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Appraisal/areas 3-6 - 2011CU Prepared For: City of La Quinta Attn: Mr. Thomas P. Genovese 78 -495 Calle Tampico La Quinta, CA 92253 3/�-O/ �-o A Summary Appraisal Report Of SilverRock Resort Planning Areas 3 -6 Location: South of Avenue 52, west of Jefferson Street, La Quinta, CA 92253 Date of Report: April 5, 2011 Date of Value: March 20, 2011 Capital Realty Analysts File No.: 11 -3286 CAPITAL REALTY ANALYSTS MICHAEL A. SCARCELLA, MAI 78015 MAIN STREET, SUITE 204 LA QUINTA, CA 92253 PHONE: (760) 564 -6222 FAX: (760) 564-6233 EMAIL: MIKE @REALTYADVISOR.COM lff1. April 5, 2011 i APR 2 1 2011 City of La Quinta Attn: Mr. Thomas P. Genovese 78 -495 Calle Tampico La Quinta, CA 92253 J I J i CAPITAL REALTY ANALYSTS Real Estate Appraisers ♦ Analysts ♦ Advisors 78 -015 Main Street, Suite 204 La Quinta, CA 92253 -8962 M +mnicwn RE: Planning Areas 3 -6, Located Within The SilverRock Resort Project Area: La Quinta, CA. 92253 Dear Mr. Genovese: At your request and authorization, I have performed a complete appraisal, setting forth in this summary report, my opinion of the market value of the fee simple estate in the subject property as of March 20, 2011. Per your request, the following market value estimates are reported for the subject property: 4 Market Value "As Is" Planning Area 3 (Boutique Hotel Site) Market Value "As Is" Planning Area 4 (Resort Hotel & Casitas Site) 4 Market Value "As Is" Planning Area 5 ( Resort Retail Village Site) 4 Market Value "As Is" Planning Area 6 (Traditional Hotel & Resort Casitas) The market value estimates are reported in the "As Is" condition, with no extraordinary assumptions or hypothetical conditions, subject to the definition of market value contained herein. The report identifies the subject property and its market area and presents the market data and analysis leading to the final estimates of value. This report is subject to the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. The appraisal report is intended to comply with the appraisal guidelines of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ( "FIRREA "), the Uniform Standards of Professional Appraisal Practice ( "USPAP "), adopted by the Appraisal Standards Board of the Appraisal Foundation. I have personally inspected the subject property. I have located and reviewed current sales and listings of comparable properties in the subject neighborhood and competing areas, and have analyzed this data in order to arrive at my estimates of market value. The table on the following page shows the final value estimates for each of the subject Planning Areas that are the subject of this report: Phone: (760) 564-6222 Fax: (760) 564-6223 Email: mike @realtyadvisor.com April 5, 2011 Capital Realty Analysts / Mr. Thomas P. Genovese Final Value Subject Properly Component Description Estimate Market Value "As Is" Planning Area 3 (Boutique Hotel Site) j 1,3du uuu Market Value "As Is" Planning Area 4 (Resort Hotel /Casitas Site) $1,285,000 Market Value "As Is" Planning Area 5 (Resort Retail Village Site) $1,075,000 Market Value "As Is" Planning Area 6 (Traditional Hotel & Casitas Site) $1,135,000 Aggregate Total $4,875,000 The undersigned have no personal interest either present or contemplated in the subject property and certify that no fee, received or to be received for the employment of my services is in any way contingent on the opinion reported herein. I hope you find the details of this appraisal report relevant to your decisions. Thank you for the opportunity to be of service. Respectfully submitted CAPITAL REALTY ANALYSTS, Michael A. Scarcella, MAI State Certification No.: AGO19463 Expiration Date: October 24, 2011 Table of Contents Tableof Contents ............................................................................. ............................... 4 Summary of Important Facts and Conclusions ................................ ............................... 5 Aerial Photograph of the Subject Property ................................... ............................... 9 Introduction / History of the Subject Property ............................. ............................... 11 Purposeof the Appraisal ............................................................ ............................... 12 Functionof the Appraisal ............................................................ ............................... 12 PropertyRights Appraised ......................................................... ............................... 12 Definition of Fee Simple Estate .................................................. ............................... 12 Definition of Market Value .......................................................... ............................... 12 Definition of "As Is" Value ........................................................... ............................... 13 Scopeof Work ............................................................................ ............................... 13 LegalDescription ........................................................................ ............................... 14 Assessment & Taxation .............................................................. ............................... 14 Regional Analysis — Coachella Valley ............................................ ............................... 15 City Analysis, La Quinta, CA .......................................................... ............................... 29 SiteAnalysis .................................................................................. ............................... 45 Highest and Best Use Analysis ...................................................... ............................... 63 AppraisalProcess .......................................................................... ............................... 67 Sales Comparison Approach ......................................................... ............................... 69 Certification.................................................................................... ............................... 86 Assumptions and Limiting Conditions ............................................ ............................... 88 Definitions of Key Appraisal Terms ................................................ ............................... 92 ' i Cad © 2011 CAPITAL REALTY ANALYSTS Page 4 Y Summary of Important Facts and Conclusions Client: City of La Quinta Attn: Mr. Thomas P. Genovese 78 -495 Calle Tampico La Quinta, CA 92253 Intended Users: The Client Intended Use: Internal Use Property Type: The subject of this appraisal report is 5 planning areas, located within the SilverRock Resort. Location: The subject property is located within the SilverRock, at { the SWC of Jefferson Street and Avenue 52, La (1 Quinta, CA. l -1 Identification: Planning Areas 3 -6, SilverRock Resort Specific Plan Thomas Brothers Guide Page 849 Grids H7, J7 Page 879 Grid 1-11, J1, J2, J3 Reference: Page 5530 Grid Al, A2 Riverside County, CA C9d © 2O11 CAPITAL REALTY ANALYSTS 1 Page 5 Summary of Imoortant Facts and Conclusions (cont'dl Census Tract No.: 451.11, 451.13, 456.03 Reporting Format: Purpose of the Appraisal: Function of the Appraisal: Date of Valuation: Last Date of Inspection: Date of Appraisal: Summary The purpose of this appraisal is to estimate the market value of the fee simple estate in the subject property under the following conditions; 4 Market value "As Is" in accordance with the definition of market value described in the body of this report. Internal Use March 20, 2011 March 20, 2011 April 5, 2011 Cad ®2011 CAPITAL REALTY ANALYSTS Page 6 Summary of Important Facts and Conclusions (cont'd) Owner.of Record: Preliminary Title Reports were not submitted or examined. According to public records, title to the subject parcels is vested with the La Quinta Redevelopment Agency. Site: According to the SilverRock Specific Plan, the site size of the subject property is as follows: AREA Size (Ac.) Size (SF) PLANNINGAREA3 13.79 600,692 PLANNINGAREA4 32.10 1,398,276 PLANNING AREAS 12.62 549,727 PLANNINGAREA6 28.36 1,235,362 Improvements: None Zoning: According to the City of La Quinta Zoning Map, the subject property is zoned TC, Tourist Commercial & G, Golf Course. The subject's zoning is considered reasonable and appropriate. Prospects for a short term zone change are nil. General Plan Designation: According to the City of La Quinta Specific Plan Map, the subject has a General Plan designation of TC, Tourist Commercial & G, Golf Course. The General Plan Designation is conforming. The allowable uses for each Planning Area are described in the Introduction and Market Analysis sections of the report. Highest And Best Use "As Hold for investment If Vacant ": Highest And Best Use "As Not applicable for the vacant portion of the subject. Improved ": The highest and best use of the existing improvements is to remain as improved. Cod* 2011 CAPITAL REALTY ANALYSTS Page 7 Summary of Important Facts and Conclusions (cont'd) Property Rights Fee Simple Estate Appraised: Extraordinary None Assumptions: Hypothetical Conditions: None Final Value Estimate "As Is ": Final Value Subject Property Component Description Estimate Market Value "As Is" Planning Area 3 (Boutique Hotel Site) $1,380,000 Market Value "As Is" Planning Area 4 (Resort Hotel /Casitas Site) $1,285,000 Market Value "As Is" Planning Area 5 (Resort Retail Village Site) $1,075,000 Market Value "As Is" Planning Area 6 (Traditional Hotel & Casitas Site) $1,135,000 Aggregate Tota l $4,875,000 Marketing Time: Exposure Time: CadC 2011 CAPITAL REALTY ANALYSTS 12 Months 12 Months Page 8 v p � \� : � � • � �. a m z� � � � � «� � � I yx< �FY \� Planning Area Diagram of the Subject Property Avenue 52 Avenue 54 D D 0 D D L+arntl: 0 FNrrilDAw. f. %W Gaf COwas Q PWVigMe2: CiNC entl Wvtl EV�m FSl1eW P�r.iW/vw e. EaJlpu RaYl ® PYminDMAe:Rwwl witl rrtlRwmCr�n panigAM S: WKUr� R�vl ReYi vwq PmniriDMee: Tr.uem4 ROIe1 N0winnow. 000 300 O 000 - RMpMe): PUMC Prk �� ® Pr.:gM.e:wucFSwwa APPROXIMATE SCALE IN FEET Exhibit 4 — Planning Area Diagram OU 0 2011 CAPITAL REALTY ANALYSTS Page 10 Introduction / History of the Subject Property The subject property consists of 4 Planning Areas, located within the SilverRock Resort Specific Plan area in the City of La Quinta, CA. In terms of history, the SilverRock property, previously known as the Ahmanson Ranch, was part of a larger acquisition by Landmark in the 80's. Landmark developed the adjacent parcels with a master planned community known as PGA West. Additionally, Landmark was developing the La Quinta Resort & Club, another master - planned community centered on the existing La Quinta Hotel, located northwest of the subject property. In the early 1990's, Landmark lost the Ahmanson Ranch property, along with a significant amount of additional land located in PGA West and the La Quinta Resort & Club, when its affiliated lender, Landmark S &L became insolvent. All of the Landmark assets subsequently reverted to the Resolution Trust Co. (The RTC). The RTC sold the Landmark asset package to KSL in December 1993 for just less than approximately $194M. KSL subsequently did significant planning and development within PGA West and the La Quinta Resort & Club through the 90's. The Ahmanson Ranch property remained vacant, as KSL was positioning the land for a high end private equity golf club. The fact that the Ahmanson property is located against the mountains was considered a significant positive locational quality, as the mountain provides a comparatively spectacular backdrop for high quality resort oriented development. While KSL was preparing the land for sale, the City of La Quinta was able to step in and acquire the entire Ahmanson Ranch site in May 2002 for approximately $42.5M. The existing Oak Tree Specific Plan was subsequently replaced with the current, SilverRock Resort Specific Plan. The SilverRock Resort Specific Plan divides the property into 8 Planning Areas. Four of the 8 planning areas (Planning Areas 3 -6) are the subject of this analysis. The following summarizes the uses in each Planning Area (subject Planning Areas are highlighted): 4 Planning Area 1: 2, 18 -hole golf course, 373 -acres 4 Planning Area 2 Existina Ahmanson HnusP rastai 4 -ac. for 80 rms. 4 Planning Area 7: Public Park, 35 -acres 4 Planning Area 8: Public facilities, 51 -acres The subject property presents an interesting and challenging valuation assignment, as current recessionary forces are such that resort oriented parcels are not ready for current development and thus are not trading actively in the market. The appraisal problem_ is further compounded_by_ the fact.that_3 -of _the ___- subject_planning_ areas-lack utilities and paved access; and development of these parcels will likely require development of adjacent parcels such as the 2nd golf course. 0 Ci] 9 2011 CAPITAL REALTY ANALYSTS Page 11 Introduction / History of the Subject Property (corl The lack of financing for vacant land also comes into play in current valuations for parcels such as the subject, as the lack of financing lowers demand and thus, value. Alternatively, when parcels of this type are ready for immediate development, prices can be comparatively high. An example of a recent sale of a limited service hotel site, ready for immediate development is included in the Sales Comparison Approach. However, as of the date of value, the subject parcels are most likely to attract only speculative interest as the time frame for development of most or all of the parcels is not possible to ascertain as of the date of value. Currently, the City of La Quinta is exploring the potential to sell or transfer some or all of the subject planning areas. The City's need for a market value estimate to establish pricing generated the requirement for this analysis. Purpose of the Appraisal The purpose of this appraisal is to estimate the market value of the fee simple estate in the subject property "As Is ", in accordance with the definition of market value contained in this report. Function of the Appraisal Internal Use Property Rights Appraised The property rights appraised are those of the fee simple estate. The definition of fee simple estate for this appraisal is as follows: Definition of Fee Simple Estate "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. "' Definition of Market Value The definition of market value for this appraisal is as follows: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1.. Buyer and seller are typically motivated. —Both- parties are -well- informed -or- welt - advised, and acting. in -what- they - - -- consider their best interests; '/(The Dictionary of Real Estate Appraisal, 3rd Edition, Appraisal Institute, Chicago, Illinois, Page 140.) `-?AJ 0 2011 CAPITAL REALTY ANALYSTS Page 12 Definition of Market Value (cont'd) 3. A reasonable time is allowed for exposure on the open market; 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Definition of "As Is" Value For the purposes of this analysis, the "As Is" value is defined as the market value of the subject property in its current state (as of the date of value). Scope of Work This appraisal report is intended to be an appraisal assignment as defined in the Uniform Standards of Appraisal Practice (USPAP). It is my intent that the appraisal service be performed in such a manner that the results of the analysis, opinions, and conclusions be that of a disinterested 3rd party. It is my intent that all appropriate data deemed pertinent to the solution of the appraisal problem be collected, confirmed and reported in conformance with USPAP and the Code of Professional Ethics of the Appraisal Institute. The scope of the analysis is intended to be appropriate in relation to the significance of the appraisal problem. In preparing this appraisal report, the appraisers performed the following steps, and applied the following special assumptions and limiting conditions: Inspection I have physically inspected the subject property as of the date of value. Additionally, I have physically inspected the comparable data items included within this report. Information I searched for comparable data from a variety of sources. These include published data services, the Desert Area MLS, the Riverside County Tax Roll, and personal it 11 interviews with local brokers, lenders and developers. Confirmation Cl Unless otherwise noted, all comparable data applied in this report has been confirmed with at least 1 party to the transaction. A party to the transaction may n include 1 or more of the following; buyer, seller, broker, lender, attorney, I I accountant, title officer, escrow officer. I have analyzed the data and applied the appropriate techniques available to arrive at my opinion of market value for the subject property. C'?Ad © 2011 CAPITAL REALTY ANALYSTS Page 13 Legal Description The Client did not supply a legal description for the subject property. Consequently, for the purpose of this analysis, the legal description for the subject property is considered to be as follows: "Planning Areas 3 -6, SilverRock Resort Specific Plan, City of La Quinta, CA." Assessment & Taxation Real property taxation in the State of California is governed by Proposition 13, which was passed by the voters in June 1978. The basic elements of Proposition 13 are as follows: 1. The tax rate was limited to 1 % of the assessed value plus an additional 1/4% to cover the payment of debts previously approved by voters. 