
\nmay be located. It is the purpose of these regulations to facilitate the
\nestablishment of combinations of developments and uses for which no provision
\nis made in any other single “C” Commercial District, or the establishment of
\ndevelopments and uses in locations appropriate under approved site plans and
\nconditions. Such approved plans and conditions shall be consistent with good
\nplanning practice and compatible with permitted developments and uses in
\nadjoining districts, so as to protect the general welfare”.<\/p>\n
Planned Commercial Districts are designated to those properties approved by the
\nSt. Louis County Council upon review and acceptance of a preliminary
\ndevelopment plan, approval and recordation of a site plan and the schedule of
\nconstruction of the approved use is complied with in accordance with the zoning
\nordinance.<\/p>\n
The subject property was zoned “R-6A” – Residence District at the time Tesson
\nFerry Medical Equities L.P. purchased the property. The application and
\npreliminary plans for the proposed subject development were submitted by the
\npurchasers and approved by the St. Louis County Council; this approval
\nresulted in rezoning the subject property to a “C-8” classification allowing
\nthe proposed use as the St. Louis Comprehensive and Ambulatory Care Facility.<\/p>\n
-17-
\n 29
\nREAL ESTATE TAXES AND ASSESSMENTS<\/p>\n
The subject property is recognized by the St. Louis County Assessor’s Office by
\nlocator number 31L430040. As indicated in the Zoning section of this report,
\nat the time of the sale the subject property was zoned for residential
\npurposes, therefore the property was assessed as residential property;
\nresidential properties are assessed at 19 percent of appraised value. The
\nappraised and assessed value for 1993 is as follows:<\/p>\n
\n\n Appraised Assessed
\n Value Value
\n ——— ——–
\n
\n Land $105,800 $20,100
\n Improvements 0 0
\n ——— ———
\n Total $105,800 $20,100
\n<\/c><\/c><\/s><\/caption>\n<\/table>\nAccording to the Collector of Revenue’s Office the millage rate for properties
\nlocated within the Mehlville R-9 School Subdivision District 120H is $6.015 per
\n$100 of assessed value. Based upon the above assessed value of $20,100 and the
\nmillage rate of $6.015 the 1993 real estate tax liability is $1,209.02.<\/p>\n
Subsequent to it’s purchase the subject property was rezoned to C-8 – Planned
\nCommercial District. According to the Assessor’s Office the subject property
\nwill be reassessed as a commercial property upon completion of the
\nimprovements; commercial properties are assessed at 32 percent of appraised
\nvalue. In addition to the 1993 base millage rate of $6.015, industrial and
\ncommercial properties are levied an additional surcharge of $1.70 per $100 of
\nassessed value.<\/p>\n
Real estate tax liabilities in the state of Missouri are based upon the
\nassessed value as of the first day of the year and due and payable by the last
\nday of the year. Since the subject property was still under construction as of
\nJanuary 1, 1994 the property will not be assessed as if completed until January
\n1, 1995.<\/p>\n
-18-
\n 30
\nSUBJECT PROPERTY DESCRIPTION<\/p>\n
Site Description<\/p>\n
The subject St. Louis Comprehensive and Ambulatory Care Facility site is
\nlocated on the west side of Tesson Ferry Road at Duessel Road. The
\nirregular-shaped parcel, containing 10.002 acres, or 435,687 square feet, has
\nthe following frontages and boundaries:<\/p>\n
\n
\n North property line – 749.46′ – Southmoor Apartment Complex
\n East property line – 761.13′ – Tesson Ferry Road
\n South property line – 555.45′ – Garden Villas South
\n West property line – 557.15′ – Butler Hill Road\/Garden Villas South
\n<\/c><\/c><\/c><\/c><\/s><\/table>\nThe subject site has a sloping terrain with the highest elevation being at the
\nnortheast corner of the property. From this area the site slopes uniformly
\ndownward to the south with a change in elevation of -30 feet from the north
\nproperty line to the south property line. Additionally, the terrain slopes
\ndownward to the west and to the southwest with a change in elevation of -65
\nfeet along the north property line and a change in elevation of -68 feet from
\nthe northeast corner to the southwest corner of the site. A significant amount
\nof excavation was necessary in the area of the improvement resulting in the
\nimprovement’s main entrance on the front elevation entering into the second
\nlevel and the rear entrance being on the lower level. The site has been
\nexcavated to maximally utilize the property for the existing improvement,
\nparking areas and any future expansion or additions.<\/p>\n
Access to the subject property is by way of one signalized entrance on Tesson
\nFerry Road on the east property line and one entrance on Butler Hill Road on
\nthe west property line.<\/p>\n
The subject site is served by all customary utilities, including water, sewer,
\nelectricity and telephone service.<\/p>\n
Given the sloping terrain and the excavation for a water retention area in the
\nsouthwest portion of the property, the site has the appearance of having good
