MacSwain Associates LLC - Anchorage, Alaska...MacSwain Associates LLC 15-2844: City Electric...

MacSwain Associates LLC 4401 Business Park Boulevard, Suite 22, Anchorage, Alaska 99503 APPRAISAL REPORT City Electric Property Lots 10-16, Bock 10, Merrill Filed Subdivision, East Addition, Plat No. P-164 Anchorage, Alaska

Effective Date of Appraisal: June 19, 2015 File No. 15-2844

Submitted To: Tawny Klebesadel Office Manager Municipality of Anchorage, Real Estate Department P.O. Box 196650 Anchorage, Alaska 99519

N Merrill Field Runway 16-34

Orca Street

Subject

MacSwain Associates LLC

15-2844: City Electric Property, Anchorage, Alaska 1

City Electric Property

4401 Business Park Blvd., Suite 22 Anchorage, Alaska 99503 Telephone: 907-561-1965 Facsimile: 907-561-1955 s.macswain @macswain.com

July 1, 2015 Tawny Klebesadel Office Manager Municipality of Anchorage, Real Estate Department P.O. Box 196650 Anchorage, Alaska 99519 Re: City Electric Property

Lots 10-16, Bock 10, Merrill Filed Subdivision, East Addition, Plat No. P-164 Anchorage, Alaska

Dear Ms. Klebesadel: We have prepared an Appraisal Report that analyzes the above-referenced property located at the northeast corner of Orca Street and East 9th Avenue, on the west side of Merrill Field in Anchorage, Alaska. The purpose of the appraisal is to provide our opinion of market value as of June 19, 2015 (effective date of value). The property rights appraised is the fee simple interest. Our client is Municipality of Anchorage, Real Estate Department/Heritage Land Bank (HLB). The intended use of this appraisal is to provide an appraised current fair market value of the property for the proposed acquisition of the property in fee simple for a federally assisted airport project. To summarize, the appraised property consists of seven lots totaling 62,358. Improving the site is a two-story office building, a mechanical shop, a warehouse, and a hangar totaling a gross building area of 14,085± square feet.

Importantly, Shannon & Wilson, Inc. performed Phase I and Phase II Environmental Site Assessments (ESAs) dated January and May 2015, respectively. The results indicate the presence of petroleum hydrocarbons and PCE at concentrations greater than ADEC cleanup levels. Shannon & Wilson, Inc. followed up the ESAs with an Opinion of Probable Cost (OPC). Therefore, we analyzed and measured the market effect of the detrimental condition relating to soil contamination. We then applied the findings to our “As Clean” value estimate, to develop our estimate of market value of the acquisition.




The appraisal is intended to comply with requirements of the Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA), the Uniform Standards of Professional Appraisal Practice (USPAP), and the FAA Advisory Circular entitled "Land Acquisition and Relocation Assistance for Airport Improvement Program (AIP) Assisted Projects" (No. 150/5100-17) dated November 7, 2005. Since UASFLA states an estimate of market value tied to exposure and marketing time is inappropriate and requires exclusion from the appraisal report, we invoke the jurisdictional exception rule permitted in USPAP.1 This departure represents the only conflict between UASFLA and USPAP.

Based on the data, reasoning, and analysis contained in the appraisal report, our market value opinion, as of June 19, 2015, is as follows.

Market Value Opinion $1,580,000 We direct your attention to the Assumptions and Limiting Conditions on Page 5 for an explanation of the restrictions and limitations of the report. If you have questions regarding our analysis or conclusion, please contact our office. Respectfully submitted,

Steve MacSwain, MAI State of Alaska Certificate No. 42

1 Standard Rule 1-2(c) of USPAP requires the appraiser to estimate a reasonable exposure time in conjunction with their market value opinion. Section D-1b of UASFLA provides legal authority for invoking the Jurisdictional Rule.




Table of Contents

Title Page Transmittal Letter 1 Table of Contents 3 Appraiser Certification 5 Assumptions and Limiting Conditions 7 Appraisal Summary 8 Chapter 1: Premise of the Appraisal 10

Overview 10 Purpose of Appraisal 10 Client 10 Intended Users of the Appraisal Report 10 Intended Use of the Appraisal Report 10 Date of Property Inspection 10 Effective Date of Appraisal 10 Report Date 11 Definition of Market Value 11 Property Rights Appraised 11 Property Owner 12 Legal Description 12 Identification of Real Estate Appraised 12 Property History 13 Assessed Value and Real Estate Taxes 14 Appraisal Methodology 14 Scope of Appraisal 15 Exposure Time 16 Statement of Competency 16 Summary of Appraisal Problem 16 Property Owner Contact 16

Chapter 2: Anchorage Economic and Real Estate Market Analysis 17

Overview 17 Anchorage Economic Summary 17 Retail Market Summary 17 Office Market Summary 18 Industrial Market Summary 20 Residential Market Summary 23 Conclusion 25

Chapter 3: Neighborhood Analysis 26

Overview 26 General Neighborhood 26 Immediate Neighborhood 27 Neighborhood Summary 28




Chapter 4: Larger Parcel Consideration 29

Larger Parcel Consideration 29 Chapter 5: Site Description and Analysis 30

Overview 30 Site Description 30 Environmental Considerations 32

Chapter 6: Improvement Description and Analysis 34

Overview 34 Improvement Description 34 Off-Street Parking 42 Site Improvemnts 42 Land to Building Ratio 42 Personal Property 42 Suitability of Improvements 42 Subject Property Photographs 42 Property Photograph Location Map 48

Chapter 7: Highest and Best Use Analysis 49

Overview 49 Highest and Vest Use As Though Vacant 49 Highest and Vest Use As Improved 50 Most Probable Buyer 50

Chapter 8: Sales Comparison Approach 51

Overview 51 Sales Comparison Methodology 51 Elements of Comparison 52 Comparable Property Sales Summary 53 Comparable Property Sales Analysis 56 Reconciliation and Conclusion of Value

Chapter 9: Income Capitalization Approach 58

Overview 58 Elements of Comparison 58 Comparable Property Rental Analysis 53 Reconciliation and Market Rent Estimate 63 Potential Gross Income Estimate 63 Effective Gross Income Estimate 64 Analysis of Operating Expenses 64 Projected Net Operating Income 64 Direct Capitalization and Value Conclusion 65

Chapter 10: Reconciliation and Conclusion of Value 67

Conclusion of Market Value of Acquisition 67 Addenda

Comparable Property Sales Opinion of Probable Cost for Site Characterization and Cleanup Activities Statement of Work Appraiser Qualifications




Appraiser Certification

The undersigned certifies that to the best of their knowledge and belief: The statements of fact contained in this report are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and legal instructions, and are the personal, unbiased professional analysis, opinions, and conclusions of the appraisers.

The appraisers have no present or prospective interest in the property appraised and no personal interest or bias with respect to the parties involved.

The compensation received by the appraisers for the appraisal is not contingent on the analyses, opinions, or conclusions reached or reported.

The appraisal was made and the appraisal report prepared in conformity with the Uniform Appraisal Standards For Federal Land Acquisitions (UASFLA).

The appraisal was made and the appraisal report prepared in conformity with Appraisal Foundation’s Uniform Standards of Professional Appraisal Practice (USPAP), except to the extent that the Appraisal Standards For Federal Land Acquisitions (UASFLA) required invocation of USPAP’s Jurisdictional Exception Rule, as described in Section D-1 of the Appraisal Standards For Federal Land Acquisitions.

The appraisers have made a personal inspection of the property appraised and that the property owner, or his/her designated representative, was given the opportunity to accompany the appraisers on the property inspection.

Jim Dahl provided significant professional assistance to the appraiser.

The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

As of the date of this report, Steve MacSwain, MAI has completed the requirements of the continuing education program of the Appraisal Institute and State of Alaska. Moreover, Steve MacSwain (AA 42) is a certified General Real Estate Appraiser in the State of Alaska.

As of the date of this report, Steve MacSwain, MAI has completed the standards and ethics education requirement of the Appraisal Institute for Members.




We have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

Our opinion of market value, as of June 19, 2015, is $1,580,000.

7/1/15 Steve MacSwain, MAI State of Alaska Certificate No. 42

Date




Assumptions and Limiting Conditions This appraisal report is subject to the following Assumptions and Limiting Conditions. The property is appraised free and clear of any or all liens or encumbrances unless

otherwise stated.

We assume no responsibility for the legal descriptions provided or for other matters pertaining to legal or title considerations. We assume title to the appraised land is marketable unless otherwise stated.

We believe the information furnished by others is considered reliable, but I do not guarantee its accuracy.

We assume all engineering studies are correct. We believe all maps, plot plans, building sketches and other illustrative material accurate. We include these exhibits only to help the reader visualize the property.

We assume there are no hidden or unapparent conditions of the site or subsoil that render it more or less valuable. We assume no responsibility for such conditions or for obtaining engineering studies that may be required to discover them.

We assume the appraised property is in full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report.

We assume that all applicable zoning, use regulations, and restrictions have been complied with, unless the nonconformity has been stated, defined, and considered in the appraisal report.

Possession of this report, or a copy thereof, does not carry with it the right of publication.

The appraiser is not required to give consultation, testimony, or attend court proceeding with reference to the appraised property without prior arrangement.

The appraisers acknowledge the appraisal report may be available for public review upon request. However, this right does not allow dissemination to the public through advertising, public relations, news, sales, or other media without prior written consent and approval from the appraisers.

15-2844: City Electric Property, Anchorage, Alaska


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Appraisal Summary

Client: Municipality of Anchorage Real Estate Department/ Heritage Land Bank

Type of Value: Market value

Property Name: City Electric

Property Type: Light industrial, mixed-use

Property Rights Appraised: Fee simple interest

Legal Description:

Property Addresses: MOA identifies the subject street addresses as 819 Orca Street (Lots 10-13); 1501 E. 9th Avenue (Lot 14); 1505 E. 9th Avenue (Lot 15); and 1525 E. 9th Avenue (Lot 16). 819 Orca Street is the primary address of the property.

Property Owner: RDGP, LLC and MHC, Inc.

Tax Parcel Nos: 003-101-17, 18, 19, 20, 54, 55 & 56

Location/Neighborhood: Located at the northeast corner of Orca Street and East 9th Avenue, on the west side of Merrill Field in Anchorage, Alaska; light industrial neighborhood with Merrill Field influence

Land Area: Seven lots totaling 62,358 square feet or 1.43± acres

Access: Orca Street and East 9th Avenue; Merrill Field Airport

Topography: Level and at grade with surrounding streets and properties

Utility Service: All public utilities available

Easements and Restrictions: Title report shows typical utility easements

Zoning: I-1, light industrial district

Improvement Description: Improving the site is an office building (3,885± SF), a maintenance shop (3,000± SF), a warehouse (3,200± SF), and an aircraft hangar (4,000± SF) totaling a gross building area of 14,085± square feet. The structures were built between 1954 and 1966; overall condition of the improvements range from fair to good.



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Furniture, Fixtures & Equipment (FF&E) and Personal Property:

Excluded from our valuation is all FF&E and personal property associated with the subject property.

Land to Building Ratio: 4.50 to 1 (GBA); within market range

Off-Street Parking: Extensive gravel areas exceed municipal parking requirements and meets market expectations

Environmental Considerations: Shannon & Wilson, Inc. performed Phase I and Phase II Environmental Site Assessments (ESAs) dated January and May 2015, respectively. The results indicate the presence of petroleum hydrocarbons and PCE at concentrations greater than ADEC cleanup levels. Shannon & Wilson, Inc. followed up the ESAs with an Opinion of Probable Cost (OPC), which estimated site characterization and cleanup at $90,000. Additional details regarding ESA findings, site characterization, site cleanup, and market effect located throughout this report.

Highest and Best Use: Existing light industrial development

Property Inspection Date: June 19, 2015

Effective Date of Appraisal: June 19, 2015

Report Date: July 1, 2015

Summary of Value Estimates “As Clean”: Cost Approach: Not Applicable Sales Comparison Approach: $1,690,000 Income Approach: $1,650,000 to $1,750,000

“As Clean” Value Estimate $1,700,000

Less: Detrimental Condition Adjustment - $120,000

Market Value Opinion: $1,580,000



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Chapter 1: Premise of the Appraisal

We have prepared an Appraisal Report that analyzes the City Electric property located at the northeast corner of Orca Street and East 9th Avenue, on the west side of Merrill Field Airport in Anchorage, Alaska. The appraisal is intended to comply with requirements of the Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA), the Uniform Standards of Professional Appraisal Practice (USPAP), and the FAA Advisory Circular entitled "Land Acquisition and Relocation Assistance for Airport Improvement Program (AIP) Assisted Projects" (No. 150/5100-17) dated November 7, 2005.

The purpose of the appraisal is to form a market value opinion for a potential acquisition adhering to UASFLA and USPAP.

Our client is the Municipality of Anchorage, Real Estate Department/Heritage Land Bank (HLB).

The intended user of this appraisal report is the Airport Sponsor (Municipality of Anchorage).

The intended use of this appraisal is to provide an appraised current fair market value of the property for the proposed acquisition of the property in fee simple for a federally assisted airport project.

June 19, 2015

The effective date of appraisal is June 19, 2015, which represents the property inspection date.

Overview

Purpose of Appraisal

Client

Intended User of the Appraisal Report

Intended Use of the Appraisal Report

Date of Property Inspection

Effective Date of Appraisal



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July 1, 2015

The definition of market value is the basis of our analysis and valuation of the appraised land. Market value is defined as follows.

The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated;

2. Both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest;

3. A reasonable time is allowed for exposure in the open market;

4. Payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and

5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. 3

The property rights appraised is the fee simple interest. The title report provided did not indicate any easements or restrictions, nor were there any identified/observed unrecorded documents, agreements, easements and/or encumbrances. Fee simple interest is defined as follows.

Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.4

3 FAA Advisory Circular "Land Acquisition and Relocation Assistance for Airport Improvement Program (AIP) Assisted Projects" (No. 150/5100-17) (November 7, 2005), p. 19. 4 Appraisal of Real Estate, Fourteenth Edition (2013), by the Appraisal Institute, p. 5.

Report Date

Definition of Market Value

Property Rights Appraised



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Stewart Title of Alaska Preliminary Commitment for Title Insurance dated May 22, 2015 indicates the property owner is as follows.

According to the title report, the legal description of the appraised parcel is as follows.

