Jmparison Approach to Value .•.....•....•...•.••...••...... ..... 33, 39 Reconciliation ...................•.................•....•.•...•••...•.• 47 Part Taken· Valuation ............•.........•.....•....•................ 48 Estimate of Jnst Compensation 52 ADDENDUM G:>mparable Rental Data Assumptions & Limiting G:>nditions Plat of the Subject Legal Description Qualifications ofAppraiser iv Purpose of the Appraisal The purpose of this appraisal is to estimate the market value of the proposed parkway easement of the real property rights to be acquired, encumbered by any easement not to be extinguished, less oil, gas and sulphur. If the acquisition is of less than the entire property, any special benefits and damages to the remainder property must be included in accordance with the laws of Texas. This appraisal is rendered in order to assist Addison in estimating the value of property to be acquired. Definition of Market Value Market Value may be defined as follows: "Market Value is the price which the property would bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it, taking into consideration all of the uses to which it is reasonably adaptable and for which it either is or in all reasonable probability will become available within the reasonable future.· Definition of Easement An easement is a nonpossessing interest held by one person in the land of another person whereby the first person is accorded partial use of such land for a specific purpose. An easement restricts but does not abridge the rights of the fee owner to the use and enjoyment of the easement holder's rights. Scope of the Appraisal The scope of this report includes the research, data acquisition and analysis as described in the appraisal process description of this report. In gathering comparable sales data our sources include direct interview with grantor and/or grantee, commercial sales reporting services, other appraisers and real estate practitioners, published data and information in our files. Comparable rent information is generally derived from direct interview with property managers and leasing agents. On comparable rent and sale information the source is generally indicated on the respective comparable's page. Information on property operating expenses can be derived from a number of sources including actual amounts provided to us for the subject property, file information, direct interview with property managers and owners and published industry averages. Replacement construction costs amounts are generally derived from the national cost reporting services prepared by Marshall and Swift and, where available, actual construction costs are utilized. On some comparable sales data an attempt is made to confirm third party information with either the grantor or grantee if there is conceru about the data's reliability. 1 Property Rights Appraised The property rights appraised are those of the Fee Simple and Easements estate. Fee simple estate is defined as "Absolute ownership unencumhered by any interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation"; and easement as "a nonpossessing interest held by one person in the land of another person for a specific purpose. (The Dictionary of Real Estate Appraisal, Second Edition, American Institute of Real Estate Appraisers, 1984, p. 123.) Effective Date of Valuation The effective date of valuation is Novemher 13, 2002. The inspection date of the subject was Novemher 13, 2002, and various other dates. The date of this report is Novemher 13, 2002. Identification of the Subject Property The property being appraised is a ±216,990 SF tract of land improved with a two story motel building and detached restaurant, located adjacent to the northeast corner of Beltline Road and Midway Road, in the Town of Addison, Dallas County, Texas. This This is an area principally developed with commercial and retail uses. The local address is 4325 Beltline Road, Addison, Texas 75001. The right-of-way acquisition of the subject property is comprised of a strip taking along the north side of the subject site abutting the DART railroad, containing ±28,008 SF adjacent to the existing DART railroad right-of-way. The survey provided to the appraiser representing the proposed acquisition is included in the Addendum to this report. Briefly, the legal description for the subject property/part taken is described as; being all of the Roadway Inn Addition, and a part of the Edward Cook Survey, Abstract Number 326, Town of Addison, Dallas County, Texas, containing a total of ±216,990 SF of land area. The subject is also listed as heing 4.98 Acres, Abstract 326, Tract 6. A metes and bounds legal description of the proposed acquisition has been provided to the appraiser and is included in the addendum of the report. History of the Subject Property No property ownership information was provided to the appraiser for this appraisal assigmnent. However, public information indicates that the current owner acquired the subject property on, or about, February 5, 1990, and recorded in V90024, P0779 of the Dallas County Deed Records. No previous ownership history is known. 2 Ad Valorem Tax Information The DCAD Acct. # for the subject is 10005340000000000. The DCAD appraised value for the subject is $3,800,000; land value @$2,899,880 and improvement value @$900,120 for the year 2002. Estimated Marketing/Exposure Time The USP AP requires that the appraiser address the estimated reasonable exposure time of the property at the value estimate. This is defined as the time prior to and ending with the effective date of the appraisal estimated to be required to market the property at the final value estimate. A review of the historic data available for the sales of motel properties spanned a very wide range of marketing times, with no clearly discemable marketing time apparent. However, the Henry S. Miller Companies Real Estate Investment TRENDS mid-year 2002 surveyed reasonable exposure times and indicated a 13.1 month exposure time for "economy" class motels in the Dallas market area. In the absence of contradictcry data, it is estimated that a reasonable marketing time for the subject property would be within the range of 12 to 15 montbs. 3 CI1YDATA The Town of Addison is located in the northern portion of Dallas County, approximately 12 miles north of the Dallas Central Business District. The City is bounded by Dallas on the north and east sides, Dallas and Farmers Branch to the south and the City of Carrollton on the west. The City is a suburb of Dallas and is a part of the Dallas Metropolitan area. Addison has participated in the growth of the metropolitan area as shown by the following figures: Census Year Population Increase 1970 593 N/A 1980 5,553 +835% 1990 8,783 + 58% 1998 (est.) 11,722 + 33% The Town of Addison is primarily commercial in nature. Light industrial and flex warehouse space has developed in the areas east, north, and west of the Addison Airport. The Dallas North Tollroad corridor sparked heavy hotel and multi-story office building development during the 1980's. This extends from the west side of the freeway to the railroad tracks at Inwood road. The corridor along Midway Road from the Farmers Branch boundary continued the the light industrial, office/flex development of the Midway Industrial Park that extends southward to LBJ Freeway. The corridor along Belt Line Road through the City has seen extensive development with restaurants, hotels, and retail facilities. As a result, residential housing is a minor factor in the property base of the Town of Addison. This has helped to keep taxes low, but has afforded the Town a very healthy tax income due to the high valuations of the commercial properties. This is displayed in the quality and quantity of public facilities and services provided. Primary north/south access through Addison is via the Dallas North Tollway, Addison road and Midway Road. Belt Line Road and Trinity Mills Road are primary east/west thoroughfares. The major development within the city is the Addison Airport, a major corporate and private air facility, which occupies a large portion of the City's land area. due t Addison's accessibility and location in the path of the City ofDallas northern growth, substantial hotel, commercial, retail, office and light industrial development has occurred. This is generally all of good quality and relatively recent construction. The character of the City is primarily commercial with small concentrations of multifamily housing and upper-middle income single-family in its central and southwestern portions, and high-end single family housing found in the extreme eastern portion. Addison has a Council/Manager type government. It provides police and fire protection to it's citizens. Utilities are provided by Lone Star Gas Company, TU Electric Company, and Southwestern Bell Telephone Company. It gets it's water from the City of Dallas and sewer services from the Trinity River Authority and the City of Dallas. Utilities appear to be adequate to service projected growth. Addison is in the Dallas and Cerrollton/Farmers Branch Independent School districts. There are no school buildings located within Addison's city limits. There are a number of major shopping facilities in or near Addison, including the Galleria Mall and Northpark Mall. Additional large, modern retail areas are in close proximity. The renowned retailer, Nordstrom's has a store in the Galleria shopping center just south of Addison at LBJ and the Tollroad and a new major retail center has been constructed on a tract north of that. Other 4 significant large retail facilities are a free-standing Home Depot Expo Design Center and Mikasa Home Store. Due to the number of office and light industrial buildings in the area, there is a large and diversified community of employers. Two of the largest are the Dallas Marriott Quorum and Intercontinental hotels. Addison is well known as an entertainment and restaurant area with over 100 restaurants operating the in Town. The new "urban hub" consisting of a 70 acre development at Addison Circle, located north of Belt Line Road and bounded by Airport Parkway, Addison road, the Toll road and Arapaho Road is currently under development. The main thrust is the increase of residential housing, an arts center, and parks and public use areas. When completed, it is projected to increase the population by 50% -60%. The City feels that this will prevent Addison from losing businesses to northern suburbs and insure long-term, quality growth. This should enhance overall values in the area in our opinion. After a period of speculative real estate investment activity in the early and mid 1980's, Addison and adjoining areas were among those hardest hit by the real estate recession of the last half of that decade. That situation has now turned around dramatically. Due to its highly desirable location, a resumption ofmarket strength is currently found MJPF market research has consistently reported strong increases in office construction over the previous several years. In addition, Hines Interests plan 250,000 Sf of new office at tbe Galleria in the Dallas City limits, and Centre Development plans a 410,000 SF office structure at Dallas Parkway and Spring Valley in Farmers Branch just south of Addison. For multi-family construction, MJPF research also shows strong growth and absorption. The overall prospects for the City's future is considered to be good, in .our opinion. 