\ndrainage throughout. In addition, with properly engineered concrete piers and
\nfootings, the soil appears to<\/p>\n
-19-
\n 31
\nhave been excavated, filled and compacted to have adequate load bearing
\ncapability for this type of improvement.<\/p>\n
The improvement is located in the north-central section of the property with
\nasphalt paving for employee\/guest parking on the north and east sides of the
\nimprovement. Expansion of and to the building would be possible on the west
\nand south elevations. Additionally, there is adequate room on the site for an
\nadditional structure. In our opinion, the location of the improvement on the
\nsite maximally utilizes the land area given the terrain of the property and
\nallows for future improvements on the site.<\/p>\n
The building containing 27,558 square feet on the lower level encompasses 6.3
\npercent of the site indicating a land to building ratio of 15.8:1.<\/p>\n
The site is considered to compliment its proposed medical related use. There
\nis good visibility and access from Tesson Ferry Road. Additionally, access is
\nprovided to the site by way of one entrance on Butler Hill Road, a much less
\ntravelled road.<\/p>\n
During our inspection of the site and site plans there were no adverse
\neasements or encroachments noted that would be considered to have a negative
\naffect on the value of the property.<\/p>\n
According to the National Flood Insurance Program – Federal Emergency
\nManagement Agency, Map 290327 Community Panel 0135E dated November 1, 1985, the
\nsubject property is located in Flood Zone C. Flood Zone C are areas of minimal
\nflooding.<\/p>\n
A legal description of the property and a plot plan showing the property
\nconfiguration are included in the Exhibit Section of this report.<\/p>\n
-20-
\n 32
\nIMPROVEMENT DESCRIPTION<\/p>\n
Building<\/p>\n
The subject site is improved with a two level, Class A, medical office
\nbuilding. The building, with a projected opening date of May, 1994, contains
\n54,801 square feet of gross building area with 27,558 square feet on the lower
\nlevel and 27,243 square feet on the upper level. The building is of good
\nconstruction with good quality materials and in good condition.<\/p>\n
General construction includes drilled, poured-in-place pilings, reinforced
\nconcrete spread footings under exterior curtain walls, concrete column pads and
\n12″ thick, below grade concrete walls and interior shear wall. Framing
\nconsists of a full structural steel framing system with fire protected steel
\ncolumns, beams and joist girders. Above grade exterior walls are non-bearing
\nEIFS panels with 1\/2″ gypsum board on 6″ metal studs and batt insulation;
\nfenestration includes vinyl-clad aluminum framed windows with decorative
\nmullions, automatic sliding doors on the main entrances and painted metal doors
\non secondary entrances. Floor construction is reinforced 5″ concrete on
\ngranular fill on the lower level and 5″ composite deck on channel-formed metal
\ndeck on steel bar joists on the upper level. The roof structure is a flat type
\nwith roof insulation on gypsum board on metal decking on steel bar joists; the
\nroof cover is built-up composition.<\/p>\n
Finish construction includes metal studs and taped and painted drywall
\npartitions; wall finishes include paint, vinyl wall covering, ceramic tile and
\nfull height glass wall with sliding glass doors. Ceiling finishes include
\ntaped and painted drywall and acoustical tile panels in metal grid system.
\nFloor finishes include ceramic tile, vinyl composition and carpeting.<\/p>\n
Mechanical equipment includes standard plumbing fixtures with copper, cast iron
\nand pvc supply, waste and vent piping and electric hot water heaters. The
\nbuilding is heated and cooled by a zoned warm and cool forced air ducted system
\nwith electric duct heaters and three roof-mounted freon air conditioning units.
\nElectric service is rated at 2,500 amps with wiring in flexible and rigid
\nconduit; incandescent and fluorescent light fixtures are typical throughout.
\nOther mechanical features include a fire alarm system, emergency generator, two
\nelevators and fire protection sprinkler system.<\/p>\n
-21-
\n 33
\nA detailed description of the building by construction components is included
\nin the Exhibit Section of this report.<\/p>\n
Site Improvements<\/p>\n
Improvements to the site include site preparation, landscaping, underground
\nutilities, asphalt and concrete paving, concrete curbing, parking lot lighting
\nand signage.<\/p>\n
A detailed description of the site improvements is included in the Exhibit
\nSection of this report.<\/p>\n
-22-
\n 34
\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
-23-
\n 35
\nThe analysis of highest and best use is divided into two sections. The site is
\nanalyzed as if vacant and available for development and as currently improved.<\/p>\n
As if Vacant<\/p>\n
The subject site, containing 10.002 acres, has been excavated to maximally
\nutilize the total land area and sloping terrain. The terrain, configuration
\nand size are adequate and sufficient enough for numerous uses that would be
\npermitted by the St. Louis County Department of Planning and Zoning and the St.