Property Name: City Electric

Property Type: Light industrial, mixed-use

Neighborhood: Mixed light industrial and residential neighborhood with Merrill Field Airport influence

Location: Located at the northeast corner of Orca Street and East 9th Avenue, on the west side of Merrill Field Airport in Anchorage, Alaska

Property Owner

Legal Description

Identification of Real Estate Appraised

N

Subject

GOOGLE EARTH IMAGERY

Merrill Field R

unway

Orca Street

E. 8th Avenue

E. 9th Avenue



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Use History

The subject is privately owned land improved with a two-story office building, a warehouse, an aviation hangar, and a maintenance shop totaling a gross building area of 14,085± square feet. The business known as City Electric has occupied portions of the property since the mid-1950s. City Electric, Inc., under the business of Trans Alaska Helicopters, housed and maintained helicopters at the property from about 1970 to 2000. Currently, City Electric, Inc. occupies the entire property for electrical contracting office, warehousing and yard storage of electrical supplies and machinery, and maintenance of equipment and vehicles.

Sales History

A Statutory Warranty Deed dated May 2014 indicates ownership in Lots 10, 11, and 12 was transferred from City Electric, Inc. to RDGP Realty, LLC. According to ownership, this transfer was essentially to clean up title. Importantly, these entities had common ownership members, and there was no monetary transfer. Similarly, an August 2014 Trustee’s Quitclaim Deed transferred ownership from Richard C. Sweezey 1990 Trust to MHC, Inc. Again, this transfer was to clean up title between common ownership members. Review of the title report indicates no other property sales in the past 10-year period. The property is not currently listed for sale or under contract for sale. However, the property owner and Municipality of Anchorage intend to use this appraisal to negotiate a sale.

Rental History

According to ownership, City Electric, Inc. pays $20,037 per month, plus utilities and insurance for the entire property to the two ownership entities. City Electric has occupied the property since the 1950s, and we were not provided a copy of any lease agreement. Importantly, this is a non-arm’s length agreement due to common ownership members between the lessor and lessee. Therefore, we do not rely upon this lease in our income analysis.

Property History



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The following table summarizes the Municipality of Anchorage (MOA) 2015 real property assessments, mill rates and tax load for the appraised property.

MOA Assessed Value (2015)

Parcel Land Building Total Mill Rate RE Taxes

003-101-17 $107,600 ($10.35/SF) $6,100 $113,700 14.70 $1,671.39

003-101-18 $73,600 ($10.54/SF) $8,500 $82,100 14.70 $1,206.87

003-101-19 $72,700 ($10.54/SF) $5,200 $ 77,900 14.70 $1,145.13

003-101-20 $72,700 ($10.54/SF) $171,000 $243,700 14.70 $3,582.39

003-001-54 $107,600 ($10.35/SF) $132,800 $240,400 14.70 $3,533.88

003-101-55 $107,600 ($10.35/SF) $0 $107,600 14.70 $1,581.72

003-101-56 $107,600 ($10.35/SF) $612,900 $720,500 14.70 $10,591.35

Total $649,400 $936,500 $1,585,900 14.70 $23,312.73

The assessed value of the subject property is $1,585,900, with a total tax load of $23,312.73. Our analysis indicates the total assessed value approximates market value.

Shannon & Wilson, Inc. performed Phase I and Phase II Environmental Site Assessments (ESAs) dated January and May 2015, respectively. The results indicate the presence of petroleum hydrocarbons and PCE at concentrations greater than ADEC cleanup levels. Shannon & Wilson, Inc. followed up the ESAs with an Opinion of Probable Cost (OPC). Therefore, we analyzed and measured the market effect of the detrimental condition relating to soil contamination. We then applied the findings to our “As Clean” value estimate, to develop our estimate of market value.

We employ the sales comparison and income capitalization approaches to estimate the “As Clean” value of the property. Though considered, the cost approach is not developed due to the high degree of subjectivity involved with estimating all forms of depreciation for the buildings constructed between 1954 and 1966. As a result, it was not necessary to develop an opinion of land value, but we perform a comprehensive industrial land sale analysis. Additionally, we found sufficient sale and rental data to develop our opinion of value. Comparable sale and rental data was obtained from private parties, real estate brokers/agents, market participants, appraisers, and company files.

Assessed Value and Real Estate Taxes

Appraisal Methodology



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Steve MacSwain, MAI administered the appraisal process, reviewed draft appraisals, and concluded with an opinion of value. In addition, Jim Dahl assisted Steve MacSwain, MAI with data collection and analysis. The scope of the appraisal is summarized as follows.

Jim Dahl inspected the subject property on June 19, 2015, with the accompaniment of property owner representative Beverly D’arti;

Steve MacSwain, MAI inspected the property on subsequent dates; Reviewed Stewart Title of Alaska Preliminary Commitment for Title

Insurance dated May 22, 2015 (copy in addenda); Reviewed information provided by MOA including Statement of

Work and mapping; Reviewed Phase I and Phase II Environmental Site Assessments

prepared by Shannon & Wilson, Inc. dated January and May 2015; Reviewed Opinion of Probable Cost for Site Characterization and

Cleanup Activities prepared by Shannon & Wilson, Inc. dated June 26, 2015;

Reviewed MOA mapping; Obtained assessment records from MOA; Reviewed Merrill Field Airport Master Plan Update and Noise

Study draft dated November 2012; Collected and analyzed economic data pertaining to commercial and

industrial real estate market in Anchorage; Interviewed Brokers, property owners, and property managers

regarding occupancy rates, rental rates, operating expenses, etc.; Performed a land use analysis; Collected, analyzed, and confirmed Anchorage industrial land sales

and improved property sales; Collected and analyzed Anchorage industrial rentals; Developed the sales comparison and income capitalization

approaches to arrive at value indications; Reconciled the value indications for an “As Clean” value estimate; Analyzed and measured the market effect of the detrimental

condition relating to soil contamination; and Concluded with an estimate of market value.

Scope of the Appraisal



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We invoke the Jurisdictional Exception Rule permitted in USPAP to comply with Section 9 of UASFLA that states an estimate of market value linked to an exposure or marketing time must be excluded from the appraisal report.5

MacSwain Associates LLC has completed numerous appraisals of industrial properties in Anchorage for over 40 years. Representative clients include lending institutions, government agencies, property owners, property managers, and private parties. A summary of the appraiser’s experience and professional qualifications are located in the addenda. Steve MacSwain, MAI has the knowledge and experience required by the competency provision of USPAP to complete this appraisal assignment credibly.

The principal appraisal problem encountered is that our sales and rentals search produced few properties with a mixed use of office, warehouse, shop, and aircraft hangar. However, we found sufficient light industrial property sale and rental data to develop a market-supported conclusion. Importantly, we performed a reliable analysis that concludes with a credible estimate of market value.

Property owner granted permission to inspect the subject property, and designated a representative, Beverly D’arti, to accompany the appraisers during the June 19, 2015 appraisal inspection. In addition, we discussed the appraised property by telephone with owner Dave Sweezey on June 29, 2015.

5 Since Standard Rule 1-1(c) of USPAP requires the appraiser to estimate a reasonable exposure time in conjunction with their opinion of value, we invoke the Jurisdictional Exception Rule that permits departure.

Exposure Time

Statement of Competency

Summary of Appraisal Problem

Property Owner Contact



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Source: David Irwin, Irwin Development Group, LLC

Chapter 2: Anchorage Economic and Real Estate Summary

The following is a summary description of the Anchorage economy and real estate market.

Anchorage weathered the economic recession affecting the nationwide economy. The real estate market is stable, although investor and user behavior is more cautious. The presence of the Federal and State governments, Permanent Fund Dividend, and Native corporations created a stabilizing influence on the Anchorage economy. In 2009, Anchorage experienced negative job growth for the first time in 20 years. Economic recovery spurred job growth in 2011 and 2012 of 1.8% and 2.2%, respectively. The succeeding two years were relatively flat, with 2014 employment down 0.3%.6 Neil Fried, an economist with Alaska Department of Labor, forecasted another year of very modest decline in 2015, primarily driven by declining jobs in the government sector. The recent drop in the price of oil has caused many to have a cautious outlook over the next year. Overall, we expect a relatively flat year in Anchorage.

Recent Development: The retail market has recorded inventory growth between 2005 and 2010 before slowing in 2011. However, 2012 recorded greater inventory growth than projected. New construction has satisfied an owner-occupied need as well as speculative. For example, CIRI and Bowmand Development Company developed Tikahtnu Commons, a 95-acre retail power center located at northeast corner of Glenn Highway and Muldoon Road. This $100 million-plus project includes national retailers Target, Kohl’s, Lowe’s, Best Buy, Regal Cinema, and Sam’s Club, in addition to 37,000 square feet of small store space and several restaurant pads.

Target Corporation constructed a South Anchorage development anchored by their store on a 34-acre site occupying the southwest corner of King Street and C Street. Just to the south, a 100,000 square foot Cabela’s store recently opened. Across C Street from Target and Cabela’s, JL Properties has tenative plans for construction of a 200,000± square foot outlet mall.

6 Alaska Department of Labor and Workforce Development, Research and Analysis Section.

Overview

Anchorage Economic Summary

Retail Market Summary

Source: Neil Fried, Economist



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Glenn Square Shopping Center, which is a 260,000± square foot mixed-use development occupying a 26-acre site, was completed in Northeast Anchorage in 2009. Initially anchored by several national retailers, the complimentary space remained mostly vacant. In 2014, Bass Pro Shop’s retrofitted an existing building into a retail store with their brand. The completion of this development has spurred activity in in the shopping center, leading to increased absorption in the complimentary space.

Walgreens entered the Anchorage market in the past few years, recently completing their fifth store. Olive Garden was also completed in South Anchorage in 2013 with Chili’s reentering the Anchorage Market in 2014. Natural Pantry recently completed a new store at the southeast corner of 36th Avenue and A Street. In the fall of 2015, a 35,000± square foot Nordstrom Rack will move into the Mall at Sears.

Vacancy and Rental Rates: A diverse range of retail rates characterize the Anchorage market. However, our research indicates that Midtown and South Anchorage retail rates generally range from $1.50 to $3.00 per square foot with the tenant paying utilities. New construction rates are near $3.00 per square foot with many reflecting a triple net basis. The current areawide vacancy rate is less than 5-percent, although as absorption of new inventory occurs vacancies may rise in lower quality properties. Moreover, Midtown and South Anchoarge vacancies are below the average.

Recent Development: There are five Midtown office projects recently completed, which are summarized as follows.

CIRI recently completed a 110,000± square-foot corporate headquarters at the northwest corner of New Seward Highway and Fireweed Lane

JL Properties recently completed a 95,000± square foot office building on the northwest corner of International Airport Road and C Street

Anchorage Neighborhood Health Center recently completing a 40,000± square-foot medical office building on C Street south of Tudor Road

50,000± square-foot Three Cedars building was completed near the intersection of Northern Lights Boulevard and New Seward Highway

Office Market Summary

Tikahtnu Commons

International Building, Midtown



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While the Three Cedars tower was built on speculation, the other four projects were 100-percent occupied at completion, and impacted availabilities as two occupants will be vacating existing space. Recently completed in South Anchorage is a 40,000± square foot Class A building developed by CIRI. Doyon, Limited signed a lease as sole tenant of this space.

The University of Alaska Anchorage and Providence Alaska Medical Center have continued expansion on respective campuses in the U-Med District. Over the past two years, UAA added the Health Science Building (Phase I) and KBC Classroom Building, as well as several renovations and additions to existing buildings. Recently completed on the UAA campus is the Alaska Airlines Center, with the new Engineering and Industry Building to follow. The 5,600-seat multi-purpose Alaska Airlines Center will house the majority of UAA athletic teams, and is expected to attract non-UAA events as well. Phase II of the Health Science Building is planned for construction in the next three years.

The Providence Alaska Medical Center expansion/remodel includes 120,000± square feet of new construction and 48,000± square feet of remodel. New construction included a three-story tower with full basement, a new single story gallery building adjacent to the tower, and a new four space Ambulance Garage. New interior spaces included the build-out of a 37-bed emergency department, three new day surgery rooms, a new patient lobby/gallery corridor, a 9,500 square foot basement mechanical room, and 10,400 SF of basement laboratory space. Providence's $150 million upgrades began in 2011 and have been continued through 2014.

Current Development: Kuukpik Corporation has begun constructing a six-story, 54,000± office building on 36th Avenue between the Old Seward Highway and Denali Street. Kuukpik will occupy the top floor while the remainder is available for lease. With construction underway, the Fireweed Business Center has an expected completion date of March 2015 while the Kuukpik Building will be completed in December.

Vacancy and Market Rental Rates: The overall vacancy rate for Class A space in Anchorage dropped significantly in 2013 to 4.3%, with the considerable absorption of space in three Midtown towers: JL Tower, 188 WNL, and Centerpoint West. In 2014, as more inventory came online, vacancy increased, b to about 5.0%. Class B space has an overall vacancy rate around 9.0% citywide, but Midtown product indicates a vacancy rate closer to 11.0%. The softening in the Class B market is a result of some large blocks of space opening as tenants have moved to new construction spaces. We expect the Class B vacancy rate in Midtown to trend back

Fireweed Business Center

Alaska Airlines Center

Kuukpik Building



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toward the historical rate of 5.0% as this space has time to backfill. East Anchorage continues a low vacancy trend around 4.0% for Class A space and just 3.2% for Class B. Office rent rates for existing Class A inventory range from $2.30 to $3.10 per square foot, full service, but with annual increases and pass-thru on expenses. New construction generates higher rates, ranging from $3.00 to $3.65 per square foot. By comparison, Class B office inventory rents average $1.95 per square foot, while the lower quality space typically generates between $1.10 and $1.50 per square foot, full service.

Anchorage Office Market Rental Rates

Type Range Average Class A New Construction $3.00 to $3.65 $3.15 Class A Existing $2.30 to $3.10 $2.65 Class B $1.65 to $2.40 $1.95 Class C $1.10 to $1.50 $1.30

Industrial Property Summary: The industrial rental maket in Anchorage is generally defined as very tight, with minimal new leasing activity. An industrial market overview by Brandon Walker of Pacific Tower Properties indicates vacancy rates have trended downward each year from over 6% in 2010 to 1.95% in 2014 (see inserted graph below).7 As a result, rental rates have been slowly ticking upward over the past five years as the market has tightened, with average rates in the $1.05 per square foot range, on a N-N-N basis.

The three major challenges identified by brokers is physically or functionally obsolete properties (low ceilings, inadequete loading areas, 7 Anchorage Industrial Report, Brandon Walker, Broker with Pacific Tower Properties, January 2015.

Industrial Market Summary



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etc.), a scaricity of industrial land, and new construction feasibility. As property owners currently have the upper hand, both sale and leasing activity has been low over the past three years, relative to the previous five-year period. Overall, we expect vacancy to remain at historical low levels until rental rates or construction costs justify new development. Regardless, we do not foresee significant changes in the industrial market within the next year.

