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ARIEL MORTGAGE
09/20/2004 05:52 4122911428
600DHOCK3IQE WOODS 5LVD. CLEVELAND. OHIO d-n 31-2350 (216)328-2660 Fax(215) 32B-501 I
Bept.
LIMITED APPRAISAL OF -
old office rehab 333-4 prospect avenue cleveland, cijyahoga Co., Onto PPN: 10345-040
Specializing in Commercial. Industrial, Office anc Residential Reai Esia',s Appraisals
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Realty One Appraisal Dept,
Employment in and compensation for making this report are in no way contingent upon the value reported and 1 certify that I have no present or future interest in the subject property,
L, the undersigned, do hereby certify that to the best of my knowledge and belief, that the statements contained in this LIMITED APPRAISAL, and upon, which the opinions expressed herein aie based, are correct, subject to the limiting conditions attached hereto.
Respectfully submitted, Realty One Appraisal
George T. Bowdouris, ASA Vice President
State Certified General Appraiser Ohio Certification No. 379328
GTBinkt
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Sealty One Appraisal Dept.
legal description
Situated m the City of Cleveland, County of Cuyahoga and State of Ohio, and known as being pan of Original Ten Acre Lot No. 64, and bounded and described as follows;
Beginning in the Southerly line of Prospect Avenue S.E., st the point of intersection with the Easterly Jhe of a parcel of land conveyed by Horace P, Waddell to Sherlock L. Andrews, by jeed datec. December 31, 1851 and recorded in Volume 54, Page 375 of Cuyahoga County Record?; t,ien.ce Easterly along theSoutherly line of Prospect Avenue S.E,, 80 feet, thence Southerly an a lineat right angles with Prospect Avenue S.E., 217 feet 10 inches; thence Westerly on a lineparallel withProspect Avenue S.E., 80 feet; thence Northerly 21.7 feet 10 inches to the place of beginning.
ENVIRONMENTAL
appraiser takes no responsibility for hazardous wastes found in or near theproperty that would hav= a deleterious effect on theproperty. If this is a concern, a, Phase I environmental should he ordered.
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s Appraisal
HIGHEST AND BE5r
The higher and best use of a site is thai reasonable and probable use that supports the highest present value on the effective date of the appraisal. For Improvements to represent the iiighest and best use of a site, they must be legally permitted, be financially feasible, be physically possible, and provide more profit than any other use .ofthe site would generate. AJ1 four or these criteria must be met if the improvements are to be considered as the highest iiiiid best u:;e of a site.
Source: Focus Appraisal Guide. Copyright 1988. Fannie Mae.
'iVhile the opinion of highest and best use- may be dependent upon, a future event or a combitiaticn of circumstances, the basic, assumption must, be reasonable and highly probable. If they are not, the use should not be considered. The same conditions apply in the situation where the intended use is dependent upon an uncertain act. In order for the highest and best use to be reasonable, the basic assumptions cannot be speculative in nature. The current tmyer plan; to rehab the building into office space for her business which would be a very adaptive reuse of the property and the highest and best use in my opinion.
ZONING The subjcc: property t.s zoned Semi Industrial,
The Semi Industrial utilization is considered ro be the highest and best use for the subject property as a legal non-conforming use. Office space is not as intense of a use as Settii Industrial. The city is very much interested in having this property converted into office space.
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One Appraisal
Building Type;
Age:
Building
Walls: Windows; Roof: Foundation;
HVAC:
Phone Syiitem: Alarm System: First Flog:;:
Second Flagt: Third Floor:
BRIEF DESCRIPTION OF THE BUILDING
A 2-story brick and stone office building with basement and full attic with detached two-story carriage house containing (1,716 sf.) on slab foundation.
Built 1885
First and secondfloor: 7,478 sf.
Basement;3.459 sf.
Total:10,937 sf. (Not including carriage house)
Brick and stone construction
Wood double hung
Asphalt shingle
Stone• '
Pull basement, fi finished room?
Newer Peerless hot water gas-fired boiler, IQQ-gallon AUI gas-fired hot water tank. Borrower will install complete new air conditioning system throughout the building.
Borrower will install complete new phone system. Borrower will install complete new alarm system.
8 rooms, 10' high ceilings, plaster walls, marble entry floor, fine hardwood trim. Four fireplaces (unknown, if they are operable).