5 NEIGHBORHOOD ANALYSIS AND TRENDS The subject neighborhood is described as being that area generally bounded by Belt Line Road on the south, Marsh Road on the west, Westgrove to the north and Quorum Drive to the east. This area is in the north-central portion of the Town of Addison which is a northern suburb of the City of Dallas situated approximately 12 miles north of that municipalily's central business district. The predominant feature and major land use within the subject neighborhood is the Addison Airport which is due north ofthe subject property. This is a major fixed-base corporate and private airport facility for northern Dallas County. Improvements at the airport include a 7,200' lighted runway, control towers, n..s Approach System, and two 24-hour fixed base operators providing fuel and other aircraft related services. It houses corporate aircraft for a number of businesses within the area. Much of the improvement west of Addison Road is light industrial and airport related type construction. Major facilities for the City of Addison occur at the west comers formed by the intersection of Airport Parkway and Addison Road. The northwest corner of those two streets houses the City of Addison's police and court facilities while the southwest corner is the site for the City of Addison's central fire station. The majority of the rest of the development south of Airport Parkway, extending along lindberg and on the west side of the airport, is light industrial or commercial in nature. To the east of Addison Road is a mixture of office and multifamily development. Quorum Drive, Addison Road, Midway Road, and Marsh Lane are the major nortblsouth connectors within this portion of Addison and North Dallas. Belt1ine Road is the major east-west connector through this area. Arapaho Road currently terminates from the east at Addison Road. The bulk of the east-west connector streets within this area are not typically through-type streets. The predominant retail oriented commercial development is generally located adjacent to the aforementioned thoroughfares. Thenon-retail oriented commercial development is generally interior from these thoroughfares. There are still some fairly sizable tracts of undeveloped land, primarily on the east side of Addison Road in this area. The development in the northern part of the northeastern part of the neighborhood has been high quality, single-story office showroom and hitech type construction. There is still a significant amount of developable land in this area. The Town of Addison and adjacent areas north of Belt Line have enjoyed new development and generally increasing land prices since the mid-1990's. Of particular interest is the developing apartment, hotel, retail, and commercial activity surrounding the Addison Circle portion of the subject neighborhood. The attractiveness ofrelatively close in North Dallas locations should ensure strong demand for existing properties and vacant development land within the subject neighborhood as the real estate economy continues to improve. As these events occur, the subject neighborhood development prospers. Current market evidence suggests a healthy real estate market. 6 SUBJECT PROPERTY Site Data The subject tract is near rectangular in shape based on information provided in a site plan. Plats indicate approximately ±296' of boundary with the north right-of-way line of BeIt1ine Road, to the east of it's intersection with Midway Road. A portion of the site extends behind the adjacent property to the west. Total land area is ±216,990 SF, or ±4.98 acres, as shown on the survey provided by the Town of Addison. BeltIine Road is a multi-lane divided thoroughfare, with a landscaped center median/turn lanes. The Dallas Appraisal District segregates the site into a 75,000 SF component for the restaurant and a 141,990 SF component for the motel. The restaurant component occupies the southwest corner of the subject site. Physical Characteristics The subject site is basically level with no major drainage problems noted. Site grading appears to such to carry surface water from the entire site to the north and south and the drainage in Beltline Road and a drainage area adjacent to the DART rail line. This is generally effective except in very heavy rainfalls. Apparently off-site drainage capacity is sufficient. The subject property is not located in a HUD designated flood plain area according to Town of Addison, Texas Community Panel No. 481089 OOOS A, effo:;ctive July 16, 1980. Access in and out of the site is accomplished from existing frontage along Beltline Road adjacent to the south, via two drive approaches. Additional access into the subject site is not considered probable. Sizetshape The subject property contains ±4.98 Acres, or ±216,990 SF in a near-rectangular configuration. The site appears to be approximately 2Y.. times as deep as it is wide at BeltIine Road. The site is of sufficient size and shape to support independent economic development, if it were vacant and available for development. Zoning; The subject property is zoned "PD 549", with a special use permit. This is a commercial district use, providing specifically for the motel and detached restaurant development which was developed on the site approximately 23 years ago. Setback, landscape requirements, density, etc. are site specific and controlled by the special use permit. The Town does not have specific setback and density requirements for commercial development. Utilities Sanitary sewer and water connections are provided through the Town of Addison. It is presumed that the present utilities directly available to the site are of sufficient capacity to support commercial development. Telephone service, electricity and natural gas are available and in adequate supply by private companies serving the subject's general area. The current design of access is considered sufficient to support.commercial development. Given the abundance of adjoining street right-ofway, direct access to the subject site is considered both reasonable and probable. Easements and Restrictions As set forth in the Assumptions and limiting Conditions of this report, there was not available to the appraiser in the preparation of this appraisal a current title policy. At the subject property boundary with the DART rail line, a 15' wide "water easement" is noted on the plats of the subject, which runs east-west across the entire north side of the subject property. Other than this noted 7 easement, it is assumed from a review of plats and public information that there are no, other than standard utility easements, easements affecting the subject property which are not shown on the site plans/plats, and 􀁦􀁵􀁲􀁴􀁨􀁾􀁲􀀬􀀠that there are no private deed restrictions that would hinder its current use or future development. It is suggested that these assumptions be verified by competent parties. Typical utility easements are presumed to service the site. Site Improvements The subject property is improved with a two story masonry motel building with adjacent paved surface parking lots, an in-ground pool, and landscaping. Detached from the motel structure is a ±5,521 SF detached restaurant, which occupies the southwest corner of the subject site. From the plans of the buildings' ground floor perimeter, indications of a gross building area of ±65,618 SF are made. This hotel has 166 units. (DeAD Tax data indicates 166; the site plan indicates 168; the motel/hotel survey indicates 148) The courtyard area contains a well landscaped pool and jucuzzi. This building was constructed in ±1980 (apparently by Roadway Inn) and is approximately 23 years old. Surface parking spaces are provided on the north, east, and west sides of the motel. The parking areas provide security lighting. The detached restaurant has parking at it's south, east, and north perimeter. The subject site is moderately landscaped with grass, ornamental ground cover, shrubs, and trees. This landscape design exhibits a good level of maintenance. The perimeter of the building displays a concrete walk for 'pedestrian traffic. To the north of the motel building and parking lot is a recreation area. A mixture of asphalt paths and concrete paths are available for jogging, as well as a fenced tennis court (2) and grass open area. There is a gravel play-ground area within the grass open area. The tennis courts are in relatively poor condition, as is the play-ground equipment and the open area to the northwest.of the tennis court area. The wood privacy fencing noted along portions of the northern and eastern property boundaries is in good repair. The primary entrance is located on the central south side of the building which passes through a common lobby area. Typical hotel/motel finish.out is noted outside the common areas. The observed room appeared average for a motel of this class and age. Overal1, the subject improvements are in good condition and exhibit good quality maintenance. The site, landscaping, and parking areas are also in good condition and exhibit a comparable level of maintenance as does the main building. 8 HIGHEST AND BEST USE The Highest and Best Use, as defined by Real Estate Appraisal Terminology, Ballinger Publishing Company, Cambridge, Massachusetts (author Byrl D. Boyce, Ph.D.), Page 107, is as follows: "That reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal. Alternative\;" that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible and which results in highest land value. The definition immediately above applies specifically to the highest and best use of the land. It is recognized that in cases where a site has existing improvements on it, the highest and best use may very well be determined to be different from the existing use. The existing use will continue, however, unless and until the land value in its highest and best use exceeds the total value of the property in its existing use. fI Also implied is that the determination of the Highest and Best Use results from the appraiser's judgment and analytical skill, i.e., that the use determined from analysis represents an opinion, not a fact to be found. (Appraisal Terminology and Handbook. AIREA AND SREA, 1975) Some of the more important factors of influence include the legal parameters associated with zoning ordinances, deed restrictions, building code requirements and area market supply/demand conditions. Further, the trends within the neighborhood must also be considered and are discussed in the ''Neighborhood Description and Trends· section of this report. In addition to the typical considerations involved in estimating the IDghest and Best Use of the subjeet property, the City of Addison requires approval from the U.S. Department of Transportation, Federal Aviation Athninistration (FAA), for the construction or alteration of improvements located within many of it's zoning classifications. Even though the subject property is located outside the currently existing ·clear zone· of the Addison Municipal Airport, these additional requirements may apply. The subject property is located proximate to the;: south of the existing airport boundary and clear zone. Consideration was given to the development currently existing proximate to the north, south, east, and west of the subject in analyzing the potential uses for the subjeet site. While the FAA will not speeulate on what types ofimprovements or alterations would be allowable, without proper application and supporting documentation, it is presumed by the appraiser that those uses existing proximate to the subjeet generally refleet the type of development that would be probable. Physically Possible Uses As previously described, the subjeet tract is of such size and shape as to be suitable to support independent economic development. The site is physically suitable for a wide variety of potential future uses. 9 Legally Permissible Uses The main constraints are those affected by the subject tract's zoning ordinance. The commercial type zoning ordinances which are prevalent in the subject area are presumed to allow not only for the existing development on the subject site, but also other retail oriented uses noted in the general area of the subject along BeltJine Road. The character of the surrounding development and the subject's proximity to the Beltline Road/Midway Road controlled intersection, it is estimated that a retail oriented or office development would be the most appropriate for the site, if it were of vacant and available for development. There is no current or contemplated change in the subject site's zoning, nor is there one which would provide development opportunities that would create a higher return to the land than it's current general classification. Fmancially Feasible Even considering the building height restrictions imposed by clear zone considerations it is likely that a typical office or retail oriented development would generate the necessary revenues to provide for an adequate return on the cost of the land and improvements at current market rent rates in this location. Retail oriented or office occupancy and rental rates suggest that the current local market is strong enough to support financial feasibility for development of the subject site as it is generally zoned. These uses could include restaurant, fast-food, hotel or comparable high intensity/exposure traffic uses, as well as office or other lower density uses. Maximally Productive Based on the subject's zoning, current operational results and market