The subject property consists of four buildings totaling 14,085± square feet, built between 1954 and 1966. The following table summarizes industrial property sales in Anchorage that have transpired in the last year that we analyzed in valuing the subject larger parcel.

Industrial Sales Summary Analysis

No. Sale Date

Year Built Gross Building Area

Land Area (SF)

L:B Ratio

Sale Price $/SF

1 10/14 1966 11,131 20,982 1.89 $875,000 $79 2 3/15 1978 12,953 21,313 1.65 $874,900 $68 3 7/14 1974 45,600 62,909 1.38 $5,000,000 $110 4 3/14 2011 5,000 15,210 3.04 $750,000 $150 5 10/14 1973 5,900 26,400 4.47 $875,000 $148 6 12/14 1978 8,116 13,024 1.60 $500,000 $62 7 5/14 1976 9,306 29,465 3.17 $1,300,000 $140 8 4/15 1976/84 10,638 26,400 2.48 $1,150,000 $108 9 4/15 1982 13,458 39,058 2.90 $1,300,000 $97

10 10/14 1982/88 19,000 98,984 5.21 $1,900,000 $107 11 5/14 1983 17,015 50,549 2.97 $2,202,500 $119 12 8/14 1972 4,880 18,500 3.79 $718,000 $147

The previous sales vary greatly in location and physical character, which is refelcted in a large sale price range from $500,000 to $5,000,000. The unit price ranges from $62 to $150 per square foot of gross building area, with a mean unit price of $110 per square foot. The median size is 13,646 square feet.

Industrial Land Summary: Generally speaking, demand of industrial land exceeded supply in the years leading up to 2010, and this imbalance pressured prices upward. However, we observed price stability, and possibly softening, from 2010 to 2013. Additionally, the uncertainty of the Title 21 rewrite and increasing costs of mitigating adverse soil conditions (removal and disposal of peat, etc.) unfavorably affected buyer behavior, specifically for I-2 land. When the rewrite emerged, I-1



22


land was generally unaffected, but I-2 land was restricted against commercial uses that were previously allowed. Regardless, most of the I-2 land identified with a highest and best use of commercial were permitted to allow commercial uses. Therefore, the rewrite does not appear to affect the I-2 land as significantly as was anticipated. Importantly, there is no sale data to analyze to support a market conditions adjustment.

Recent sales of industrial sites around one acre or less indicate a price range anywhere from $11 to $20 per square foot. Sales ranging in size from one to five acres typically indicate a unit price range of $9 to $12 per square foot. Sales larger than five acres are limited, and can range greatly.

The subject larger parcel is zoned I-1, and contains 62,358 square feet or 1.43± acres. Therefore, we analyzed seven I-1 sales that transpired in the past two years, and one pending sale, ranging in size from about half an acre to just under six acres. These sales are located throughout several Anchorage industrial neighborhoods. An analyitical summary of the ten sales that we analyzed in valuing the subject larger parcel follows.

I-1 Land Sales Summary Analysis

No. Zoning Sale Date Size (Acres) Size (SF) Price $/SF

1 I-1 11/14 0.66 28,750 $385,000 $13.39 2 I-1 Pending 1.97 85,800 $686,400 $8.00 3 I-1 6/14 5.78 251,603 $3,000,000 $11.92 4 I-1 11/13 2.91 126,763 $1,800,000 $14.20 5 I-1 11/14 0.45 19,511 $350,000 $17.94 6 I-1 2/14 1.17 51,087 $575,000 $11.26 7 I-1 10/13 1.05 45,600 $625,000 $13.71 8 I-1 1/14 0.77 33,737 $485,000 $14.38 The previous eight land sales range greatly in price from $350,000 to $3,000,000, and the unit price range is $8.00 to $17.94 per square foot. The median size is 1.85 acres and median unit price is $13.10 per square foot. Sale 5 indicates a unit price of $17.94 per square foot, though this small, 0.45-acre lot is fully fenced with frontage on Dowling Road that could lend toward a commercial use. Pending Sale 2 represents six lots totaling 1.97 acres. The pending unit price is $8.00 per square foot, which reflects on site wetlands that will require mitigation prior to development. Excluding these two sales, the unit price range tightens to $11.26 to $14.38 per square foot.



23


Regarding availabilities, the following table summarizes eight active listings on Alaska’s multiple listing service (MLS). Our searched included all I-1 land in Anchorage greater than one-half acre in size.

I-1 Land Listings Summary Analysis

No. Zoning Size (Acres) Size (SF) Price $/SF

L-1 I-1 6.02 262,431 $2,495,000 $9.51 L-2 I-1 3.35 146,020 $2,628,000 $18.00 L-3 I-1 1.79 77,972 $1,200,000 $15.39 L-4 I-1 1.66 72,125 $1,442,500 $20.00 L-5 I-1 1.08 46,856 $700,000 $14.94 L-6 I-1 1.03 45,030 $600,000 $13.32 L-7 I-1 0.87 38,087 $533,200 $14.00 L-8 I-1 0.54 to

4.35 34,608 to 189,553

$398,361 to $2,843,295

$15.00 to $17.00

The listings range in size from 0.54 to 6.02 acres. The list prices range from $398,361 to $2,495,000, and the unit price range is $9.51 to $20.00 per square foot. Listing 8 represents several lots in a new South Anchorage industrial subdivision, with lot sizes ranging from 0.54 to 4.35 acres, and list prices ranging from $15.00 to $17.00 per square foot.

Single-Family & Duplex Market: The Anchorage residential market has shown appreciation over the past 10 years. The graph and table below illustrate the average sale price and appreciation trends between 2002 and 2013 for single-family residential properties.

Source: Alaska Multiple Listing Service, Inc.

Average sale prices have been climbing since 2011, and again to date in 2014 we see a 4.78% increase over 2013. Further, the average sale price

Residential Property Market



24


of a single-family dwelling in 2014 is $361,937, which is the highest on record. Overall, the mean sale price increased from $316,888 in 2011 to $361,937 to date in 2014 indicating a total appreciation of 14.22% over the four-year period. This indicates an average increase of 3.55% per year. A 10-year summary table of annual appreciation rates for single-family property sales between 2005 and 2014 is on the following page.

Residential Property Appreciation Trends (2005-2014)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 +12.86% +7.16% +5.19% +0.43% -2.11% +3.13% -1.47% +5.88% +2.59% +4.78%

Alaska Multiple Listing Service (MLS) does not generate statistics for duplex properties. We did however interview several brokers regarding the market trends. In review, the brokers felt that the Anchorage duplex market generally parallels the single-family market, though a smaller inventory weakens the analysis. Buyers include both owner occupants and small investors, though purchase decisions are based on sale price rather than net income potential. Mirroring the residential market, there has been appreciation over the past 10 years, though we found no measureable change in the previous three years.

Vacant Residential Land: Residential land in the Anchorage Bowl is a dear commodity for both single-family and multi-family development. However, a glut of housing inventory diminished demand starting in late 2007 and continued until 2010. Thereafter, absorption of housing inventory caused market activity for land to increase. While we have seen a large decrease to the average sale price of a lot, the cause is absorption of high priced lots in prior years. Brokers stressed a limited supply of land and greater market optimism has caused marketing time to decline since 2012. Market conditions are pressuring the price of land upward, but escalating construction costs act as a price dampener because building contractors must make a profit to survive. Therefore, we project the rate of appreciation for residential lots will be less than the rate recorded for residential housing. Regardless, demand for residential lots is high and market alternatives are scarce. Larger acreage land for subdivision is minimal in Anchorage, with most available land on the mid or upper hillside. These parcels frequently offer desirable view amenities, but lack of public utilities and high cost of development are offsetting price depressors.

The Anchorage real estate market for commercial land and improved properties slowed after the downturn in the national economy that occurred in 2008. However, 2013 saw increased sale and leasing

Conclusion



25


activity, as well as new construction, in the retail and office markets. Despite increased sale activity, the data we analyzed show minimal change in price behavior by investors and owner-users. Additionally, change in capitalization rates is small and difficult to measure. While residential sales slowed through the national recession, the market has recovered since late 2010. The median sale price continues a steady incline into 2014, with continued optimism for 2015. The investors, Brokers, and developers we interviewed concur with our synopsis, and optimism remains beyond 2014. Lenders are wary but continue to fund real property purchases and development for qualified buyers and contractors. Further, record low interest rates have increased investment returns though refinance or purchase. While the Anchorage real estate market environment exercises greater diligence, investors, brokers, developers, and lenders agree it has weathered the storm inflicting many markets throughout the United States.



26


Chapter 3: Neighborhood Analysis

The following is a summary analysis of the appraised property’s neighborhood trends and market dynamics. Inserted maps below and on the following page illustrate neighborhood boundaries and land use trends.

Neighborhood Aerial Map

The appraised property is afforded a periphery Downtown Anchorage location. Gambell and Ingra Street are primary south and northbound arterial corridors that provide linkage from Fifth Avenue and the Glenn Highway to the New Seward Highway and facilitate access from Northeast Anchorage and Downtown locations to Midtown and South Anchorage. Development in the neighborhood is typified by commercial development along primary arterials and residential development on interior locations. Examples of commercial development along the Gambell and Ingra Street corridors include strip retail, office, automobile dealerships and sales lots, motels, commercial stores, and grocery stores.

Overview

General Neighborhood

N

East 15th Avenue

East 5th Avenue

Subject

Merrill Field Airport

Seward Highway



27


All public utilities and municipal services are available in the neighborhood. East 15th Avenue was recently expanded and upgraded in the immediate area.

Neighborhood Aerial Map

The subject property is located approximately one mile east of the Anchorage central business district, along the western boundary of Merrill Field Airport. The immediate neighborhood is the Fairview section of Anchorage and encompasses an area in which several different types of land uses are evident. The boundaries of the neighborhood extend east from Gambell Street to Merrill Field Airport and south from East 5th Avenue to East 15th Avenue. Within the general boundaries described, the land uses include single and multiple family residential uses, commercial service and retail uses, light industrial uses, public sector facilities, and the Merrill Field Airport.

Merrill Field Airport is located directly east of the subject; the north-south runway is located about 100 feet east of the subject’s property line, and the subject has direct legal access to Taxiway B. Merrill Field has been acquiring properties along the west side of the airport, and the subject is one of two properties that is still privately owned.

Immediate Neighborhood

N

East 15th Avenue

East 5th Avenue

Subject

Merrill Field Airport

Gambell Street



28


Merrill Field Aerial Photograph (2012)

According to their website, the mission of Merrill Field Airport is to provide an environment that meets the needs of the general aviation community, to encourage private business and to promote economic development while maintaining a viable financial position and being a good neighbor within the community. Being a “General Aviation Airport”, Merrill Field restricts aircraft using the airport to 12,500 pounds or less. The Airport provides six taxiways and three runways: Runway 7/25 is 4,000 ft. long, Runway 16/34 is 2,640 ft. and the gravel/ski Runway 4/22 is 2,000 ft.

The Fairview neighborhood has seen new construction in the recent years. Private aircraft hangar development along Merrill Field Airport’s western boundary, as well as a new Fairview Elementary School, has re-positioned Fairview as a revitalizing neighborhood. The future outlook for this neighborhood is positive.

Neighborhood Summary

N

Subject



29


Chapter 4: Larger Parcel Consideration

Determining the larger parcel is a key to the appraisal problem. The three criteria for determining the larger parcel are unity of ownership, contiguity, and unity of use. Fundamental to the unity of use analysis is the principles of substitution, demand, and applied economics. Ignoring these principles will compromise the credibility of the larger parcel analysis. The appraised parcel consists of seven lots improved with four buildings. After analysis, we determined the seven contiguous lots owned by RDGP, LLC and MHC, Inc. is the larger parcel.

Unity of Ownership: Although RDGP, LLC and MHC, Inc. are different entities that own the appraised real estate, they are operated by common ownership. Further, the operations at the seven contiguous lots were occupied by a single business operation of City Electric with similar ownership. Therefore, we determined the seven lots meet the unity of ownership test.

Contiguity: The seven subject lots situated at the northeast corner of Orca Street and East 9th Avenue are contiguous, and enclosed within chain-link fencing. Although ownership owns other property in the neighborhood, both improved and unimproved, they are non-contiguous. Based on the unity of ownership, the appraised seven lots meets the unity of contiguity test.

Unity of (Highest and Best) Use: Regarding unity of (highest and best) use, the appraised property is comprised of seven contiguous lots. Although ownership owns other property in the neighborhood, both improved and unimproved, assembling them with the seven lots does not create any increase in value. Additionally, separating the lots is possible, but the complementary uses of the buildings and land for yard storage is the most productive use of the property. In conclusion, the subject seven lots meets the unity of (highest and best) use test.

Based on the foregoing, we determined that the larger parcel is the seven contiguous lots as described in this report.

Larger Parcel Consideration



30


Chapter 5: Site Description and Analysis

Analysis of land describes the characteristics that enhance or detract from its utility or marketability. The site description and analysis that follows is based on observations during the June 19, 2015 appraisal inspection, and review of available mapping. The facing plat map and grid map below assist in the description and analysis of the site that follows.

MOA Grid Map SW1332

Location: Located at the northeast corner of Orca Street and East 9th Avenue, on the west side of Merrill Field in Anchorage, Alaska.

Shape and Land Area:

The rectangular-shaped parcel consists of seven contiguous lots totaling 62,358 square feet or 1.43± acres.

Overview

Site Description

N East 8th Avenue

East 9th Avenue

Orc

a St

reet

Mer

rill F

ield

Airp

ort

Subject Lots 10-16



31


Access: Road access via Orca Street and East 9th Avenue, two-lane paved streets. There is also direct legal access to Merrill field Airport

Zoning: The subject site is zoned I-1, light industrial district. The I-1 district is intended primarily for public and private light and general manufacturing, processing, service, storage, wholesale, and distribution operations along with other uses that support and/or are compatible with industrial uses.

Easements: Title report indicates easements for electrical transmission and/or telephone distribution and incidental purposes on the subject property; easements do not appear to adversely affect development.

Plat Map No. P-164

Frontage and Exposure:

The site has 300 feet of Orca Street frontage and 208± feet of East 9th Avenue frontage.

Encroachments: No encroachments were observed during the on-site inspection.

N

Subject Lots 10-16



32


Utilities: All public utilities are available including water, sewer, natural gas, electricity, and telephone.

Topography: The site is level and at grade with fronting streets and the airport to the east.

Soil Conditions: A geotechnical report was not provided to the appraisers; therefore soil conditions are unknown. Based on observations, soils appear suitable for development.

Flood Hazard Conditions:

Per FEMA Community Panel No. 020005 0753D, (September 25, 2009), site within Zone X; outside of 0.2% annual chance of floodplain boundaries

Airport Height Ordinance:

Building height is restricted to less than 130 feet.