\nLouis County Council for a Planned Commercial District. In addition, the site
\nhas good visibility on a heavily travelled thoroughfare, good access from a
\nmajor thoroughfare and a secondary road, therefore the subject site is
\navailable for numerous office\/commercial\/medical uses consistent with a Planned
\nCommercial District.<\/p>\n
As If Improved<\/p>\n
As previously stated in this report the subject property is located in a
\nwell-balanced mixed use neighborhood area in southwest St. Louis County. The
\nresidential properties consist of upper middle class single-family residences
\nand multi-family apartment complexes. The commercial type improvements in the
\narea range from free-standing single-tenant or owner occupied buildings and
\nstrip shopping centers with businesses catering to both area residents and
\npassing vehicular traffic. Institutional properties in the area include
\nchurches, a nursing homes and retirement village, a hospital and a fire
\nstation. Professional development includes corporate offices, multi-tenant
\noffice buildings and medical office buildings and single-tenant or owner
\noccupied professional offices and medical offices.<\/p>\n
The property is well situated by fronting on a heavily-travelled major
\nthoroughfare approximately two miles south of an interstate highway; visual
\nexposure to passing traffic is excellent.<\/p>\n
As previously stated, the 10.002-acre site is currently improved with a 54,801
\nsquare foot medical office building with 27,558 square feet of floor area on
\nthe lower level indicating a land to building ratio of 15.8:1. The
\nimprovements are situated on the site to maximally utilize the land area as
\nwell as the terrain, provide for good ingress and egress and adequate parking
\nfor this type of use. Additionally, there is sufficient enough space on the
\nsite for future expansion to the building or additional buildings.<\/p>\n
-24-
\n 36<\/p>\n
The location of the property as well as the location of the improvements on the
\nsubject site are considered to satisfy the first criterion, physically
\npossible, of the highest and best use analysis.<\/p>\n
As stated in the Zoning section of this report the subject improvement is a
\npermitted use, therefore the second criterion of the highest and best use
\nanalysis, legally permissible, is satisfied.<\/p>\n
The third criterion, financially feasible, of the highest and best use is that
\nthe proposed medical office building use produces the income (return) that is
\ngreater that the amount needed to satisfy the operating expenses, financial
\nobligations and capital amortization. The most feasible use for the property
\nas improved is the building’s current use given the special use construction
\nattributes.<\/p>\n
The fourth criteria, maximally productive, is a culmination of the first three
\ncriteria. The subject use is physically possible, legally permissible and
\nfinancially feasible indicating that the current use could be maximally
\nproductive for the site. Considering the potential rates of return for medical
\nrelated use versus what the property was originally zoned for, residential, the
\nsubject use would clearly be superior to potential residential uses at this
\nlocation. Therefore, it is our opinion that the highest and best use of the
\nsubject property, as improved, as of the effective date of this appraisal, is
\nits proposed medical office building use.<\/p>\n
-25-
\n 37
\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
-26-
\n 38
\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
-27-
\n 39
\nLand Sale Number 1<\/p>\n
\n
\nLocation: 13303 Tesson Ferry Road, subject property, St. Louis County<\/p>\nDate: November 10, 1992<\/p>\n
Zoning: R-6A, Residence District<\/p>\n
Size:” 435,687 square feet, 10.002 acres<\/p>\n
Sales Price: $1.88 per square foot, $81,984 per acre<\/p>\n
Grantor: Louis and Rhoda M. Laudel, William H. and Kathleen M. Laudel, Herbert and Margaret H.
\n Laudel, Albert and Barbara R. Laudel, Kenneth and Bernadine Kuhn<\/p>\n
Grantee: Tesson Ferry Medical Equities, L.P., a Missouri Limited Partnership<\/p>\n
Recording Data: Book 9512, Page 1130<\/p>\n
Comments: At the time of the sale the subject property was zoned for residential use; the site has
\n since been rezoned for commercial use. All utilities were available at the time of the
\n sale. Sale transaction verified by a representative of SHC Midwest, Inc. and St. Louis
\n County public records.
\n<\/c><\/s><\/table>\n
-28-
\n 40
\nLand Sale Number 2<\/p>\n
\n
\nLocation: 12152 Tesson Ferry Road, at the southeast corner of Gerald Drive and Tesson Ferry Road,
\n St. Louis County<\/p>\nDate: December 7, 1990<\/p>\n
Zoning: C-8, Planned Commercial District<\/p>\n
Size: 54,842 square feet, 1.259 acres<\/p>\n
Sales Price: $302,000<\/p>\n
Unit Price: $5.51 per square foot, $239,873 per acre<\/p>\n
Grantor: VTF Enterprises<\/p>\n
Grantee: Physicians Building Partnership<\/p>\n
Recording Data: Book 8897, Page 139<\/p>\n
Comments: Purchased subject to rezoning from residential to Commercial zoning. A medical office
\n building containing 12,000 square feet of floor area on the first level and a 5,000
\n square foot basement has been built on the site since the time of the sale. The site is
\n below the grade of Highway 21, at grade with Gerald Drive and slopes downward to the
\n south. Interstate 270 is approximately 1,000 feet to the south. All utilities were
\n available at the site at the time of the sale. Sale transaction verified by a
\n representative of Physicians Building Partnership.
\n<\/c><\/s><\/table>\n
-29-
\n 41
\nLand Sale Number 3<\/p>\n
\n
\nLocation: 3668 South Geyer Road, Sunset Hills<\/p>\nDate: September 13, 1990<\/p>\n
Zoning: PD2, Planned Development, Business Commercial<\/p>\n
Size: 97,618 square feet, 2.241 acres<\/p>\n
Sales Price: $750,000<\/p>\n
Unit Price: $7.68 per square foot, $334,672 per acre<\/p>\n
Grantor: Linclay Realty Corporation<\/p>\n
Grantee: LJP Realty Corporation<\/p>\n
Recording Data: Book 8844, Page 1119<\/p>\n
Comments: All utilities were available at the time of the sale. The property has subsequently been
\n improved with a 64,000 square foot, three-story office building. Sale transaction
\n verified by a representative of Linclay Realty Corporation.
\n<\/c><\/s><\/table>\n
-30-
\n 42
\nLand Sale Number 4<\/p>\n
\n
\nLocation: 5423 Telegraph Road, St. Louis County<\/p>\nDate: April 27, 1990<\/p>\n
Zoning: R-2, Residence District<\/p>\n
Size: 52,272 square feet, 1.200 acres<\/p>\n
Sales Price: $310,000<\/p>\n
Unit Price: $5.93 per square foot, $258,333 per acre<\/p>\n
Grantor: Schnuck Markets, Inc.<\/p>\n
Grantee: Union Electric Company<\/p>\n
Recording Data: Book 8749, Page 2472<\/p>\n
Comments: St. Louis County located #31H130800. This site, with all utilities available, has been
\n rezoned for commercial use since the time of the sale. Sale transaction verified by St.
\n Louis County public records.