analysis, it is estimated that the maximally productive utilization of the site as a retail oriented or office, hotel, or restaurant site is substantiated. Highest and Best Use As Vacant Land The estimate of the Highest and Best Use of the subject Whole Property would be for office/retail or hotel development which would take advantage of the BeltJine Road influence The general current zoning in the area allows for a wide variety of potential uses which could take advantage of the subject's near-comer location. Highest and Best Use As Improved Analysis of the subject property indicates that the currently existing improvements provide contnbutory value to the property. The improvements represent the estimated Highest and Best Use of the property "as improved". The existing improvements would provide for income which, in effect, provide a return on and of the investment represented by the property. It should be noted, that since September 11, 2001, there has been a general depression in the hotel/motel market/industry as a whole. While it is unlikely that new hotel/motel development would not be considered appropriate for the subject site at this time, the existing improvements appear to be reasonably able to maintain a viable market share at the current time. 10 THE APPRAISAL PROCESS Appraisal theory provides three basic methods of appraising properties. They are the Cost Approach to Value, the Income Approach to Value, and the Sales Comparison Approach to Value. The Cost Approach to Value embraces the philosophy that the replacement costs applied under the Principle of Substitution may define the value for a property. In this approach to value, the appraiser estimates the market value of the site, the replacement cost of the improvements less any applicable accrued depreciation, and then combines these two items to arrive at a cost estimate of value. The Income Approach to Value is based upon an analysis of the potential income stream of the property and comparison of that income stream with those of similar properties. This calculation and analysis results in a net income stream attributable to the real estate. That income is then capita1ized at a rate which is commensurate with the rates expressed in the marketplace by investors for similar properties. The resulting figure is an income estimate of value. The Sales Comparison Approach to Value is a basis for estimating value based upon units of comparison derived from sales of similar properties in the marketplace. Those units of comparison are then applied to the subject property to arrive at a range of values whlch should be indicative of a value estimate. This approach is used not only for improved properties but also in estimating the current value of the subject site. That portion of the report is necessary to complete the Cost Approach. After applying the three traditional approaches to value, it is the appraiser's responsibility to weigh the strengths and weaknesses of the three different approaches to value and determine whlch of the three is most applicable in the valuation of the subject property. This section of the report is captioned as "Reconciliation". 11 Land Value by the Sales Comparison Approach In this section of the report, the appraiser will present data and analysis leading to an estimate of market value as of the effective date of the appraisal for the subject site. Basically, this value is estimated by the comparison of sales of similar land tracts that are current or of recent date to the subject tract. This comparison relates the differences, if any, in the legal, physical, locational, and economic characteri-stics of the comparable sales and the subject site, analyzing also any differences in real property rights transferred, dates of sale, motivations of buyers and sellers, and any unusual financing arrangements for the sales analyzed, any of which factors might account for price variations. The adjustments, if any, for property rights conveyed, financing terms, sale conditions and market conditions are made sequentially and individually. Adjustments for location and physical characteristics are accumulated and made at the end of any adjustments adjustments from the previously cited sources. From the information available, the following comparable sales presented all transferred ownership in fee simple, and there were no known unusual financing terors. General adjustments for market conditions relate to passage of time, e.g., in a rising market an earlier comparable sale would be adjusted upward to reflect conditions as of the effective date of the appraisal. Over the time period reviewed for the comparable sales, trends in either direction which cannot presently be ascnbed to other contributing factors within the marketplace, other than those discussed following the comparable sales presentation, will be adjusted based on historical market data. At the end of the presentation of the comparable sales, those sales will be summarized and a grid presented which makes the remaining adjustments caIled for relative to loeational and physical differences between.the comparables and the subject tract. The comparable sale prices as adjusted to the subject site are then analyzed to produce an estimate of market value for the land. There are other methods available for estimating land value including allocation, extraction, subdivision and the land residual technique. Generally, in all cases, the estimation of land value by comparable market sales is considered appropriate and most desirable where sufficient data is available. This is the case for the subject site and the Sales Comparison Approach will be utilized solely in estimating it's current market value. Sufficient data is available within the recent past to make an accurate appraisal specificaIly for the subject. 12 Comparable #1 Location: Legal DeSCription: Grantor: Grantee: Date of Sale: Recorded: Considerntion: Terms of Sale: Cash Equivalency: Size: Zoning: Comments: Verified By: Mapsco #: East side of Addison Rd, :1:301' south of Arapaho Rd., also fronts south side of Arapaho Rd., Addison, TX Abstract No. 482, Addison, Dallas County, TX Daryl N. Snadon Rail Hotels Corporation February 5, 1999 99024/1020 $1O.00/SF ($688,760) Executed $2,100,000 note to Ado Bank of Commerce (includes construction financing) $1O.00/SF :1:68,877 SF; 1.5812 Acres C-1, commercial This site wraps around the southeast corner of Arapaho & Addison Roads. A hotel has been built on this site. Jim Durbin -Broker 972,661.1011 D-14C 13 Land Sale Comparable #2 Location: Legal Description: Grantor: Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cash Equivalency: Size: Zoning: Comments & Adjustments: Verified By: Mapsco#: 14000 Inwood Road, Farmers Branch, Texas Lot 1, Block B, Beltway/Champion No.1, Farmers Branch, Texas Woolley Hotel Company, Inc. National Operating, LP January 5, 2000 Volume 200005, Page 9743 $205,000 ($11.26/S1') All Cash to Seller $1L26/SF 18,208 SF Commercial (PD) This sale is along the east side of Inwood Road, just to the south of it's intersection with Spring Valley. Inwood Road is a 6 lane divided concrete thoroughfare in front of the property. This street enjoys excellent traffic. While not a corner location, this site enjoys excellent exposure, similar to the subject remainder. This sale was to an adjacent property owner. Dan Allred -Broker D--14M 14 Land Sale Comparable #3 Location: Legal Description: Grantor: Grantee: Dille of Sale: Recorded: Consideration: Terms of Sale: Cash Equivalency: Size: Zoning: Comments: Verified By: Mllpsco #: Southwest corner of Quorum & Edwin Lewis, Addison, Texas. Quorum Center Addition, Addison, IX Daryl Snadon Springhill SMC Corporation January 5, 2001 2001004/4624 $13.91/SF ($2,750,000) All cash to seller $13.91/SF ±197,762 SF; 4.54 Acres PD, planned development -commercial This is a corner tract. A proposed hotel and restaurant will be built on this site. Jim Durbin -Broker 972.661.1011 D-14D 15 [COMPARABLE MAP] 1 02/05/99 $10.00 68,877 Commercial 2 01/05/00 $11.26 18,208 Commercial 3 01/05/01 $13.91 197,762 Commercial Subject 11/02 N/A ±216,990 Commercial General The events subsequent to September 11, 2001 and the down turn in the technology and financial markets has resulted in a general slackening of commercial land sales in the market area of the subject property. This has necessitated using older sales which occurred during a more robust economy to evaluate the subject site. Fortunately, moderately recent sales in the general market area of the subject were available, two ofwhich were for moteI!hotel development. All of these sales were on "name" streets in the subject area. Adjustments to Land Sale Comparables Standard appraisal practice calls for the analysis of the sales presented comparing each to the subject in regard to time passed from sale date to appraisal date (that is, changes in market conditions), locational differences, relative size, physical characteristics and utility. Adjustments were made from the known, i.e., the actual sale, to the unknown, i.e., the value of the subject. In a comparison heading where the subject is deemed to be superior to a particular sale, an appropriate upward adjustment is made to the comparable sale and vise versa. Your appraiser considered the application of paired sales analysis in adjusting the comparable sales to the subject. There was not sufficient comparability of the sales within those available for review that permitted a reasonable application of that type of analysis. The adjustments are based to a great degree on subjective analysis and market appraisal experience, but the adjustments rely on some easily recognizable and generally accepted maxims about the various aspects of comparison. They are briefly discussed in the following paragraphs which in short form discuss the items considered for each adjustment heading. Property Rights Conveyed This is a consideration of the real property interest conveyed. In the case of the comparable sales used in this analysis, all were transferred in fee simple, indicating no adjustment for this heading of comparison. Financing Terms This reflects that for similar properties, a higher price might be paid for one wherein very attractive financing terms are available to the purchaser. Any adjustments required under this consideration 16 have been addressed within the discussion of each individual sale in converting reported transaction price to cash equivalency where conditions so indicate. Conditions of Sale This element of comparison is to reflect any unusual motivations of buyer and/or seller that would take the transaction out of the broad parameters of the definition of a sale for market value. Although paired sales were not available with which to compare it, it is the appraiser'S opinion that those conditions in all probability did not exist for any of the comparables selected for inclusion in this report. Market Conditions Any number of factors, including fluctuations in supply and demand, inflation, depression and the like may cause changes in market conditions which are reflected in the prices of real property. Upward Time/Market Conditions adjustments may be applied to the selected comparable sales to reflect adjustments to pre-9/11 conditions. While "time" is an important consideration in selecting comparable sales, location and utIlity were considered of paramount importance in this analysis. Sale #1 and #3 were selected because they are motel!hotel site sales. Sale #2, because of it's "name" street influence. Sale #1 is 44 months old, Sale #2 is 35 months old, and Sale #3 is 22 months old. Sale #3 is not judged to require an adjustment for time. Sale #1 and #2 require an upward adjustment for time. Location In this portion of the adjustment process the appraiser considers locational aspects of the comparable sales as opposed to the subject. Such aspects as quality and quantity of surrounding development, adjacent land uses, and other perceived physical amenities are considered. Due to the lack of paired sales characteristics in the comparables, the adjustments are qualitative. Sale #1 and #2 are considered interior tracts like the subject, but are not on a street with the volume of the subject. These two sales require an upward adjustment to the subject. Sale #3 is a corner location and in an area of more recent high quality development. These two factors offset the volume component of the subject's volume street location. No location