2. The assessed value of a property purchased prior to March 1, 1975 was fixed at that property's market value as of March 1, 1975. For a property purchased after March 1, 1975, the law requires the assessment to be based on the market value at the time of sale. 3. All assessed values can increase no more than 2% per year for inflation. Because the subject. property is government- owned, there are no property taxes assessed. Consequently, I am not to estimate the reasonableness of the assessed value or effective tax rate. Easements and Encumbrances A Preliminary Title Report for the subject property was not submitted or examined. Consequently, the subject is being appraised as though there are no atypical easements and /or encumbrances that may have a negative impact on the prospective market value or marketability of the subject property. Any user of this analysis is advised to make an independent assessment of the condition of title prior to utilizing this analysis. CU2011 CAPITAL REALTY ANALYSTS Page 14 Regional Analysis — Coachella Vallev _ The Coachella Valley is located in Riverside County approximately 110 miles east of Los Angeles, 270 miles west of Phoenix and 75 miles north of the Mexican border. The Coachella Valley is comprised of about 640 square miles or 400,000 acres, bordered by the Little San Bernardino Mountains to the north, the Santa Rosas on the south and the [ I San Jacinto Mountains to the west. Palm Springs is the westernmost City of the region. Other incorporated desert cities include Desert Hot Springs, Cathedral City, Rancho Mirage, Palm Desert, Indian Wells, La Quinta, Indio and Coachella. The unincorporated [) areas of North Palm Springs, Thousand Palms, Sun City Palm Desert, Bermuda Dunes, Thermal and Mecca are also located in the Coachella Valley. Fast growth had been the dominant theme characterizing the Coachella Valley for the decade through 2004. From 1990 to 2000, the valley's population grew by 37.99 percent, outpacing Riverside County's 32.04 percent growth rate. In the early part of the current decade, Riverside County was among the fastest growing counties of the nation's 3,086 counties with only Maricopa County, Arizona exceeding Riverside's n numeric population growth. Projections are for Riverside County's population to grow LI from its current 1.9 million to 4 million within the next twenty years. The Coachella Valley continues to grow faster than any other area within Riverside County. From 1990 n to 2006, the population of the Coachella Valley increased by 71.4% compared to l I Riverside County's 66.9% increase and the 25.8% statewide increase. However, in the past approximately 3- years, declining economic conditions have slowed growth n substantially, although at a slower pace than most other areas in the County as the LI subject region benefits from its high percentage of retiree population growth. nVU © 2011 CAPITAL REALTY ANALYSTS Page 15 Regional Analysis — Coachella Valley Demographics Between January 1, 2008 and January 1, 2009, the Coachella Valley again outpaced the growth rate of Riverside County. The following charts display population statistics for the regional area and desert's cities from 2000 to current; Coachella Valley Cities Population Growth . 90,000 80,000 —4--Cathedral City 70,000 (•Coachella 60,000 —*—Desert Hot Springs 50,000 —0— Indian Wells --*—Indio 40,000 tLa Quinta. 30,000 +Palm Desert 20,000 —Palm Springs 10,000 �— Rancho Mirage -�o— Unincorporated 1990 2000 2005 2009 Cad © 2011 CAPITAL REALTY A.YALYSTS Page 16 Regional Analysis — Coachella Valley Demographics (cont'd) Growth Rate % By City Since 2000 Rancho Mirage Palm Springs Palm Desert La Quinta Indio Indian Wells Desert Hot Springs Coachella Cathedral City 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% As shown, the current regional population is 448,040. The region grew rapidly from 1990 to 2005. Since 2005, population growth has slowed substantially. According to the State Department of Finance and the Southern California Association of Governments, about 167,000 seasonal residents bring the population close to 600,000. Expectations are for the pattern of growth experienced in the valley over the last several years to continue. In the longer term, estimates project the permanent population of the valley to surpass 600,000 by the year 2020. The median age in the Coachella Valley varies substantially by city. Indian Wells has the highest median age while Coachella has the lowest. The median age, especially in the eastern end of the valley, has been dropping. The median age of all desert cities is projected to decline over the next decade. Median household income shows the same pattern, higher in the central cities and lower in the outer cities. The cities in the eastern end of the valley report the lowest household incomes. These same cities report the highest number of people per family. The 2000 census concludes that the average household in the region has 2.65 people. The City of Coachella has 4.72 people per household while Indian Wells has 1.93 people. C'?d 0 2011 CAPITAL REALTY ANALYSTS Page 17 Regional Analysis — Coachella Valley Demographics (cont'd) As early as 1919, Hollywood used Palm Springs as a filming spot and the city became known as the playground of the stars in Hollywood's golden era. Palm Springs, the most recognized name of the Valley's cities, has experienced the least growth for the last ten years. The slow growth trend in Palm Springs continues with a fractional percentage growth rate between 2006 and 2008. Palm Desert, one of the region's best economic performers had negative population growth during 2006. This trend appears likely to reverse in the future as significant residential growth is projected for the North Sphere area of Palm Desert in the future.. Land is available and more affordable in the eastern end of the Valley as evidenced by the growth rates of Indio, the Valley's largest City and La Quinta and Coachella the fastest growing cities. La Quinta is the valley's youngest City. Incorporated in 1982 its population grew an average 9.90% per year between 2000 and 2009. &A" city 52,447 0.60% 0.91% $- 47,400 $ 337,500 - 10.00% 32.0 26,700 7.4% achatia 41,000 5.200% 1.69% $ 34,800 $ 289,000 - 21.15% 22.8 12,000 12.3% sort Hot Sprigs 26,552 410% 2.36% $ 31,700 $ 251,000 - 13890% 30.1 9,300 10.4% Itan Watts 5,093 1.60% 1.86% $ 114,500 $ 613,000 - 18.27% 63.4 1,800 2.6% Ito 82,230 5.60% 1.57% $ 38,878 $ 363,000 -6.08% 27.3 27,600 8.3% QUIMa 43,778. 4.50% 2.42% $ 66,500 $ 555,000 - 3.31% 36.4 15,500 19% IM Own 51,509 2.20% 1.62% $ 58,900- $.380,000 -6.751% 48.0 26,100 4.4% IM SPrinps 47,601 0.800% 1.24% $ 43,800 $. 375,000 - 9.641% 46.9 27,100 5.8% noho Mines 17,180 0.60% 1.21% $ 72,900 $ 599,000 - 14.31% 60.0 6,600 6.6% - IncorporabW 79,852 Na nla Na n/a Na Wa Ida Na s as of January 2009 hom State of Caldomia Department of Fimme name and median age from Gties fm June 2007 from DataQui c (includes resale 8 new, sirOe-family n Economy Tourism, retail, healthcare, construction and agriculture are the main industries in the Coachella Valley. Tourism along with its related services historically has been the driving force in the local economy and remains the lifeblood of the valley. Excellent golf and tennis facilities and events coupled with abundant sunshine attract both domestic and international visitors. It is estimated that tourism generates more than a billion dollars annually and according to some researchers, maybe well beyond that figure. The Palm Springs Desert Resorts Convention and Visitors Authority reports regional hotel room sales increased every year through the 1990s. Hotel sales peaked in 2000. In wake of the terrorist attacks in 2001, hotel room sales were down by 4.8 percent, followed by a decrease of 3.5% in 2002. Hotel room sales trended up through 2006. Room sales trended down sharply in 2007 as high oil prices depressed travel. While oil prices declined sharply in 2008 and 2009 to date, very poor current economic conditions have kept the pressure on as discretionary travel is still trending down, and the major resorts report a steep decline in occupancy, average rate and REVPAR. Cad ©2011 CAPITAL REALTY ANALYSTS Page 18 r) i Reaional Analysis — Coachella Valley Economy (cont'd) Hotel room sales are an important indicator of regional economic conditions as the tourism and services segments make up the largest employment base. Seasonality influences hotel room sales, with the first quarter of the year the strongest and the summer quarter the weakest accounting for 12% to 14% of annual volume in recent years. There are approximately 239 hotels and motels selling rooms to the more than three and a half million annual visitors. Coachella is the only desert city with no hotel rooms. Of the Desert Cities, only La Quinta added rooms in the last year however, there are a number of new hotels, hotel condominium resorts and timeshare projects in the development pipeline. The following charts show the trend in total airline passengers and regional hotel occupancy: 15.00% 10.00% 5.00% 0.00% -5.00% - 10.00% - 15.00% - 20.00% % Change in Airline Passenger Count % Change 20% 15% 10% 5% 0% —% Change -5% 20-79 -2-0031 200-4 2-0015 -1006 2007 2008 2009 2GI-& -10% -15% -20% % Change in Hotel Occupancy HCad 0 2011 CAPITAL REALTY ANALYSTS Page 19 Regional Analysis — Coachella Valley Economy (cont'd) Total taxable sales include goods and services subject to collectible taxes. In 2002, total taxable sales in the valley surpassed the four billion dollar mark for the first time ever. In 2004, sales surpassed five billion dollars with every quarter of the year posting over $1 billion. The California State Board of Equalization publishes data on taxable sales; the latest release records $5.7 billion for Coachella Valley cities in 2005, a 9.4% increase over 2004, representing a slowing from the 15.3% increase between 2003 -04. Retail sales increased 9% in 2005 to $4.81 billion, an all time. Riverside County's total taxable sales increased 12% in 2005 and retail sales increased 11.3 %. The growth in sales statewide was 7.4% and 9.4% respectively. Agriculture has traditionally been an important component of the valley's economic base. While still a meaningful part of the region's economy, farming is pushed eastward as the valley's population expands. In 2003 total crop valuation was $419 million on 51,965 acres with a per acre value of $8,001, in 2004 total crop production was $557 million on 67,537 acres with a per acre value of $8,245 and in 2005 total crop production was $504 million on 56,922 acres with a per acre value of $8,846. Fruits and vegetables account for approximately 75% of total crop value. Construction activity grew dynamically beginning in mid -1997 and was the fastest growing employment segment for several years. An all -time record was set in 2004. In 2005, construction activity remained strong though not quite at 2004's pace. Each month in 2006, construction activity increased in comparison to the same month in 2005 until June, when for the first time in 2006 permit valuation dropped year over year. Residential construction activity dropped 61% in the 4th quarter of 2006 with 613 housing starts in the Coachella Valley versus the 4th quarter of 2005 with 951 housing starts. Over the same period, a 53% decrease in the multi - family category was posted. Since the market downturn started in approximately mid -2005, the percentage change in construction spending through the 2nd 1 uarter of 2009 has decreased sharply in all but 2 quarters. The following table shows the percentage change trend in construction spending % Change in Construction Spending 60% 40% 20% 0% -20% -40% -60% `fd 0 2011 CAPITAL. REALTY ANALYSTS Page 20 Regional Analysis - Coachella Valley Economy (cont'd) As shown in the table at right, the ' unemployment rate varies by city; with Bermuda Dunes 7.2% 7.2% 0.0% 8 below the county -wide rate, and 4 Cathedral City 15.0% 15.0% 0.0% above the county -wide rate. The Coachella Desert Hot Springs 23.6% 21.2% 23.7% 21.3% -0.1% -0.1% number of total workers in the Indian Wells 5.5% 5.5% 0.0% Coachella Valley is somewhat Indio 16.5% 16.6% -0.1% nebulous as illegal immigrants are La Quinta 8.2% 8.2% 0.0% active in the local workforce to Mecca 29.2% 23.9% 5.3% and add Palm Desert 9.2% 9.3% -0.1% the region's economy. More than Palm Springs 12.0% 12.0% 0.0% 230,000 illegal workers are estimated Rancho Mirage 13.7% 13.7% 0.0% to be participating in Riverside County's Thousnd Palms labor force. In the Coachella Valley, R verside County 105.3% 15.3% 0.0% California 12.4% 12.3% 0.1% this segment of the workforce is USA 9.6% 9.5% 0.1% participating in and considered vital to the hospitality, construction, agricultural and landscaping industries. Primary employment sectors in the Valley include construction, accounting for approximately 20% of the payroll base; hotel and entertainment 20 %; retail 15 %; healthcare 12% and agriculture 10 %. The table shows the largest employers in the Local desert. In 1991, the State of KSLRxreMon In I California Department of Commerce Ic�ImvemQ,capa -gem rad�,cdfa�.a� rxzla P Bsertona MaSral cats Heallha 4.259 approved the establishment of the RvasideOuunty �rr"at z�0 Coachella Valley Enterprise Zone. Pgm Caeade d C2hilla lochs Hold, Lasno,� 2200 Desert Sads UYL Sdoal District Educaillm zMO The intent was to diversify the and Ruclucts Qrp 34calappliarm&3Fpies 1,848 valley's economy making it less Palm Sonny L.tif. school District Edutaem 1,751 Cuadldla Valley Uif. Scool []stria Ediaear 1,189 dependent on agriculture and Tara Heales/stan D7rset Inc Ha3ttl 1.189 tourism leading to a more balanced C abaan fund of Msson Incas Hold, Casino, etc 1,050 AbalsWs, Ina oomysDme; 797 economy. Businesses are offered `&WSlor 'Inc Dtpa stores 7W incentives such as tax credits and DaetQrrrnriryCktleIpMcIria 6iraem 700 Wigft 29 Casno casino 600 benefits to relocate to the Coachella 9arwod F"d Rlets Fbtds ad Mods 600 Valley. The program has not been Hffba` HoWMr�'t� "�"a'tSm"ce` successful in attractin lac e TheWsCtrrpay, Ina Gaaaystaes 570 9 g Ranossana-Esmaalclai Pas«t HcIdsaMAds 535 manufacturing or distribution Jon F. "*dy M3rond 1 bsp Fwlhve 535 FUpHs QocayCorpay Goosyst3 530 companies. However, the 1990s anvlbidlriarffional Gap lrepaatimsalves 53D were not strong economic growth United Parcel SeMm Ina ��,r� 5W and development years for the State, Mariatlrta. cd,Inc Haas and Mods 459 administration of the Coachella Coachella Valley Water °]strict Aker supoy a inkyem sys 451 Valle Enterprise Zone reports sa,va 425 Y rP P 12,000 new jobs were created between 1992 and 2005. Slated to expire November 10, 2006, on November 3, 2006 Gov. Schwarzenegger approved an extension to the program for fifteen additional years. The following sections provide an overview of the various real property sub - markets in the subject region: HCad 0 2011 CAPITAL RFALTV ANALYSTS Page 21 Regional Analysis - Coachella Valley Permit Trends A review of permit valuations by category and city shows a significant slowdown in construction. In 2008, SFR permit activity was down 27.5% from the prior year with valuations dropping by 23.9 %. Commercial and industrial permit activity was up 34.02 %, though total valuations for this category only increased 8.5 %. The 2009 data was available through June 20, 2009 at the publication date, but the annual total expected to show another sharp decline from 2008. Single Family Residential Permit Trend 8,000 � eWnfmr ramnrbai�na .,rera vau+lan, Ca [ r" Kgy,i 26005 6,000 ■ 2006 5600. ■ 2006 4,000 tk N 2008 2,000 02007 - ■ 2008 Permits - ■ 2009 YTD Multi Family Residential Permit Trend 1,500 � eWnfmr ramnrbai�na .,rera vau+lan, Ca [ r" Kgy,i 02005 1,000 t ■ 2006 5600. 1111 2007 - N 2008 Permits ■ 2009 YTD s�, +. r„s6lp: fangM � eWnfmr ramnrbai�na .,rera vau+lan, Ca [ r" Kgy,i mgb'sa,MYal .1Nib „Vaoaim, a. lb'a.' cS -$ VrI1Wtlm c medral Clry 412 5 9101 a 5 e4u 4,132NZN, 7 $ 4132 2.393 5 1i,,M Cmd,ella mo 5 135.02 - 5 la $ 12348 6493 5 OHS L010 $ 133.193 tl $ 4,�3 2 $ m5 05,749 E.e6] 5 155,]49 I=Wels 114 5 U,Z - $ 1 5 3m 1,065 $ ]6,4] Indio 2224 5 32 ,.g 5 - a3 $ 0,914 5,564 5 6160,361 m Quin. Lm, 5 20,522 151 $ 106041 m 5 31,235 5,581 5 3]62]6 Palm Desert 135. 5 53,511 S9 $ 1L959 59 5 ".a91 5,557 $ 187,205 PLm Swings 700 5 147,820 8 $ U. al 5 A,633 339E 5 256228 Rancao MlrXe - 276 5 ]6,866 - 5 - 5 5 LOS] 1,837 $ 119,547 uninoodane ee NUsD 24 $ 4,06 1 5 iB ] $ 680 ]90 5 7.593 Desensaads 4m $ 1Lm1 z $ 139 lD 5 1L371 1,9x9 5 64.567 rs.D tm 5 58543 a $ 557 19 $ 2 m4 781 5 43523 ,.± S 4'i di31{IOfaNIV 1MIYNfY"BPYS fa,my,lla/IMinVitl ]10411b1,bbm'.�. l .! %pelb._V>•Wtlm.IMb VI0W1.. .Nd _ -$ t CMM1eEral Clty 366 $ 3 160 $ 9]1 la $ 4,SIl 1S %14t 67,2 1]63 5 6],207 Cwtliella 937 $ ]13,28] - 5 � 2] $ 14,616 6,538 5 107,M DM 524 $ 7L3m 528 e2 5 17,m 5,611 17],]49 LX2 Indian well: m 3],6606 22 5 641E s 5 4.145 1 $ 2202 5 75,]59 $ India 2,280 $ 381198 $ 9 5 Lell 13 5 15,935 6AID 5 4460A to Quinn eat $ 173,]44 m3 31917 46 5 NW 4,271 5 372171 Palm spa 2m $ ]0.699 mE 5 3651] $ 14 5 4 5,922 5 Palm Springs X5 5 59,954 155 $ 2116E 16, 49 5 16,463 Mind 3.113 $ 153,4m Ran[AO MIrXe 91 $ 37,Ul $ 17.3M 1.235 $ 4&336 Un,naamora<E NIAD 134 5 14,01 14 $ 3em 10 $ z63 ez3 5 zD,o41 Desert Sands W 5 18,153 3 $ 134 15 5 0.485 838 $ 53,3)0 PSIISD 253 $ 34813 1 5 69 24 5 631 523 5 4] 633 ,91M1aiW1Y 1.61Yia8YY COnane7btl/slMOmbl ,ytofal WOSbm,. 