\n<\/c><\/s><\/table>\n
-31-
\n 43
\nSale Number 5<\/p>\n
\n
\nLocation: 12727 Old Tesson Ferry Road at Tesson Ferry Road, St. Louis County<\/p>\nDate: February 1, 1990<\/p>\n
Zoning: C-8, Planned Commercial District<\/p>\n
Size: 70,132 square feet, 1.610 acres<\/p>\n
Sales Price: $415,000<\/p>\n
Unit Price: $5.92 per square foot, $257,763 per acre<\/p>\n
Grantor: Boatmen’s National Bank<\/p>\n
Grantee: William and Louann Voss<\/p>\n
Recording Data: Book 8708, Page 1476<\/p>\n
Comments: St. Louis County locator #29L140463. Part of the land has been improved with a
\n Children’s World Learning Center. The property is located across from St. Anthony’s
\n Hospital and adjoins the south side of the Boatmen’s Bank building. The site, with all
\n utilities available, is at grade with Old Tesson Ferry Road, below the grade of Tesson
\n Ferry Road and level throughout. Sale transaction verified by St. Louis County public
\n records.
\n<\/c><\/s><\/table>\n
-32-
\n 44<\/p>\n
Land Sale Number 6<\/p>\n
\n
\nLocation: 5139 Mattis Road, St. Louis County<\/p>\nDate: February 1, 1990<\/p>\n
Zoning: C-8, Planned Commercial District<\/p>\n
Size: 51,856 square feet, 1.190 acres<\/p>\n
Sales Price: $300,000<\/p>\n
Unit Price: $5.79 per square foot, $252,006 per acre<\/p>\n
Grantor: Taylor, Morley, Simon, Inc.<\/p>\n
Grantee: Shah Anwar<\/p>\n
Recording Data: Book 9500, Page 1767<\/p>\n
Comments: St. Louis County locator #29L541183. Sale property, with all utilities available, is
\n located at the northwest corner of the intersection of Mattis Road and Somerset. The
\n property has been developed with a 13,466 square foot medical building housing the
\n Midwest Eye Center. Sale transaction verified by the purchaser.
\n<\/c><\/s><\/table>\n
-33-
\n 45
\nThe preceding six land sales are summarized in the following table.<\/p>\n
\n LAND SALES SUMMARY<\/p>\n\n SALE DATE LAND SIZE SALE UNIT PRICE
\n NUMBER OF SALE ZONING (SQ. FT.) PRICE (SQ. FT.)<\/p>\n
\n 1 November 1992 R-6A 435,687 $820,000 $1.88
\n 2 December 1990 C-8 54,842 $302,000 $5.51
\n 3 September 1990 PD2 97,618 $750,000 $7.68
\n 4 April 1990 R-2 52,272 $310,000 $5.93
\n 5 February 1990 C-8 70,132 $415,000 $5.92
\n 6 February 1990 C-8 51,856 $300,000 $5.79
\n<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nA land sale location map depicting the location of the sales utilized in the
\nland valuation analysis is presented in the Exhibit Section of this report.<\/p>\n
As indicated on the land sales location map, the land sales are located in the
\nimmediate and the same general area of the subject property.<\/p>\n
The six land sales utilized in determining the market value of the subject land
\noccurred between February 1990 and November 1992. The sales reflect a wide
\nrange in sale price from $1.88 to $7.68 per square foot and range in size from
\n51,856 square feet to 435,687 square feet, the largest being the subject sale.
\nSince two properties are rarely identical, it is necessary to adjust the sales
\nfor differences when compared with the subject property.<\/p>\n
When analyzing the sales for date of sale adjustment to compensate for property
\nvalue inflation that has taken place since the date of the sale, we have not
\nadjusted any sales due to the “soft” conditions experienced in the St. Louis
\nreal estate market for the past three years. Within the past year there has
\nbeen a noticeable increase in real estate activity particularly in vacant land
\nfor residential and commercial use.<\/p>\n
Since, to the best of our knowledge, these transactions did not involve
\nfavorable financing no adjustment was required for this characteristic.<\/p>\n
-34-
\n 46
\nCare was taken that all sales be located as near the subject as possible so
\nthat the sale properties are influenced by the same surrounding conditions as
\nthe subject property. As previously stated, all sales are located in the same
\ngeneral area as the subject property. Additionally, all sale properties are
\nlocated in similar office\/commercial type areas with residential properties in
\nthe outlying areas. No adjustment was warranted to the sales for surrounding
\narea or the influence the surrounding properties have on the sales since the
\nareas are similar and influenced by the same type of property uses. A location
\nadjustment was considered for frontage or exposure on major thoroughfares. As
\npreviously stated, the subject property is located on the west side of Tesson
\nFerry Road 2.2 miles south of the Interstate 270 and Tesson Ferry Road
\ninterchange. Tesson Ferry Road is a heavily travelled thoroughfare linking
\nHighway 141 to the south with Highway 30 to the north.<\/p>\n
When adjusting for this location factor we have adjusted Sale Numbers 2, 5 and
\n6 downward for their superior location closer to the Interstate 270\/Tesson
\nFerry Road interchange. Sale Number 3, while being located on a lesser
\ntravelled street nd therefore considered inferior, is located within close
\nproximity to the Interstate 270\/Interstate 44 interchange in a more centralized
\nlocation of St. Louis County resulting in a superior location when compared
\nwith the subject. Therefore, Sale Number 3 was adjusted downward as well.