adjustment is made for Sale #3. Zoning The zoning of each of the Sales and the subject are considered to be comparable, requiring no adjustments. Utility In this category a number of factors are considered in adjusting the comparable sales and offerings to the subject property. They include physical dimensions and shape of the site, topography of the site, availability of public and private utilities, and accessibility among others. Those physical dimensions which permit the most economic and efficient use of the land also command better prices. This fact perhaps is best stated in that not having this advantage is an offset to sites with poor frontage-to-depth ratios and the like. Each of the oomparables and the subject are considered to have comparable utility for future development, apart from the adjustments made in other categories in this analysis. Access, exposure, and frontage all impact how a property will be accepted by the market. Additionally, immediacy of access is a specific consideration for the subject property, as opposed to 17 general access and environs which are considered as a part of the "Location" category. The comer attributes of the subject site are discussed below under"AccesslFrontage". SightNiew This factor considers (1) how the property is presented to the public and (2) what the impact of surrounding property characteristics affect subject property. The sight and view of the comparables and the subject are considered to be comparable, requiring no adjustment. AccesslFrontage All of the sales and the subject have adequate access and frontage for their intended purposes. Minor perceived differences in quality are judged to be related to factors considered in the location adjustment. No adjustments are made for access/frontage .. Size The subject property is ±216,990 SF in size, of which 141,990 SF is allocated for the motel site. Sale #1 is considered to be comparable, obviously, as it has had a motel constructed on the site. Similarly, Sale #3 has had a motellhotel facility constructed on it and is considered comparable in size for this type of use. Sale #2 is a very small site and while smaller tracts tend to sell for a higher "per unit" price the overall size utility of this sale is considered inferior to that of the subject. Overall, these two factors still indicate that Sale #2 is to be adjusted slightly upward for this perceived inferior size utility. There follows a grid wbich displays the adjustments to the comparable sales called for in the opinion of your appraiser. 18 Cash Equivalent Price $!SF $10.00 $11.26 $13.91 Property Rights Adjustment -0-0-0Adjusted Price $!SF $10.00 $11.26 $13.91 Conditions of Sale Adjustment -0-0-0Adjusted Price $/SF $10.00 $11.26 $13.9 Time/Market Conditions Adjustment +20% +10% -0Adjusted Price $/SF $12.00 $12.39 $13.91 Loeation Adjustment +10% +10% -0Aecess!Frontage -0-0-0Zoning -0-0-0Size Adjustment -0+5% -0-0-0-0Adjustment Factor +10% +15% -0Price $!SF $13.20 $14.25 $13.91 Market Vll1ue Estimate -Subject Site After adjustments, the comparable sales range from $13.20!SF to $14.25/SF. The average of the adjusted sales price is calculated at $13.79/SF. It is the appraiser's opinion that Comparable Sale #3 is the most nearly similar to the subject. Itis the most recent of the sales, it has been developed for a use comparable to that of the subject, and it is most nearly the same size as the subject. Each comparable has its strengths and weaknesses as compared to the subject. While these comparables are not identical to the subject in terms of size, use, and exact location, these sales are believed to accurately reflect the most probable range ofvalue for the subject, as well as approximating the ultimate use of the subject. The comparables selected ultimately required fewer adjustments than other comparables in the market would require. When analyzed in light of the general surrounding development, it appears that there is a market and, hence, II range of value which is generally acceptable for various forms of development on properties of this class in this area. 19 Speculative investment does not appear to be the principal motivating factor. A number of sales reviewed were for near term use/development, and these sales reflected the upper limit of the market value range. The range of the value indications provided by the Comparable Sales is considered to be a good indication of probable market value for the subject property. A portion of the subject property is encumber by the previously discussed 15' ''water easement". The nature of this easement restricts the use of the surface of the easement area. This 15' easement extends across the northern border of the subject property at the DART rail line. Due to the restrictive nature of this easement, it is estimated that the remaining underlying value in the bundle of rights associated with the easement area represents 50% of the fee simple estimate of site value. Based on the aforementioned data and analysis, the Market Value of the subject site is estimated to be $14.00 per square foot of the land area. The subject is estimated to contain ±216,990 SF of land area according to the documents provided (211,400 -fee; 5,590 SF -easement). Therefore: Site Area Value Estimate ±211,400SF $14.00/SF $2,959,600 (fee) 5,590 SF $ 7.00/SF $ 39,130 (easement) Total $2,998,730 ESTIMATED MARKET VALUE -WHOLE PROPERlY 'SITE", Say $2,998,730 20 COST APPROACH TO VALUE As noted, the Cost Approach to Value estimates the replacement or reproduction costs of the improvements plus land value to arrive at an indication of worth for the property appraised. This theory of valuation is based on the Principle of Substitution wbich holds that a knowledgeable purchaser will not pay more for a property than that amount for which he can obtain a property of equal utility and desirability by acquiring a site and constructing a building thereon within a reasonable period of time. lbis approach entails the following: 1. Estimation of the current replacement or reproduction cost of the improvements. 2. Estimation of all acerued depreciation, if any, of the improvements, deducting such depreciation from the current cost estimate. 3. Adding the value of the land as estimated by the Sales Comparison Approach to the estimated depreciated cost of the improvements. Reproduction cost is defined as the cost required to exactly duplicate the existing improvements as of the effective date of the appraisal. Replacement cost is that estimated required to construct at current prices the Subject improvements with equivalent utility to the existing structure using current standard desiglliayout and modem materials. As the subject buildings are ±23 years old and the fact that these kind of structures are of fairly standard design and construction, it is our opinion that utilization of replacement cost is appropriate within the Cost Approach. An abbreviated Cost Approach will be developed in this appraisal. Given the current slump in hoteVmotel occupancies, coupled with the modest over-building of these facilities prior to the events ofSeptember 11, 2oo1 and the communications/high technology industry down-tum, it is not probable that new hoteVmoteVrestaurant construction would be initiated at this time. Additionally, in order to estimate the ensuing "economic obsolescence", the only data that is currently available in the market place would be based solely on the decline in occupancies from historically stable levels. Considering this anomaly, estimating economic obsolescence on new construction is not as perceived to be as reliable as data available in the other approaches to value. As sufficient historical data is available for estimating value through the sales comparison approach and the income approach, the perceiVed weakness in estimating economic obsolescence in the cost approach can beviewed primarily as auxiliary data in support of those value conclusions. General Both the motel and the restaurant are offairly standard design and construction. The cost approach data for both improvements is considered to be a reliable indicator of value under normal market conditions. Direct Building Costs The source for current cost data is from the Marshall and Swift Valuation Service as adjusted for time and locational variances. It is the appraiser's opinion that this building has the characteristics of the "Very Good Class D" t;estaurant buildings as descnbed by Marshall and Swift. In Section 13, Page 14, which describes this type of building, current estimated replacement costs are stated at $ 119.S4/SF for Class "D" Very Good and $91.30/SF for Good construction. The motel has the characteristics of 21 the "Average Class C' motel buildings from the same source. From Section 12, Page 11, which describes this type of building, current estimated replacement costs are stated at $56.52/SF for Average construction. This amount must be adjusted by factors also prepared by Marshall and Swift for time lapse to the present from cost preparation date--l.02x--and adjustment for price differentials caused by different physical geographic 10cations--0.92x. Multiplying these two factors times the $119.54JSF indicates a current estimated replacement cost for the restaurant at $112.18JSF and $53.04 for the motel. Also included in direct costs are elements not covered in the per square foot amount published by Marshall and Swift. These items would include the cost of the landscape areas, the signage, the concrete lot paving, and developer's profit. The estimated cost new of the signage is $6,400. The estimated cost of the landscape on the site and adjacent to the building is $24,000. These estimates are based on interviews interviews with developers as crossreferenced with Marshall and Swift. The other major element of direct expense not covered in the per square foot cost is the amount for concrete paved parking, drives, and tennis court areas. It is estimated that there is approximately 71,000 SF of paving associated with the subject property (factor of the site size less building & landscape area). The concrete paving is estimated to be 2"-4" at a current new cost estimate of $3.50/SF (per Marshall and Swift estimates). This equates to $248,500 for the paving on the subject site as obtained and adjusted from the segregated cost section of the Marshall and Swift report found on Page 2 of Section 66. Indirect Costs Other elements ofconstruction costs not covered in the basic per square foot amount in Marshall and Swift are an allowance for entrepreneurial profit, loan fees and expenses over and above interest during construction--which are included in the basic square foot cost--and the initial leasing and marketing costs. Entrepreneurial profit is estimated at -0-for the subject property. It is the appraiser's opiuion that; 1) the restaurant market is slightly soft in this location at this time, and 2) that the motel improvements market is exceedingly soft at this time. The Marshall and Swift published prices do cover interest during construction but not loan fees. Depreciation -General Depreciation is defined in most appraisal textbooks as a loss in value as of the date of the appraisal from total replacement or reproduction costs. That depreciation may fall within three different categories. Those categories and the method of estimating the depreciation in each category are explained in the following paragraphs. Physical Deterioration Curable physical deterioration refers to items of deferred maintenance. This applies only to items requiring immediate repair. The measure of this category is the cost to correct or cure. Repairs to 22 items such as the roof, painting the interior, carpeting and painting the exterior are typical items of curable physical deterioration. The building in general demonstrated a good standard of ongoing repair and maintenance. Short-lived incurable physical depreciation recognizes that, while the majority of the structural components will have a life equal to the economic life of the total building, some will have a shorter life and a deduction must be made to allow for their gradual deterioration and eventual replacement. This amount is calculated by multiplying the percentage derived by dividing effective age by total physical life times the estimated replacement cost of the short-lived component. Long-lived physical incurnble depreciation takes into account the decline in value due to normal wear and tear on the basic building