Site Utility: Shape, land area and utilities available are positive site attributes. Further, legal access to Merrill Field Airport is an amenity. Conversely, access to/from the subject property to arterials requires navigating through the residential neighborhood. Regardless, the site is suitable for light industrial type development consistent with I-1 zoning regulations.

Shannon & Wilson, Inc. performed Phase I and Phase II Environmental Site Assessments (ESAs) dated January and May 2015, respectively. As documented in the Phase I ESA, several recognized environmental concerns (RECs) were identified at the site. In general these RECs were associated with floor drain systems; catch basins; former and/or existing aboveground storage tanks (ASTs) and underground storage tanks (USTs); documented and suspected leaks and spills associated with equipment repair and maintenance, and the historical and current use and storage of petroleum products. The project also included a hazardous materials survey conducted by EHS-Alaska, Inc. (EHS). The results indicate the presence of petroleum hydrocarbons and PCE at concentrations greater than ADEC cleanup levels. As documented in the Phase II ESA, soil impacted with petroleum hydrocarbons, tetrachloroethene (PCE), and polychlorinated biphenyls (PCBs) was identified at the site. In addition, potential data gaps and environmental concerns associated with the floor/strip drain and catch basins were documented.

Environmental Considerations



33


Shannon & Wilson, Inc. followed up the ESAs with an Opinion of Probable Cost (OPC) estimate for site characterization and cleanup activities for environmental concerns identified in the Phase II ESA. The site characterization includes work plan preparation; evaluate and sample strip drain in hangar; sample drain and drain discharge location at warehouse (assumes 1 test pit); further soil characterization in the vicinity of Catch Basin CB1 (assumes 3 borings); further soil characterization in the vicinity of the former used oil UST (assumes 3 borings); and preparation of a summary report. The site cleanup includes preparation of a Corrective Action Plan (CAP); excavate soil impacted with petroleum hydrocarbons and PCBs (assumes 50 tons of impacted soil), off-site soil disposal (assumes non-Toxic Substance Control Act [TSCA] regulated soil), and confirmation sampling at Catch Basin CB1; excavate soil impacted with PCE (assumes 50 tons of impacted soil), off-site soil disposal (assumes non-Resource Conservation and Recovery Act [RCRA] regulated soil), and confirmation sampling in the vicinity of former used oil UST; excavate soil impacted with petroleum hydrocarbon (assumes 10 tons of impacted soil), off-site thermal remediation of soil, and confirmation sampling in the vicinity of former used oil AST; and preparation of summary report.

The OPC estimate for the site characterization and cleanup is $90,000. OPC is accurate to a level of minus 10 percent to plus 30 percent; therefore, the OPC is a range of approximately $80,000 to $120,000.



34


Chapter 6: Improvement Description and Analysis

We base the description and analysis that follows on observations during the June 19, 2015 appraisal inspection. It provides the basis for determining the property’s highest and best use and helps in identifying and selecting comparables suitable for analysis. However, this description and analysis should not be misconstrued as an engineering report. A summary of the improvements follows.

Google Earth Imagery

Improving the site is an office building, a warehouse, an aircraft hangar, and a maintenance shop totaling a gross building area of 14,085± square feet. According to MOA, the structures were built between 1954 and 1966. A summary of these improvements is on the following pages.

Overview

Improvement Description

N

Subject

Office

Shop

Warehouse

Hangar

Merrill Field Runway 16-34

Orca Street E. 9th A

venue



35


OFFICE BUILDING

Building Type: Two-story office building

Construction Type: Wood frame

Year Built: 1969 (per MOA records)

Gross Building Area: 1,918 square feet – First Floor 1,918 square feet – Second Floor 49 square feet – Penthouse 3,885 square feet – GBA

Foundation: Concrete block foundation

Exterior Walls: Painted wood siding

Roof: Flat built-up roof

Interior Finish: Interior finish includes commercial grade carpet and vinyl floors. Wall covering is combination of wood paneling, wallpaper and painted gypsum board. Ceilings are dropped acoustic tile.

Doors and Windows: Aluminum and wood cased windows; glass and metal exterior doors, wood interior doors



36


Elevator: None

Lighting/Electrical: Lighting throughout the building is recessed fluorescent overhead lighting.

Heating/Mechanical: Heating is via gas-fired HVAC system providing forced air.

Plumbing: There is one, three-fixture bathroom on the first floor and two, two-fixture bathrooms on the second floor.

Fire Protection: No sprinkler system

Improvement Condition:

Average condition

Recent Capital Improvements:

None noted

Deferred Maintenance:

None noted

Effective Age and Economic Life:

We estimate an effective age for the building less than actual age, or 25± years. The Marshall Valuation Service (MVS) estimates economic life for similar buildings is 45 years. Therefore, the remaining economic life is estimated at 20± years. We note that periodic upgrades and regular maintenance can extend the economic life of the improvements.

Two-Story Office

67'

28'

7'

6'

33' 28' 7'

7'

Penthouse

Drawn By: JD Scale: NTS



37


WAREHOUSE

Building Type: Warehouse

Construction Type: Wood and steel frame


Gross Building Area: 2,240 square feet – Unheated 960 square feet – Heated 3,200 square feet

Foundation: Poured concrete foundation

Exterior Walls: Corrugated metal

Roof: Pitched roof with galvanized metal decking

Unheated Warehouse

40'

24' 56'


Heated Warehouse



38


Interior Finish: The floor is concrete slab; walls and ceilings

are gypsum board in heated area. The unheated area is exposed wood frame and metal siding and roof.

Doors and Windows: There are two metal man doors.

Loading Facilities: One, 20-foot wide sliding door

Lighting/Electrical: Suspended fluorescent overhead lighting

Heating/Mechanical: One suspended unit heater in insulated portion of warehouse

Plumbing: Floor drain in heated portion of warehouse



Fair condition


None noted


None noted


We estimate an effective age for the building less than actual age, or 30± years. The Marshall Valuation Service (MVS) estimates economic life for similar buildings is 45 years. We estimate the remaining economic life at 15± years. We note that periodic upgrades and regular maintenance can extend the economic life of the improvements.



39


AIRCRAFT HANGAR

Building Type: Aircraft hangar

Construction Type: Concrete block and steel frame


Gross Building Area: 4,000 square feet; approximately 473± square feet built-out as office area with mezzanine storage


Exterior Walls: Painted concrete block and metal siding


Hangar 50'

80'




40


Interior Finish: Finish includes concrete slab floor with painted

concrete block walls. Office/storage area has commercial grade carpet and painted gypsum board walls and ceilings.

Doors and Windows: Metal exterior personnel doors; wood interior doors

Loading Facilities: Accordion-style hangar door is about 14 feet high by 46 feet wide; one 12' × 12' overhead door

Lighting/Electrical: Suspended fluorescent overhead lighting

Heating/Mechanical: Gas-fired suspended overhead unit heaters

Plumbing: One, two-fixture bathroom; strip floor drain



Average condition


None noted


None noted





41


MAINTANANCE SHOP

Building Type: Maintenance shop

Construction Type: Concrete block and steel frame


Gross Building Area: 3,000 square feet


Exterior Walls: Painted concrete block and metal siding


Shop 50'

60'




42


Interior Finish: Finish includes concrete slab floor with

gypsum board walls. Small office area has carpet and wood paneling on walls.

Doors and Windows: Metal exterior personnel doors; wood interior doors

Loading Facilities: Four, 12' × 14' overhead exterior loading doors

Lighting/Electrical: Suspended fluorescent overhead lighting; three-phase electrical service

Heating/Mechanical: Four, gas-fired suspended overhead unit heaters; air ventilation system

Plumbing: Typical for office-shop/warehouse; floor drains with oil/water separators in shop



Average condition


None noted


None noted



Anchorage Municipal Code requires one space for every 300 feet of office and one for every 1,000 square feet of shop/warehouse, or 23± parking spaces for the subject improvements. Extensive parking area exceeds municipal requirements and meets market expectations.

Off-Street Parking



43


Site improvements consist of asphalt paving, concrete pads, chain link fencing, pole lighting, and landscaping.

The land to building ratio is 4.50 to 1. From a market perspective, the land to building ratio is slightly higher than typical office-warehouse development, though it is within the market range. Additionally, yard storage is a market driver for light industrial users.

Excluded from our valuation is any furniture, fixtures, and equipment (FF&E) or personal property associated with the property including connex storage units, office trailers, vehicle lifts, etc.

Based on market research of light industrial properties in the Anchorage market, the subject has average quality and market appeal. Although the hangar has not operated for aviation-related use in over 15 years, it has utility for warehousing. Condition of the improvements ranges from fair to average, though generous yard storage increases marketability of the property. Overall, the improvements are suited for continued light industrial use.

On the following pages are photographs taken by Jim Dahl on June 19, 2015, with the accompaniment of Beverly D’atri, property owner’s representative.

Site Improvements

Land to Building Ratio

Personal Property

Suitability of Improvements

Subject Property Photographs



44


Property Photographs

Date: June 19, 2015 Taken By: Jim Dahl

1. Northeast view of subject office building

2. Northwest view of subject office building

3. Office space in office building

4. Office space in office building

5. Northeast view of warehouse

6. West view of warehouse from across runway



45




7. Heated area in warehouse

8. Unheated area of warehouse

9. Northwest view of hangar

10. Northeast view of hangar

11. Interior of hangar

12. Interior of hangar



46




13. Northeast view of shop

14. South view of shop

15. Interior of shop

16. Interior view of shop

17. northwest view of yard storage area

18. north view of site



47




19. South view of Orca Street frontage

20. North view of Orca Street frontage

21. East view of E. 9th Avenue frontage

22. Westerly view of subject property from across Merrill Field Airport



48


Property Photograph Location Map

Aerial Map Showing Photo Location and Direction

N

Subject

GOOGLE EARTH IMAGERY

7

5

6 8

9

19

4

3

2 1

20

21

10

12 11

13

14

15

16

17

18

22



49


Chapter 7: Highest and Best Use Analysis

Highest and best use is a market-driven concept rather than a subjective conclusion based on the experience of the appraiser or a property owner’s wishes. Economic incentive is the motivation that has a market-effect on the productivity or profitability of the land. Our market value estimate relies upon the following definition of highest and best use.

The highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future.8

The criteria for analyzing potential use are legally permissible, physically possible, financially feasible, and the degree of profitability. A highest and best use analysis follows.

Physically Possible: The physical attributes of the lots were detailed in Chapter 5. To summarize, the larger parcel consists of seven lots totaling 62,358 square feet or 1.43± acres. The corner site has frontage on Orca Street and East 9th Avenue, as well as legal access to Merrill Field Airport. The site is level, and all public utilities area available. Overall, the subject site is physically capable of supported numerous commercial, industrial, or institutional alternatives.

Legally Permissible: The principal legal constraint affecting land use potential is the MOA zoning ordinance, which designates the subject I-1, light industrial district. The I-1 district is intended primarily for public and private light and general manufacturing, processing, service, storage, wholesale, and distribution operations along with other uses that support and/or are compatible with industrial uses. Many commercial uses are also permitted and/or conditionally allowed.

Financially Feasible and Maximally Productive: Financial feasibility and maximally productive potential use are considered together. Due to the location, light industrial development is considered a primary option. However, few speculative-type development opportunities exist at this time that are financially feasible. Simply, most rent levels are less than that necessary to justify the cost of new construction on a speculative basis. The most probable construction is industrial, but development of 8 8 Interagency Land Acquisition Conference, Uniform Appraisal Standards for Federal Land Acquisitions, 5th ed. (Appraisal Institute, 2000), 34.

Overview

Highest and Best Use As Though Vacant



50


this nature would likely have a built-to-suit tenant or be owner-occupied. A viable financial alternative is to hold the land until market conditions justifies the investment risk. Regardless of the investment alternative selected, light industrial development maximizes the return to the land. In conclusion, light industrial development is most productive highest and best use, as vacant.

Highest and Best Use As Vacant Light Industrial

The subject improvements consist of an office building, a warehouse, an aviation hangar, and a maintenance shop. This existing light industrial development is an alternative that the as vacant analysis considers maximally productive. There is no market incentive justifying the removal or remodel of the existing buildings. In conclusion, the highest and best use, as improved, is the existing office development.

Highest and Best Use As Improved Existing Light Industrial Development

Regarding the most probable buyer, an owner/user ranks highest, though an investor represents a possible alternative.

Highest and Best Use As Improved

Most Probable Buyer



51


Chapter 10: Sales Comparison Approach

The sales comparison approach is a systematic procedure of estimating market value by comparing property sales afforded similar physical and economic character to the subject. The approach is founded on the principal of substitution, theorizing value is a function of a knowledgeable buyer’s intent to pay no more for a specific property than the cost of acquiring an alternative property offering similar utility (economic satisfaction). Property sales with similar highest and best use are analyzed and compared the appraised property. In this analysis, we estimate the subject’s “As Clean” market value.

The subject property consists of a 62,358 square foot site improved with four buildings including an office building, a warehouse, an aircraft hangar, and a maintenance shop. While the industrial property sales with aircraft hangars are uncommon, the subject hangar has been used for warehousing for the last 15 years. Therefore, we analyze the building with a light industrial use, but acknowledge the potential use as a hangar.

The sales comparison approach is a market-based analysis premised on price behavior for industrial properties in Anchorage. We determined the principal comparative elements are location and physical characteristics. A comprehensive search that encompassed all market districts of Anchorage resulted in analysis of 12 sales that closed within the last year. This represents a relatively active marketplace compared to other Anchorage market sectors. Therefore, there is sufficient data to make a reliable estimate of market value. After analysis of these 12 market indicators, we relied upon four sales for direct comparison. We analyze the sales on a price per square foot basis, typical of the market, and apply a blended overall indicator for the property. Additionally, we perform a brief analysis of the sales on overall sale price as a test of reasonableness.

Regarding the comparative analysis, we use qualitative adjustments to measure differences between the sales and the subject. Qualitative adjustment uses a technique known as a relative comparison analysis, which represents a study of market relationships without recourse to quantification. By analyzing and interpreting market behavior, we rate various elements of comparison that influence price as superior, inferior, or similar. This adjustment technique is particularly useful in analyzing the comparable sales because of interrelationships between physical

Overview

Sales Comparison Methodology



52


characteristics. The relative comparison grid on page 46 summarizes the ratings of the primary land sales to the subject parcel. An explanation of important comparative elements as well as analysis of the comparable property sales follows.

The principal elements of comparison that influence market behavior and cause prices to differ are summarized as follows. Other elements of comparison were determined to have no significant effect on price. Importantly, each of our sales has transpired in the previous 12-month interval during a time of price stability. Therefore, we do not adjust for market conditions.