9 rooms, plus torn-out bath room. Good hardwood floor in one room.
Paneled attic Ceilingand wood floor. Walk-up stairway to attic.
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JteaJty 0:ie Appraisal Dept.
METHODS OF VALUATION
Cost Apurciach
"Tie Cost Approach to Value is Formulated by estimating the Replacement Cost new of all improvements as of the Effective Date of Appraisal, including, but not limited to, walls, roof, floors, etc., plus the land improvements which, would include the landscaping, asphalt paved parking lot,;, sewer lines, etc. From this Estimated Replacement Cost n&w of the subject property is deducted depreciation. Depreciation is found to take three forms:
1. Physical Depreciation is thenatural wearing away of the asset over time. This can be curable or incurable.
2. Functional Obsolescence is depreciation caused by, for example, a poorly laid out floor plan or design, which can be curable if the building's inadequacy can be corrected or incurable if it cannot be corrected.
3.. Economic Obsolescence is depreciation caused from influences outside the subject
property. This could, be a locations! factor such as the subjecr property being located . . next to .1 blighted area, heavy industrial use or waste disposal site, etc.
Finally,to theestimated depreciated value of the improvements is added the estimated value oP the land so arrive at the estimated value via the Cost Approach. In this case the Cost Approach i<:not a reasonable approach considering the age of the improvements and the extensive amount of rehabbijig performed. A considerable amount of depreciation would hiive to be estimated, leaving room for possible error on your appraiser's pan. Typically this approach is used on new or newer properties.
Market Approach
Ir thisapproach the estimate of the valueof the property being appraised is developed as of theEffective Date of Appraisal by analyzing properties which have sold that have similar characteristics compared to the subjeci property, such as building type, land size, age, ccmdition,financing, construction, etc. Adjustments are made to these sales to account for differing characteristics of the sale's physical Features, locational aspects, etc.,to'arrive at a conclusion cf value for The subject. The Market Approach is viable and reasonable when thsre is sale.3 activityin themarkeiplace 10 compare 10 thesubject property.
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Realty I JneAppnisal
METHODS OF VALUATION
(Continued)
Income Approach
In this approach, an estimation of Gross Potential Income is made for the property based on actual or estimated market rents as of the Effective Date of Appraisal. From this a reasonable vacancy and rent loss provision is made and deducted from Gross Potential Income to arrive at the Effective Gross Income of the property, The actual expenses for the subject property or the appraiser's estimated stabilized expenses typical for theproperty are then deducted from the Effect: ve Gross Income to arrive at theEstimated. Net Operating Income, The amount of Estimated Net Operating Income is converted into an estimate of value when it is divided by an. overall capitalization rate which represents the rate of return that investors require From properties with, the subject's typical investment characteristics. The means of converting the Net Incorr.e into a value is thecapitalization process and is the basis for the Income Approach.
As mentioned earlier, due to the age of thesubject buildingand the inherent difficulty in accurately estimating allforms of depreciation, theCost Approach willnot be developed. The Market and Income Approaches arc deemed more reliableandreasonable and therefore will be developed in this report.
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Realty One Appraisal Dept.
MARKET APPROACH TO VALUE
One of the most reliable approaches in the appraisal of real estate is a study and analysis of similar properties which have sold and are in the same or comparable areas. The unit of comparison that relates to commercial businesses is the dollar per square foot of gross building floor areas above grade, with land value, included. By this method the total building area is dividedinto the sale price and the number of units in the building divided into thesale urice. Thi; ujtit factor is compared to the subject propen-y and is adjusted, for such factors as age, condition, location, quality of consu'ucdon etc. There was very littlecomparable information located in and around the subject's immediate area. I therefore went outside the immediate area to find sales of similar properties.
Set forth c-n the following pages are the most recent available sales data that your appraiser ias analyzed in arriving at an estimated valuefor the subject property, Each was an arms .ength transaction. These sales are described and analyzed as follows;
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Realty One Appraisal Dept.