\nSale Number 4 is considered to have similar location characteristics, therefore
\nno adjustment was warranted to this sale.<\/p>\n
When adjusting the sales for zoning we have adjusted the subject sale upward
\nfor being zoned for residential use at the time of its sale as compared with
\nits commercial zoning as of the date of this report. We have also adjusted
\nSale Number 4 upward for being zoned for residential use. No adjustment was
\nwarranted to Sale Numbers 2, 3, 5 and 6 since they are zoned, like the subject
\nproperty, for commercial use.<\/p>\n
There typically exists an inverse relation between the size of a parcel and the
\nprice per unit at which it sells such that a smaller tract of land will
\ngenerally sell for a higher price per square foot than a larger parcel with all
\nelse being equal. All sales were adjusted downward by varying degrees for
\nbeing significantly smaller than the subject property.<\/p>\n
As previously stated in this report, all utilities are available to the subject
\nproperty. No adjustment was warranted to any of the sales for utilities since
\nthey are served by the same utility and supplier.<\/p>\n
-35-
\n 47
\nWhen adjusting the sales for topography, all sales were adjusted downward for
\nhaving a superior topography when compared with the sloping terrain of the
\nsubject property.<\/p>\n
As previously indicated, all sales are in the same general area of the subject
\nproperty and have similar characteristics. Differing characteristics of the
\nsales have been adjusted resulting in the adjusted sale providing a better
\nbasis upon which to determine a market value for the subject property. A land
\nsale adjustment grid is presented as follows.<\/p>\n
\n\n LAND SALES ADJUSTMENT GRID<\/p>\n SALE NO. 1 SALE NO. 2 SALE NO. 3 SALE NO. 4 SALE NO. 5 SALE NO. 6
\n
\n Sale Price Per $1.88 $5.51 $7.68 $5.93 $5.92 $5.79
\n Square Foot
\n Financing Market Market Market Market Market Market<\/p>\n Adjustment 0 0 0 0 0 0<\/p>\n
Price Per Square $1.88 $5.51 %$7.68 $5.93 $5.92 $5.79
\n Foot Adjusted for
\n Financing
\n Date of Sale 10-Nov-92 07-Dec-90 19-Sep-90 27-Apr-90 01-Feb-90 01-Feb-90<\/p>\n
Time Adjustment 0% 0% 0% 0% 0% 0%
\n Time Adjusted Price $1.88 $5.51 $7.68 $5.93 $5.92 $5.79
\n Per Square Foot<\/p>\n
Land Area 435,687 54,842 97,618 52,272 70,132 51,856<\/p>\n
Adjustment 0% -15% -10% -15% -15% -15%
\n Location\/Accessibility Similar Superior Superior Similar Superior Superior<\/p>\n
Adjustment 0% 0% 0% 0% 0% 0%
\n Zoning Inferior Similar Similar Inferior Similar Similar<\/p>\n
Adjustment 25% 0% 0% 25% 0% -5%<\/p>\n
Topography Similar Superior Superior Superior Superior Superior
\n Adjustment 25% -55% -45% -15% -55% -60%<\/p>\n
Adjusted Price Per $2.35 $2.48 $4.22 $5.04 $2.66 $2.32
\n Square Foot
\n<\/c><\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\n
-36-
\n 48
\nAfter adjusting the preceding land sales for differences when compared with the
\nsubject property, we find an adjusted sale price per square foot range of $2.32
\nto $5.04.<\/p>\n
In our final correlation of land valuation analysis we have considered all
\nsales, however the greatest weight was given to the subject property. Based on
\nthe land valuation adjustment analysis and the subject property sale, we have
\nconcluded that the market value of the subject site is reasonably represented
\nat $2.35 per square foot, which for 435,687 square feet amounts to $1,023,864
\nrounded to:<\/p>\n
$1,024,000
\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
\nService, 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, indicating the derived costs from the Marshall Valuation
\nService shows the estimated replacement cost by category for the subject
\nbuilding, is presented in the Exhibit section of this report. An amount
\nrepresenting entrepreneurial profit has also been included in this analysis.
\nThis profit is a necessary element in the motivation to construct the
\nimprovements and represents an additional amount the developer would expect to
\nreceive for construction of the project. The amount of entrepreneurial profit
\nvaries according to economic conditions and types of development. For the
\npurpose of this report, entrepreneurial profit was estimated to comprise ten
\npercent of the direct and indirect building costs.<\/p>\n
The total accumulated depreciation of a structure represents the loss in value
\ndue to physical deterioration, functional obsolescence, or external (or
\neconomic) obsolescence. Economic life of a structure or improvement is the
\nperiod over which they contribute to the value of the property. These terms
\nare defined as follows:<\/p>\n
-37-
\n 49
\n Physical Deterioration: The loss in value due to deterioration or
\n ordinary wear and tear, i.e., natural forces taking their toll of the
\n improvements. This begins at the time the building is completed and
\n continues throughout its physical life.<\/p>\n
Functional Obsolescence: The loss in value due to poor plan,
\n functional inadequacy, or super-adequacy due to size, style, design, or
\n other items. This form of depreciation occurs in both curable or
\n incurable forms.<\/p>\n
External (or Economic) Obsolescence: The loss in value caused by
\n forces outside the property itself. It can take many forms such as
\n excessive noise levels, traffic congestion, abnormally high crime
\n rates, or any other factors which affect a property’s ability to
\n produce an economic income, thereby causing a decline in desirability.