Location

Factors affecting location are often difficult to quantify and may differ from buyer to buyer. The appraised property is located in an established light industrial area, though proximate to a residential neighborhood. Additionally, the property fronts the west side of Merrill Field Airport, with direct legal access to a taxiway. While we rate the neighborhood character of each of the sales superior, the amenity of Merrill Field frontage is offsetting. Therefore, we do not adjust the sales for location.

Physical Character

Physical character and features of similar properties tend to be interrelated, which makes the task of quantifying individual adjustments difficult. However, physical character is an important influence on market behavior and represents a comparative element. Based on our analysis, qualitative adjustments are necessary for the following physical characteristics.

Construction Type (Quality): The subject improvements have various types of construction including wood frame, steel frame, and concrete block. Sales 8, 10 and 11 have mixed construction types of wood and steel, requiring no adjustment. Sale 12 is a concrete block building, which we adjust downward for the superiority.

GBA: The subject improvements total 14,085 square feet of GBA. While not linear, there tends to be in inverse relationship between unit price and size. Sale 10 has 19,000 square feet of GBA, which is 35% larger than the subject. Therefore, we adjust this sale upward. Conversely, Sale 12 is 65% smaller than the subject at 4,880 square feet. Therefore, a downward adjustment is necessary on a unit price basis.

Age/Condition: Regarding age/condition adjustment, the subject building were constructed between 1954 and 1968, and condition ranges

Elements of Comparison



53


from fair to good. Overall, we rate the subject property condition as average. Sale 11 is adjusted downward for a superior rating of average to good.

Build Out: The subject includes office, warehouse, hangar, and shop build out. Overall, about 4,358± square feet of the GBA is office, while remaining 9,727 square feet is warehouse, shop or hangar space. Regarding Sale 8, about 60% of the GBA or 6,372 square feet is office or retail/showroom area. This significantly greater area of finished space requires a downward adjustment. Sale 12 has just 560 square feet of office space, which represents about 12% of GBA. Therefore, we adjust this sale upward for inferior finished space.

Site Size: The subject site consists of seven lots totaling 62,385 square feet. Sales 8 and 12 have site sizes of 26,400 and 18,500 square feet, respectively. Therefore, we adjust these sales upward for significantly inferior site sizes. Conversely, Sale 10 has a site of 98,984 square feet. Therefore, we adjust this sale downward for the superiority.

The comparable property sales analyzed are mixed-use industrial properties with similar utility to the subject. A summary of these property sales used in comparative analysis follows. Additional details of these transactions are in the addenda.

Comparable Property Sales

No. Location Sale Date

Sale Price GBA Site Size Year Built

$/SF Ro

8 400 & 412 Potter Drive

4/15 $1,150,000 10,638 SF 26,400 SF 1976/84 $108 8.2%

10 8040 Hartzell Road

10/14 $1,900,000 19,000 SF 98,984 SF 1982/88 $100 9.5%

11 6251 Tuttle Place

5/14 $2,202,500 17,015 SF 50,549 SF 1983 $129 7.8%

12 3008 Rampart Drive

8/14 $718,000 4,880 SF 18,500 SF 1975 $147 8.3%

819 Orca Street (Subject)

N/A N/A 14,085 SF

62,358 SF 1954-66 N/A N/A

W – Warehouse/Shop/Hangar O – Office R – Retail

Comparable Property Sales Summary



54


Property Sale 8

This is the April 2015 sale of a light industrial/commercial property locate in a Midtown Anchorage industrial neighborhood. The 26,400 square-foot site consists of three lots fronting Potter Drive, improved with two buildings. The two-story building consists of office, retail/showroom and service area. This wood-frame building contains 8,496 square feet and was constructed in 1984. The steel-frame warehouse contains 2,142 square feet. The warehouse has a single overhead loading door.

The property was listed for $1,180,000 for 59 days before an offer of $1,150,000 was accepted. The Broker indicated there was a second offer, but it was for a lower price and included several contingencies. The sale was owner-financed with a $350,000 down payment, and the balance of $800,000 to be paid within a year; financing had no affect on sale price.

By comparison, Sale 8 is considered superior in terms of build out. Conversely, we rate site size inferior. Overall, the significantly smaller site size for light industrial use outweighs the superior build out, indicating an upward adjustment is necessary. Therefore, Sale 8 indicates a unit value greater than $108 per square foot.

Comparable Property Sales Map

Comparable Property Sales Analysis

N Subject

10

8

11

12



55


Property Sale 10

This is the October 2014 sale of a light industrial property located in a South Anchorage industrial neighborhood. The 98,984 square-foot site consists of two lots extending from Hartzell Road to Sandlewood Place, improved with two buildings. The three-story office building was built in 1982. This wood-frame building contains 5,400 square feet. The steel-frame warehouse contains 13,600 square feet. The warehouse has a three overhead loading door.

The property was listed for $2,100,000 for 113 days before an offer of $1,900,000 was accepted. The Broker indicated the buyer owns a trucking company that will occupy the property. The sale was cash transaction.

By comparison, Sale 10 is considered marginally superior in terms of site size. Conversely, we rate building size inferior on a unit price basis. Overall, the net adjustment is upward indicating a unit value greater than $100 per square foot.

Property Sale 11

This is the May 2014 sale of a light industrial property located in a Midtown Anchorage industrial neighborhood. The 50,549 square-foot site is located at the northeast corner of Tuttle Place and East 63rd Avenue. Improving the site is a mixed-use building built in 1983. The wood and steel-frame building contains 17,015 square feet, and is currently demised for multiple tenants.

The property was listed for $2,200,000 for 38 days before an offer of $2,202,500 was accepted. The Broker indicated there were multiple offers and the property was “priced to sell,” but reflected market behavior. The property was 100% occupied at the time of the sale, but a tenant vacated 10,239 feet that the buyer took over.

By comparison, Sale 11 is considered superior in terms of age/condition of the building. Therefore, Sale 11 indicates a unit value less than $129 per square foot.

Property Sale 12

This is the August 2014 sale of a light industrial property located in a light industrial neighborhood near the Mountain View neighborhood. The 18,500 square-foot, interior site is located on the southeast side of Rampart Drive. Improving the site is a mixed-use building built in 1972. This concrete block building contains 4,880 square feet, with about 560 square feet of office area.



56


The property was listed for $799,000 for 112 days before an offer of $718,000 was accepted. The buyer is an owner-user. The seller purchased the property in December 2011 for $625,000, and invested another $25,000 into the building subsequent to the purchase.

By comparison, Sale 12 is considered significantly superior in terms of building size. Additionally, quality of construction is superior. Conversely, we rate build out and site size inferior. Overall, the significantly superior building size outweighs the inferiorities, indicating a downward adjustment is necessary. Therefore, Sale 12 indicates a unit value less than $147 per square foot.

Inserted below is an adjustment grid that summarizes the preceding comparative property sale analysis.

Comparable Rating Grid

Property Sale No. Subject Sale 8 Sale 10 Sale 11 Sale 12

Sale Price: -- -- $1,150,000 $1,900,000 $2,202,500 $718,000 Price/SF -- -- $110 $100 $129 $147 Market Conditions 6/15

(Date of value) 4/15

Similar 10/14

Similar 5/14

Similar 8/14

Similar

Adjusted $/SF -- -- $110 $100 $129 $147 Location Light industrial

neighborhood; Merrill Field

Similar Similar Similar Similar

Physical Character Construction Type Wood, CCB, Steel Similar Similar Similar Superior GBA 14,085 SF Similar Inferior Similar Superior Age / Condition 1954-1966 / Fair to Good Similar Similar Superior Similar Build out 4,358 SF O : 9,727 SF W Superior Similar Similar Inferior Site Size 62,358 SF Inferior Superior Similar Inferior

Indicated Value -- -- ˃ $108 Inferior

˃ $100 Inferior

˂ $129 Superior

˂ $147 Superior

The improved property sales indicate an unadjusted unit value range from $108 to $147 per square foot. Property Sales 8 and 10 are rated inferior indicating a unit value greater than $108 per square foot. Conversely, Sales 11 and 12 are rated superior indicating a unit value less than $129 per square foot. After review and making the necessary adjustments, we estimate a

Reconciliation and Conclusion of Value



57


unit value toward the middle of the indicated range or $120 per square foot, developing the following.

14,085 SF @ $120/SF = $1,690,200

The prior analysis indicates a value of $1,690,000 for the subject property. As a check of reasonableness, we briefly analyze the sales on an overall sale price basis. The sales range in price from $718,000 to $2,202,500. The primary difference in comparing the sales to the subject on an overall sale price basis is our adjustment for gross building area. In our prior analysis, we adjusted Sales 10 upward and 12 downward for building size, which would have an opposite adjustment in this scenario. As a result, Sale 10 would indicate a superior rating and Sale 12 would indicate an inferior rating. Therefore, the Sales indicate a value greater than $1,150,000 but less than $1,900,000. Giving most weight to Sale 10 in this scenario, a value in the upper half of the indicated range is indicated. In conclusion, the indicated value of $1,690,000 is supported by this analysis.

Based on the foregoing, the value via the sales comparison approach is estimated at $1,690,000.

Estimated Value – Sales Comparison Approach $1,690,000



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Chapter 9: Income Capitalization Approach

The anticipation of future benefits is the basic economic premise of the income approach. Value is measured by estimating the present worth of all rights to these future benefits. Converting future benefits into a value conclusion requires a capitalization process. We employ direct capitalization to convert property income into a value estimate. In this analysis, we estimate the subject’s “As Clean” market value.

According to ownership, City Electric, Inc. pays $20,037 per month ($1.42/SF), plus utilities and insurance expenses for use of the entire property. City Electric has occupied the property since the 1950s, and we were not provided a copy of any lease agreement. Importantly, this is a non-arm’s length agreement due to common ownership members between the lessor and lessee. Therefore, we do not rely upon this lease in our income analysis, but estimate market rent based on comparable property rentals. Our market rent estimate for the subject is based on the tenant paying all operating expenses (triple-net lease).

Again, the subject property consists of a 62,385 square foot site improved with an office, warehouse, hangar, and shop totaling 14,085 square feet. The principal elements of comparison that influence market behavior and cause prices to differ for rental properties are summarized as follows. Other elements of comparison were determined to have no significant affect on rental rates.

Conditions of Lease

Regarding Rental 3, we are aware of a 2012 renewal of the long-term lease. While it was indicated that the new rental payment is greater than the 2006 to 2012 rate of $0.74 per square foot (N-N-N), we could not confirm how much greater. Therefore, we make a qualitative upward adjustment to Rental 3 for the unknown rental rate adjustment.

Economic Character

The economic character adjusted for is allocation of tenant expenses. Comparable Rental 1 and 4 include the tenant paying all operating expenses except for real estate taxes and insurance, and is superior to the subject. Based on comparable expenses and review of municipal tax records, we apply a downward adjustment of $0.24/SF for Rental 1 and $0.15 per square foot per month for Rental 4. Terms of Rental 3 and 4

Overview

Elements of Comparison



59


are based on a similar allocation of tenant expenses and no adjustment is necessary.

Physical Character

Physical character and features of similar properties tend to be interrelated, which makes the task of quantifying individual adjustments difficult. However, physical character has an influence on market behavior and represents a comparative element. Based on our analysis, qualitative adjustments are necessary for the following physical characteristics.

GBA: The subject improvements total 14,085 square feet of GBA. While not linear, there tends to be in inverse relationship between unit price and size. Rentals 1, 2 and 3 have sizes 30 to over 100% larger than the subject. Therefore, we adjust these rentals upward. Conversely, Rental 4 reflects 2,500 square foot units, which are significantly smaller. Therefore, a large downward adjustment is necessary on a unit price basis.

Age/Condition: Regarding age/condition adjustment, the subject building were constructed between 1954 and 1968, and condition ranges from fair to good. Overall, we rate the subject property condition as average. We rate condition of Rentals 1 and 2 superior, indicating downward adjustments to the rental rates.

Build Out: The subject includes office, warehouse, hangar, and shop build out. Overall, about 4,358± square feet of the GBA is office, while remaining 9,727 square feet is warehouse, shop or hangar space. Rental 1 has 19,320 square feet of office space, which is rated significantly superior. Therefore, a large downward adjustment is necessary. Conversely, Rentals 2, 3 and 4 have less finished office space than the subject. Therefore, we adjust these rentals upward for the inferiority.

Site Size: The subject sit consists of seven lots totaling 62,385 square feet. Rental 1 has a site of 209,733 square feet. Therefore, we adjust this sale downward for the superiority. Conversely, Rental 4 has a small site of 14,008 square feet. Therefore, we adjust this rental upward for significantly inferior site.

We rely on rentals of similar industrial properties to facilitate our comparative analysis. A tabular summary of our market investigation follows with additional details retained on file.

Comparable Property Rental Analysis



60


Summary of Comparable Rentals

No. Location Lease Date

Leased Area (GBA)

Site Size $/SF Tenant Expenses

1 Midtown Anchorage 12 years 2012

27,703 SF 209,733 SF $1.66 Utilities, minor maintenance, and snow

removal

2 2824 Rampart Drive 5 years 2011

28,360 SF 74,000 SF $0.93 NNN (All operating expenses)

3 1125 Orca Street 5 years 2012

18,362 SF 62,358 SF ˃$0.74 NNN (All operating expenses)

4 1444-1450 East 9th Avenue Varies (4) 2,500± SF Units

14,008 SF $1.12 -$1.16

Utilities, minor maintenance, and snow

removal

819 Orca Street (Subject) -- -- 14,085 SF 62,358 SF -- -- Projected - NNN (All operating

expenses)

Rental 1

Rental 1 is a confidential rental located in Midtown Anchorage. The 209,733 square foot site is improved with two buildings. The office building contains 19,320 square feet, while the warehouse contains 8,383 square feet. Overall, condition of the improvements is rated average to good. The 12 year lease commenced in 2012, at a monthly rate of $1.66 per square foot. Tenant pays all operating expenses, except for real estate taxes and insurance. Therefore, we adjust the rental downward $0.24 per square foot to reflect a triple-net lease rate. Further, this comparable is rated superior in terms of age/condition, build out, and site size. Conversely, building size is inferior on a unit price basis. Overall, the net adjustment is downward indicating a rental rate less than $1.42 per square foot.

- No Photo -



61


Comparable Rental Map

Rental 2

Rental 2 is located in an industrial pocket in north Anchorage, just off Commercial Drive. The concrete block building was constructed in 1973 and is in average condition. The dock-high facility has a 27-foot clear span. The property is 100% occupied with one tenant. This is a five-year expiring in September 2016. The rental rate is $0.93 per square foot per month with the tenant paying for all operating expenses (triple-net). Comparatively, Rental 2 is inferior in terms of gross building area and build out. Conversely, age/condition is rate superior. Overall, the net adjustment is small, but upward, indicating a rental rate slightly higher than $0.93 per square foot.