MARKET DATA ANALYSIS
tth subject property is currently an old historic building, formerly a fraternity house, in need of complete rehab. It has tall ceiling heights and good quality construction. Tae detail inside is old but when refuiished will be a quality building. The assignment required me to appraise the building as repaired-
Accordingly, I have analyzed and adjusted the comparable commercial business sales with consideration for date of sale, location, size, type, age and condition of the building, Iand-To-building ratio, parking facilities as well as other pertinent factors. The appraised value is bassd on the "as complete" condition. I did'not find exact comparables. I used sales of buildings in the area, I was given an estimate to repair the entire building. The current buyer is ii the proems of getting final bids on the various repairs. At thispoint the repair costs are $122,700, noi including rewiring the building. The contractor is giving theowner a rime and materials quo:e and not a'bidbecause of the thickness of thewalls which require drilling.
MlLtlThis sale is located nearby. Plus adjustment for time. Subject larger and as
complete, a more "in demand" property in my opinion-plus adjustment,
2Comparable located nearby. This building is smaller and has office/retail in '
front and warehouse in rear. Subject better location-plus adjustment; plus
adjustment for time.
A smaller office building that has good visibilityand site orientation. Newer than subject, minus adjustment. Plus adjustment for time, Superior location-minus adjustment,
Me_#4A 2-story building built in 1880 and having approximately 7,226 sf. which is
smsller than subject, Now under rehab. Better location-minus adjustment;
plus adjustment for time.
Accordingly, after carefully considering the above comparable^ and comparing them to subject in respe:t to size, igc and condition, etc, it is my opinion the subject has a Market Value of $83 OG/sf as.ccmp.leti*with the improvements as discussed earlier
Therefore, approximately 7,473 sf, @ $83.00/sf = $620,674
SAY $620,000
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Realty One Appraisal Bept.
INCOME APPROACH TO, VALUE
"liis approach is based upon the capitalization of net income, Capitalisation refers Co the conversion of anticipated income to a value conclusion.
I*TQJected or anticipated rent is based upon an analysis of past and current rental terms for the subject and/or similar income producing properties. The quantity, quality, and durability of theincome stream are the basis for this analysis,
Projected expenses are based upon an analysis of the expense history of the subject and/or similar properties. The expenses utilized in this approach are those considered typical for this type of property and include fixed and operating expenses which are the owner's responsibility. This type of property would generally be leased on a net basis. Although the property would be leased on a net basis, it1 is an accepted- practice;
(..)to project anticipated losses due to vacancy and rent losses; (2) to include 0. management expense wt ether the owner hires someone to manage, or manages il himself; and (3) to project anti:ipated legal, auditing and other fees and miscellaneous expenses,
The selection of the proper capitalization rateis baaed upon prospective reactions of owners . and buyers of this type of property. The capitalization rale is expressed as an QveraJI. interest rate and includes consideration for: the interest1 yiefd on the equity invested; the amortization (or "pay off") of a loan; and the appreciation or depreciation of the subject during the investment period. Other significant considerations are; theavailability, terms and costs of m engage inaney and the quality and durability of the, prospective income stream. The appropriate capitalization rate, as extracted from market data found laterin tills report, is
The Income Approach to Value is developed on the following pages.
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ARIEL MORTGAGE
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Realty One Appr.iisal
INCOME APPROACH
(Continued)
Tb,e company is buying the building and convening it into the main office. It is therefore an owner-us jr property. The way to estimate a market rent for the property is to use companies to compare to the subject property to rent comparables and arrive at a reasonable market, rental. The following rentals are submitted to estimate market rent:
Rent Coniparable #1
Location:
Building Description;
Leased Si",: Rental Raes/Sf.:
Rent Comparable #2
Location:
Building !Description:
Leased Sf,: Rental Rates/Sf.:
100 North Main Street, Chagrin Falls, Ohio
A three-building office/retail complex totalling 54,522 sf. of
gross building area. Built in late 1800's, 1975 and 1986.
75% ±
Office is £12.00 to $l8.00/sf gross
33-35 River Street, Chagrin Falls, Ohio
Two three-story office buildings containing 21,700 sf- of net
rentable area.
81%±
Asking rent is between $17.50 and $l8.QO/sf. gross. Tenant pays
electric.
Rent Com parable #3
Location.:
BuildingDescription:
Leased Sf.: Rental Raies/Sf-:
.Rent. Com parable #4 Location:
.Building Description: .leased Sf,; Cental Rates/SF,:
45 E. Washington Street, Chagrin Falls, Ohio
A three-story commercial office building containing 20,264 sf. of
net rentable area. Built in 1983-1984.