\n Other forms of economic obsolescence may include governmental
\n restrictions, excessive taxes, or economic trends.<\/p>\n
Economic Life: The economic life of a good quality medical office
\n buildings is typically 45 to 50 years. For the subject Class A
\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 Service, Inc. was used to estimate the overall economic life
\nof the improvements. The assignment of economic lives assumed that, except for
\nthe building 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
\nzero.<\/p>\n
Due to the design and structural components of the building, we have not
\nindicated any loss in value due to functional obsolescence.<\/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 zero years and a remaining useful life of
\n20 years. Therefore,<\/p>\n
-38-
\n 50
\nthe depreciation rate attributable to the site improvements on a straight-line
\nbasis is estimated to be zero percent.<\/p>\n
During our area study, we did not notice any evidence of economic obsolescence
\nassociated with the subject property.<\/p>\n
The computation of value is shown as follows:<\/p>\n
\n\n Replacement Accumulated Depreciated
\n Cost Depreciation Value
\n ———— ———— ———–
\n
\n MOB $6,023,595 $0 $6,023,595
\n Site Improvements 352,850 0 352,850
\n ———- —- ———-
\n Total Improvements $6,376,445 $0 $6,376,445
\n<\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nCost 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 15, 1994, is rounded to:<\/p>\n
$7,400,000
\n ==========<\/p>\n
-39-
\n 51
\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 six 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
-40-
\n 52<\/p>\n
\n
\nImproved Sale Number 1<\/p>\nLocation: 13065 Old Tesson Ferry Road, St. Louis County<\/p>\n
Date of Sale: October 13, 1992<\/p>\n
Building Size: 4,596 square feet<\/p>\n
Year Built: 1978<\/p>\n
Land Area: 47,916 square feet, 1.100 acres<\/p>\n
Land to Building Ratio: 10.4:1<\/p>\n
Sale Price: $495,000<\/p>\n
Price Per Square Foot of Building Area: $107.70<\/p>\n
Grantor: Charles and Bernice Willis<\/p>\n
Grantee: Kromal Investments, Inc.<\/p>\n
Recording Data: Book 9477, Page 1154<\/p>\n
Comments: St. Louis County locator #30L420352. This vacant one-story State Farm
\n Agency building had a 930 square foot garage that was incorporated into
\n finished office space during a $100,000 renovation for a psychiatric
\n practice comprising offers of Kromal Investments, Inc. Sale transaction
\n verified by the Grantor.
\n<\/c><\/s><\/table>\n
-41-
\n 53<\/p>\n
\n
\nImproved Sale Number 2<\/p>\nLocation: 1265 Graham Road, Florissant<\/p>\n
Date of Sale: July 1, 1991<\/p>\n
Building Size: 11,386 square feet<\/p>\n
Year Built: 1978<\/p>\n
Land Area: 75,359 square feet, 1.730 acres<\/p>\n
Land to Building Ratio: 13.2:1<\/p>\n
Sale Price: $1,140,000<\/p>\n
Price Per Square Foot of Building Area: $100.12<\/p>\n
Grantor: Perry L. Mehlman<\/p>\n
Grantee: Christian Hospital N.E.\/N.W.<\/p>\n
Recording Data: Book 9038, Page 1330<\/p>\n
Comments: St. Louis County locator #09K340392. Two-story medical office building
\n known as the Northwest County Professional Building. Sale transaction
\n verified by St. Louis County public records.
\n<\/c><\/s><\/table>\n
-42-
\n 54<\/p>\n
\n
\nImproved Sale Number 3<\/p>\nLocation: 450 New Ballas Road, Creve Coeur<\/p>\n
Date of Sale: May 1, 1991<\/p>\n
Building Size: 30,834 square feet<\/p>\n
Year Built: 1984<\/p>\n
Land Area: 98,446 square feet, 2.260 acres<\/p>\n
Land to Building Ratio: 6.4:1<\/p>\n
Sale Price: $4,100,000<\/p>\n
Price Per Square Foot of Building Area: $132.97<\/p>\n
Grantor: Donald Ferguson<\/p>\n
Grantee: Dr. Joseph Rubado<\/p>\n
Recording Data: Book 9001, Page 94<\/p>\n
Comments: St. Louis County located #170320971. Two-story medical office building.
\n The above stated building area does not include 9,387 square feet of
\n basement garage.
\n<\/c><\/s><\/table>\n
-43-
\n 55
\nImproved Sale Number 4<\/p>\n
\n
\nLocation: 414 North New Ballas Road, Creve Coeur<\/p>\nDate of Sale: March 5, 1991<\/p>\n
Building Size: 16,536 square feet<\/p>\n
Year Built: 1958<\/p>\n
Land Area: 92,347 square feet, 2.120 acres<\/p>\n
Land to Building Ratio: 11.2:1<\/p>\n
Sale Price: $1,575,000<\/p>\n
Price Per Square Foot of Building Area: $95.25<\/p>\n
Grantor: Joe H. Scott, Sr.<\/p>\n
Grantee: Medical Equities, L.P.<\/p>\n
Recording Data: Book 9001, Page 98<\/p>\n
Comments: St. Louis County locator #17O320265. Two-story Class C medical office
\n building known as the Creve Coeur Dental Arts Building. Lower level
\n accessed at the rear of the building. Located at the northeast corner
\n of New Ballas Road and Magna Carta Drive.
\n<\/c><\/s><\/table>\n
-44-
\n 56
\nImproved Sale Number 5<\/p>\n
\n
\nLocation: 8430 Pershall Road, Hazelwood<\/p>\nDate of Sale: December 10, 1990<\/p>\n
Building Size: 7,017 square feet<\/p>\n
Year Built: 1981<\/p>\n
Land Area: 40,075 square feet, 0.920 acres<\/p>\n
Land to Building Ratio: 11.4:1<\/p>\n
Sale Price: $875,000<\/p>\n
Price Per Square Foot of Building Area: $124.70<\/p>\n
Grantor: Ronald Gersten, DDS<\/p>\n
Grantee: Bonhomme Acquisition Corporation<\/p>\n
Recording Data: Book 7315, Page 92<\/p>\n
Comments: St. Louis County locator #09J110471. Two-story, Class D, medical office
\n building known as Life Smile Dental Care. Sale transaction verified by
\n St. Louis County public records.