N Subject

2

4

3

1



62


Rental 3

Rental 3 is located two blocks north of the subject property at 1125 Orca Street. The only other privately owned property fronting the west side of Merrill Field, the 62,358 square foot site is improved with an office-warehouse. There is 3,200 square feet of office area with the balance warehouse. Built in 1958, condition of the building is average. The 2006 to 2012 rental rate was $0.73 per square foot (N-N-N). We are aware of a 2012 renewal of the long-term lease, and while it was indicated that the rental increased, we could not confirm how much. Therefore, we make a qualitative upward adjustment to Rental 3 for the unknown rental rate adjustment. Further, we adjust the rental upward for inferior size and build out. Overall, a rental rate greater than $0.74 is indicated. Importantly, we weigh this rental cautiously, but recognize it sets a lower limit.

Rental 4

Rental 4 is located caddy corner to the subject property at the southwest corner of Orca Street and East 9th Avenue. The 14,008 square foot site is improved with a 10,000± square foot building, demised for four tenants. Each unit has one overhead door to warehouse bay, with mezzanine and small office build out. Two of the 2,500± square foot units are leased at $1.12 and $1.16 per square foot, plus utilities, minor maintenance, and snow removal. Therefore, we adjust the rental downward $0.15 per square foot to reflect a triple-net lease rate. This indicates triple-net rental rate of $1.00 per square foot. Further, this comparable is rated significantly superior in terms of size on a unit price basis. Conversely, build out and site size are inferior. Overall, the net adjustment is small but downward indicating a rental rate less than $1.00 per square foot.



63


Listed below is an adjustment grid that summarizes the preceding comparative property rental analysis.

Comparable Rating Grid

After adjustment for tenant expenses, the rentals indicate a monthly rental range from $0.74 to $1.42 per square foot. Rentals 2 and 3 are inferior indicating a rental rate greater than $0.93 per square foot. Rentals 1 and 4 are superior indicating a rental rate less than $1.00. In After review and analysis, we project a blended rental rate of $0.95 per square foot per month, triple-net, for the subject property.

Our income projection is based on market rent, which develops the following potential gross income.

Potential Gross Income (PGI)

Area (SF) $/SF/Mo. Monthly Total Annual Total

14,085± $0.95 $13,380.75 $160,569.00 Potential Gross Income $160,569

Reconciliation and Market Rent Estimate

Rental No. Subject Rental 1 Rental 2 Rental 3 Rental 4

Monthly Rent Rate ($/SF) -- -- $1.66 $0.93 $0.74 $1.12-1.16 Market Conditions 6/15 Similar Similar Similar Similar Conditions of Lease Assumed typical Similar Similar Inferior Similar Economic Character

Tenant Expenses ($/SF) N-N-N (projected) Superior - $0.24

Similar Similar Superior - $0.15

Adjusted Rental Rate ($/SF) -- -- $1.42 $0.93 ˃$0.74 $1.00± Location Light industrial

neighborhood; Merrill Field

Similar Similar Similar Similar

Physical Character GBA (SF) 14,085 Inferior Inferior Inferior Superior Age / Condition 1954-1966 / Fair to Good Superior Superior Similar Similar Build out 4,358 SF O : 9,727 SF W Superior Inferior Inferior Inferior Site Size 62,358 Superior Similar Similar Inferior

Indicated Rental Rate -- -- ˂ $1.42 Superior

˃ $0.93 Inferior

˃ $0.74 Inferior

˂ $1.00 Superior

Potential Gross Income Estimate



64


Current vacancy rates reported by local brokers and managers for Anchorage commercial and light industrial properties range from 2% to 6%. After review, we conclude with a vacancy and collection loss in the middle of the indicated rage, or 4% of the potential gross income. Effective gross income (EGI) is calculated as follows.

Potential Gross Income (PGI) $160,569 Less: Vacancy and Collection Loss (4%) - $6,423 Effective Gross Income (EGI) $154,146

Again, we base the subject’s projected operating expenses on terms of a triple-net lease (N-N-N). Therefore, property owner expenses include management and a replacement allowance. The subject’s operating expenses are estimated as follows.

Management: Although management fees are negotiable, typically professional management fees for commercial and light industrial properties range from 3% to 7% of effective gross income. After review of comparable management expenses, we project a management fee of 4% of the effective gross income, or $6,166.

Replacement Allowance: This expense is an annual allocation to replace short-lived building components such as the mechanical system, overhead doors, roof covering, asphalt paving, etc. Property owners seldom set-aside income for future replacement, but an estimate for replacement allowance is an appropriate deduction from operating income. Based on age and condition of the improvements, we estimate an annual allocation of 5% of total effective gross income, or $7,707.

Utilizing the preceding income and expense projections, we develop the projected net operating income on the following page.

Effective Gross Income Estimate

Analysis of Operating Expenses

Projected Net Operating Income



65


Projected Annual Net Income from Subject Property

Projected Operating Statement Projected Gross Income $160,569

Less: Vacancy and Collection Loss (4%) - $6,423 Effective Gross Income $154,146

Less: Property Owner Expenses Management (4%) $6,166 Replacement Allowance (5%) $7,707

Total Property Expenses (9%) - $13,873 Net Operating Income (NOI) $140,273

Direct capitalization is the method used to convert projected net income into a value estimate. This market-based process analyzes improved property sales to determine the market range of overall capitalization rates (Ro) and the rate of return necessary to attract investment capital. Supporting this market-derived analysis is a survey of overall rates by a national real estate investment firm.

Ro Derived from Property Sales: A summary of capitalization rates derived from the sales comparison approach follows.

The capitalization rates extracted from the sales range from 7.8% to 9.5%, with a mean rate of 8.5%.

PwC Real Estate Investor Survey: We also considered PwC Real Estate’s Investor Survey, an industry recognized data source for investor behavior. Overall capitalization rates for similar properties in the Pacific Region are summarized as follows.

Pacific Region Warehouse Market Ro Range Ro Average Fourth Quarter 2014 4.00% to 7.00% 5.58% Third Quarter 2014 4.50% to 7.00% 5.77% Second Quarter 2014 4.50% to 7.50% 5.85% First Quarter 2014 4.50% to 7.50% 5.95%

Direct Capitalization and Value Conclusion

Property Sale No. 1 2 3 4

Sale Date 4/15 10/14 5/14 8/14 Overall Rate (Ro) 8.2% 9.5% 7.8% 8.3%



66


Average capitalization rates for the Pacific Region warehouse market trended downward in 2014 from 5.95% to 5.58%. In selecting an overall capitalization rate, we also consider factors such as the following.

Current Anchorage economic conditions and trends Supply and demand dynamics Age, type, condition, and quality of development Returns of alternative investments Current mortgage terms and rates Based on analysis of comparable property sales, national trends, and the subject’s physical (age and condition) and economic characteristics, a capitalization rate near the mid-range is considered appropriate. In final analysis, we conclude with an overall capitalization rate between 8.0% and 8.5%, which is considered a realistic projection for the subject property. The subject’s value range via directed capitalization is developed below.

Projected NOI capitalized at 8.5% $140,273 ÷ 8.5% = $1,650,272

Projected NOI capitalized at 8.0%

$140,273 ÷ 8.0% = $1,753,413

Direct capitalization indicates a value range from $1,650,272 to $1,753,413. In conclusion, the “As Clean” value of the property via the income approach is reconciled as follows.

Market Value Indicated by Income Approach $1,650,000 to $1,750,000



67


Chapter 10: Reconciliation and Conclusion of Value

Reconciliation is the analysis of the approaches developed previously in this report. The reconciled conclusion involves appraiser judgment, but it is based on the appropriateness, accuracy, and quality of market evidence gathered. In other words, the approach that best represents market behavior and has employed the most reliable market data is given greater emphasis in the reconciliation. We relied upon the sales comparison and income capitalization approaches to estimate the market value of the larger parcel. These value indications are summarized as follows. Importantly, these value indicators reflect the property “As Clean.” Therefore, the final step is to adjust for the known detrimental condition of soil contamination.

Cost Approach Not Used

Sales Comparison Approach $1,690,000

Income Approach $1,650,000 to $1,750,000 We give equal weight to the sales comparison and income capitalization approaches to estimate the “As Clean” value of the larger parcel. Therefore, we estimate an “As Clean” value of $1,700,000 for the subject property.

As previously discussed, Shannon & Wilson, Inc. performed Phase I and Phase II Environmental Site Assessments (ESAs) dated January and May 2015, respectively. The results indicate the presence of petroleum hydrocarbons and PCE at concentrations greater than ADEC cleanup levels. Shannon & Wilson, Inc. followed up the ESAs with an Opinion of Probable Cost (OPC) estimate for site characterization and cleanup activities for environmental concerns identified in the Phase II ESA.

The site characterization includes work plan preparation; evaluate and sample strip drain in hangar; sample drain and drain discharge location at warehouse (assumes 1 test pit); further soil characterization in the vicinity of Catch Basin CB1 (assumes 3 borings); further soil characterization in the vicinity of the former used oil UST (assumes 3 borings); and preparation of a summary report. The site cleanup includes preparation of a Corrective Action Plan (CAP); excavate soil impacted with petroleum hydrocarbons and PCBs (assumes 50 tons of impacted soil), off-site soil disposal (assumes non-Toxic Substance Control Act [TSCA] regulated soil), and confirmation sampling at Catch Basin CB1; excavate soil impacted with PCE (assumes 50 tons of impacted soil), off-site soil disposal (assumes non-Resource

Conclusion of Market Value of Acquisition



68


Conservation and Recovery Act [RCRA] regulated soil), and confirmation sampling in the vicinity of former used oil UST; excavate soil impacted with petroleum hydrocarbon (assumes 10 tons of impacted soil), off-site thermal remediation of soil, and confirmation sampling in the vicinity of former used oil AST; and preparation of summary report.

The OPC estimate for the site characterization and cleanup is $90,000. This OPC is accurate to a level of minus 10 percent to plus 30 percent; therefore, the OPC is a range of approximately $80,000 to $120,000.

Typically, when analyzing the market effects of soil contamination, in addition to cost of remediation, we consider the type of contamination, the remediation plan, and the time to clean up the contamination. Considering these factors, the level of risk and uncertainty relating to the identified detrimental condition is relatively low. Therefore, we adjust the “As Clean” value downward $120,000, which is the high end estimate from the professional environmental consultants, but make no further discount. Therefore, the market value of the subject property is estimated as follows.

“As Clean” Value Estimate $1,700,000

Less: Detrimental Condition Adjustment - $120,000

Estimated Market Value $1,580,000 Based on the preceding analysis, the estimated market value of the appraised property, as of June 19, 2015, is as follows.

Market Value Opinion $1,580,000


Property Sale 8

Location: 400 & 412 Potter Drive, Anchorage, Alaska Legal Description:

Property Type: Office/retail & warehouse Neighborhood: Midtown light industrial Grantor: DGT Properties, LLC Zoning: I-1, Light industrial Grantee: James C. Protzman Living Trust Site Size: 26,400 square feet or 0.61 acre Instrument/Date: Warranty Deed (5/15) Utilities: All public utilities available Document No: 2015-020894-0 Year Built: 1976 & 1984 Sale Date: 4/15 Construction Type: Wood and steel frame Sale Price: $1,150,000 GBA: 10,496 SF CE Sale Price: $1,150,000 Build Out: 60% office/retail; 40%

warehouse Terms: Owner finance; $350,000 down,

balance within 12 months Condition: Average

Verified By: MacSwain Associates LLC L to B Ratio: 2.48 to 1 (GBA) Verified With: Ralph Matukonis, Broker Property Rights: Fee simple interest Sale Comments: Sale Analysis: The 26,400 square-foot site consists of three lots fronting Potter Drive, improved with two buildings. The two-story building consists of office, retail/showroom and service area. This wood-frame building contains 8,496 square feet and was constructed in 1984. The steel-frame warehouse contains 2,142 square feet.

The property was listed for $1,180,000 for 59 days before an offer of $1,150,000 was accepted. The Broker indicated there was a second offer, but it was for a lower price and included several contingencies. The sale was owner-financed with a $350,000 down payment, and the balance of $800,000 to be paid within a year.

Projected Income ($0.85/SF) $107,059 Less: V&C (4%) - $4,282 Effective Gross Income (EGI) $102,777 Less: Expenses (8%) - $8,222 Net Operating Income (NOI) $94,555

Overall $/SF Indicator $110 Capitalization Rate 8.2%


Property Sale 10

Location: 8040 Hartzell Road, Anchorage, Alaska Legal Description:

Property Type: Office & warehouse Neighborhood: South Anchorage light industrial Grantor: Alaska Pollution Control, Inc. Zoning: I-1, Light industrial Grantee: Blaise, Inc. Site Size: 98,984 square feet or 2.27 acres Instrument/Date: Warranty Deed (2/15) Utilities: All public utilities available Document No: 2015-005745-0 Year Built: 1982 & 1988 Sale Date: 10/14 Construction Type: Wood and steel frame Sale Price: $1,900,000 GBA: 19,000 SF CE Sale Price: $1,900,000 Build Out: 28% office; 72% warehouse Terms: Cash Condition: Average Verified By: MacSwain Associates LLC L to B Ratio: 5.21 to 1 (GBA) Verified With: Michael James, Broker Property Rights: Fee simple interest Sale Comments: Sale Analysis: The 98,984 square-foot site consists of two lots extending from Hartzell Road to Sandlewood Place, improved with two buildings. The three-story office building was built in 1982. This wood-frame building contains 5,400 square feet. The steel-frame warehouse contains 13,600 square feet.

The property was listed for $2,100,000 for 113 days before an offer of $1,900,000 was accepted. The Broker indicated the buyer owns a trucking company that will occupy the property.




Property Sale 11

Location: 6251 Tuttle Place, Anchorage, Alaska Legal Description:

Property Type: Office-warehouse Neighborhood: Midtown light industrial Grantor: Realty Investments, LLC Zoning: I-1, Light industrial Grantee: FB Holdings, LLC Site Size: 50,549 square feet or 1.16 acres Instrument/Date: Statutory Warranty Deed (7/14) Utilities: All public utilities available Document No: 2014-029684-0 Year Built: 1983 Sale Date: 5/14 Construction Type: Wood and steel frame Sale Price: $2,202,500 GBA: 17,015 SF CE Sale Price: $2,202,500 Build Out: 25% office; 75% warehouse Terms: Cash Condition: Average to good Verified By: MacSwain Associates LLC L to B Ratio: 2.97 to 1 (GBA) Verified With: Robert Martin, Broker Property Rights: Leaesd fee interest Sale Comments: Sale Analysis: The 50,549 square-foot site is located at the northeast corner of Tuttle Place and East 63rd Avenue. Improving the site is a mixed-use building built in 1983. The wood and steel-frame building contains 17,015 square feet, and is currently demised for multiple tenants.