structure and any concurrent loss in economic use due to its age. This amount is typically calculated by dividing the effective age of the building by its estimated economic life and multiplying the percentage result times the total replacement cost new less physical curable depreciation and the replacement cost of short-lived items for which physical incurable depreciation is taken, then, deducting that figure from replacement cost-new. Functional Obsolescence Functional obsolescence is loss in value attributable to such factors as poor design, changes in technology and super-adequacies and/or deficiencies in the construction. Incurnble Functional Obsolescence occurs where deficiencies or super-adequacies are involved and the cost to cure is greater than the anticipated increase in utility or benefits to be derived. This form of depreciation is usually measured by the capitalization (by the rate developed in the Income Approach) of the net income loss attributable to the deficiency or super-adequacy. Curable Functional Obsolescence is that for which the cost to cure provides equivalent or superior economic returns to the property. As noted, the subject improvements are in conformity with development within the neighborhood. It is noted that the building appears to be of good functional design for a restaurant property. As such, it is the appraiser's opinion that there are no elements of curable or incurable functional obsolescence present in the subject property. Accrued Depreciation Estimate by Life Method This method of estimating total accrued depreciation is found by multiplying the percentage derived by dividing the effective age by the estimated total economic life of the building times the estimated replacement or reproduction costs of the improvements. The Marshall & Swift guidelines indicate a typical economic life for buildings of the type and construction quality of the subject to be ±50 years. The buildings' actual age is approximately 23 years. Considering the observed physical deterioration, the building's effective age is judged to equal 23 years. The following table shows the calculation of physical Depreciation of All Items as described. 23 Estimated Direct Building Replacement Cost New (Buildings) $4,099,725 (motel & restaurant) Times Ratio of Effective Age to Use Life (23/50) xO.46 Estimated Incurable Physical Depreciation, Long-Lived Items $1,885,874 Economic Obsolescence Economic obsolescence is a loss in value caused by detrimental influences outside the site. It is generally considered to be a loss ofdesirability or useful life by factors external to the property, such as economic forces or environment changes which affcct supply/demand relationships. Economic loss is always incurable and it is measured by either capitalizing the rent loss attributable to the negative influence or by comparable sales. For the purpose of this approach in this appraisal, the economic obsolescence for the subject will be calculated solely on the ±10% occupancy loss brought on by recent economic and political events previously discussed. There follows a Cost Approach Summary tabulating the preceding data leading to subject's value estimate by this method. 24 24 COST APPROACH SUMMARY Direct Costs 65,618 SF @$53.04/SF -Motel Building 5,521 SF @$112.18/SF -Restaurant Building Signage Landscaping, etc. Fencing Concrete Paving Total Estimated Direct Costs Indirect Costs Entrepreneurial Profit @0% Loan Fees (est.) Total Estimated Injlirect Costs Total Estimated Replacement Cost New Estimated Depreciation Motel Building (.46 x $3,480,379) Restaurant Building (.46 x $619,346) Paving (.30 x $248,500) Landscaping (.30 x $24,000) Fencing (varies between 25% & 50%, depending on type) Signage (.40 x $6,400) Depreciated Replacement Cost Economic Obsolescence Estimated @10% of Depr. Value of Improvements Depreciated Replacement Cost w/Economic Obsolescence Add: Site Value Estimate by Market Comparison Total Estimated Replacement Cost Alter Depreciation ESTIMATED MARKET VALUE BY COST APPROACH, Called $3,480,379 619,346 6,400 24,000 25,000 248.500 $4,403,625 $ -0-0-0$4,403,625 $1,600,974 284,899 74,550 7,200 8,380 2,560 -1,978.563 $2,425,062 -242,506 $2,182,556 $3,037,860 $5,220,416 $5,220,000 25 INCOME APPROACH TO VALUE AI; discussed previously in the Appraisal Process section, the Income Approach to Value is the result of the analysis of the projected gross income stream for the subject property less vacancy and expenses to determine what net operating income for it can reasonably be expected. The first step in the Income Approach is determining what income can be achieved by the property under prudent management. This section typically directs itself to deriving rent comparables from similar properties to determine the stabilized gross annual income potential for it From that gross annual income, a vacancy and collection loss factor is deducted to arrive at an effective gross income. From the effective gross income, total estimated operating expenses for the project are deducted to arrive at a proforma net operating income. This figure is converted to a value indication through a process known as capitalization. Data presented in the Sales Comparison Approach for the property "as improved" presents income and expense figures which may be extrapolated to the subject's operation at a stabiIized operating condition; i.e., negating current market aberrations due to external economic influences. The subject property is currently an operating 166 unit motel facility. Primary parking for the building is located adjacent to the north, east, and west sides of the building. AI; previously mentioned, the Sale Data included in this report provides a survey of occupancies, rental rates, and expenses for motellhotel operations in comparable market areas of the subject property. That data is reflective of those operations at their sale dates. The components that make up an operating motel property include the land, building, fixtures, equipment, inventory, and business. A brief description of these components is as follows: Real Estate -The site and building improvements of the facility. These are typically owned by the motel operator. Furniture, Fixtures, Equipment -These items include all of the room and common area furniture, any kitchen and bar equipment, special decor/fIXtures, etc. A portion of the income generated by a motel operation is attributable to these items. Business Value -Motels have some level of intangible value typically referred to as goodwill, or business value, which is present only if the property is in operation. The business profit is a portion of the income after all expenses of operation have been paid. The business portion can be treated as an expense in addition to the usual management expense, or included in the management expense. Inventory -Consumables necessary to the operation of the business; food, beverages, supplies; usually a nominal expense in the overall budget. Market Room Rate Analysis In order to analyze the subject property, an estimate for the subject property's income producing capacity is compared to comparable motel facilities in the general market area of the subject. From this comparison, it can be estimated if the subject property is competitive; i.e., can attract a a competitive share of the market. All properties are unique with regard to age, design, location, size, 26 amenities, etc. While many dissimilarities exist between the subject and the surveyed properties, the dissimilarities in room rates are not as great as long as the quality of the improvements and locations are comparable. Generally, the survey indicated that newer, better quality motels with a higher level of amenities commanded higher room rates within a given class of property. Upscale motels target convention and commercial patrons less concerned with economical rates, while suite and mid-scale motels market toward business travelers. The budget/economy motels target a mix of overnight business travelers and stop-in vacationers. In terms of age, motels peak in market acceptance in the three to six year range; stabilize and then begin to decline in the tenth to fifteenth year. This presumes no renovation. Age plays an important factor in room rates and occupancies. The subject property had an "Average Daily Room Rate" (ADR) of $36.30 as of the 2nd quarter of 2002, as reported by Source Strategies, Inc. Source Strategies, Inc. is a hotel/motel research firm that tracks the hotel/motel industry in Texas. The data provided by Source Strategies, Inc. was utilized for the estimate of an average daily room rate. Average Daily Room Rate (ADR) describes an overall rate structure in a single number. It is the weighted average of rooms sold at the single rate, double rate, commercial rate, and so forth. For an existing facility, the average rate per occupied room is calculated by dividing the properly'S gross rooms revenue by the number of rooms occupied for a given period of time. ADR = Gross Room Revenue/Nurnber of Rooms Occupied Oceupancy is calculated by the total of all rooms sold or "room nights", divided by the properly's available room nights per year. Occupancy = Total Room Nights/Number of Rooms x 365 All statistical information will refer to ADR, not actual quoted room rates. The subject's ADR is compared to other area motels. Source Strategies, Inc. compiles statistics for the hotel/motel industry and provides statistics on gross revenues, room nights sold, occupancy, average daily room rates, taxable income, and other income. Their survey of the subject area was relied upon by the appraiser in estimating daily room rates and occupancy levels. The subject is categorized as a budget motel by Source Strategies and is included in their survey. The survey includes most motels within the 75244, 75006, 75234, 75240, 75248 zip codes. The data provides historical as well as current information; from the 1st quarter -1997, through the 2nd quarter -2002. This data is included in the addendum of this report. From the survey data the subject's primary and secondary competition can be identified. The subject can then be anaiyzed from it's position within the market. As previously mentioned, the subject property is considered in the category of budget motels. These properties cater to the overnight business traveler and the drop-in vacationer. The detached on-site restaurant supports this category. Price is a principal motivating factor in attracting customers, and these properties have fared well during the recent downturn in the motellhotel economy. For the previous year ending June 30, 2002, the ADRs on the budget and extended-stay motels range from $27.80 to $47.07 in the subject area. The estimated occupancies range from 21.2% to 71.4%. The subject's estimated occupancy of 56.2% is within the upper 1/3 of it's competition. ADRs and occupancies have taken a beating in many segments of the hotel/motel market due to the two-fold impact of the September 11, 2001 incident's affect on the travel industry generally, and the slow down in the telecom/tech economy. It is forecasted that current ADRs and vacancies will remain static in the near term, with possibilities of further decline due to extreme area competition and the number of available rooms. The subject'S ADR appears to fall within the upper 1/3 of the budget/extended stay range, which is within the market targeted by the subject. The estimated ADR of $3630 reported by Source Strategies, Inc. through 6/30/02 is estimated to remain stable for the subject. Stabilized Income -The actual income for the the subject was taken from the data provided by Source Strategies as reported through 06/02 The following data is extracted for the subject: Guest Room Sales $1,102,000 Total Rooms in Motel' 148 Total RoomslPeriod** 54,020 Occupancy 56.2% ADR $36.30 Revenue/Available Rm'** $20.39 'Reported number of rooms, per Source Strategies, Inc., from comptroller'S records. "Number of Rooms (148) times 365 days. '''Total tax and non-tax room revenue divided by total rooms/period (REVPAR). As mentioned previously, the August, 2001 through June, 2002 ADR is estimated at $36.30; the rate reported by Source Strategies, Inc. This estimate is supported by the comparable budget hotels in the area. The potential gross income estimate for the subject would be $1,960,926 (148 Rooms x $36.30 x 365), while the effective gross income for the subject is $1,102,000 which reflects an estimated occupancy of 56.2%. The subject is in it's 23rd year of operation and occupancy levels are predicted to be static over the next twelve months. Other Income -For a motel operation, other income is derived from food sales, beverage sales, telephone fees, meeting room revenue, vending, television, etc. Because these categories are highiy dependent upon management, occupancy levels, competition, and location, the most appropriate method for estimating this revenue is by historical operation levels as a percentage of total revenues or room revenues based on industry averages. Occupancy -Based upon the statistical information provided by Source Strategies, Inc., and the historical occupancy rates experienced by the subject, a stabilized occupancy factor can be estimated. The subject experienced an occupancy rate of 56.2% over the previous four quarters, ending the second quarter of 2002 This rate is near the upper limit of the occupancies reported during the previous twelve months. 