'r UR61 VtlW,W GNednl Ciq 61 $ 10,924 9 $ ],631 17 $ 6,635 5 2316) m 5 2310 CoaNella 212 5 35.@1 - 5 4 $ 8103 43,10 7H5 121 5 1e,m2 17 5 3,e62 6 S 4]54 tm 5 26618 1" mean Wells 96 5 43,05 - 5 5 $ 7,751 tot S m, toe Indio m6 $ m,ms m 5 4,05 15 5 21246 435 5 73346 Ia Q., nta 4W $ 113,%9 153 $ 13,20 3 5 L227 6460 $ 12],439 PamD-iA 215 $ 115,635 1 5 897 m 5 3L242 246 5 141.767 Pella's ing. 195 5 51583 32 5 4,854 0 5 0,956 277 5 100,397 ,ees Mirage 17 $ 26103 - 5 33 5 34.912 m 5 fiUm unmmrpmated - 5 Nt57 89 $ 9,359 56 $ 4,02 2 5 194 147 $ 13,555 475793 Sands 1C9 5 16,951 - 5 12 5 4,397 M 5 21331 P516D 40 $ 9359 Li $ 636 16 $ A107 0 5 2 W2 "., ARtlefmgb gulp IF / 0aeeeN //Ibbabbl `Tpa VaVWm 33x93 'r.lua4m , 9xgn' 4aa.enm rat ?'Velmn , ad.- Catnedncl,9 10 5 21460 - 5 . 10 5 3,753 L42 $ 2L154 Coaled. "W $ 23,953 12 5 6m 8 $ 7,. 2.W6 5 08639 7H5 8 5 Laz9 a 5 3m 2 5 338 374 5 5,433 Indian Wells 22 5 m.m1 - 5 - $ - 7m $ 21287 Indio 228 5 0,271 $ - 29 $ 2;05 2513 5 n= _aQuin a 237 5 63,166 lab 5 20,413 16 5 Vll4al 26005 5 .6M Palm cesm m 5 30,x87 454 $ 47.103 14 5 10,iM 19m 5 214,5m yam swings sa 5 18.264 i $ 3m 29 5 27,281 250 5 106957 RmNO MIXe 18 $ 9,00 $ - 3 $ 1742 1,0]3 $ 54,fi51 12nlnmrp.:aed' C Wl) 14 $ 2.. 2 $ &Yi 4 $ .1 afb 5 1.589 Desert Sams 12 5 5,]59 5 5 436 11 5 51344 404 z 14,942 PSUD 42 9%7 $ 6 $ 364 sS9 5 17531 N'r aa. "y,Ky ig,yN 'yytl Pally [4mmerdM/41YWItl rolal Valvnlm UNb . VY4MM,1 NinZVyWllm ", ba. .�cVYVisd, 9Ms =VYY3, ral C=dfl. Clry E 5 451 - 5 - 4 5 ms 528 5 3.559 CoaNeila 52 5 6,486 $ - 3 5 582] 813 5 15,11] DHS 1 5 106 $ - 3 $ 7m E17 5 3,30 Indian Wells 3 $ 2,131 - 5 ] 5 812 249 5 8,277 In.'a 1m $ 21,69] 5 - 5 - 914 5 28,0]4 sa Qul nb 61 $ 13385 5 - 5 $ e'N 626 $ 20.10 Pam De se, 19 $ 4,Sm E4 5 2,eR 3 $ 3,20 1.683 $ 23,698 Pairs, sp 7 33 5 49]6 5 2s 5 %m1 1211 z 33.465 Ran oMirage - 1 -5 1,Sm - 5 - - - - ] $ 9,4a5 - 522 - -$ 2L645 Unlmmnlainned N1513 % $ 4,a, - 5 - l $ 213 l® $ &953 Desen sand.' s $ 1.8ID - $ - 5 - 158 $ 4,136 PSl25D 3 $ M5 5 1 $ la 213 $ t39i C17Ad©2011 CAPITAL REALTY MALYSTS Page 22 Regional Analysis — Coachella Valley Residential According to the California Association of Realtors, the housing affordability index for local residents was less than 10% in 2008. Regional housing prices increased between 2003 and 2005 with some cities posting double -digit increases, yet median prices remained below those of other areas in the state, attracting buyers from outside the region and prompting local owners to sell, take the equity and re -buy. However, the trend reversed in 2006, as shown in the following table: UNITS/MEDIAN PRICE $ =Sales Of EAS" Detached Homes —O•• Median Prtce 11 111 .11 111 11 11.1 11 111 x/11/1 11 111 u N O O N SOURCE: California Association of REALTORS® ^ ^ r Focusing in closer on regional trends, the following table shows the new homes sales fl trend for the Coachella Valley (through 2010): 7,000 CI 8,000 5,000 4,000 3,000 j } 2,000 1,000 0 Q O N M yy H a) A eD N O N M� N b� aD OI O OI W OI O! QI W W q W 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N 1 C YA 0 2011 CAPITAL REALTY AC\ALYSTS Page 23 Realonal Analysis — Coachella Valley Residential (cont'd) The following table shows the trend in median price and median price PSF in the subject region (as of 2/28/11): Bermuda Dunes Cathedral City Coachella Desert Hot Springs Desert Hot Springs Indian Wells Indio La Quinta Palm Desert Palm Desert Palm Springs. Palm Springs Rancho Mirage Thermal Thousand Palms 92203 63 - 11.30% $ 177,250 - 11.40% $ 500,000 $ 89 11.80% 92234 63 - 19.20% $ 158,000 - 4.20%. $ 375,000 $ 90 0.40% 92236 33 - 0.00% $ 125,000 - 12.60% -, $ 204,000 $ 66 -3.40% 92240 61 - 31.50% $, 85,000 - 37.00% $ 200,000 $ 55 -1.800/a 92241 5 0.000% $ 135,250 8.20% $ 200,000 $ 107 79.900% 92210 25 31.600% $ 830,750 60.50% $2,700,000 $ 249 26.201YG 92201 87 16.00% $ 141,500 - 8.100/. $ 630,000 $ 87 6.50% 92253 127 24.50% $ 330,000 1.909/6 $2,700,000 $ 154 6.30% 92211 81 44.60% $ 264,000 - 4.70%. $1,250,000 $ 149 -1.60% 92260 61 17.30% $ 241,000 11.20% $4,499,000 $ 142 22.40% 92262 79 19.70% $ 205,000 -9.30% $1,150,000 $ 127 2.10'/0 92264 58 45.00% $ 200,000 14.30% ,$1,150,000 $ 136 - 8.100/0 92270 66 57.10% $ 439,000 -2.901Y. $3,200,000 $ 169 9.50% 92274 - N/A N/A N/A .N /A N/A N/A 92276 9 125.00%- $ 120,000 - 71.40% $ 440,000 $ 83 - 24.10% In this next chart, the regional median home price trend is shown: $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Median $ rn m m m °o m m m m m m m m.m m m m o -$- Median $ COU @ 2011 CAPITAL REALTY ANALYSTS Page 24 Regional Analysis — Coachella Valley Residential (cont'd) In the following chart, the trend in.percentage change in the median price is shown: 40.00% 30.00% 20.00% 10.00% 0.00% - 10.00% - 20.00% - 30.00% - 40.00% - 50.00% - 60.00% % Change in Median Home Price SZO 'A 100 As shown, both home sales and prices are down sharply from the 2005 peak. With median prices off by nearly 50% since the market peak, it seem reasonable to expect that buyers may begin to step back into the resale market as it appears the residential segment may be bottoming out. Because the resale market remains well below replacement cost, a short term recovery in the new home segment seems remote at best. (� While core inflation remains low, all items inflation is up sharply as food & energy prices, ( two categories with sharp increases in price are not part of core inflation. This factor combined with declining retail values and declining disposable income is particularly l troublesome for the Coachella Valley, where a high percentage of new home sales are J second homes. The land speculator segment makes up the bulk of the current residential land buyer pool. The multi - family market is active in the subsidized and tax- credit segments. However, current costs remain relatively high, preventing nearly all (� market rate multi - family development to date. Office A boom in new office development over the past few years, particularly in the North Sphere of Palm Desert, added significant new office inventory to the market. Currently, vacancy is trending up, absorption rates are comparatively low, and rental rates are declining. An increase in overall capitalization rates coupled with a continuation of declines in both rental rates and seller expectations are projected for the 1st quarter of 2010. The mid -range and long -range outlooks remains cloudy for office, as uncertainty in the business climate makes longer term projections speculative. C'?d © 2011 CAPITAL REALTY ANALYSTS Page 25 Regional Analysis — Coachella Valley Retail Retail development, which had remained a bright spot in the region, is showing some signs of moderation. Significant new retail development along the Highway 111 corridor in La Quinta, along with generally increasing retail viability in most areas of the region occurred through 2007. More recently, declining economic conditions have been forcing store closures and generally declining retail sales rates. Consequently, retail land values and rental rates declined through 2009 and should continue to do so through the balance of 2010. Possible exceptions include some redevelopment areas and in some underserved areas north of 1 -10 in the eastern part of the region. Industrial Sharply declining new construction is impacting the industrial segment. As the cost to develop new buildings has risen to historic highs, coupled with declining demand and I rental rates, the viability for new multi- tenant speculative development is weak. Alternatively, the building boom of 2002 through 2005 generated significant demand in the owner /user segment, and a large number of new light industrial buildings have been developed over the past several years. There is significant light industrial land inventory, particularly in the eastern end of the region to support significant future development. However, the lack of a strong labor pool has historically kept large -scale manufacturing (with a few exceptions) out of the region. Much of the eastern part of the region is located in an Enterprise Zone. The economic benefits in this area should attract larger ; manufacturing development to the region in the long term. Rental rates remain well below the level needed to fuel speculative multi - tenant industrial development. Conclusion The Coachella Valley's economy has historically been seasonal, tied to the influx of tourists and part-time residents. The region is projected to continue to grow rapidly (in relation to neighboring regions) over the next few decades as the large Baby Boomer demographic is now entering retirement age. The Coachella Valley has historically attracted Baby Boomers and relatively affluent retirees. The region continues to enhance its appeal with this demographic by developing shopping, entertainment venues and planned housing developments ranging from upper middle to high -end geared to the segment. With additional growth in the permanent population, the .- economy is likely to become Jess vulnerable to seasonality. Declining economic conditions at the national, state and regional levels are currently affecting the economy of the Coachella Valley region. Homes sales (construction) and hotel room sales are both trending down as of the date of value. These two categories are key employment centers in the region, and declines in these two categories equate to higher unemployment and lower discretionary income. Food and energy cost inflation had also been taking Its toll on the regional economy. While some energy segments are now experiencing deflation, tightening credit markets along with generally declining rental rates and occupancy trends seem likely pull the commercial and industrial segments down over the next few quarters. C3dO2011 CAPITAL REALTY tNALYSTS Page 26 Regional Analysis — Coachella Valley Conclusion (cont'd) On the positive side, the decline in new permit issues projected over the next several quarters should serve to allow demand to catch up to supply for most real property types. In my view, declining economic conditions are likely to persist through at least the 1st 2 quarters of 2011. The extraordinary run -up inland values between 2002 and 2005 has completely run its course and with land values on the decline, along with declining national and regional economic conditions, I project a modest decrease in speculative land trading activity in the short term, with speculative sales volume ramping up in the mid -term, as existing properties become re- priced at levels that are low enough to attract capital in the current market. Some small pockets of feasibility remain in the commercial segment. However, increasing costs, paired with the lack of up- trending rental rates lead me to conclude that new development prospects in the region will generally remain on the decline in the short term. As the national, state and regional economies recover in the mid -term, I project a comparatively strong uptick in regional permit activity along with sales volume, as pent up demand from the current low cycle breaks out. As a final note, Chapman University's Gary Anderson Center for Economic Research has developed an econometric model of leading indicators for the Coachella Valley. The following table shows the chart. A level of 100 means neutral growth; above 100 = positive growth and below 100 = negative growth: i Chapman University Economic Index Coachella Valley 160 - 140 120 100 80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 C9d© 2011 CAPITAL REALTY ANALYSTS Page 27 City Analysis, La Quinta CA ll Location l J La Quinta, CA is located in the eastern portion of the Coachella Valley. The city is bordered to the west by the Santa Rosa Mountains providing an outstanding natural [ 1 view amenity. Historically, La Quinta developed around the La Quinta Hotel. Originally built in 1926, the hotel has over 800 guest rooms. The hotel is currently in the process of entitlements for significant redevelopment. The City has easy access to Highway 111 I and a direct route to Interstate 10 via two freeway arterials; Washington Street and Jefferson Street. Population From April 2000 to January 2009, the population of La Quinta grew by approximately 84.8 %.2 This is the 7th largest population growth change out of 480 cities in California. In addition, an estimated 12,000 seasonal residents reside in La Quinta for 4 to 6 months per year. The "season" is generally considered January through May. La Quinta has also been one of the fastest growing cities in Riverside County. However, the declining inventory of available, developable land is likely to result in a declining percentage growth rate over the next decade. I State of California, Department of Finance, January 2009 Cities and Counties ranked by Size, Numeric and Percent Change. Sacramento, California, May 2009. (MA crA © 2011 CAPITA REALTY A.wwsrs Page 29 City Analysis, La Quinta, CA Residential Development Residential permits issued by the city peaked in 2005, and have declined significantly since that time, as is show in the graph below: Permits .111 111 4111 111 ,�� 0 Permits 2000 111 1 New home sales soared in 2004, which is consistent with the overall residential boom period in the region. The new home sales trend is charted below: New Home Sales 500 450 400 350 300 250 200 150 100 50 0 rydyry�1ry�ryry�ryry��ry�ryryryry��ry�yry�bry�6ry� ^ry��ryryry" ry�ry�1Ory�10 �o- Cod© 2011 CAPITAL REALTY AYALYSTS Page 30 I) City Analysis, La Quinta, CA Residential Development The Desert Area MLS reports mostly re- sales, but a few of the new home sales are likely also reflected here. Again, a clear peak in sales volume occurred in 2004. However, the resale absorption is picking up, as shown by the 4 -year trend of increasing volume. LQ Residential Sales Volume - MLS Data 2500 2000 1500 1000 500 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 The city is also home to a large number of golf resorts and communities. The City's (� redevelopment agency acquired approximately 525 acres of land located west of Jefferson Street between Avenues 52 and 54. The property has been developed with Phase I of the Silver Rock Resort, a municipal golf facility designed by Arnold Palmer. (1 La Quinta has a substantial economic base in the tourism industry. (I Commercial Commercial retail and office uses along the Washington Street / Highway 111 corridors have rapidly evolved within the past 10 years with several major new big -box anchored retail centers, including the State's 1st Wal -Mart Superstore having been developed ( along Highway 111. Other commercial tenants have located along Highway 111 in La 1.