NA
Asking rent is Sl6.50/sf. triple net
Northeast corner of Walker/Lear Nagel Road, Avon Lake, Ohio
A 3,375 sf. free standing office building built in 1988.
100%
Year 1-5: 515.15'triple net
Year 6-10; Si8.00 triple net
Year 11-15: CPT increases
Jtent Com|jarable #5 Location:
BuildingDescription: Leased Sf.. Rental Rato/Sf.;
5043 Mayfield Road, Lyndhurst, Ohio
A one-story brick officewithparking
100% (4,500 sf.)
Year 1-3:Sl7.50/?f.triplenet
Year 4-5: SlS.QQ/sf. Triplener
Telerama Inc., 5 year with 5-year option ro renew
triple ner
5i9.QO/sf.
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Realty (me Appraisal Dept.
TNrnME jyPPROACH TO VALUE
(Continued)
, after considering the above rentals, I am of th6 opinion the Market Rent for the subject is iil 1.50/sf triple net as remodeled,
Approximate Building Size Not Including Basement Is:
7,478 sf. <|) $11.50/sf. Triple Net =$85,997
Less 10% Vacancy Rent Loss
Estimated Effective Gross Income:$777398
Estimated Expenses
Management 5%$3,800
Structural Maintenance2,000
Miscellaneous Legal and Audit1.5QO
Total Estimated Expense$_1.3QQ
Estimated Net Operating Income, : $70,098
Estimated Net Operating Income $70,098 •*- .1 140 overall capitalization rate = $614,895
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Realty One Appriisal Dept.
OVERALL CAPITALIZATION RATE MQRTCAGE ANT> EQUITY COMPONENTS VIA BAND OF INVESTMENT TECHNIQUE
The overall capitalization rate is an income rate for a total property that reflects the relationship between one year's net operating income and the total price or value, An overall capitalization rate is influenced by many considerations including the degree of apparent risk, liquidity, debt service, equity requirements, and depreciation.
Debt service represents the cost of mortgage funds indicative of the supply of the demand for mortgage money as of the appraisal dais. Equity requirement is the return on invested capital accruing io the property owner reflecting the prospective rate of return for alternative investtnert opportunities. Depreciation represents the available tax shelter accruing to the property owner, and its size and du.rati.on will generally affect theequityrequirements of the owner or investor, Mortgage funds, &s of October 21,L996,were generally available on seventy-fife percent (75%) of market value between 9% to 10% SAY 9.5% interest with amortization in 20 years, balloon in 15 years.
The equity requirement would most likely range in the area of 12%. The indicatedoverall -. capitalization rate for thesubject property would be calculated as follows:
DEBT SERVICE75% x 11.19 - 8.39%
EQUITY RETURN25% x 12.00 - +3.00%
OVERALL CAPITALIZATION RATE VIA THE= 11.39%
EAR} OF INVESTMENT TECHNIQUE. SAY 11.40%
The 11.19 constant in the mortgage requirement calculation represents theannual requirement per one dcllar ($1.00) of mortgage loan to amortize principal and pay interest on. a 9,5% * 1.0-year kmn. The 12% factor in the equity requirement represents the percent of cash return on the property owner's equity investment after debt service.
Tlie overall capitalization rate developed utilisingthe mortgage and equity components of the Band of Investment Technique is estimated to be 11,40%, The equity requirement is estimated t^ be 12% for theowner's investment.
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Really One Appraised Bept.
CQ.RRELA.TIQM RECAPITULATION
COST APPROACH TO VALUENot Developed
MARKET APPROACH TO VALUE$620,000.00
INCOME APPROACH TO VALUE5614,895.00
The Cost Approach as described earlier in the report was not developed because of the age of the subject aid the excessive amount of depreciation that would have to be estimated, leaving room for potential •»rror»
The market Approach developed a value of $620,000 through the use of sales in and around the subject aiea. There are no direct or exact comparables with which I could compare; therefore, t used general sales located on the main thoroughfares of the city, ie. Carnegie, Prospect and Chester, tills approach esdmated the value of the property as complete. The appraiser discussed the improvements with Ms< Scinch's assistant, Yollanda Gtizman. The final bids are not in, only estimates, These estimates totaled $122,700, The Market Value is an estimate as complete in terms of the proposed improvements.