28 According to Source Strategies, Inc., the Dallas, Fort Worth/Arlington market were severely negative and include a 21.2% decline in revenues, reflecting declines of 12.6% in room nights sold, 9.8% in prices, and 15.9% in occupancies. The events of September 11, 2001, the troubles in the bightechnology industries, and the dramatic growth of the number of new rooms made available through new construction prior to these events. Given the 􀁾􀁵􀁢􀁪􀁥􀁣􀁴􀀧􀁳􀀠location and the immediate competition in the area, an estimated' stabilized occupancy reflecting it's current occupancy over a typical holding period is deemed appropriate. EXPENSES The following expenses are typical of a motel's operation. The expense items are those typically found in the 'Uniform System of Accounts for Hotels", a standard accounting procedure published by the Hotel Association of New York City. These categories are as follows: Room Expenses -These items of expense are all of the items relating to the sale and maintenance of the guest rooms. These items include; salaries, wages, and employee benefits for all personnel related to the sale of housekeeping of the rooms. Food and Beverage Expense -Food/Beverage items consist of expenses necessary for the operation of food, beverage; and banquet facilities. The subject motel does not maintain these facilities, so these items will not be considered. Telephone Expenses -These items include telephone usage, equipment and other operating expenses related to telephone service. Most revenue from charges to the rooms is offset by the toll charges of the phone company. Administrative/General -This includes all salaries, wages, and benefits of employees not related to a particular department. Included.is credit card commissions, dues & subscriptions, office supplies, insurance, etc. AdvertizlngfSales Promotion -Includes all salaries, wages, and benefits of employees in this department, plus travel, entertainment, and items associated with advertizing, promotion, and marketing. Repairs/Maintenance -Includes all wages, salaries, and benefits of employees in this department, plus all repair and maintenance items, landscaping, supplies, trash removal, repair of FF&E, and misc. items. Energy -Gas, water, electrical, sewer expenses. Rent Expenses -(l} Real estate rental include rental of land and buildings in addition of FF&E. Other rentals include any major items rented that would normally be purchased and capitalized as a fixed expense. Electronic data processing would also be included in this category. Ad Valorem Taxes -Taxes on real and personal property. Insurance -Cost of insuring the building and it's contents against typical loss hazards. 29 Reserves for Replacement -Furniture, fixtures, and equipment (FF&E) essential to the operation of the motel. Includes all non-real estate items that are normally capitalized (not expensed). ManagementFee -Sometimes included in Administrative/General expenses, but sometimes segregated when an outside management company is operating the property. Without a current operating statement for the subject, the best gauges available for estimating future expenses for the subject are derived from reported expenses of local operating motel properties and national averages, such as those prepared and reported by Smith Travel in The Host Report, and expense and income ratios published by PannellKurrIFoster in Trends in the Hotel Industry. Based on the preceding data, a Pro-Forma Income Statement can be developed for the subject property to estimate a net income figure to be capitalized into a value estimate. The following proforma operating income statement is developed for the subject property, based on the survey data, reports to the State Comptroller's Office, and the extrapolations made therefrom. Pro-Forma Operating Income Statement 4325 Beltline Road -Motel 6 Revenues Rooms: 48 x $3630 x .562 x 365 (Rms x Rate x % Occup. x Days) Telephone: Estimated from surveys Other: Estimated from surveys Total Revenues % of Total 95% 4% 1% 100% $1,102,000 46,400 11,600 $1,160,000 Department Costs/Expenses Rooms Depart. Tele. Depart. $324,800 11,600 28% 1% -336,400 Total Department Income 823,600 Undistributed Operating Expenses Admin.!General AdvertizingIPromotion Energy RepairslMaintenance Management Fee Franchise Fee $104,400 46,400 58,000 58,000 34,800 17,400 9% 4% 5% 5% 3% 1.5% -319.000 Total Income Before Fixed Expenses 504,600 Fixed Expenses Taxes Insurance ReservestFFE Rent 34,800 9,280 29,000 3% 0.8% 2.5% -73,080 Estimated Net Income to Property $ 431,520 30 CAPITALIZATION Several capitalization techniques are available to process income into an indication of value. The proper capitalization technique is not determined by random selection. The appropriate technique is determined by the quality and quantity of accessible market data. As there are properties similar to the subject from which to derive capitalization rates, the survey data compiled in the sales comparison approach was utilized to derive an overall rate estimate. The survey data from sales of operating properties indicated a range of overall capitalization rates from 10.95% to 13.75%. As the subject property is evaluated "as if' in a typical market environment at stabilized occupancies and rates, an overall capitalization rate at the lower limit of those derived from the sales data will be utilized for the subject property. As the net operating income estimate is divided by the capitalization rate to derive an estimate of market value, the lower the capitalization rate, the bigher the estimate of market value will be. The Henry S. Miller Companies Real Estate Investment Trends report for mid-year 2002 surveyed capitalization rates for hotel/motels and reported a range of stabilized capitalization rates of between 12% and 13%, with 12.7% as the reported average capitalization rate. Given that, in general, the subject budget motel is performing better than the Dallas/Fort Worth market, a capitalization rate should reward that performance. Analysis supports an R. for the subject property of 11%. This gives the benefit of the doubt for a strong operating market for the subject property as an investment. Thus: Proforma NOI Indicated Value $431,520 11% = $3,922,909 Say, $3,923,000 Income Approach, Restaurant As discussed previously in the Appraisal Process section, the Income Approach to Value is the result of the analysis of the projected gross income stream for the subject property less vacancy and espenses to determine what net operating income for it can reasonably be expected. The first step in the Income Approach is determining what income can be achieved by the property under prudent management. This section typically directs itself to deriving rent comparables from similar properties to determine the stabilized gross annual income potential for it. From that gross annual income, a vacancy and collection loss factor is deducted to arrive at an effective gross income. From the effective gross income, total estimated operating expenses for the project are deducted to arrive at a proforma net operating income. This figure is converted to a value indication through a process known as capitalization. The restaurant portion of the subject property is currently considered owner occupied. There is no operating income data available to the appraiser for the subject property. Furthermore, reliable rental income information was not available from sales in the market place. Typically, restaurant properties which are leased have a two tier lease format: base rate rent, usually on a per-square-foot basis; and additional rent based on a percentage ofgross business sales. As the income approach has been developed for the motel portion of the subject, at least a generic estimate of value via the income approach to value for the restaurant is deemed appropriate, even though the proposed taking is substantially remote from the restaurant facilities. 31 Brokers familiar with the restaurant market were interviewed about the potential for the subject property. GenericaUy speaking, "average" rental incomes for properties like the subject were estimated in the $25.00/SF range. With a vacancy rate of 5% and typical lease expenses of 15%, this would equate to ±$20.19/SF. This in turn would point to a net operating income for a property such as the subject of ±$111,469 annually (5,521 SF x $20. 19/5F). Capitalization rates were "estimated" over a very wide range, with 11% near the lower end of those "estimates". Capitalizing this generic income data at 11% indicates a potential value of ±$1,013,355; remarkably close to the Sales Comparison Approach estimate. Based on the lack of quality verifiable income and expense data on properties similar to the subject, the Income Approach will not be developed in depth for the restaurant portion of the subject property in this appraisal. The preceding data and analysis is provided for general market perception only. Conclusion To the estimate of market value via the Income Approach for the motel must he added the estimated value of the detached restaurant. General analysis presented in the Income Approach, as supported by the Sales Comparis::m Approach section derives, an estimated value for the detached restaurant of $1,013,000 (rounded). Therefore, the estimated value of the motel, with the on-site detached restaurant would be calculated as follows: Component Value Estimate Motel $3,923,000 Restaurant 1,013,000 Whole Property Value Estimate, Say, $4,936,000 32 SALES COMPARISON APPROACH TO VALUE (Motel) An indication of value can be obtained by comparing the subject property with other hotel/motel properties which have sold in the marketplace. The reliability of this value indication will depend upon the similarities/dissimilarities between the subject and the properties which have sold. The basic units of comparison used by purchasers in the marketplace are the Price Per Unit and the Price per Square Foot of building area. Since both restaurant and motel properties are complex and adjustments are ore than likely difficult to support by market data, this approach is seldom given the most weight in the appraisal process. This approach does, however, provide a supported range ofvalue for the Income Approach and Cust Approach. The subject motel is a medium size, budget, limited service, older motel in good condition. The restaurant is an older medium size chain facility, often associated with locations adjacent to budget and mid-price motel facilities. Sales ofsimilar motel facilities in the market area were limited, as were sales of comparable restaurant facilities. However, several sales of both motel facilities and restaurant buildings that possessed some degree of comparability were analyzed. The first section of this approach will present and analyze the motel sales. Following the estimate of value for the motel facility, data and analysis will be presented for the restaurant facility. At the end of the sales comparison approach section, these two derived values will be combined into a conclusion for an estimate of value for the property as a whole. 33 Improved Sale Comparable #1 Location: Granton Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cash Equivalency: Legal Description: Zoning: Flood Plain: Improvement Data: Construction: Year of Construction: Condition & Appeal: Gross Building Area: Land Area: Land to Building Ratio: Meeting Facilities: Restaurant: Lounge: Type of Parking: Amenities: Average Daily Rate: Number of Rooms: Average Occupancy: Finandal Data: Effective Gross Revenues Expenses Net Operating Income Overall Rate: Sale Price per Room: Sale Price per Square Foot: Effective Gross Income Multiplier: Verified: Mapsco: 4150 Beltway Drive, Addison, Texas PPJ Corporation Windhaven Hospitality, LLC March 5, 2001 . 