� Quinta, including Staples, Big 5, Pet Smart, Lowe's, Target, Henry's Market, Costco, Smart & Final, Stein Mart, and Best Buy, among others. A Circuit City store opened and (1 then recently closed, after the company went bankrupt. A Sam's Club found it difficult to l ` compete against Costco in this sub - market and the store went dark in 2009. The (j property recently sold and is in search of a suitable tenant. l_l HCod © 2011 CAPITAL REALTY ANALYSTS Page 31 City Analysis, La Quinta, CA Commercial (cont'd) Office developments Along the Washington Street corridor include a 24,000 SF 2 -story building on the east side of Washington Street, north of Fred Waring Drive that was completed in 2007. This building came on the market just as demand was dropping off, and has been occupied by a single, 1,300 SF tenant since it opened. The building was foreclosed and then sold to an owner -user. Another large office project that came online a bit earlier was the La Quinta Medical Center which is 30- 40,000 SF of medical office space. This building has also had some difficulty absorbing, but now appears to be in the process of reaching stabilized occupancy. The largest of the office projects is Eisenhower Medical Center's three -story, 83,600 SF medical building at the comer of Washington Street and Seeley Drive. This is Phase 1 of Eisenhower's anticipated 3- Phase medical plaza development at this site. The Downtown area has also seen significant commercial growth. In the downtown area, the development of Old Town La Quinta, a pedestrian retail center located along Calle Tampico was a catalyst for rapidly escalating land values in the immediate area in recent years. Across the street from Old Town La Quinta, on the northeast comer of Desert. Club Drive and Calle Tampico, a 31,472 SF mixed -use office and retail development known as Plaza Tampico was recently completed. A Fresh & Easy grocery store is the anchor tenant at this center. Employment The City of La Quinta is largely suburban residential in character. On a regional level, the resort character of the Coachella Valley reflects the large percentage of employment in the retail, tourism and services industries. Construction has historically had a strong employment base, but with the housing downturn of the past three years, construction activity is low. The following table shows a summary, of employment by sector: Coachella Valley Summary Industry Employment Retail/Wholesale 23_onn Services 21,000 Tourism 12,500 Agricultural 8,000 Construction 7,500 Government/Schools 7,500 Finance Related 6,500 Utilities/Transportation 5,000 Manufacturing 3,500 Total 94,500 C9d ©2011 CAPITAL REALTY ANALYSTS Page 32 City Analysis, La Quinta, CA Conclusion La Quinta has historically had the fastest growth ratio of any other City in the regional area. Indio is surpassed La Quinta in growth rate, as available land inventory in La Quinta declined due to rapid growth. Long term, median income levels in the subject market are expected to increase because of a growing percentage of professional employment. The following table shows a demographic profile of La Quinta: City of La Quinta - Demographic Profile Total Population 38,340 Total Housing Units 18,762 Male 18,801 49.04% Occupied Housing Units 13,414 Female 19,539 50.96% Owner Occupied 10,927 Renter Occupied 2,487 Age Vacant Housing Units 5,348 I Under 10 6,359 16.59% Units For Seasonal Use 4,025 10 -19 Years 5,665 14.78% _ 20-44 Years 12,592 32.84% Housing Type J 45-64 Years 8,586 22.39% Single Family 17,067 65+ Years 5,124 13.36% 2 To 4 Units 475 Median Age 36.40 5 or More Units 963 Mobile /Other 257 Race White 30,100 78.51% Housing Values J Black 544 1.42% Less than $100,000 76 Asian 722 1.88% $100,000 - $149,999 819 1 - -� Hispanic 12,272 32.01% $150,000 - $199,999 1,639 if Other 1,796 4.68% $200,000 - $299,999 1,836 $300,000 - $499,000 2,808 _ Households $500,000 - $999,999 2,327 (� Family Households 10,443 $1,000,000+ 1,420 Non - Family Households 3,006 Median Home Value $464,515 Persons In Household 38,300 (l Persons In Group Quarters 40 Contract Rent Total Households 13,439 Less Than $300 98 Persons Per Household 2.85 $300-$499 99 $500-$749 726 Incomes $750-$999 910 Per Capita $ 32,932 $1,000+ 654 (l Median Household Income $ 65,844. Median Monthly Rent $ 953.00 I I Median Family Income $ 68,616 Cad © 2011 CAPITAL REALTY ANALYSTS Page 33 I Market Analysis The subject property includes Planning Areas 3 - 6, located within the SilverRock j Resort, La Quinta, CA. The following exhibit shows the specific plan areas within SilverRock, followed by an Illustrative Site Plan and an analysis of each area: Avenue 52 Avenue 54 i PnmYgM.2: CWk YM CWVYIEwnn FNYWN PM1migM. J'Bnfi w 1 } - Nm4p May. MVWUta RPwrl ReuT YJly �� PNm'vp MFE:inElbn�HOli aMRe�at CevlN Soo 300 U 800 Faminp Mal'. PUdk PFn -� ® Hsm'vpAm e: ftWF W-- th APPROXIMATE SCALE IN FEET (� Exhibit 4 — Planning Area Diagram I ncad ® 2011 CAPITAL REALTY ANALYSTS Page 35 Market Analysis Planning Area 3 Planning Area 3 is a 13.79 -acre site, located near the NWC of the project area. The Specific Plan calls for a boutique hotel of up to 225 rooms and up to 260 keys. The Plan requires a 4 -star quality facility with room service, laundry, concierge and bell services and covered valet parking. Amenities required include a signature dining room, with seating for at least 80 in and 40 out, a bar, a lobby, a first class spa and fitness facility of at least 8,000 SF, a fully amenitized pool offering food service and cabanas and at least 10k SF of meeting space. In addition the facility requires a 150 space parking structure. The entire facility may be designed as a condo -hotel facility. The condo hotel segment was among the fastest growing segment in the hospitality industry through 2006. The reason was that due to sharply increasing construction costs, and the generally moderate occupancy rates in most resort market areas, it is not financially feasible to develop a hotel of this quality and amenity level. Alternatively, by offering the units as condo hotel units, the units can be sold individually, allowing for the developer to recapture the equity and debt at a financially feasible rate. This feature is clearly demonstrated in the subject market area, as no new destination resort or boutique hotels have been constructed in well over a decade. Alternatively, a number of new condo hotel projects were proposed in the subject market area. Also, several limited service properties'. have been developed in the region over the past several years, 2 of which are located in La Quinta. Generally, the condo hotel property type evolved in Florida and other east coast markets. The property type became prevalent on the west coast in the early 2000's, with ia number of projects in Las Vegas and San Diego. In the Coachella Valley, there are currently no other completed condo hotel projects. However, a fractional interest Residence Club is currently being developed at PGA West, immediately southeast of [ { the subject. However, financing for retail buyers has dried up. Lacking the ability to finance prospective buyers, this sub - market has all but shut down in the primary west coast markets. Condo hotel units typically work in markets with a price barrier to entry. [� For example, Apsen CO., which has a very high average unit price attracts condo hotel and fractional development because there is a seasonal market that can afford a $500k payment, but not a $3MM payment. Alternatively, La Quinta has a significant supply of moderately priced units and clearly, the price barrier is much lower in La Quinta; thus decreasing the feasibility of condo hotel or fractional products. H`17AI © 2O11 CAPITAL REALTY ANALYSTS Page 37 Market Analvsis Planning Area 3 (cont'd) .Similarly, the boutique hotel market has been hit hard by the current recession. There are several key boutique hotel sites in the subject region; none of which are currently moving forward. The primary competing boutique hotel site is a Parcel located along the east side of Monterey Avenue, south of El Paseo in Palm Desert, CA. The property is walking distance to the high end pedestrian retail corridor of El Paseo, and is located in close proximity to top of the market style country clubs. The owner of the property reports that they have been unable to acquire financing to move forward. At this point they are only seeking to replace the land loan, as feasibility for development is not thought to exist and the property is intended to be held for improving market conditions. The City of Palm Desert Redevelopment Agency is also holding a boutique hotel site for future development, located just south of El Paseo, immediately east of The Gardens project. Other projects on hold include the 130 -unit condo hotel project proposed for the land located immediately north of The proposed Ritz Carlton at Rancho Mirage. The property was financed by Lehman Bros. When Lehman failed, the project stopped. New financing is said to be pending, however, the new financing is only to complete the Ritz property. The condo hotel project remains on hold pending an increase in market conditions. Palm Desert project also has a comparatively large condo hotel project to be associated with the resort hotel site to be developed within the City of Palm Desert's -Desert Willow project area. Desert Willow offers a strong comparable for the subject, as the project features 2 municipal golf courses and associated resort hotel, timeshare and condo hotel land. The City's Redevelopment Director reports that the City has not been successful in seeking a resort developer to develop a resort; even with no land cost. Indian Wells had 2 condo hotel projects proposed. One project was the proposed Fairmont project. The developer has gained entitlements for 129 condo hotel units along Miles Avenue. The development partner has declined to move forward. and the land is being held for improvements in market conditions. Cad 0 2011 CAPITAL REALTY ANALYSTS Page 38 Market Analysis Planning Area 3 (cont'd) The other proposed project in Indian Wells was the Remington Hotel Corporation's proposed Las Montanas project, located at the SWC of Miles Avenue and Washington Street. This development was proposed to include 520 -hotel rooms and 265 hotel condo units. In addition, the project was proposed to include 65,000 SF of meeting space, and a 15,000 SF spa facility. It seems likely that this facility would be competitive with development at the subject. The map at right shows the layout of this project. The prospective developed declined to move forward due to declining market conditions. The land owner is an affiliate entity of the 40 -acre retail village site located immediately north of this property. The developer, Sanderson J. Ray was seeking to sell this land to the City to acquire funds to begin development on the 40 -acre retail site. The City was then to sell the property back to the developed when it was ready for development. However, the City declined to purchase the property, citing the fact that the existing debt exceeded the current value of the property. The map on the following page shows the entire Indian Wells Town Center Plan: 1 1 Od © 2011 CAPITAL REALTY ANALYSTS Page 39 Market Analysis Planning Area 3 (cont'd) INDIAN WELLS TOWN CENTER 1.� A f INDIA& WELLS GARbF KoMor Hwrr WLOM ILLUSTRATIVE SITE PLAN CfA C 2011 CAPITAL REALTY ANALYSTS Page 40 Market Analysis Conclusion — Planning Area 3 The subject Planning Area 3, potentially in combination with Planning Area 2, is likely the most viable portion of the SilverRock property in terms of its potential for development. The existing golf facilities surround this land. Furthermore, wet and dry utilities have already been extended to this site. These factors, combined with the smaller site size should provide a reasonable prospect for success in a phased boutique hotel plan. Lesser prospects exist for a condo hotel development plan. Planning Area 4 Planning Area 4 is a 32.10 -acre site, designated for a 4 -star resort hotel and casitas. The allowable unit count is 405 rooms and 520 keys. Additionally, a 150 -space parking structure is required, along with 30% of surface parking to be covered by a trellis. All of the market forces that impact Planning Area 3 also apply to Planning Area 4. However, the 2nd golf course has not been developed, and no utilities or infrastructure have been developed to this property. Consequently, any current buyer for the property would likely have to hold the property until the 2nd golf course and other infrastructure has been developed. The significance of this feature is that the longer a property is required to be held, the lower the current valuation, in general. This Planning Area requires a significant level of resort facilities. In light of the lack of current demand, the market is clearly not strong enough to support development of this Planning Area, as.of the date of value. There will need to be a significant number of additional units developed in the project before the development could support the ancillary amenities of this Planning Area (e.g. the 12,000 SF kids club). This Planning Area is likely to ultimately be the centerpiece of the project. I think the _ market perception is that the comparatively high level of public facilities required in this I component will require more demand than what is currently available from the market. Consequently, the market value of this portion of the subject is likely to carry a lower per �I acre value as compared to Planning Area 3, which seems better suited to more current I I development, as of the date of value. Planning Area 5 Planning Area 5 is the 9 -acre mixed use, Resort Retail site. The Specific Plan calls for development of retail, restaurant and entertainment facilities, in addition to resort oriented office, live -work loft units and multi - family residential units. I found it interesting that a number of those interviewed for this analysis felt that this retail component of SilverRock was too small. Something more along the lines of the Indian Wells Village or the River at Rancho Mirage were cited as examples of what may be viable for the future of this site. Alternatively, I did find that some developers felt that the comparatively small trade area and the southerly location would be detrimental to the destination retail n potential of this site. 1. / C4J 0 2011 CAPITAL REALTY ANALYSTS Page 41 Market Analvsis Planning Area 5 (cont'd) The previous owners of PGA West, KSL, had 2 commercial parcels located in the project. The larger, resort core parcel was marketed to resort hotel developers for many years with no success. The property sold to a residential developer who is attempting to gain entitlements for high density residential development. The 2nd commercial parcel is located at the entrance to PGA West, at the NEC of 54th and PGA Blvd. This parcel had originally been marketed as a resort retail site, similar to what is being proposed for the subject Planning Area 5. The property was subsequently re -zoned to residential and the developer acquired entitlements for approximately 60 units. The property was sold in the early 2000's and the property is currently being developed with a 32 -unit Residence Club, offering gtt' share fractional interests. . The major competitor for the subject will be the Indian Wells Village property, described on a previous. page. The Indian Wells project has a significant advantage over the subject in that the Indian Wells property has a much larger trade area and the retail and office components front on Washington Street, which has a vastly superior traffic count as compared to Jefferson Street between 52nd and 54th. Historically, retail, restaurant and office developments located within resort parcels such as the subject have not been successfully developed in this region. I could find no market support for current development of any permitted uses on this portion of the subject property. In fact, I was unable to locate any source that suggested that significant retail, restaurant or office development of the type described in the Specific Plan could be viable on this site as of the date of value. As the East Valley continues to develop, it is my personal perception that there may be some potential for demand in the future, to support some of the kinds of development called for in the Specific Plan. However,-this may be some years off and consequently, this portion of the project is likely to be the last to mature to the point where development is feasible. Consequently, a dower range speculative market value estimate seems likely. Planning Area 6 Planning Area 6 is the 28.36 -acre Hotel site. This portion of the property shares the identical characteristics of planning Area 4, which were previously described. Conclusion When market conditions are such that parcels of the subject's size and type are ready to be developed, they normally command a premium in the market. There are several examples of high priced land trading activity in the period of 2005/2006 when the market was peaking in the current cycle. Alternatively, when the market is at or near the bottom of a cycle; as it may be as of the date of value, land trading activity simply stops as end users are not able to acquire financing and would not hold land even if they could finance it. This leaves the buyer pool to be made up mainly of speculators with cash. Consequently, all of the current sales data is taking place at considerably lower levels than it was in previous segments of the cycle. C17AJ ©2011 CAPITAL REALTY ANALYSTS Page 42 Market Analysis Conclusion (cont'd) For this property type, development prospects revolve around disposable income. The sharp decline in resort travel over the past several years does not bode well for a current valuation of the subject. Planning Area 3 has existing infrastructure and consequently, it is the least costly of the subject components to develop. Clearly, this parcel will carry the highest per acre values among the subject parcels. Planning Areas 4 and 6 are very large bites for any developer. The lack of feasibility for new resort development is apparent based upon the fact that the last large new resort development in the region took place over a decade ago. Alternatively, both the Ritz in Rancho Mirage and the Riviera in Palm Springs have recently had significant renovations. However, neither Planning Areas 4 nor 6 are likely to become feasible for new development of permitted uses for many years; making them purely speculative land plays as of the date of value. There is no evidence that viability for resort development will improve in the short term. In the mid -term, I found some optimism among those interviewed, provided that institutional financing returns to the market. Additionally, an improving unemployment rate will be required to bolster resort travel. In the long term, the subject parcels are likely to support the same kind of transient occupancy tax revenue currently enjoyed by the adjacent City of Indian Wells. C9d 0 2011 CAPITAL REALTY ANALYSTS Page 43 Site Analysis Plat Map 770 -200; Riverside County, CA V'?A © 2010 CAPITAL REALTY ANALYSTS Page 45 Site Analysis Plat Map 776 -150; Riverside County, CA M0 2010 CAPITAL REALTY ANALYSTS Page 46 . d»� � � � �� \ \� - . _ ... �� \ \'2 »��»�� \ \ \/ �� \� � � � � _ � � `» ^ � \� «.d, .� � 2 « . . « <� � � � .,_�. . . ` a �� _v,:� ^ ._�,.�.)� m «� >: sv .�:. � }� � 9� :� ®� ' � � � � 2 6« ��: ?��: � � 2�2\� /,��,.�,�� \� 2� \ \. 