The property was listed for $2,200,000 for 38 days before an offer of $2,202,500 was accepted. The Broker indicated there were multiple offers and the property was “priced to sell,” but reflected market behavior. The property was 100% occupied at the time of the sale, but a tenant vacated 10,239 feet that the buyer took over.




Property Sale 12

Location: 3008 Rampart Drive, Anchorage, Alaska Legal Description:

Property Type: Office-warehouse Neighborhood: Mountain View light industrial Grantor: Curtis Cherrier Zoning: I-1, Light industrial Grantee: Gordon A. Leonard Family Trust Site Size: 18,500 square feet or 0.42 acre Instrument/Date: Statutory Warranty Deed (8/14) Utilities: All public utilities available Document No: 2014-033749-0 Year Built: 1975 Sale Date: 8/14 Construction Type: Concrete block Sale Price: $2,202,500 GBA: 4,880 SF CE Sale Price: $2,202,500 Build Out: 12% office; 88% warehouse Terms: Cash Condition: Average Verified By: MacSwain Associates LLC L to B Ratio: 3.79 to 1 (GBA) Verified With: Robert Martin, Broker Property Rights: Fee simple interest Sale Comments: Sale Analysis: The 18,500 square-foot, interior site is located on the southeast side of Rampart Drive. Improving the site is a mixed-use building built in 1972. This concrete block building contains 4,880 square feet, with about 560 square feet of office area.

The property was listed for $799,000 for 112 days before an offer of $718,000 was accepted. The buyer is an owner-user. The seller purchased the property in December 2011 for $625,000, and invested another $25,000 into the building subsequent to the purchase.



ALASKA CALIFORNIA COLORADO

FLORIDA MISSOURI

OREGON WASHINGTON

WISCONSIN

32-1-17688-002 5430 FAIRBANKS STREETSUITE 3

ANCHORAGE, ALASKA 99518 907-561-2120 FAX 907-561-4483

June 26, 2015

Municipality of Anchorage Merrill Field Airport 800 Merrill Field Drive Anchorage, AK 99501 Attn: Mr. Alex Jumao-as

RE: OPINION OF PROBABLE COST FOR SITE CHARACTERIZATION AND CLEANUP ACTIVITIES, 819 ORCA STREET, ANCHORAGE, ALASKA

We are pleased to submit our opinion of probable cost (OPC) estimate for site characterization and cleanup activities at 819 Orca Street in Anchorage, Alaska. The Property is currently occupied by City Electric and consists of three parcels which include:

• Lots 10, 11, 12, and 13, Block 10, Merrill Field Subdivision, East Addition (Parcel A); • Lot 14, Block 10, Merrill Field Subdivision, East Addition (Parcel B); and • Lots 15 and 16, Block 10, Merrill Field Subdivision, East Addition (Parcel D).

Four permanent structures are located at the site, including an office building, a hangar, a maintenance shop, and a warehouse. The property is shown on Figure 1.

BACKGROUND

Shannon & Wilson conducted Phase I and II Environmental Site Assessments (ESAs) at the subject property in 2015. As documented in our January 2015 Phase I Environmental Site Assessment and Hazardous Materials Survey, Lots 10 through 16, Block 10, Merrill Field Subdivision, East Addition, Anchorage, Alaska report several recognized environmental concerns (RECs) were identified at the site. In general these RECs were associated with floor drain systems; catch basins; former and/or existing aboveground storage tanks (ASTs) and underground storage tanks (USTs); documented and suspected leaks and spills associated with equipment repair and maintenance, and the historical and current use and storage of petroleum products. The project also included a hazardous materials survey conducted by EHS-Alaska, Inc. (EHS).

The Phase II ESA included the characterization of soil and groundwater in the vicinity of former ASTs and USTs and an evaluation of floor/strip drains and catch basins. As documented in our June 2015 Revised Phase II Environmental Site Assessment, 819 Orca Street, Anchorage, Alaska report, soil impacted with petroleum hydrocarbons, tetrachloroethene (PCE), and polychlorinated biphenyls (PCBs) was identified at the site. In addition, potential data gaps and environmental concerns associated with the floor/strip drain and catch basins were documented. Based on the

Merrill Field Airport SHANNON & WILSON, INC. Attn: Mr. Alex Jumao-as Page 2

32-1-17688-002

results of the Phase II ESA we recommended conducting additional site characterization and/or cleanup in the vicinity of impacted soil documented in the vicinity of a former used oil AST, a former used oil UST (UST #7), and the catch basins. We also recommended collecting soil/sediment samples from the base of the drains located in the warehouse and hanger buildings, further evaluation of the construction of these drains, and collecting soil samples from the location of the discharge pipe associated with the warehouse floor drain.

SCOPE OF WORK

The primary purpose of the project outlined in this OPC is to address environmental concerns identified during our Phase II ESA. This OPC does not include undocumented environmental concerns which may be encountered during potential redevelopment of the property.

The following tasks should be considered preliminary, based on the limited information collected to date. Additional site characterization and/or remedial actions may be warranted, based on the results of the following tasks and regulatory agency input.

Task 1 – Site Characterization

• Work plan preparation.

• Evaluate and sample strip drain in hangar.

• Sample drain and drain discharge location at warehouse (assumes 1 test pit).

• Further soil characterization in the vicinity of Catch Basin CB1 (assumes 3 borings).

• Further soil characterization in the vicinity of the former used oil UST (assumes 3 borings).

• Preparation of a summary report.

Task 2 – Site Cleanup

• Preparation of a Corrective Action Plan (CAP).

• Excavate soil impacted with petroleum hydrocarbons and PCBs (assumes 50 tons of impacted soil), off-site soil disposal (assumes non-Toxic Substance Control Act [TSCA] regulated soil), and confirmation sampling at Catch Basin CB1.

• Excavate soil impacted with PCE (assumes 50 tons of impacted soil), off-site soil disposal (assumes non-Resource Conservation and Recovery Act [RCRA] regulated soil), and confirmation sampling in the vicinity of former used oil UST.

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32-1-17688-002

• Excavate soil impacted with petroleum hydrocarbon (assumes 10 tons of impacted soil), off-site thermal remediation of soil, and confirmation sampling in the vicinity of former used oil AST.

• Preparation of summary report.

SUMMARY OF COSTS

This OPC estimate does not include abatement and/or disposal of hazardous building materials, the characterization of groundwater, or an evaluation of potential contamination located beneath the on-site structures. In addition, this OPC was estimated using limited data and should not be relied upon for anything other than preliminary planning purposes. The OPC associated with the remedial action will likely need to be revised based on the data obtained during the site characterization efforts. The OPC is summarized below and attached to this letter.

Task 1 – Site Characterization $30,000 Task 2 – Site Cleanup $60,000 Estimate $90,000

In our opinion this OPC is accurate to a level of minus 10 percent to plus 30 percent. Therefore, our OPC is a range of approximately $80,000 to $120,000.

LIMITATIONS

This OPC estimate does not constitute a formal bid or fee proposal. If requested a fee proposal can be prepared to conduct the site characterization and cleanup activities. Following the additional site characterization activities we recommend reevaluating cleanup strategies.

Please note this OPC estimate was prepared without sufficient site data that are typically required to fully assess the need and type of remedial action appropriate for site-specific conditions. In particular, the lateral and vertical extent of impacted soil is currently unknown and data gaps associated with the drains located within the warehouse and hanger remain. In addition, it is unknown if contamination extends off site. This information is critical to planning and costing remedial efforts, as costs vary significantly for disposal of hazardous versus non-hazardous substances; quantities of materials to be disposed; and the extent of contaminant plumes.

This OPC estimate was prepared for the exclusive use of our client and their representatives in the study of this site. The findings we have presented within this report are based on the limited research and sampling presented in our Phase I and II ESAs. They should not be construed as definite conclusions regarding the site’s regulatory status. As a result, this report can only provide you with our professional judgment as to the environmental characteristics of this site, and in no way guarantees that an agency or its staff will reach the same conclusions as Shannon

OPINION OF PROBABLE COST ESTIMATESHANNON & WILSON, INC.

6/26/2015 32-1-17688-002, 819 Orca Street, Anchorage, Alaska Page 1 of 2

SITE CHARACTERIZATION AND CLEANUP ACTIVITIES, 819 ORCA STREET, ANCHORAGE, ALASKA

Task 1 - Site Characterization

Task 1.a - Work Plan Preparation $2,470Environmental ConsultantVice President 2 hr. @ $210 /hr. = $420Sr. Principal Environmental Scientist 4 hrs. @ $140 /hr. = $560Engineer III 16 hrs. @ $90 /hr. = $1,440Expenses (Reproduction/Phone/Fax) lump sum = $50

Task 1.b - Field Activities $20,788Environmental ConsultantVice President 2 hrs. @ $210 /hr. = $420Sr. Principal Environmental Scientist 6 hrs. @ $140 /hr. = $840Engineer III 26 hrs. @ $90 /hr. = $2,340

Mobilization/Preparation 4Utility locates 4Evaluate/sample strip drain sediment/soil 2Sample warehouse drain/drain outlet sediment/soil 4Sample borings adjacent to Boring B5 6Sample borings adjacent to Catch Basin CB1 6

Expenses (Sampling Equipment, etc.) 3 days @ $150 /day = $450

Drilling ContractorMobilization/Demobilization lump sum = $350Advance borings - 15 feet each 6 borings @ $1,500 ea. = $9,000Drums for drill cuttings 6 drums @ $160 ea. = $960

Excavation ContractorMobilization/Demobilization lump sum = $350Advance test pit lump sum = $500

Analytical LaboratoryGRO - AK 101 4 samples @ $70 ea. = $280DRO/RRO - AK 102/AK 103 10 samples @ $70 ea. = $700PCBs - EPA 8082A 10 samples @ $87 ea. = $870VOCs - EPA 8260B 10 samples @ $184 ea. = $1,840RCRA Metals - EPA 6020 4 samples @ $161 ea. = $644PAHs - EPA 8270D SIM 4 samples @ $184 ea. = $736Trip Blanks - AK 101/EPA 8260B 2 samples @ $254 ea. = $508

Task 1.c - Report $5,070Environmental ConsultantVice President 2 hrs. @ $210 /hr. = $420Sr. Principal Environmental Scientist 6 hrs. @ $140 /hr. = $840Engineer III 40 hrs. @ $90 /hr. = $3,600Clerical 2 hr. @ $55 /hr. = $110Expenses (Reproduction/Phone/Fax) Lump Sum = $100

Task 1 Subtotal: $28,328

OPINION OF PROBABLE COST ESTIMATESHANNON & WILSON, INC.

6/26/2015 32-1-17688-002, 819 Orca Street, Anchorage, Alaska Page 2 of 2

Task 2 - Site CleanupTask 2.a - Corrective Action Plan

Environmental Consultant $3,770Vice President 2 hr. @ $210 /hr. = $420Sr. Principal Environmental Scientist 12 hrs. @ $140 /hr. = $1,680Engineer III 18 hrs. @ $90 /hr. = $1,620Expenses (Reproduction/Phone/Fax) 1 lump sum @ $50 ea. = $50

Task 2.a - Cleanup Activities $52,158Environmental ConsultantVice President 2 hrs. @ $210 /hr. = $420Sr. Principal Environmental Scientist 4 hrs. @ $140 /hr. = $560Engineer III 28 hrs. @ $90 /hr. = $2,520

Mobilization/Preparation 4Excavation monitoring/sampling 24

S&W Expenses (Sampling Equipment, etc.) 3 days @ $150 /day = $450

Excavation ContractorExcavate and stockpile soil 110 tons @ $30 ea. = $3,300Backfill excavation with imported fill 110 tons @ $25 ea. = $2,750Containerize soil for off-site disposal 110 tons @ $15 ea. = $1,650Transport soil to thermal remediation contractor 10 tons @ $20 ea. = $200

Thermal Remediation ContractorTreatment of petroleum-impacted soil 10 tons @ $115 ea. = $1,150Minimum quantity surcharge lump sum = $1,150

Waste Disposal ContractorDisposal of PCB/PCE-impacted soil 100 tons @ $350 /hr. = $35,000

Analytical LaboratoryDRO/RRO - AK 102/AK 103 12 samples @ $70 ea. = $840PCBs - EPA 8082A 8 samples @ $87 ea. = $696VOCs - EPA 8260B 8 samples @ $184 ea. = $1,472

Task 2.c - Reporting $5,350Environmental ConsultantVice President 2 hrs. @ $210 /hr. = $420Sr. Principal Environmental Scientist 8 hrs. @ $140 /hr. = $1,120Engineer III 40 hrs. @ $90 /hr. = $3,600Clerical 2 hr. @ $55 /hr. = $110S&W Expenses (Reproduction/Phone/Fax) lump sum = $100

Task 2 Subtotal: $61,278

Estimate: $89,606

ATTACHMENT 1

IMPORTANT INFORMATION ABOUT YOUR

GEOTECHNICAL/ENVIRONMENTAL REPORT

1/2005

SHANNON & WILSON, INC. Geotechnical and Environmental Consultants

Attachment to and part of Report 32-1-17688-002 Date: June 2015 To: Municipality of Anchorage Merrill Field Airport Re: 819 Orca Street, Anchorage, Alaska

Important Information About Your Geotechnical/Environmental Report CONSULTING SERVICES ARE PERFORMED FOR SPECIFIC PURPOSES AND FOR SPECIFIC CLIENTS. Consultants prepare reports to meet the specific needs of specific individuals. A report prepared for a civil engineer may not be adequate for a construction contractor or even another civil engineer. Unless indicated otherwise, your consultant prepared your report expressly for you and expressly for the purposes you indicated. No one other than you should apply this report for its intended purpose without first conferring with the consultant. No party should apply this report for any purpose other than that originally contemplated without first conferring with the consultant. THE CONSULTANT'S REPORT IS BASED ON PROJECT-SPECIFIC FACTORS. A geotechnical/environmental report is based on a subsurface exploration plan designed to consider a unique set of project-specific factors. Depending on the project, these may include: the general nature of the structure and property involved; its size and configuration; its historical use and practice; the location of the structure on the site and its orientation; other improvements such as access roads, parking lots, and underground utilities; and the additional risk created by scope-of-service limitations imposed by the client. To help avoid costly problems, ask the consultant to evaluate how any factors that change subsequent to the date of the report may affect the recommendations. Unless your consultant indicates otherwise, your report should not be used: (1) when the nature of the proposed project is changed (for example, if an office building will be erected instead of a parking garage, or if a refrigerated warehouse will be built instead of an unrefrigerated one, or chemicals are discovered on or near the site); (2) when the size, elevation, or configuration of the proposed project is altered; (3) when the location or orientation of the proposed project is modified; (4) when there is a change of ownership; or (5) for application to an adjacent site. Consultants cannot accept responsibility for problems that may occur if they are not consulted after factors, which were considered in the development of the report, have changed. SUBSURFACE CONDITIONS CAN CHANGE. Subsurface conditions may be affected as a result of natural processes or human activity. Because a geotechnical/environmental report is based on conditions that existed at the time of subsurface exploration, construction decisions should not be based on a report whose adequacy may have been affected by time. Ask the consultant to advise if additional tests are desirable before construction starts; for example, groundwater conditions commonly vary seasonally. Construction operations at or adjacent to the site and natural events such as floods, earthquakes, or groundwater fluctuations may also affect subsurface conditions and, thus, the continuing adequacy of a geotechnical/environmental report. The consultant should be kept apprised of any such events, and should be consulted to determine if additional tests are necessary. MOST RECOMMENDATIONS ARE PROFESSIONAL JUDGMENTS. Site exploration and testing identifies actual surface and subsurface conditions only at those points where samples are taken. The data were extrapolated by your consultant, who then applied judgment to render an opinion about overall subsurface conditions. The actual interface between materials may be far more gradual or abrupt than your report indicates. Actual conditions in areas not sampled may differ from those predicted in your report. While nothing can be done to prevent such situations, you and your consultant can work together to help reduce their impacts. Retaining your consultant to observe subsurface construction operations can be particularly beneficial in this respect.