2001044/9849 $1,820,000 Assumed 1,520,000 notes; $209,089 note to seller $1,820,000 A-Motel Addn., Addison, Texas SU 8, special use permit No Masonary, 2-story hotel ±1981 Good ±26,100 SF ±78,582 SF 3.01:1 No No No Surface Outdoor pool, fitness center $46.33 @sale 71 49% @sale PRO-FORMA $607,321 $273,294 (est) $334,027 Indicators 18.35% $25,634 $69.73 3.00x Grantee 14-F Income information was estimated from Hotel Occupancy Tax Accounts. Expenses were estimated from statistical information on similar properties. 34 Improved Sale Comparable #2 Location: Grantor. Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cash Equivalency: Legal Description: Zoniog: Flood Plain: Improvement Data: Construction: Year of Construction: Condition & Appeal: Gross Building Area: Land Area: Land to Building Ratio: Meeting Facilities: Restaurant: Lounge: Type of Parking: Amenities: Number of Rooms: Average Daiiy Rate: Average Occupancy: Financial Data: Effective Gross Revenues Expenses Net Operating Income Overall Rate: Sale Price per Room: Sale Price per Square Foot: Effective Gross Income Multiplier: Verified: Mapsco: 9801 Adleta Blvd., Dallas, Texas PTR Homestead Village, LP Dhan-Laxmi, LLC December 15, 2000 2000243/5014 $2,000,000 Exec. $975,000 and $525,000 notes to bam $2,000,000 Lot 1 C, Block: C/8069, Dallas, Texas MU-3, Dallas No Masonry, 2-story motel ±1992 Good ±38,750 SF ±92,643 SF 2.39:1 No No No Surface Pool 132 nla nla PRO-FORMA nla nla nfa Indicators nla $15,152 $51.61 nla Broker 27-D Income information was estimated from Hotel Occupancy Tax Accounts. Expenses were estimated from statistical information on similar properties. 35 Improved Sale Comparable #3 Location: Grantor: Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cash Equivalency: Legal Description: Zoning: Flood Plain: Improvement Data: Construction; Year of Construction; Condition & Appeal; Gross Building Area: Land Area; Land to Building Ratio: Meeting Facilities; . Restaurant: Lounge; Type of Parking: Amenities: Number of Rooms: Average Daily Rate: Average Occupancy; Financial Data: Effective GrOSG Revenues Expenses Net Operating Income Overall Rate: Sale Price per Room; Sale Price per Square Foot: Effective Grose Income Multiplier: Verified: Mapsco: 4705 Old Shepard Place, Plano, Texas Promus Hotels Florida, Inc. Apple Suite REIT September 22, 1999 99/118298 $5,400,000 All cash to grantor $5,400,000 Lot 1, Block A, Homewood Suites Addn., Plano, TX Commercial, Plano No Brick, 5-story hotel ±1996 Good ±81,692 SF ±115,874 SF 1.42:1 Yes No No Surface Pool 131 $62.48, est. 71% PRO-FORMA $2,121,112 1,378,723 742,389 Indicators 13.75% $41,221.37 $66.10 2.55x SEC Filings 656U Income information was estimated from Hotel Occupancy Tax Accounts. Expenses were estimated from statistical information on similar properties. 36 [COMPARABLE MAP] Frisco IRVING Sale Sale Year Building Sale Area (SF) No. Date Built Price ($ISF) Price{RM EGIM 1 1981 26,100 $69.73 3.00x05/01 1522 12/00 1992 38,750 $51.61 n/a 3 1996 81,692 $66.10 $41,221 2.55x09/99 Subject NA 1999 65,618 NA NA NA Analysis and Conclusions of Market Data All of the sales occurred from 1 ¥z to three years prior to the date of valuation of the subject. Market conditions have deteriorated since that time, brought about by the events of September 11, 2001, the communications/technology market decline, and a significant increase in units just prior to these events in the Dallas market area. However, no adjustment will be made for this market decline at this time. While it is not clear how long it will take the travel market to recover to the levels enjoyed at these dates of sale, it is projected that recovery will occur gradually over the next eighteen to thirty-six months, barring any unforeseen catastrophic events. The PPJ Corporation sale is located in the same market area as is the subject, but on a less less well traveled street An upward adjustment for location is indicated for this sale. The age and condition of this property are considered comparable to the subject and require no adjustment. This sale is smaller than the subject, indicating a downward adjustment in the "per unit" ofcomparison category; smaller properties typically selling for a higher "per unit" value than larger units. The PTR Homestead Village is located in the Skillman/LBJ area, but not on a major thoroughfare. The subject's location is considered to be superior, indicating an upward adjustment to this sale for location. The age of this property is newer than the subject, requiring a downward adjustment to the subject. The overall condition of this property at the sale date was inferior to that of the subject and requires an upward adjustment for condition. The Promus Hotels sale is located on a less well traveled street than is the subject, requiring an upward adjustment to this sale for location. The age of this property is ±6 years as compared to the ±23 year of the subject. This age difference requires a downward adjustment to the subject Likewise, the condition of this sale is superior to that of the subject, requiring a downward adjustment to the subject. The size of this sale and the subject are considered comparable. 37 $66.101$41,221 Property Rights Adjustment -0Sales Price/SF $66.101$41,221 Terms -0-0-0Cash Price/SF $69.731$25,634 $51.61/$15,152 $66.101$41,221 Conditions of Sale Adjustment -0-0-0Price/SF $51.611$15,152 $66.101$41,221 TimelMarket Conditions -0-0Adjusted Price/SF $51.611$15,152 $66.101$41,221 Location Adjustment +5% +10% +5% -05% -10% Condition Adjustment -0+15% -5% Size -10% -0-0Net Physical Adjustment Factor -5% +20% -10% Adjusted Price Per SFIRM $61.93/$18,182 $59.491$37,099 After adjustments, comparable building sales indicate a value range of the subject from $59.49/SF to $66.24/SF; the indicated value range on a per room basis ranged from $18,182IRM to $66.24/FM. Based on these sales, an estimated price per room of $24,000 was estimated, and a price per square foot of $61.00/SF was estimated. Therefore; 166 Rooms @$24,OOOIRM = $3,984,000 or 65,618 SF @$61.00/SF = $4,002,698 Based on an average of these two indications, the market value of the subject motel faciJity"(Jand and improvements) is estimated at; Sales Comparison Approach Value Indication $3,994,000 ($24,060/RM or $69.87/SF) 38 SALES COMPARISON APPROACH TO VALUE (Restaurant) An indication of value can be obtained by comparing the subject property with other restaurant properties which have sold in the marketplace. The reliability of this value indication will depend upon the similarities/dissimilarities between the subject and the properties which have sold. The basic units of comparison used by purchasers in the marketplace are the Price Per Unit and the Price per Square Foot of building area. The Gross Income Multiplier (GIM) is an application that is available when facilities seU with a known sale price and a determinable gross annual income figure. The multiplier is derived by dividing the sale price by gross potential income. It is an accurate gauge to weigh the investment opportunity of one operating property against a similar operating property as it automatically adjusts for any physical, functional, or economic deficiencies of a property as reflected by the action of the rental marketplace. The GIM is closely related to market action and it is fairly easy to explain. The principal advantage of the technique is that the reflection of rental income is direct. Therefore, differences between properties which could involve adjustments based upon subjective estimates by the appraiser have typically been resolved by the free action of the local rental market. If Property A has some advantage over Property B in age, condition, accessibility, location, or other physical characteristics, the difference in actual rental income presumably reflects the extent of this advantage as viewed in the marketplace. Because some adjustments for relative desirability are thus inherent in the factor, a GIM is not subject to adjustment after having been computed. The GIM will not be. used in this analysis. Although a number of confirmed sales are available with which to compare the subject property, no income history is .available for these sales through which a market GIM can be estimated. The Price Per Square Foot method considers the amount of area contained within a facility. The unit for valuation is computed by taking the sale price of the property and dividing by the square footage. This methodology directly compares the price for which a property actuaUy sold to other properties of a similar nature, design, construction, quality, size, age, finish-out, and underlying land value, etc. The Price Per Square Foot methodology requires that adjUstments be made by the appraiser to compensate for physical, functional and/or economic deficiencies of the properties used for comparison with the subject. The Price per Square Foot methodology can be subjective and requires the expertise of the appraiser for adjustments. The following pages detail sales of three restaurant properties in the Addison area. An analysis with what are considered the appropriate units of comparison follows leading to an estimate of Market Value of the fee simple estate by the Sales Comparison Approach. 39 Location: Gnmtor: Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cosh Equivalency: Legal Description: Zoniug: Flood Plain: Improvement Data: Construction: Year of Construction: Condition & Appeal: Gross Building Area: Land Area: Land to Building Ratio: Type of Parking: Comments: Verified: Mapsco: Improved Sale Comparable #1 NW/c of Quorum & Beltline, Addison, TX Placid Refining Co. & Hunt Petroleum Corp. Beltline Ground Lease Investors, LP July 21, 1999 99141/4434 $1,850,000 (±181.28/SF) All cash to grantor $1,850,000 Part of Lot 2, Beltline-Quorum Addn., Addison LR, local retail No Masonry, single story free-standing ±1990 Good ±10,205 SF ±82,764 SF 8.11:1 Surface, concrete Building was occupied at the sale date. Base rent reported to be $10.40/SF triple net, with overage estimated to bring the total rental rate to $26.80/SF. No expense data was reported (triple net rent). This is a high traffic corner location, one block west of the Dallas North Tollway. Roddy Report 14-C 40 Improved Sale Comparable #2 Location: Grantor: Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cosh Equivalency: Legal Description: Zoning: Flood Plain: Improvement Data: Construction: Year of Construction: Condition & Appeal: Gross Building Area: Land Area: Land to Building Ratio: Type of Parking: Comments: Verified: Mapsco: 4350 Beltline Road, Addison, Texas G M R I, Inc. Ping Corporation January 5, 1998 98002/5906 $1,600,000 (±$178.03) Exec. $1,350,000 note to Texas First National Bank, Houston, 'IX $1,600,000 Lot 3, Beltway Office Park Ill-Rl, Addison, 'IX LR SU-l, Addison, 'IX No Masonry, single story, free-standing ±1992 Good ±8,987 SF ±92,565 SF 10.3:1 Surface, concrete This was previously a Red Lobster restaurant. It had been vacant for ±18 months prior to the sale date. There was approximately $500,000 ofequipment in the facility (seller's estimate), or $50,000 of equipment (buyer's estimate). This property is located on the south side of Beltline Road ± Y2 block east of Midway Road. Road. Muriel Hsiung, selling broker 14B 41 Improved Sale Comparable #3 Location: Grantor: Grantee: Date of Sale: Recorded: Consideration: Terms of Sale: Cash Equivalency: LegaJ Description: Zoning: Flood Plain: Improvement Data: Coostruction: Year of Construction: Condition & Appeal: Gross Building Area: Land Area: Land to Building Ratio: Type of Parking: Comments: Verified: Mapsco. 