3 3! � \ � � Site Analysis Location: The subject property is located within the SilverRock, at j the SEC of Jefferson Street and Avenue 52, La Quinta, CA. Identification: Planning Areas 2 -6, SilverRock Resort Specific Plan Site Size: According to the SilverRock Specific Plan, the site size of the subject property is as follows: f Planning Area 3:13-Acres i Planning Area 4: 30 -Acres Planning Area 5: 9 -Acres Planning Area 6: 31 -Acres Shape: Irregular, See Assessors Plat Map ' Dimensions: See Specific Plan Maps Frontage: The parcels do not have paved access. _ Topography: Chiefly level at grade �I Flood Zone: According to the Flood Insurance Rate Map, Community Panel No. 06065C 2252 G, dated August 28, 2008 the subject is located in Flood Zone X. Zone X is defined as follows: Areas outside the t 1woon annual chance, IbodplaN, areas of I% annual chance, fat" Bow Bood'ag where areraBo depths are bee, than 1 foot, areas of 1% annual M C. and X Ichanea learn Igodaq whoa Be mrb*utn draimq area is less Bun 1 swam smile, or areas protected from the 1 %annual chance flood by "ft. No Baas Flood Elewtbns or depths are shown within thm zone. Inauraree purchase b not �required in tnex zones. Access: Public Visibility: Average C91 © 2010 CAPITAL REALTY ANALYSTS Page 49 Site Analysis Soils: The Appraisers were not provided with a soil report for the subject property. A physical inspection of the subject property did not reveal obvious evidence of toxic waste or hazardous materials on the subject property. This Report assumes that no toxic or hazardous materials are present on the subject property. The Appraiser is not qualified to make a determination as to the existence or non - existence of hazardous materials on the subject property, and recommend a qualified engineer be consulted, if required. Utilities: Electricity: Imperial Irrigation District Gas: The Gas Company Telephone: Verizon Water: Coachella Valley Water District Sewer: Coachella Valley Water District Improvements: None Hazards: Other than the fact that parts of the subject property are located a moderate liquefaction hazard area, a physical inspection of the subject did not reveal any atypical hazards. I am not qualified to evaluate the site for toxic waste or hazardous substances. Therefore, we recommend that a test be conducted by a qualified engineer, if required. This report assumes that there are no hidden or unapparent conditions to, or on the soil or subsoil that would render the property more or less valuable. C9d © 2010 CAPITAL REALTY ANALYSTS Page 50 Site Analysis Zoning & General According to the City of La Quinta Zoning Map, the Plan: subject property is zoned TC, Tourist Commercial & G, Golf Course. The subject's zoning is considered reasonable and appropriate. Prospects for a short term zone change are nil. Special The course of normal data gathering and analysis, and a Resources: visual inspection of the subject, did not reveal any other evidence of natural, cultural, recreational or scientific resources present upon the subject site. Easements and A current Preliminary Title Report for the subject was not Encroachments: submitted or examined. Consequently, other than items specifically noted, if any, the subject is being appraised as though there are no atypical easements and /or encumbrances that may have a negative impact on the prospective market value or marketability of the subject. Any user of this analysis is advised to acquire an independent opinion of title and the potential impact of any easements and /or encumbrances prior to using this report for any purpose. Functional The subject property is designed to support the uses laid Adequacy of the out by the Specific Plan. As the parcels are surrounded Site: by the golf amenity developed by the City, the functional adequacy of each of the subject parcels is considered typical. Additional comments in this regard are located in the Highest and Best Use section of the report. Relationship to North: La Quinta Resort & Club / SFR f l Adjoining South: PGA West Properties: East: Hideaway West: Mountains / Tradition Club Units of In the subject marketplace, commercial parcels of the n Comparison: subject's size and type are typically purchased based upon the price per square foot. Based upon the market preference, the price per square foot will be applied as n the unit of comparison to value the Planning Area 5 portion of the subject in this appraisal report. As hotel sites are not currently trading actively, the price per acre n will be applied as the unit of comparison for the l I remaining vacant land portions of the subject property. HC-?AJ 0 2010 CAPITAL REALTY ANALYSTS Page 51 f oC. 1 list? � l- l "=` to s ass` /. 3 � v d ? s ' S Ill �I h J Y 4.. a a2jPt_�J.�k' 'eY j .� �l� �� ✓. .�o ''sEi E, t3 LC: jy A F i s - iir 2 { I 'l �� ''�iY `V1 ��,• �' F '1� 't f� Y�rt °�j y`A9 � xa',76e a L �1 � �i'��b`i. t ': Er' 6 6 i � yn� '" i d �i r "�� 3 � a `�.e' x i- Any`° *�" sir, �d �. � � '� { Ir _.. �' �.t, '� � J : . �'� a d�f�yM i�'r �'� y � t- Site Analysis Flood Map - FEMA .Areas outside the 1- perce nt annual chance floodplain, areas of t %annual chance j sheet flow Flooding where average depths are less than 1 foot, areas of 1 % annual B, C. and X Ichance stream flooding where the contributing drainage area Is less than 1 square mile, or areas protected from the 1 % annual chance flood by levees. No Base Flood Elevations or depths are shown within this zone. Insurance purchase is not required in these zones. 09d © 2010 CAPITAL REALTY ANALYSTS Page 57 \� � \/� �� G� ��y��. »..� .��: �� m�� 3 K: a - . .: �� ' � �� \� £ x « �� ^ � ° � 2 : :k�{ 3 2 p a . � � �i � \ �� , �� . � ! w� i � � � . � \(�� / �� .. <. ��\ 47. Highest and Best Use Analysis Highest and Best Use is defined as: The reasonable and probable use that supports the highest present value of vacant land or improved property, as defined, as of the date of appraisal. 2. The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible, and that results in the highest present land value. 3. The most profitable use. Implied in these definitions is that the determination of highest and best use takes into account the contribution of a specific use to the community and community development goals as well as the benefits of that use to individual property owners. Hence, in certain situations, the highest and best use of land may be for parks, greenbelts, preservation, conservation, wildlife habitats, and the like .3 In estimating the highest and best use, there are essentially four stages of analysis: 1. Legally Permissible: What uses are permitted by zoning and deed restriction for the subject site? 2. Physically Possible: What are the physically possible uses for the subject site? 3. Financially Feasible: What physically possible and legally permissible uses will produce a net return to the owner of the site? 4. Maximally Productive: Among the financially feasible uses, which use will produce the highest net return or the highest present worth? The following tests must be met in estimating the highest and best use: The use must be legal. The use must be probable, not speculative or conjectural. There must be a profitable demand for such use and it must return to the land the highest net return for the longest period of time. To estimate the highest and best use, these tests are applied to the subject property (1) as if vacant and available for development, and (2) as presently improved. American Institute of Real Estate Appraisers, The Dictionary of Real Estate Appraisal (Chicago Illinois: American Institute of Real Estate Appraisers, 1984), Page 152 C9d 0 2011 CAPITAL REALTY ANALYSTS Page 63 Highest and Best Use Analysis "As If Vacant" Legally Permissible The legal restrictions that apply to the subject are the public restrictions of the City of La Quinta's, TC & G Zoning Ordinance and General Plan Designations. Additionally, development of the subject parcels are limited to those uses and associated restrictions described in the SilverRock Resort Specific Plan (a copy is included in the Addendum). The following summarizes the land uses that apply to the subject Planning Areas: • Planning Area 3: Boutique hotel, 225 rooms /260 keys • Planning Area 4: Resort hotel, 405 rooms /520 keys 4+ Planning Area 5: 160k SF of retail /office /multi- family 4 Planning Area 6: Traditional Hotel and Resort Casitas The various restrictions for each Planning Area were described in the Market Analysis section of the report. Clearly, this site would have generated a much higher return to the land as a private equity golf club project. However, this is no longer a legally permissible use. The somewhat restrictive nature of the quality, service and amenity levels required by the SilverRock Specific Plan impact the ability of the property to be developed to its highest and best use. Physically Possible From a physical standpoint, the subject Planning Areas have been specifically designed to accommodate the uses suggested in the Specific Plan. Although the City may eventually develop access and utilities to each of the subject Planning Areas, currently, only Planning Area 3 has paved access and utilities. Consequently, the physical attributes of the site would impair its ability to be developed to its highest and best use as of the date of value. Financially Feasible Financial feasibility for development is typically estimated with a simple comparison of costs and benefits. If the cost to construct a prospective development exceeds the present value of the cash flows to be derived from the development, the proposed use is not considered feasible. Alternatively, if the present value of the expected income streams exceeds the cost to produce the proposed development, the use is considered financially feasible. Since the subject valuation does not include any independently income earning improvements, a specific test of feasibility has not been performed. However, I did explore the feasibility aspects of development on each of the subject Planning Areas, with regard to the specific uses allowed for each parcel. CU 2011 CAPITAL REALTY ANALYSTS Page 64 Highest and Best Use Analysis "As If Vacant" Financially Feasible (cont'd) With regard to Planning Area 3, the Specific Plan requires a 4 -star hotel experience with 225 rooms / 260 keys. The development type could include condo -hotel units, time -share units, and /or residence club type units. Similarly, Planning Areas 4 and 6 require development of a comparatively large destination resort hotel complex with a condo -hotel component. As described in the Market Analysis section, feasibility does not exist for this property type as of the date of value. There has been only 1 new timeshare development in the market over the past several years. This Marriott project, located within the City of Palm Desert's Desert Willow project area has met with reasonable success. There has been no new destination resort hotel development in the regional market in over a decade. There is 1 residence club project currently being developed at PGA West, on a comparatively small scale and not meeting with acceptable success. The fact that there are very few or no other developers and lenders currently risking debt and equity on new resort development of the size and scope required at the subject suggests difficult prospects for financial feasibility. Planning Area 5 includes a retail village, as well as a potential multi - family residential component. At 160k SF on 12.62- acres, this project area is similar in size as compared to a typical grocery anchored neighborhood retail center. Retailers normally look for 360 degree trade windows, which does not exist at this site. Furthermore, the subject Planning Area 5 has significant retail competition in the Downtown area. I think that the market perception is that once Planning Areas 3, 4 and probably 6 are developed; the captive resort demand will be great enough to support some development of this site. Until that time, it seems unlikely that sufficient demand would exist for financially feasible development of the property. Maximally Productive II l The physically possible and legally permissible uses for the subject property are I present in the subject region. Other similar properties in the subject region have been successfully developed and absorbed. As current financial feasibility does ( - -� not exist, I conclude that the property should be held for investment purpose until such time as sufficient demand exists for feasible development. "As Improved " The improved portion of the subject property includes the Ahmanson House, an original ranch structure. This property is planned to be preserved and consequently, the most maximally productive use of the property in the improved condition is to remain as improved. HC4LJ 0 2011 CAPITAL REALTY ANALYSTS Page 65 Appraisal Process The first step in the appraisal process is to identify the appraisal problem. Every real property is different and there are many types of values that can be estimated for any real property. For this appraisal assignment, the appraisers are estimating the market value of the fee simple estate in the following components of the subject; 4- Market Value "As Is" The definition of market value has been defined in the Purpose of the Appraisal section of this report. The subject property and the type of value desired have been identified. Through the appraisal process, it is my intent to present a properly supported value estimate for the subject property. The market data, analysis and conclusions presented in the appraisal report should cause a reasonable person to reach similar conclusions. There are three traditional approaches to estimating market value. These are the Cost Approach, the Sales Comparison Approach and the Income Approach. The approaches to value are defined as follows; Cost Approach "A set of procedures through which a value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of, or replacement for, the existing structure; deducting accrued depreciation from the reproduction or replacement cost; and adding the estimated land value plus an entrepreneurial profit. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised.", Sales Comparison Approach "The Sales Comparison Approach is the process in which a market value estimate _ is derived by analyzing the market for similar properties and comparing these lproperties to the subject property. Estimates of market rent, cost, depreciation, and other value parameters may be derived in the other approaches to value using comparative techniques. Often, these elements are also analyzed in the sales comparison approach to determine (estimate) the adjustments to be made to the sale prices of the comparable properties. The comparative techniques of analysis applied in the sales comparison approach are fundamental to the valuation process.' " The Dictionary Of Real Estate Aooraisal, Third Edition, Appraisal Institute, 1993, Page 61 r1 s The Aooraisal Of Real Estate, Tenth Edition, Appraisal Institute, 1992; Page 367 1I I i3d © 2011 CAPITAL REALTY ANALVS TS Page 67 Appraisal Process Income Approach "A set of procedures through which an appraiser derives a value indication for an income - producing property by converting its anticipated benefits (cash flows and reversion) into property value. This conversion can be accomplished in 2 ways. One year's income expectancy can be capitalized - at a market - derived capitalization rate or at a capitalization rate that reflects a specified income pattern, return on investment and change in, the value of the investment. Alternatively, the annual cash flows for the holding period and the reversion can be discounted at a specified yield rate. The following sections describe the valuation methodology for the required value estimate; Market Value, Fee Simple Estate "As Is" In the "As Is" condition, the market value estimate for the subject is derived via a sales comparison technique. Lacking improvements with an associated cost or income earning ability, the Cost and Income Approaches to value are not considered applicable for this portion of the analysis. o e The Dictionary Of Real Estate Appraisal, Third Edition, Appraisal Institute, 1993, Page 178 _. C-?L1 ©2911 CAPITAL REALTY ANALYSTS rage 68 Sales Comparison Approach In the Sales Comparison Approach, the subject property is compared to similar properties, which have been sold recently or for which listing prices or offering figures are known. Data for generally comparable properties are used and comparisons are made to demonstrate a probable price at which the subject property would be sold if offered on the market. The Dictionary of Real Estate Appraisal defines the Sales Comparison Approach as follows; "A set of procedures in which a value indication is derived by comparing the property, being appraised to similar properties that have been sold recently, applying appropriate units of comparison, and making adjustments to the sale prices of the comparables based on the elements of comparison. The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant; it is the most common and preferred method of land valuation when comparable sales data are available. "' In this appraisal report, the Sales Comparison Approach is applied to estimate the market value of the fee simple estate in the subject land "As Is ". Because there are 2 components, retail and resort residential, 2 sets of sales are applied. The first set relates to Planning Area 5, the retail component; while the 2nd set of sales relates to the resort components. A search of public records and a field investigation were made in order to obtain data on recent, comparable sale transactions. The primary selection criteria for the comparable sales are based on obtaining sales with similar highest & best uses. Several sales and listings have been reviewed and analyzed. The most relevant sales were selected for comparison. All of the comparable sales have similar zoning and highest and best uses. The Sales Comparison Approach is organized as follows; Retail Component 4. Land Sales Map 4, Land Sales Grid A. Comparable Sales Analysis 4 Adjustments 4 Conclusion Resort Components 4 Land Sales Map 46 Land Sales Grid 46 Comparable Sales Analysis 4 Adjustments $ Conclusion 'The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, 1993, page 318 C9d 0 2011 CAPITAL REALTY ANALYSTS Page 69 -> -- I N Side of Highway 111, 812512008 $4,391,244 20.530 $ 213,894 894,287 $ . 