\n<\/c><\/s><\/table>\n
-45-
\n 57
\nImproved Sale Number 6<\/p>\n
\n <\/p>\nLocation: 225 Dunn Road, Florissant<\/p>\n
Date of Sale: July 19, 1990<\/p>\n
Building Size: 8,416 square feet<\/p>\n
Year Built: 1988<\/p>\n
Land Area: 41,382 square feet, 0.95 acres<\/p>\n
Land to Building Ratio: 4.9:1<\/p>\n
Sale Price: $876,000<\/p>\n
Price Per Square Foot of Building Area: $104.09<\/p>\n
Grantor: Land Dynamics, Inc.<\/p>\n
Grantee: Grey Arch Partnership<\/p>\n
Recording Data: Book 8807, Page 1830<\/p>\n
Comments: St. Louis County locator #09J130897. One-story medical office building
\n known as Building A of the Florissant Professional Campus. Land size
\n includes share of common ground parking. Buyer comprises tenant
\n physicians exercising option in 1988 lease. Sale transaction verified
\n by the Grantor.
\n<\/c><\/s><\/table>\n
-46-
\n 58
\nThe preceding six medical office building property sales are summarized in the
\nfollowing table.<\/p>\n
\n\n IMPROVED SALES SUMMARY<\/p>\n SALE DATE BUILDING YEAR SALE UNIT PRICE
\n NUMBER OF SALE AREA (SF) BUILT PRICE (SF)<\/p>\n
\n 1 10\/92 4,596 1978 $ 495,000 $107.70
\n 2 07\/91 11,386 1978 $1,140,000 $100.12
\n 3 05\/91 30,834 1984 $4,100,000 $132.97
\n 4 03\/91 16,536 1958 $1,575,000 $ 95.25
\n 5 12\/90 7,017 1981 $ 875,000 $124.70
\n 6 07\/90 8,416 1988 $ 876,000 $104.09
\n<\/c><\/c><\/c><\/c><\/c><\/s><\/caption>\n<\/table>\nThe six comparable sales utilized in the Sales Comparison Approach analysis
\nwere transacted between July 1990 and October 1992. The building sizes range
\nfrom 4,596 square feet to 30,834 square feet and range in sale price from
\n$95.25 to $132.97 per square foot of building area.<\/p>\n
In order to arrive at a market value of the subject property, it is necessary
\nto compare the subject property with each sale and make adjustments to the
\nsales for differences. Adjustments are then applied to the unit of comparison.
\nThe most common unit of comparison for commercial properties is based upon
\nbuilding area. A discussion of the adjustments to develop a similarity between
\nthe sale property and the subject property is as follows:<\/p>\n
Since, to the best of our knowledge, these sales transactions did not involve
\nfavorable financing, no adjustment was required for this characteristic.<\/p>\n
All sales are located within similar high traffic commercial areas.
\nAdditionally, each medical office building sale is located within close
\nproximity to an acute care general hospital. Based upon the similar
\nsurrounding property influences and close proximity to an acute-care general
\nhospital, no adjustment was warranted to any sale for location.<\/p>\n
-47-
\n 59
\nIn addition to comparing location of the area and surrounding properties, we
\nhave analyzed each sale for access. All sales are located on major
\nthoroughfares within close proximity to an interstate highway, therefore no
\nadjustment was warranted to these sales since they have comparable access.<\/p>\n
All sales were adjusted downward by varying amounts for having less building
\narea when compared with the subject property’s building area. Typically,
\nsmaller buildings sell for more on a per square foot basis than larger
\nbuildings. Smaller buildings of this type must have the same components and
\ncomplements as larger buildings to operate properly for their intended
\nprofessional use.<\/p>\n
When adjusting the sales for building characteristics we have first adjusted
\nconsidered condition. No adjustment was warranted to the sales since they are
\nin similar good condition when compared with the subject building improvement.<\/p>\n
In addition to condition, we have also considered an adjustment for age. All
\nsales were adjusted upward by varying amounts for age due to the subject
\nproperty being new.<\/p>\n
We have also considered the land to building ratio in our adjustment analysis.