1/2005

A REPORT'S CONCLUSIONS ARE PRELIMINARY. The conclusions contained in your consultant's report are preliminary because they must be based on the assumption that conditions revealed through selective exploratory sampling are indicative of actual conditions throughout a site. Actual subsurface conditions can be discerned only during earthwork; therefore, you should retain your consultant to observe actual conditions and to provide conclusions. Only the consultant who prepared the report is fully familiar with the background information needed to determine whether or not the report's recommendations based on those conclusions are valid and whether or not the contractor is abiding by applicable recommendations. The consultant who developed your report cannot assume responsibility or liability for the adequacy of the report's recommendations if another party is retained to observe construction. THE CONSULTANT'S REPORT IS SUBJECT TO MISINTERPRETATION. Costly problems can occur when other design professionals develop their plans based on misinterpretation of a geotechnical/environmental report. To help avoid these problems, the consultant should be retained to work with other project design professionals to explain relevant geotechnical, geological, hydrogeological, and environmental findings, and to review the adequacy of their plans and specifications relative to these issues. BORING LOGS AND/OR MONITORING WELL DATA SHOULD NOT BE SEPARATED FROM THE REPORT. Final boring logs developed by the consultant are based upon interpretation of field logs (assembled by site personnel), field test results, and laboratory and/or office evaluation of field samples and data. Only final boring logs and data are customarily included in geotechnical/environmental reports. These final logs should not, under any circumstances, be redrawn for inclusion in architectural or other design drawings, because drafters may commit errors or omissions in the transfer process. To reduce the likelihood of boring log or monitoring well misinterpretation, contractors should be given ready access to the complete geotechnical engineering/environmental report prepared or authorized for their use. If access is provided only to the report prepared for you, you should advise contractors of the report's limitations, assuming that a contractor was not one of the specific persons for whom the report was prepared, and that developing construction cost estimates was not one of the specific purposes for which it was prepared. While a contractor may gain important knowledge from a report prepared for another party, the contractor should discuss the report with your consultant and perform the additional or alternative work believed necessary to obtain the data specifically appropriate for construction cost estimating purposes. Some clients hold the mistaken impression that simply disclaiming responsibility for the accuracy of subsurface information always insulates them from attendant liability. Providing the best available information to contractors helps prevent costly construction problems and the adversarial attitudes that aggravate them to a disproportionate scale. READ RESPONSIBILITY CLAUSES CLOSELY. Because geotechnical/environmental engineering is based extensively on judgment and opinion, it is far less exact than other design disciplines. This situation has resulted in wholly unwarranted claims being lodged against consultants. To help prevent this problem, consultants have developed a number of clauses for use in their contracts, reports and other documents. These responsibility clauses are not exculpatory clauses designed to transfer the consultant's liabilities to other parties; rather, they are definitive clauses that identify where the consultant's responsibilities begin and end. Their use helps all parties involved recognize their individual responsibilities and take appropriate action. Some of these definitive clauses are likely to appear in your report, and you are encouraged to read them closely. Your consultant will be pleased to give full and frank answers to your questions.

The preceding paragraphs are based on information provided by the ASFE/Association of Engineering Firms Practicing in the Geosciences, Silver Spring, Maryland

Revised June 3, 2015 Page 1 of 3

Revised June 3, 2015 SCOPE OF WORK

(Formal Appraisal & Summary Appraisal Report)

1. The Municipality of Anchorage, Merrill Field Airport, request real estate appraisal services of City Electric commercial properties located in Anchorage Alaska along Orca Street, more particularly described as:

Lots 10-16, Block 10, Merrill Field Subdivision, East Addition, on the official plat filed October 7, 1948 under Plat Number P-164, filed in the records of the Anchorage Recording District, Third Judicial District, State of Alaska. Parcels total approximately 62,358 square feet.

The title of the properties described are vested in two entities, RDGP Realty, LLC and MHC, Inc., more particularly described as City Electric, Inc.

2. Provide a Complete Appraisal & Summary Appraisal Report in accordance with USPAP requirements and with FAA Advisory Circular entitled "Land Acquisition and Relocation Assistance for Airport Improvement Program (AIP) Assisted Projects", Advisory Circular AC No. 150/5100-17 dated November 7, 2005 requirements, and specifically with AC No. 150/5100-17, Chapter 2, Real Property Appraisal. A complete copy of AC No. 150/5100-17 can be viewed at http://www.faa.gov/regulations_policies/advisory_circulars/.

3. Perform a complete visual inspection of the interior and exterior areas of the subject property. The appraisal report shall contain an adequate description of the physical characteristics of the property being appraised including items identified as personal property, a statement of the known and observed encumbrances, if any, title information, location, zoning, present use, and analysis of highest and best use, and at least a 5-year sales history of the property.

4. The property owner will be afforded the opportunity to accompany the appraiser

on the inspection of the property. 5. Research, analyze, and verify comparable sales with pubic sources and with a

party to the transaction, buyer, seller, or broker or attorney. 6. The appraiser in developing and reporting the appraisal shall disregard any

decrease or increase in the fair market value of the real property caused by the project for which the property is to be acquired, or by the likelihood that the property would be acquired for the project, other than that due to physical deterioration within the reasonable control of the owner. If necessary, the appraiser may cite Jurisdictional Exception of Supplemental Standards under USPAP to ensure application of this regulatory requirement.

http://www.faa.gov/regulations_policies/advisory_circulars/


7. Report his or her analysis, opinions, and conclusions in this appraisal report. 8. The appraisal report must include a sketch of the property and provide the

location and dimensions of the improvements. The appraisal shall include adequate photographs of the subject property and comparable sales and provide location maps of the property and comparable sales.

9. Four copies of the summary appraisal report for the parcels requested shall be

delivered to Merrill Field Airport, 800 Merrill Field Drive, Anchorage, Alaska, no later than three (3) weeks after the Notice to Proceed is issued. It is anticipated that the Notice to Proceed will be issued on or about June 8, 2015.

10. The Appraiser warrants that he has not employed or retained any company, firm,

or person other than a bonafide employee working solely for him to solicit secure this agreement, and that it has not paid or agreed to pay any company, firm, or person other than a bonafide employee working solely for him, any fee, commission, percentage, brokerage fee, gift or any other consideration, contingent upon or resulting from the award or making of this agreement. For breach or violation of this warranty, the Municipality of Anchorage shall have the right to annul this agreement without liability.

INTENDED USE: The intended use of this appraisal is to provide an appraised current fair market value of the property for the proposed acquisition of the property in fee simple for a Federally assisted airport project. INTENDED USER: The intended user of this appraisal report is the Airport Sponsor (Municipality of Anchorage). DEFINITION OF FAIR MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised, and each acting in what he or she

considers his or her own best interest; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U.S. dollars or in terms of financial

arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected

by special or creative financing or sales concessions granted by anyone associated with the sale.

CERTIFICATION: In addition to the appraiser’s certification required under USPAP, the appraisal shall provide the attached certification, FAA form 5100-111. Modifications


or deletions to the certifications are not permitted. However, additional certifications that do not constitute material alterations to this appraisal report, such as those required by law or those related to the appraiser’s continuing education or membership in an appraisal organization are permitted. ASSUMPTIONS AND LIMITING CONDITIONS: The appraiser shall state all relevant assumptions and limiting conditions necessary. In addition the sponsor may provide other assumptions and conditions that may be required for the particular appraisal assignment, such as:

1. The data search requirements and parameters that may be required for the project.

2. Identification of the technology requirements, including approaches to value, to be used to analyze the data.

3. Need for machinery and equipment appraisals, soil studies, potential zoning changes, etc.

4. Instructions to the appraiser to appraise the property “As Is” or subject to repairs or corrective action.

5. As applicable include any information on property contamination to be provided and considered by the appraiser in making the appraisal.

MacSwain Associates LLC 4401 Business Park Boulevard, Suite 22, Anchorage, Alaska 99503

Appraiser: Steve MacSwain, MAI Member of Appraisal Institute - No. 5700 State of Alaska, Certified General Real Estate Appraiser - No. 42

Professional Experience: 1986 to Present - MacSwain Associates LLC 1976 to 1986 - Appraisal Company of Alaska - President 1970 to 1975 - Real Estate Services Corporation – Appraiser 1969 to 1970 - State of Alaska Department of Highways - Right of Way Agent

Real estate appraiser and consultant of all property types throughout Alaska including commercial, industrial, subdivisions and special-purpose properties. Appraisals have been performed for financing, leasing, insurance, condemnation, taxation, property damages, investment analysis, and buy-sell decisions. Appraisals include valuation of both real property and business enterprises. Professional experience totals 45 years.

Education: Bachelor of Business Administration, Finance (1969), University of Alaska Fairbanks

Appraisal Education: The following is a list of completed appraisal courses and seminars.

2015 – Litigation Appraising: Specialized Topics and Applications by the Appraisal Institute 2015 – Business Practices and Ethics by the Appraisal Institute

2014 – Uniform Standards of Professional Appraisal Practice – Update by the Appraisal Institute 2013 – Complex Litigation Appraisal Case Studies by the Appraisal Institute 2013 – Uniform Appraisal Standards for Federal Land Acquisitions (Yellow Book) by the Appraisal Institute 2012 – Appraisal Curriculum Overview by the Appraisal Institute 2010 – Reviewing Appraisals in Eminent Domain by the International Right of Way Association 2010 – Commercial Appraisal Engagement and Review Seminar for Bankers and Appraisers by the Appraisal Institute

2009 – The Appraiser as an Expert Witness: Preparation and Testimony by the Appraisal Institute 2009 – Attacking and Defending an Appraisal in Litigation by Whitmer Education 2008 – Uniform Standards of Professional Appraisal Practice by the Appraisal Institute

2007 – Business Practices and Ethics by the Appraisal Institute

2007 – Eminent Domain Law for Right of Way Professionals by the International Right of Way Association

2007 – Appraisal Review for Federal Aid Programs by the International Right of Way Association

2007 – Analyzing Operating Expenses by the Appraisal Institute

2007 – Forecasting Revenue by the Appraisal Institute

2007 – Case Studies in Highest and Best Use by the Appraisal Institute

2002 – Uniform Standards for Federal Land Acquisitions: Practical Applications for Fee Appraisers by the Appraisal Institute 2002 – Legal Aspects of Easements by the International Right of Way Association

2001 – Partial Interest Valuation Undivided by the Appraisal Institute

2001 – Special Purpose Properties Divided by the Appraisal Institute

1969-2000: Numerous appraisal classes pertaining to principles, income capitalization, cost analysis, sale comparison approach, and highest and best use analysis by the Appraisal Institute, Society of Real Estate Appraisers, International Right-of-Way Association, International Association of Assessing Officers, and Marshall Valuation Service

Membership and Organizations: Member of Appraisal Institute – No. 5700 Member of International Right of Way Association Member of Building Owners and Managers Association (BOMA), Anchorage

Public Service: Past Chairman of the State Board of Certified Appraisers Past member of Board of Equalization, Municipality of Anchorage Past member of National Experience Review Committee of the Appraisal Institute Past member of Regional Ethics and Counseling Panel of the Appraisal Institute Past president of Alaska Chapter 57 of the Appraisal Institute

Significant Assignments: Appraised the Trans-Alaska Pipeline System, an 800-mile common carrier crude oil pipeline from Prudhoe Bay

to Valdez, operated by Alyeska Pipeline Service Company. Appraised Calais Company, Inc., a real estate holding company consisting of 39 commercial parcels in

Anchorage. Principal real estate consultant and expert witness for all lands affected by the Exxon Valdez oil spill. Project

involved over 2,000,000 acres of remote land and nearly 2,000 private property owners. Appointed as a representative of a three-member panel that analyzed and valued over 1,000,000 acres and 8,000

parcels for the Mental Health Lands Settlement. Contract assessor for the North Slope Borough, Kodiak Island Borough, City of Nome, and the City of Valdez. Represented Seibu Alaska, Inc. (Alyeska Resort and Alyeska Prince Hotel) in preparing of their property tax

appeal with the Municipality of Anchorage that resulted in a $65 million reduction in assessed value. Appraised submerged tideland parcels and wetlands parcels located in Womens Bay on Kodiak Island for the

purpose of an exchange between Koniag, Inc. and U.S. Fish and Wildlife Service Appraised Common Carrier Pipeline right-of-ways leased and operated by BP Transportation Alaska and

ConocoPhillips Alaska. Appraised 3,600 acres consisting of the former Adak Naval Air Station and Submarine Base conveyed to the

City of Adak and the State of Alaska. Appraised and/or provided consulting services on properties throughout Alaska including numerous financial

institutions, Native corporation lands, and real estate holding companies both public and private.

Expert Witness Experience: Steve MacSwain is qualified as an expert witness in both the United States Federal Court and the State of Alaska Superior Court. Steve has testified as an expert witness in State and Federal courts. In addition, Steve has testified as expert witness in numerous Alaskan municipal tax courts, public hearings, and depositions on matters related to real property.

Arbitrator Experience: Appointed a Master by the Superior Court of Alaska and Municipality of Anchorage to serve as an arbitrator in determining just compensation.

MacSwain Associates LLC - Anchorage, Alaska...MacSwain Associates LLC 15-2844: City Electric...

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