4.91 E of Miles Avenue Indian Wells, CA 2 NEC of Highway 111, 9/24/2008 $4,341,639 16.680 $ 260,290 726,581 $ 5.98 & Miles Avenue Indian Wells, CA 3 SEC of Avenue 42 & - 1012512010 $1,000,000 6.500 $ 153,846 283,140 $ 3.53 Spectrum Street Indio, CA, 4 S of 40th Avenue, 5/27 /2010 $ 405,000 5.370 $ 75,419 233,917 $ 1.73 E of Adams Street Indio, CA Subj. W of Jefferson Street, 12.620 549,727 S of Avenue 52 La Quinta, CA Cod© 2011 CAPITAL REALTY ANALYSTS Page 70 Sales Comparison Approach Comparable Sales Analysis Comparable Sale Number 1 Comparable sale number 1 is the August 2008 sale of a 20.53 -acre land parcel, located along the north side of Highway 111, east of Miles Avenue, Indian Wells, CA. The sale price of $4,391,244 equates to an unadjusted sale price of $213,894 per acre. This transaction was selected for comparison as the property is similar in size as compared to the subject, and along with Sale 2, it is the last sale of a comparable, resort retail parcel located in the regional area that I could locate and verify. Significant downward adjustment is required for time. The property remains undeveloped. Overall comparability is considered poor to fair. Comparable Sale Number 2 Comparable sale number 2 is the September 2008 sale of 16.68 -acres of land located at the NEC of Highway 111 and Miles Avenue, Indian Wells, CA. The sale price of $4,341,639 equates to an unadjusted sale price of $260,290 per acre. This transaction was selected for comparison for the same reasons as Sale 1, as this property was acquired as another component of the development. Overall comparability is considered poor to fair. _ Comparable Sale Number 3 (` Comparable sale number 3 is the October 2010 sale of a 6.50 -acre land parcel, 1 I located at the SEC of Spectrum Street and 42nd Avenue, Indio, CA. The sale price _ of $1,000,000 equates to an otherwise unadjusted sale price of $3.53 per SF. This f l transaction was selected for comparison to demonstrate the most recent sale of a commercially zoned land parcel in the subject region, over 5 -acres that I could locate and verify. The lot is a finished parcel, located in a developed business park. The property is planned for future development of retail and office uses. Other than being a current sale of commercially zoned land, this property has little ! I to do with the valuation of the subject. However, lacking resort oriented retail land tl sales; this most current data item is included to reflect on current per acre prices. Overall comparability is considered poor to fair. Comparable Sale Number 4 Comparable Sale Number 4 is the May 2010 sale of 5.37- acres, located south of 40th Avenue, east of Adams Street in Indio, CA. The sale price of $405,000 equates to an otherwise unadjusted sale price of $75,419 per acre. This data item was included for direct comparison to demonstrate the most recent commercially zoned land sale I could locate and verify, that lacked direct frontage on a main artery, and would require significant infrastructure to be developed with high density commercial uses; for which there is no current market. Overall comparability is considered poor to fair. Cad © 2011 CAPITAL REALTY ANALYSTS Page 71 Sales Comparison Approach Adjustments Adjustments to each of the sales are required for significant differences among the comparable sales data that affect value. The appraiser adheres to a sequence of adjustments in all sales comparison analysis. Using the sequence, the appraiser obtains intermediate price figures and applies succeeding adjustments-to each previously adjusted price. The adjustments applied to a comparable transaction reflect the property's superiority or inferiority in regard to the real property rights conveyed, financing, conditions of sale, market conditions, locational, and physical characteristics. A common method of extracting adjustments among the comparable sales is a technique called "Matched Pairs Analysis'. The goal of Matched Pairs Analysis is to obtain market -based adjustments. The basic premise of Matched Pairs is to isolate a particular adjustment feature among 2 or more sales, where the difference in adjusted prices would yield the market's value perception for that feature. Generally, the appraiser follows a sequence of adjustments, attempting to isolate market -based adjustments from intermediate adjusted sale prices. In many cases, adjustment features cannot be isolated. Limited comparable data, unique property traits or other factors may cause this. When adjustment features cannot be isolated, Matched Pairs Analysis is supplemented with other techniques to adjust the comparable data. These other techniques typically include cost based adjustments, adjustments based upon a market survey, adjustments based upon published data and subjective adjustments. The following is a discussion of relevant adjustment factors. Property Rights Conveyed All of the comparable sales reflect the transfer of fee simple estates. No adjustment for this feature is required among this group of comparable sales. Financing Terms All of the sales were sold for cash, or terms equivalent to cash. No adjustment for financing terms is indicated among these sales. Conditions of Sale Sales 1 and 2 were sold to the developer by the Redevelopment Agency. The r, Planning Director indicated that the sales were arm's length sales, based upon the it sellers perception of current value. No adjustments are applied to these sales in this adjustment category. Sales 3 and 4 were also reported to be arm- length sales with no atypical conditions. No adjustments to the sales are required in this adjustment category. Cod 0 2011 CAPITAL REALTY LYALYSTS Page 72 Sales Comparison Approach Market Conditions Adjustments for market conditions reflect a change in prices paid for real property due to changes in markets over time. Clearly, market conditions have been trending down. While time cannot be isolated via matched pairs at this stage in the analysis, the lack of any current sales suggests declining market conditions. A survey of local brokers revealed a consensus opinion that the fact that the market downturn has rendered development of the subject not feasible, is going to require a moderate downward adjustment for time due to the fact that the property will not be likely to sell unless it is priced at a level that will allow a buyer to hold the property for several years until market conditions improve. The sales are adjusted accordingly. Location The location of a property will dictate its desirability among similar properties in the market. At the top of a cycle, and assuming the 2nd golf course and some resort uses had been developed at SilverRock, this portion of the subject property would be considered a very strong location. However, the 2nd golf course has not been developed, and no resort uses currently exist. Consequently, the locational quality of this property is currently considered poor as a buyer /owner will not be able to independently develop this property. Consequently, the land will need to be held indefinitely, until adjacent parcels are developed and absorbed, creating demand for this component of the subject property. Therefore, the locational quality of this land will be measured against the comparables, based upon the market perception of the time frame for development. Clearly, Sales 1 and 2 are vastly superior in this regard. In fact, the land is ripe for current development as the neighboring resorts already exist, along with 2 golf courses and other significant resort elements. However, the City has exerted strong restrictions on development of this land in order to protect the revenue stream of the City owned IW Club, which was recently renovated at substantial cost; and to enhance the viability of the resort/retail site located at the NWC of Miles Avenue and Washington Street, adjacent to the Tennis stadium; which the City desires to see developed 151. Downward adjustments are applied to Sales 1 and 2 for this condition. Sales 3 and 4 are both located in Indio. Sale 3 is not likely to be ready for immediate development of speculative commercial uses. However, the property is likely to attract larger owner /users for the office portion of the property. Additionally, other uses exist in the immediate area of this property, which does not rely on development of adjacent parcels to attain. feasibility for development. This is a superior locational quality and downward adjustment is applied to Sale 3 for location. CU© 2011 CAPRAL REALTY ANALYSTS Page 73 Sales Comparison Approach Adjustments (cont'd) Location ( cont'd) Sale 4 is located in an emerging market area north of 1 -10 in West Indio. This data item was selected for comparison mainly due to its location, which does not front on major. arterials; hence it is likely that large scale development of this property will require development of adjacent parcels, not under common control, which is a similar characteristic of the subject. Alternatively, this property is not located in a resort quality area and adjacent commercial uses do not exist in the immediate proximity of this land. Consequently, the locational quality of the property is considered slightly inferior and upward adjustment is applied. Size The size of a property affects the uses it will support, and the buyers it will attract. Size adjustments are generally based upon the concept of "marginal utility". Marginal utility is defined as follows; "The increment of total utility added by the last unit of a good at any, point of consumption. In general, the greater the number of items, the lower the marginal utility, i.e., a greater supply of an item or product lowers the value of each item. The concept of marginal utility generally holds true for parcels in the subject market. While larger sites can ultimately support more square feet of developable area, the available buyer pool generally gets smaller as the total site size increases: However, among this data set, no value differential based upon size is apparent. Clearly, the data set is insufficient to acquire a market -based adjustment. While no size adjustment is applied directly, I will consider the potential impact of size on price in where to place the final value estimate among the indicated range. Other Physical Attributes In terms of other physical conditions, the subject is impaired by the lack of infrastructure developed to the site. In light of the location of existing utilities and - roads, this portion of the subject property is not going to develop independently of other resort components that will be required to be developed prior to this land becoming available for feasible development. This is a significant factor, as it makes the prospective holding costs for a prospective buyer unknown. Sales 1 and 2 are both finished pad, with all essential utilities and access developed to the site. In this regard, Sales 1 and 2 are considered vastly superior to the subject property. A partially offsetting feature is that both sale parcels - Include a significant amount of land located within the Coachella Valley Sormwater Channel. 9 The Dictionary of Real Estate Appraisal, 3rd Edition, Appraisal Institute, Chicago, IL., 1993, p.219 Cad © 201111 CAPITAL REALTY ANALYSTS Page 74 Sales Comparison Approach Adjustments (cont'd) Other Physical Attributes (cont'd) The developer indicated that this feature is mitigated to a large extent by the fact that density bonuses are being provided, along with the fact that portions of the wash will be developed with access to the adjacent golf facilities and open space components. Overall, both Sales 1 and 2 require downward adjustment in this adjustment category. Sale 3 is also a finished parcel with all access and utilities stubbed to the site. The master developer of the park suggested $2.50 PSF downward adjustment to account for the cost to develop this lot. Sale 3 is adjusted accordingly. Again, Sale 4 was selected for comparison mainly due to its lack of access and large -scale utility availability. However, this property is only 1 parcel south of 40th Avenue and is likely to have a shorter time line for utilities to be brought to the site. Consequently, a small downward adjustment is applied to Sale 4 for this feature. Conclusion The table on the following page shows the comparable sales adjustment matrix: tI HCad © 2011 CAPITAL REALTY ANALYSTS Page 75 Sales Comparison Approach Comparable Sales Adjustment Matrix — Resort Retail Sale Price $4,391,244 $4,341,639 $1,000,000 $405,000 Size (Acres) 12.62 20.53 16.68 6.50 5.37 Unit of Comparison Price /Acre Price /Acre Price /Acre Price /Acre Price /Acre Sale Price Per Acre $213,894 $260,290 $153,846 $75,419 Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Adjustment $0 $0 $0 $0 Terms Cash Eq. Cash Eq. Cash Eq. Cash Eq. Cash Equivalency $0 $0 $0 $0 Conditions of Sale Adjustment Date of Sale Adjustment Subtotal Location Location Adjustment Size Size Adjustment Other Physical Adjustment Adj. Sale Price Per Acre Arms -Len. Arms -Len. Arms -Len. Arms -Len. $0 $0 $0 $0 3/20/2011 8/25/2008 9/24/2008 10/25/2010 5/27/2010 ($109,818) ($129,361) ($12,308) ($12,274) $104,076 $130,929 $141,538 $63,145 Poor /Fair Superior Superior Superior SI. Inferior ($15,611) ($19,639) ($14,154) $6,315 12.62 20.53 16.68 6.50 5.37 $0 $0 $0 $0 No Acc /Utils Superior Superior Superior SI. Superior ($20,815) ($26,186) ($35,385) ($3,157) $67,649 $85,104 $92,000 $66,303 The adjusted value range is $66,303 per acre to $92,000 per acre. Sales 1 and 2 are clearly the best indicators for this property of the subject. However, none of the sales are better than poor to fair as current indicators. Based upon the available data, I conclude that the market value of the fee simple estate in the Planning Area 5 portion of the subject property as of the date of value is as follows: $85,000 Per Acre x 12.62 -Acres = $1,072,700 $1,075,000 (Rounded) .