\nA higher land to building ratio indicates sufficient land area for possible
\nexpansion to the existing improvement or construction of additional buildings.<\/p>\n
All sales, except for Sale Number 2, have an inferior land to building ratio
\nwhen compared to the subject property’s land to building ratio of 15.8:1. We
\nhave therefore, adjusted Sale Numbers 1, 3, 4, 5 and 6 upward by varying
\namounts to compensate for the inferior land to building ratio.<\/p>\n
No adjustment was warranted to any of the sales for ceiling heights since
\nceiling heights are not a significant factor that will adjust marketing time or
\nsales price in professional office related uses.<\/p>\n
In addition, no adjustment was deemed necessary for functional utility since
\nall improvements are currently being utilized for medical office use.<\/p>\n
In our final correlation of the Sales Comparison Approach analysis, we have
\nrelied on the adjusted results of each property since we consider all
\nproperties to be a good representation of the market and to reflect market
\nconditions. Due to the soft real<\/p>\n
-48-
\n 60
\nestate market conditions, we have not made an adjustment for the time since
\ncurrent market conditions ar considered to compensate for inflationary factors.<\/p>\n
Based on the foregoing adjustment analysis, we have concluded the market value
\nof the subject property, utilizing the Sales Comparison Approach, is reasonably
\nrepresented at $130.00 per square foot, which for 54,801 square feet, amount to
\n$7,124,130, rounded to:<\/p>\n
$7,124,000
\n ==========<\/p>\n
-49-
\n 61
\n INCOME APPROACH<\/p>\n
The Income Approach is based on the principle of anticipation, and has as its
\npremise that value is represented by the present worth of expected future
\nbenefits. The price that an investor will pay for an income property usually
\ndepends on the anticipated income stream. The Income Approach represents an
\nattempt to simulate the future cash flows for the property, and to quantify the
\nfuture benefits in present dollars.<\/p>\n
The subject property is one of several professional office buildings that
\nCrescent Capital Trust, Incorporated is purchasing to establish a real estate
\ninvestment trust (REIT). Surgical Health Corporation 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
\ntenant(s). Additionally, the annual rental income provided for in the ground
\nlease, associated with the subject property, will be received by the REIT.<\/p>\n
This master lease is a credit enhancement vehicle that will enable the REIT
\nissuer to sell the REIT shares. It will also give Surgical Health Corporation
\nleasing flexibility for the medical office building space, i.e., they can lease
\noffice space to various physicians at different rates and terms, or they can
\nuse the office space for their own expansion.<\/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 rate
\nfor the property. We reserve the right to modify the Income Approach valuation
\nif the actual master lease for the property differs significantly from the
\ndraft lease presented to us.<\/p>\n
The master lease rate for the subject property will be $824,063 annually based
\non a fifteen-year lease. The annual rental amount is adjusted each year for
\nC.P.I. increases. The rental rate approximates $18.23 per square foot. Based
\non the subject’s build-out and age, this rate appears in line with market
\nrates. A survey of lease comparables is shown in the Exhibit Section of this
\nreport.<\/p>\n
-50-
\n 62
\nThe subject appraisal assumes 100 percent of the income is guaranteed through
\nthe master lease agreement. Since the leased fee interest is being appraised,
\nthere is no deduction for vacancy or credit loss.<\/p>\n
Since the master lease provides for an income level to the REIT net of all
\noperating expenses, the only out-of-pocket expenses to the REIT will be
\naccounting, legal and internal administration or management expenses. These
\nmanagement expenses are estimated at 5.0 percent of effective gross income, or
\n$41,203, based on the management experience of other properties.<\/p>\n
Master Lease Revenue $824,063
\n Less:
\n Management Fees (5% of master lease) (41,203)
\n Net Operating Income ——–
\n $782,860<\/p>\n
Although we have not utilized the Sales Comparison Approach to arrive at an
\nindication of value for the subject property, we have conducted a survey of
\nmedical office building sales throughout the region in order to abstract an
\noverall rate for capitalization. The full details of these sales are located
\nin the Exhibit Section of this report and indicate overall rates from 8.0
\npercent to 11.33 percent.<\/p>\n
A capitalization rate at 10.5 percent is considered appropriate because of the
\nquality of the tenant and the overall reasonableness of the rental rate
\nnegotiated.<\/p>\n
It is, therefore, our opinion that the market value of the subject property, as
\nof March 15, 1994, by the Income Approach is calculated and rounded as follows:<\/p>\n
Net Operating Income\/OAR = Estimated Value<\/p>\n
$782,860\/.105 = $7,455,810<\/p>\n
Rounded to: $7,456,000
\n ==========<\/p>\n
-51-
\n 63
\n CORRELATION AND CONCLUSION<\/p>\n
We have considered three approaches to value in order to estimate the value of
\nthe St. Louis Comprehensive and Ambulatory Care Center. The values derived
\nfrom the three approaches are summarized as follows:<\/p>\n
\n
\n Cost Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,400,000
\n Sales Comparison Approach . . . . . . . . . . . . . . . . . . . . . . . $7,124,000
\n Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,456,000
\n<\/c><\/s><\/table>\nThe 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. The Cost Approach, however,
\ndoes not necessarily reflect the value that investors and users would be
\nwilling to pay if the property were to be sold. Overall, this approach is
\nconsidered only a fair indicator of value.<\/p>\n
The Sales Comparison Approach is based on the price that investors and
\nowner\/occupants have recently paid for comparable professional office
\nbuildings. The quality and quality of data available in this approach was
\nconsidered good, but several of the comparable sales differed in size from the
\nsubject. The appraisers only consider this approach to be a fair indicator of
\nvalue for the subject property for this reason.<\/p>\n
The Income Approach normally provides the most reliable value estimate for
\nmulti-tenant professional office buildings. The value of the property is
\nstrongly related to the expected income stream of the property. Although the
\nbuyers of professional office buildings are usually owner\/occupants, these
\nbuyers are generally aware of the property’s cash flow potential and its value
\nfrom an investor’s perspective. For this reason, the Income Approach is
\nconsidered the best indicator of value for the subject.<\/p>\n
Based on this analysis, it is our opinion that the market value of the St.
\nLouis Comprehensive and Ambulatory Care Facility, as of March 15, 1994, subject
\nto the Surgical Health Corporation master lease, and based on the assumptions
\nand limiting conditions in this report, is the Income Approach value of:<\/p>\n
$7,400,000
\n ==========<\/p>\n
-52-
\n 64<\/p>\n
The values derived in the other approaches support the Income Approach value as
\nthe final value.<\/p>\n
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