3885 Beltline Road, Addison, Texas Red Robin International The Flaming Grill, Inc. July 19, 2000 2000139/5273 $1,550,000 (±$187.04/SF) Exec. $1,200,000 note to seller @market rate $1,550,000 Lot C, Block 3, Beltline Marsh Business Park Addn., Addison, Texas PD-18, a local retail type zoning No Masonry, single story, free--standing ±1995 Good ±8,287 SF ±84,419 SF 10.19:1 Surface, concrete This restaurant was vacant at the date of sale. It is located on the north side of Beltline Road, where Commercial Drive intersects from the north. The purchaser reopened the facility as a restaurant and bar. Kelly Hampton, broker 14A 42 [COMPARABLE MAPj Sale Sale Year BuDding Sale No. Date Built Area (SF) Price ($ISF) 1 [JI/99 1990 10,205 $181.28 2 01198 1992 8,987 $178.03 3 07/00 1995 8,287 $187.04 Subject NA 1980 5,521 NA Analysis and G:mclusions of Market Data From the available comparable sales, one unit of comparison is derived that is typically utilized in the Sales Comparison Approach to Value. This methodology is utilized by comparing the Sales Prices per Square Foot (SP/SF), taking into consideration and adjusting for physical, locational and market condition factors affecting each sale as compared to the subject property. Sales Price per SQuare Foot Analysis The reader is referred to the previous discussion of adjustment factors presented in the earlier Sales Comparison Approach utilized in estimating the current market value of the land tract. That discussion applies here with the exception of some changes in the physical comparisons. We continue to compare and adjust for Location and Size variations. The remaining two appropriate for improved properties are one fur Construction and Design and one for building Age/Condition. As all of the sales were purchased fur typical restaurant operation, all sales are treated as "fee simple" transfers. No unusual financing or other motivating factors were discovered which would affect the ·conditions of sale' for any of the sales included herein. A comparison of the sales based solely on the date-of-sale indicates approximately a 1 % per year upward adjustment to the subject. Location All of the sales are proximate to major arterials, as is the subject. However, Sale #1 is a comer location and is judged to be superior to the interior location of the subject property. A downward adjustment for this factor will be applied to Sale #1. No adjustments are made to Sales #2 and #3 for location. Size The subject property is reported to be 5,521 SF in size. The comparables range in size from 8,287 SF to 10,205 SF. V\l.hile no apparent size differential is noted among the sales, it is noted that the subject is less than than one-half the size of any of the selected comparables.. However, older sales of varying sizes did not reveal any price differential which could be ascribed to total improvement size either. Restaurant facilities of the same class do not appear to be price/size sensitive at this time in this general location. Therefore, no adjustment will be made fur size in this analysis. 43 Design/Construction All of the sales are considered to be of the same general design and construction as the subject facility, even eonsidering normal variations. The comparables, both those selected and older sales reviewed, do not appear to be overly sensitive as long as they are of the same general class. Age/Condition The subject improvements were eonstructed ±10 to ±15 years prior to the comparable sales. The subject is judged to be equal in eondition to Sale #1, which was operating at it's sale date. As Sales #2 and #3 were vacant at their sale dates, it is presumed that they exhibited some deterioration that eomes with vacancy, but not to an extent which would off-set their age differential with the subject improvements. There follows an adjustment grid that sets forth the opinions of the percentage adjustments applicable to the eomparable sales as discussed in the sales analysis and in the Comments and Adjustments paragraph of each of the sales previously presented. Sales Price/SF $181.28 $178.03 $187.04 Rights -0-0-0Sales PricelSF $181.28 $178.03 $187.04 Terms -0-0-0Cash Price/SF $181.28 $178.03 $187.04 Conditions of Sale Adjustment -0-0-0Adjusted Price/SF $181.28 $178.03 $187.04 TunelMarket Conditions + 3% + 4% +2% Adjusted PricelSF $186.72 $185.15 $190.78 Location -5% -0.0Construction and -0-0.0Age/Condition Adjustment -0-0-Oj Size Adjustment -0-0-0Net Factor -5% -0-0Adjusted Price/SF $177.38 $185.15 $190.78 After adjustments, eomparable building sales indicate a value range of the subject from $177.38ISF to $190.78/SF. The average of the adjusted prices is $184.44/SF. Because both Sales #2 and #3 are not major comer locations, and because they are the smaller of the three sales, they are judged to be most nearly comparable to the attributes of the subject property at the present. An estimate of 44 value reflecting the mid-range of Sales #2 and #3, as adjusted, is deemed to be appropriate for the subject property. This would equate to approximately $187.50/SF of improvement size. Therefore, Improvement Size Price/SF Indicated Market Value 5,521 SF x $187.50/SF = $1,035,188 Say: ESTIMATED MARKEl'V.;\LUE BY SALES COMPARISON APPROACH, $1,035,000 (±$187.47/SF) 45 Sales Comparison Approach, conclusion The estimated value of the subject property, as a whole, would equate to the combined estimates of market value for the motel and the restaurant as independent units. Both components of the whole property are judged to have independent economic merit apart from the other. Both could be segregated from one another and marketed independently. Both could have independent site sizes, exposure, access, and parking to support segregated uses. Therefore, the estimated market value of the subject property, via the Sales Comparison Approach is represented as follows: Component Value Estimate Motel Facility $3,994,000 Restaurant Facility $1,035,000 Total $5,029,000 ESTIMATED MARKET VALUE, CaDed $5,029,000 46 RECONCILIATION For reasons previously stated within this report, the Sales Comparison Approach was utilized in estimating the Market Value of the subject site. The Cost Approach was developed to test the reasonableness of the conclusions derived in the Income Approach. Generally, the Cost Approach is much better utilized in estimating the value of new or proposed improvements. It is more difficult the judge the various levels of depreciation on improvements the age of the subject improvements. The Income Approach was developed for the subject property. The subject property improvements have office utility in the current market, and there is evidence that the subject improvements are capable of producing income and, hence, value as they currently exist. Typically, income producing properties are traded on their ability to produce income. A summary of the value estimates derived for the Whole Property are as follows; Sales Comparison Approach -Land: $2,998,730 Cost Approach: $5,220,000 InCQme Approach: $4,936,000 Sales Comparison Approach • Improved: $5,029,000 The Income Approach to Value is selected as the most reliable indicator of probable market value for the subject Whole Property. The data for the motel in particular is based on very recently reported income information. While the Cost Approach and the Sales Comparison Approach strongly support the Income Approach, the quality of the data in these two approaches is not judged to be as reliable as the data in the Income Approach. Therefore; WHOLE PROPERTY, soy $4,936,000 Components of Value Motel Building $1,400,000 Restaurant Building 328,270 Fencing 16,600 LandscapinglSprlnkler Sys., etc. 14,400 Signage 4,000 PavingfParking/Walks/Drives (includes asphalt walks) 174,000 Improvement; Total Contributory Value 1,937,270 Land Value 2,998.730 Total $4,936,000 47 PART TAKEN -VALUATION This Taking is for the extension of Arapaho Road and is considered as a Partial Property acquisition. The Part Taken is considered as severed land with no self-sustaining economic value. A plat of the subject showing the Part Taken is included in the Addendum of this report. This right-or-way encompasses both the surface and subsurface use of the acquisition area. The use of this Taking is for the construction of the extension of Arapaho Road. The Part Taken is properly valued as a proportionate or pro-rata portion of the value of the site area taken and the contnbutory value of the improvements situated thereon. The contributory value of the improvements located within the acquisition area is based on the depreciated value of those improvements. The right-of-way "Part Takenn consists of a strip ofland approximately 80' wide, along the north side of the subject from east to west, generally parallel and adjacent, to the existing improved DART railroad line; a length of roughly ±373'. The land area within the proposed acquisition contains ±28,008 SF of site area. Of this 28,008 SF of laJid area, ±5,590 SF is currently encumbered with a 15' wide water easement. There is insufficient land area for independent use consideration, and there is not sufficient utility of shape to support an independent economic use of the area encompassed by the proposed acquisition. Within the acquisition area are portions of grass ground cover, asphalt and concrete paths, wood and chainlinlc fencing, concrete paving associated with a tennis court, and some playground fixtures. No other items of contnbutory value were noted within the acquisition area. From the Land Valuation section of this report, the estimated fee simple value of the subject site is $14.00 per square foot of land area for the "feen area and $7.00/SF for the "easement" area. The value of the property rights extinguished in the acquisition area are estimated to be 100% of the fee simple interest andlor easement interest. Therefore, the estimated estimated value of the right-of-way acquisition Part Taken is calculated on the following page: 48 Part Taken Land Area: 22,418 SF -fee 5,590 SF -easement Improvements: ±262 LF8' CIL Fence ±290 LF 8' Wood Fence ±232 LF 10' CIL Fence ±1,840 SF etC Walks ±2,920 SF Asph. Walks ±6,820 SF etC Tennis Ct. ±81 LF 6' Wood Fence Playground Equip. $14.00ISF $313,852 $ 7.00ISF 39,130 Total Land 352,982 Depr. Value $10.50ILF 2,751 10.00ILF 2,900 13.50/LF 3,132 3.00/SF 5,520 1.25/SF 3,650 3.00/SF 20,460 8.75/LF 709 -0-=!!: Total Improv. 39,122 Residuals:· ±200 LF 10' CIL Fence ±5,280 SF etC Tennis CI. ±20,80 SF Asph. Walks Total Residuals Depr. Value $13.50/LF 3.00/SF l.25/SF 2,700 15,840 2.600 21,140 Total Part Taken $413,244 *Residuals refer to those improvements which have been severed within the Part Taken and are not judged toprovide contributory value apart from their severed component; i,e., one-halfofa paved tennis court, or a portion of a fence around a partial tennis court. These residual improvements which are judged to be of no contributory value apart{rom the Part Taken are included in the estimate of value for the Part Taken for the sake of clarity. 49 REMAINDER BEFORE THE TAKE -VALUATION The value of the Remainder Before the Take is valued on the same basis as the Whole Property valuation, reflecting the loss of the land area and improvements in the easement area (Part Taken). In circumstances of partial property acquisitions, wherein the Part Taken is considered as severed land with no independent economic utility apart from the Whole Property, the sum of the values of the Part Taken and the Remainder Before the Take should equal the value of the Whole Property. Technically, the value of the Remainder Before the Take should reflect the diminished property rights and the value of the improvements not replaced in the easement area. The value of the Remainder Before the Take is valued as follows: (Refer to Page 32 for a breakdown of the contributory value of the individual components of the subject property value.) Remainder Components Unit Value Component Land Area 188,982 SF -Fee $14.00/sF $2,645,748 Improvements Motel BId. Restaurant BId. Fencing Landscaping, etc. Sign age Paving, walks, drives, etc. Various $1,400,000 328,270 4,408 14,400 4,000 125.930 Total $4,522,756 (Whole Property -$4,936,000 less R.O.W. -$413,244 equals $4,522,756) The contributory value of all remaining improvements are based on the pro-rata share of those remaining improvements. 50 REMAINDER AFTER THE TAKE -VALUATION The Remainder After the Take is valued "as if" all of the public improvements are completed and in place. The Remainder After the Take is valued under the same guide lines and definitions as the Whole Property. The size and shape of the Remainder site is sufficient for independent economic development. This remainder tract is 188,982 SF in size. Physically, the remaining improvements, parking lots, etc., are well setback from the new right-of-way. Additionally, the Town of Addison does not have rear yard setback requirements for this zoning classification. The double tennis court which was taken in the right-