(One Million Seventy Five Thousand Dollars) C9i! © 2011 CAPITAL REALTY ANALYSTS Page 76 i-1 Sales Comparison Approach - Resort This section of the Sales Comparison Approach is applied to estimate the market value of the fee simple estate in the resort components of the subject property. This includes Planning Areas 3, 4 and 6. Planning Areas 3, 4 and 6 are vacant land parcels. Planning Area 3 has paved access and access to existing utilities, which were developed ancillary to the Phase 1 portion of the project. While the same set of comparables are applied, the adjustments vary by parcel. As Planning Areas 4 and 6 are very similar, the same adjustments apply to both parcels. Planning Area 3 will require a separate set of adjustments to get to land value. The map and grid on the following page shows the sales applied for this section of the analysis; Cad 0 2011 CAPITAL REALTY ANALYSTS Page 77 Sales Comparison Approach Land Sales Map - Resort 3 1 4 !wn ,cN.nhu Land Sales Grid - Resort 1 W side of Cook Street, 10115/2010 $1,361,500 3.130 $ 434,984 136,343 $ 9.99 N of Gerald Ford Drive Palm Desert, CA 2 E side of Meyers North 1/15/2010 $1,139,000 10.290 $ 110,690 448,232 $ 2.54 N of W. Florida Avenue Hemet, CA 3 S side of 58th Avenue, 6/312009 $2,050,000 39.010 $ 52,551 1,699,276 $ 1.21 E of Park Lane La Quinta, CA 4 S side of 58th Avenue, 4/2/2010 $ 265,000 4.600 $ 57,609 200,376 $ 1.32 W of Monroe Street La Quinta, CA Sub). W of Jefferson Street, PA3 13.790 600,692 S of Avenue 52 PA4 32.100 1,398,276 La Quinta, CA PA6 28.360 1,235,362 Cad© 2011 CAPITAL REALTY ANALYSTS Page 79 Sales Comparison Approach Comparable Sales Analysis Comparable Sale Number 1 Comparable sale number 1 is the October 201.0 sale of a 3.13 -acre land parcel, Iodated along the west side of Cook Street, north of Gerald Ford Drive, Palm Desert, CA. The sale price of $1,361,500 equates to an unadjusted sale price of $434,984 per acre. This transaction was selected for comparison to demonstrate the price potential for a hotel site that is ready for, immediate development. This property was acquired for development of a limited service Holiday Inn, located at the Cook Street / 1 -10 10 interchange. The adjustment for'developmental potential is so significant, that this property is best considered for informational purposes as opposed to being a legitimate value indicator for the subject., Overall comparability is considered poor. Comparable Sale Number 2 Comparable sale number 2 is the October 2010 sale of 10.29 -acres of land located along the east side of Meyers North, north of W. Florida Avenue, Hemet, CA. The sale price of $1,139,000 equates.to an unadjusted sale price of $110,690 per acre. This transaction was selected for comparison to demonstrate the most recent sale of a hotel parcel of over 10 -acres within 50 -miles of the subject t property, that I could located and verify. The buyer, Hemet Hospitality Investments, LLC is holding the property for future hotel development. Overall comparability is considered fair. Comparable Sale Number 3 Comparable sale number 3 is the June 2009 sale of a 39.01 -acre land parcel, located along the south side of 58th Avenue, east of Park Lane, La Quinta, CA. The sale of $2,050,000 equates to an otherwise unadjusted sale price of $52,551 per acre. This transaction was selected for comparison to demonstrate the most recent sale of a larger parcel planned for resort development, located in the City of La Quinta that I could locate and verify. The property was acquired for development of a motor coach resort. However, the owner was unable to continue to hold the property for improving market conditions and the land sold in this transaction. The buyer is a speculator. Overall comparability is considered fair to average for the larger of the subject parcels. CU©2011 CAPITAL REALTYAYALVSTS Page 80 Sales Comparison Approach Comparable Sales Analysis (cont'd) Comparable Sale Number 4 Comparable Sale Number 4 is the April 2010 sale of 4.60 -acres of land, located along the south side of 58th Avenue, west of Monroe Street, La Quinta, CA. The sale price of $265,000 equates to an otherwise unadjusted sale price of $57,609 per acre. This data item was included for comparison mainly as a pairing against Sale 3 to attempt to acquire adjustments for both size and time. Additionally, this data item provide a comparatively clear demonstration of the lower level of per acre values for land that has recently sold in La Quinta. Overall comparability is considered poor to fair. ! Adjustments Adjustments to each of the sales are required for significant differences among the comparable sales data that affect value. The appraiser adheres to a sequence of adjustments in all sales comparison analysis. Using the sequence, the appraiser obtains intermediate price figures and applies succeeding adjustments to each previously adjusted price. The sequence and methodology for adjustments applied in this section of the report are identical to that described in the previous section of the report. The following is a discussion of relevant adjustment factors. Property Rights Conveyed All of the comparable sales reflect the transfer of fee simple estates. No adjustment for this feature is required among this group of comparable sales. Financing Terms All of the sales were sold for cash, or terms equivalent to cash. No adjustment for financing terms is indicated among these sales. Conditions of Sale All of the sales were arm's length sales, based upon the seller's perception of current value. No adjustments are applied to these sales in this adjustment category. Market Conditions Adjustments for market conditions reflect a change in prices paid for real property due to changes in markets over time. Clearly, market conditions have been trending down. As in the previous portion of the analysis, downward adjustment is applied to the sales to account for declining market conditions. Cod © 2011 CAPITAL REALTY ANALYSTS Page 81 Sales Comparison Approach Location The location of a property will dictate its desirability among similar properties in the market. PA 3 is a strong location within the project as both access and utilities have been extended to this parcel. Also, PA 3 is the smallest of the hotel parcels, suggesting that it is likely to be first to develop. Alternatively, Planning Areas 4 and 6 are larger parcels. Utilities have not been extended to these parcels, nor have roads. However, the biggest locational feature is that the eastern exposure of these parcels fronts on the 2nd golf course, which has yet to be developed. Consequently, it seems likely that these 2 parcels will be last to develop within the project area. The only wildcard I could find in this regard was that if the timeshare segment gains traction in the future and demand booms, these parcels will benefit from their configuration. Otherwise, PA 3 is currently the superior location, while the locational quality of PA 4 and 6 are currently the inferior locations. Sale 1 is a freeway location. Clearly, the limited service segment is far more viable as compared to the resort segment. As the location of this property supports limited service development, it is considered vastly superior in location and downward adjustment is applied. Sale 2 is located in Hemet, CA. The property is situated adjacent to master planned community development, but is not associated with a larger project. Lacking the resort amenities of the subject, this site would be considered an inferior location if not for the fact that the locational quality of the property allows for independent development. However, this is not a completely offsetting feature as the Hemet sub - market is both lower priced, and has a lower occupancy potential as compared to the area of the subject. Upward adjustment is applied. Sales 3 and 4 are both located in South La Quinta, along the south side of 58th Avenue. Both of these sites lack the resort elements of the subject and are considered inferior in that regard. Alternatively, these parcels are located such that they are independently developable now; which is a more than offsetting locational quality. Small downward adjustments are applied to Sales 3 and 4 to reflect this condition. CIAI © 2011 CAPITAL REALTY.4NALYSTS Page 82 Sales Comparison Approach Adjustments (cont'd) Size The size of a property affects the uses it will support, and the buyers it will attract. Size adjustments are generally based upon the concept of "marginal utility ". Marginal utility was defined in the previous section of the report. In this case, Sales 3 and 4 are available for pairing for size. As the intermediate adjusted sale price of these parcels does not differ significantly, the data suggest that no adjustment is warranted, or the data set is too small to quantify the differences. As in the previous section of the analysis; while no size adjustment is applied directly, 1 will consider the potential impact of size on price in where to place the final value estimate among the indicated range. Other Physical Attributes In terms of other physical conditions, the subject is impaired by the lack of infrastructure developed to the site. In light of the location of existing utilities and roads, this portion of the subject property is not going to develop independently of other resort components that will be required to be developed prior to this land becoming available for feasible development. This is a significant factor, as it makes the prospective holding costs for a prospective buyer unknown. Sale 1 was fully finished on the date of sale. Downward adjustment is applied for this condition. Similarly, Sale 2 was mainly finished, however, to a lesser degree than Sale 1. A more moderate adjustment is applied to Sale 2 for this condition. Sales 3 and 4 were both raw. While paved access and some utilities 'were available to these 2 properties, the offsite exposure remains significant. Moderate downward adjustments are applied to these sales in this adjustment category. ` ' Conclusion " 1 The table on the following page shows the comparable sales adjustment matrix: nC3-' © 2011 CAPITAL REALTY" ANALYSTS Page 83 Sales Comparison Approach Comparable Sales Adjustment Matrix Sale Price $1,361,500 $1,139,000 $2,050,000 $265,000 Size (Acres) Various 3.13 10.29 39.10 4.60 Unit of Comparison Price /Acre Price /Acre Price /Acre Price/Acre Price /Acre Sale Price Per Acre $434,984 $110,690 $52,430 $57,609 Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Adjustment $0 $0 $0 $0 Terms Cash Eq. Cash Eq. Cash Eq. Cash Eq. Cash Equivalency $0 $0 $0 $0 Conditions of Sale Arms -Len. Arms -Len. Arms -Len. Arms -Len. Adjustment $0 1 $0 $0 $0 Bate of Sale 3/20/2011 10/15/2010 1/15/2010 6/3/2009 4/2/2010 Adjustment ($37,182) ($26,020) ($18;817) ($11,111) Subtotal $397,802 $84,670 $33,612 $46,497 Location Poor /Fair Superior Inferior SI. Superior SI. Superior Location Adjustment ($159,121) $16,934 ($1,681) ($2,325) Size Various 3.13 10.29 39.10 4.60 Size Adjustment $0 $0 $0 $0 Other Physical No Acc /Utils Superior Superior Superior SI. Superior Adjustment ($119,341) ($16,934) ($1,681) ($2,325) Adj. Sale Price Per Acre $119,341 $84,670 $30,251 $41,848 The adjusted value range is $30,251 per acre to $119,341 per acre. The wide range of adjusted values reflects the lack of a current market for this property type, resulting in _ comparatively poor data indicators, and . no truly comparable sales. However, the comparatively wide value range does allow for a more reasonable analysis of the value potential for each parcel. The following described the final value estimate by Planning Area: Cod © 2011 CAPITAL REALTY ANALYSTS Page 84 Sales Comparison Approach Conclusion (Cont'd) Planning Area 3 Planning Area 3 is a 13.79 -acre boutique hotel site. This property is known to some as the "dogbone" due to its long narrow shape. The relative advantages of this property is 1 that it has access and utilities, and the long narrow shape will provide strong view elements to the rooms to be developed on this site. This parcel is ascribed a per acre value estimate at the higher end of the range to account for the fact that this land is likely to be first to develop within the project area. Based upon the available data, I conclude that the market value of the fee simple estate in the subject land as of the date of value is as follows: �J _ $100,000 Per Acre x 13.79 -Acres = $1,379,000 i $1,380,000 (Rounded) -} (One Million Three Hundred Eighty Thousand Dollars) Planning Areas 4 and 6 i These 2 Planning Areas are comparatively large and lack both access and utilities. As described in the Market Analysis section of the report, the time line for development of �) these 2 parcels may be extended. There is a similar site located immediately northeast of City Hall in Indian Wells that has remained vacant for decades. Similarly, the resort core parcel at PGA West, located just south of the subject has failed to attract resort lhotel feasibility for decades. Clearly, there will be extended holding costs for this land and any current buyer would be taking this into account in calculating an appropriate strike price. As the developers are not currently buying land of this type, a current sale is likely to attract speculators who are apt to pay at the lowest end of the range. Consequently, a lower range per acre value estimate is considered the best representation of the market perception of value for these 2 planning areas as of the date of value. Based upon the available data, I conclude that the market value of the fee simple estate in the subject land Planning Area 4 as of the date of value is as follows: $40,000 Per Acre x 32.10 -Acres = $1,284,000 $1,285,000 (Rounded) (One Million Two Hundred Eighty Five Thousand Dollars) Based upon the available data, I conclude that the market value of the fee simple estate in the subject land Planning Area 6 as of the date of value is as follows: $40,000 Per Acre x 28.36 -Acres = $1,134,400 $1,135,000 (Rounded) (One Million One Hundred Thirty Five Thousand Dollars) Cad ® 2011 CAPITAL REALTY ANALYSTS Page 85 Certification certify that, to the best of my knowledge and belief... The statements of fact contained in this Report are true and correct The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and is my personal, unbiased professional analyses, opinions and conclusions. I have no present or prospective interest in the property that is the subject of this Report, and I have no personal interest or bias with respect to the parties involved. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. My analysis, opinions and conclusions were developed, and this Report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice ( USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation, except that the Departure Provision of the USPAP shall not apply to federally related transactions. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. I certify that the use of this Report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this Report, I have completed the requirements of the continuing education program of the Appraisal Institute. I have made a personal inspection of the property that is the subject of this Report. No other person provided significant professional assistance to the person(s) signing this Report. This Appraisal assignment was not based.on a requested minimum valuation, a specific valuation or the approval of a loan. 1 certify that, to the best of my knowledge and belief, the reported analyses, opinions and conclusions were developed, and this Report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. I have previously appraised the property that is the subject of this report. Michael A. Scarcella, MAI State Certification No.: AGO19463 Expiration Date: October 24, 2011 Cod ©2011 CAPITAL PEALTY ANALYSTS Page 86 Addendum C '7d0 201I CAPITAL REALTY AVYALYSTS Page 87 Assumptions and Limiting Conditions This appraisal report has been made with the following general assumptions and limiting conditions 1. No responsibility is assumed for the legal description or for matters including legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any or all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. However, no warranty is given for its accuracy. The appraiser reserves the right to make adjustments to the analyses, opinions and conclusions in this report, as may be required by consideration of additional or revised data that may become available. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to discover them. 7. It is assumed that the property is in full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. 8. It is assumed that the property conforms to all applicable zoning and use regulations and restrictions unless nonconformity has been identified, described and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, and other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. 10. It is assumed that the utilization of the land and improvements is confined within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 11. Unless otherwise stated in this report, the existence of hazardous materials, which may or may not be present on the subject property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea - formaldehyde foam insulation and other potentially hazardous materials may affect the value of the property. The value estimated is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for such conditions or for any expertise or engineering knowledge required to discover them. The intended user is urged to retain an expert in this field, if desired. 12. Any allocation of the total value estimated in this report between the land and the improvements applies only under the stated program of utilization. The separate allocations for land and J - building -must not be used in conjunction with any other appraisal and are invalid if so used. C�i/ D 2011 CAPITAL REALTY ANALYSTS Page 88 Assumptions and Limiting Conditions 13. Except for use in the Official Statement as required for bond issuance, possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event only with properly written qualification and only it its entirety. 14. The appraiser herein by reason of this appraisal is not required to give further consultation, testimony, or be in attendance in court with reference to the property in question unless arrangements have been previously made. 15. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or the firm with which the appraiser is connected) shall be disseminated to the public through advertising, public relations, news, sales, or other media without- the prior written consent and approval of the appraiser. 16. Improved Properties - The Americans with Disabilities Act ( "ADA ") became effective January 26, 1992. 1 (we) have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since I (we) have no direct evidence relating to this issue, I (we) did not consider possible non - compliance with the requirements of ADA in estimating the value of the property. 17. Improvements, Proposed Improvements - The value estimates in this report are subject to the improvements being completed in the manner represented to the Appraiser(s), and described in the Improvement Description section of this report. 18. The legal descriptions, site sizes, dimensions and /or other surveys provided to the appraiser, including County Tax Plats, are assumed to be accurate. Should a survey prove these characteristics inaccurate, it may be necessary for the appraisal to be adjusted. 19. The forecasts, projections, or operation estimates contained herein are based upon current market conditions, anticipated short-term supply and demand factors, and a continued state economy. These forecasts are therefore, subject to change in the future. 20. The appraiser undertaking this assignment warrants that he is competent in properly identifying the appraisal problem and has the necessary knowledge and experience to complete the assignment. 21. Provision of an insurable value by the appraiser does not change the intended user or intended purpose of the appraisal. The appraiser assumes no liability for, and does not guarantee that any estimate or opinion will result in the subject property being fully insured for any possible loss that may be sustained. The appraiser recommends that an insurance professional be consulted. 22. Copyright of this material belongs exclusively to Michael A. Scarcella, Inc., and /or Capital Realty Analysts, Inc. This copy is intended for private use as defined in the body of the report for the designated client only. No person or entity is permitted to reproduce this material, in whole or in part, for distribution either free of charge or for'commercial purposes', unless that person or entity has a signed license agreement with Michael A. Scarcella, Inc. and /or Capital Realty Analysts, Inc. Reproduction for commercial purposes is reproduction for the purposes of sale, rent, trade or distribution, or posting it on the Internet or on electronic bulletin boards. C9d © 2011 CAPITAL REALTY ANALYSTS Page 89 MICHAEL A. SCARCELLA, MAI Education 1982 B..S., Business, University of Nevada, Las Vegas All required Appraisal Institute sponsored courses required to attain the MAI designation, along with Appraisal Institute sponsored courses, seminars and on -line forums required for continuing education. Professional Organizations /Licensing Member of the Appraisal Institute - MAI Member Number 11072 Licensed by the State of California as a "Certified General Real Estate Appraiser ". Office of Real Estate Appraisers, Appraiser Identification Number AG 019463. Appraisal Institute — So. Cal. Chapter, 1997, 1998, -2001 Experience Review Committee; 1999, 2000,2005 So. Cal. Chapter Ethics Committee General Experience 1997 to Current Capital Realty Analysts — President 1991 to 1996 - MacKenzie and Associates — Staff Appraiser 1982 to 1991 - Hotel, Construction / Development Controller Qualified as an expert real estate witness, United States Bankruptcy Court Qualified as an expert real estate witness, Riverside County Superior Court Representative List of Clients United States Of America RTC /FDIC Bureau of Indian Affairs BLM State of California State of Arizona Riverside County City of Palm Springs City of Cathedral City City of Rancho Mirage City of Palm Desert City of Indian Wells City of Indio City of La Quinta Palm Springs Unified SD Desert Sands Unified SO Coachella Valley Unified SD Southern California Edison Coachella Valley Water Dist. Mojave Water Agency Desert Hospital - Private Se( Price Waterhouse Merrill Lynch CB Commercial Textron Bechtel Corporation KSL Recreation Corp. United States Filter Sunrise Company Canyon Development Lennar Homes Temple Construction Santa Fe Pacific Takenaka Corporation Betty Ford Center Heart Institute of the Desert Basic Capital Management Estate of Walter Annenberg Estate of Frank Sinatra Developers Attorneys Accountants Bank of America Rabobank N.A. Wells Fargo Bank Pacific Western Bank Washington Mutual Bank Bank Midwest Pacific National Bank Canyon National Bank Banc One Fidelity Federal Bank Bankers Trust Company Sunrise Community Bank Union Bank Commerce Federal Svgs Great American Bank Mitsubishi Bank Indymac Bank Foothill Independent Bank El Paseo Bank Palm Desert National Bank First Bank CgAJC 2011 CAPITAL REALTY ANALYSTS Page 90 07 WO'9� Definitions of Key Appraisal Terms Absorption Rate: The rate at'which properties for sale or lease have been, or are expected to be successfully marketed in a given area; usually used in forecasting sales or leasing activity. Appraisal: An analysis, opinion, or conclusion relating to the nature, quality, value, or utility of specified interest in, or aspects of, identified real estate. In this usage, appraisal covers a variety of assignments, including valuation, consulting, and review. Assessed Value: The value of property according to the tax rolls in ad valorem taxation. Maybe higher or lower than market value, or based on an assessment ratio that is the percentage of market value. Cash Equivalency: The procedure in which the sale prices of comparable properties sold with atypical financing are adjusted to reflect typical market terms. Condominium: A multiunit structure or property in which persons hold fee simple title to individual units and an undivided interest in common areas. Contract Rent: The actual rental income specified in a lease Depreciation: In appraising, a loss in property value from any cause; the difference between the reproduction and replacement cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date. Easement: An interest in real property that conveys use, but not ownership, of a portion of an owner's property. Access or right -of- way easements may be acquired by private parties or public utilities. Governments dedicate conservation, open space and preservation easements. Entitlement: In the context of ownership, use, and /or development of real property, the right to receive governmental approvals for annexation, zoning, utility extensions, construction permits, and occupancy /use permits. The approval period is usually finite and may require the owner and /or developer to pay impact and /or user fees in addition to other costs to secure the entitlement. Entitlements may be transferable, subject to covenants or government protocols, may constitute vested rights, and may represent an enhancement to a property's value. Cad ©2011 CAPITAL REALTY ANALYSTS Page 92 Definitions of Key Appraisal Terms Effective Rent: 1) The rental rate net of financial concessions such as periods of no rent during the lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight -line basis. Excess Land: In regard to an improved site, the land not needed to serve or support the existing improvement. In regard to a vacant site or a site considered as though vacant, the land not needed to accommodate the site's primary highest and best use. Such land may be separated from the larger site and have its own highest and best use, or it may allow for future expansion of the existing or anticipated improvement Extraordinary Assumption: An assumption, which if found to be false could alter the resulting opinion of conclusion. Fee Simple Estate: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Floor Area Ratio (Far): The relationship between the above - ground floor area of a building, as described by the building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area; also called building - to -land ratio. Full service Lease: A lease in which rent covers all operating expenses. Typically, full I service leases are combined with an expense stop, the expense level covered by the contract lease payment. Increases in expenses above the expense stop level are passed through to the tenant and are known as a pass- through. Functional Utility: The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building's use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms. Going Concern Value: The value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment; also called going value. Gross Building Area (GBA): The total floor are of a building, including below -grade space but excluding unenclosed areas, measure from the exterior of the walls. C17AI © 2011 CAPITAL REALTY ANALYSTS Page 93 Definitions of Key Appraisal Terms Gross Leasable Area (GLA): The total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines, and measured from the center of interior partitioning to outside wall surfaces; the standard measure for determining the size of shopping centers where rent is calculated based on the GLA occupied. The area for which tenants pay rent. Hypothetical Condition: Factors that are known to be false but are known to be true for the purpose of the appraisal. Insurable Value: The portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. Intangible Property (Intangible Assets): Nonphysical items of personal property, e.g., franchise, trademarks, patents, copyrights, goodwill. Intended Use: The appraiser must identify who needs the service and for what purpose that person (or entity) will use the information the appraiser provides. Intended "User: The.person.(or entity) who the appraiser intends will use the results of the appraisal. Investment Value: The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached. Leased Fee Estate: An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and theleased fee are specified by contract terms contained within the lease. Leasehold Estate: The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions. Load factor: In structural design, the factor applied to the working load to determine the designs ultimate load. C9d © 2011 CAPITAL REALTY ANALYSTS Page 94 Definitions of Key Appraisal Terms Market Rent: The rental income that a property most probably command in the open market; indicated by the current rents paid and asked for comparable space as the date of the appraisal. Market Value: The major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined. Continual refinement is essential to the growth of the appraisal profession . A current economic of market Value is stated as follows: The most profitable price , as of a specific date, in cash, or in other precisely revealed terms for which a specific property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self - interest, and assuming that neither is under undue duress. (The Appraisal of Real Estate, 101h ed., published in 1992 by The Appraisal Institute) The following definition has been agreed upon by agencies the regulate federal financial institutions in the United States including the Resolution Trust Corporation (RTC) The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgably, and assuming the price is not affected by undue stimulus. Implicit in its definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. Buyer and seller are typically motivated. 2. Both parties are well informed or well advised, and acting in what they consider their best interests. 3. A reasonable time is allowed for exposure in the open market. 4. payment is made in terms of cash in United States dollars, or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by creative financing or sale concessions granted by anyone associated with the sale. Cad0 2011 CAPITAL REALTY ANALYSTS Page 95 Definitions of Key Appraisal Terms Market Value "As If Completed ": Market value "as if complete" on the appraisal date is an estimate of the market value of a property with all construction, conversion, or rehabilitation hypothetically completed, or under other specified hypothetical conditions as of the date of appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value should reflect the market value of the property as if complete and prepared for occupancy by tenants. Market Value "As Is: The value of specific ownership rights to an identified parcel of real estate as of the effective date of the appraisal; relates to what physically exists and is legally permissible and excludes all assumptions concerning hypothetical market conditions or possible rezoning. Marketing Period: The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal. Net lease: A lease agreement, usually long -term commercial or industrial, in which the tenant (lessee) agrees to pay all or a portion of the property expenses in addition to periodic rent. Net Rentable Area (NAR): 1) The area on which rent is computed. 2) The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the building. Include space such as mechanical room, janitorial room, restrooms, and lobby of the floor. Nominal Rent: See Contract, Coupon, Face or Nominal Rent Overall Capitalization Rate (OAR): An income rate for a total real property interest that reflects the relationship between a single year's net operating income expectancy and the total property price or value; used to convert net operating income into an indication of overall property value. Personal Property: Identifiable portable and tangible objects that are considered by the general public to be "personal" — for example, furnishing, artwork, antiques, gems and jewelry, collectibles,- machinery and equipment; all tangible property that is not classified as real estate. Personal property includes movable items that are not permanently affixed to, and part of, the real estate. Prospective Future Value "Upon Completion Of Construction ": Prospective future value "upon completion of construction" is the prospective value of a property on the future date that construction is completed, based upon market conditions forecast to exist, as of that completion date. The value estimate at this stage is stated in current dollars unless otherwise indicated. C9d 0 2011 CAPITAL REALTY ANALYSTS Page 96 Definitions of Key Appraisal Terms Exposure Time: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Rent Spike: An increase in market rent that is markedly higher than the general rate of inflation. Sale Leaseback: A financing arrangement in which real property is sold by its owner - user, who simultaneously leases the property from the buyer for continued use. Under this arrangement, the seller receives cash from the transaction and the buyer is assured a tenant and thus a fived return on the investment. Sandwich Lease: A lease in which an intermediate, or sandwich, leaseholder is the lessee of one party and the lessor of another. The owner of the sandwich lease is neither the fee owner nor the user of the property; he or she may be a leaseholder in a chain of leases, excluding the ultimate sublessee. Shell Space: Space which has not had any interior finishing installed, including even basic improvements such as ceiling and interior walls, as well as partitions, floor coverings, wall coverings, etc. Stabilized Income: Income at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; projected income that is subject to change, but has been adjusted to reflect an equivalent, stable annual income. See also stabilized occupancy. Stabilized Occupancy: Occupancy at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; the optimum range of long -term occupancy that an income- producing real estate project is expected to achieve under competent management after exposure for leasing in the open market for a reasonable period of time at terms and conditions comparable to competitive offerings. See also stabilized income. CIAI 02011 CAPITAL REALTYAYALYSTs Page 97 Definitions of Key Appraisal Terms Usable Area: The actual occupiable area of a floor or an office; computed by measuring the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. The usable are of a floor is equal to the sum of all usable areas of that floor. No deductions are made for columns and projections necessary to the building. Use Value: The value a specific property has for a specific use. Value Appraised: During the real estate development process, a property typically progresses from a state of unimproved land to occupancy. In general, the market value associated with the property increases during these stages of development. After reaching stabilized occupancy, ongoing forces affect the property during its life, including a physical wear and tear, changing market conditions, etc. These factors continually influence the property's market value at any given point in time. Also see Market value "as is" on the appraisal date Market value "as if complete" on the appraisal date Prospective future value "upon completion of construction" 2000 BOMA Experience Exchange Report, Income /Expense Analysis for Office Buildings (Building Owners and Managers Association, 2000) Korpacz Real Estate Survey, Fourth Quarter 2004° The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, 2001. The Dictionary of Real Estate Appraisal, Fourth Edition, 2002. The Office of the Comptroller of the Currency, 12 CFR Part 34, Subpart C "34.42(f), August 24, 1990. This definition is compatible with the definition of market value contained in The Dictionary of Real Estate Appraisal, Fourth Edition, and the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of The Appraisal Foundation, 1992 edition. This definition is also compatible with the OTS', RTC, FDIC, NCUA, and the Board of Governors of the Federal Reserve System definition of market value. Statement on Appraisal Standard No. 6, Appraisal Standards Board of the Appraisal Foundation, September 19, 1992. USPAP 2005 Edition © The Appraisal Foundation Cqd 0 2011 CAPITAL REALTY ANALYSTS Page 98 GSIl1- Piste Floor -' '3465.0 " .. 3485.0 Pisipt,[ldi b C -?AJ 02011 CAPITAL REALTY ANALYSTS Page 99 - .23.0. z,. 18.0.- -414.0- • 6i0 z. .`40..0 - 240.0' -32.0 s .26.0. 632.0 010 z 24.0 240.0- 1.0 :, .a3.o 49c0 SA : 8.0 40.0. - - - 11.0 'x '32:0' , 352,0 . - =1t.0. z ,49.0 672.0' - - 17.0 z 38.0 - 646:0 Net BUILDING Arm (rounded) 3485 9 Items. (rounded) 3485 C -?AJ 02011 CAPITAL REALTY ANALYSTS Page 99