Exhibit (c)(3)
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
ANALYSIS OF LAND COMPARABLES
COMPARABLE LAND SALE NOS. I THRU 5 are market oriented sales of non-waterfront
or "dry" tracts located inside "The Port" neighborhood or adjacent comparable
neighborhoods. These five land sales are utilized in the valuation of the
"UNIVERSAL PARTNERS" Parcel. This portion of the appraised property is the only
non-waterfront or "dry" tract and Comparable Land Sale Nos. 1 thru 5 are
considered reliable indicators of value.
COMPARABLE LAND SALE Nos. A, 6 AND 7 are considered important comparables
because these are the only three market oriented sales of waterfront tracts
located inside "The Port of Iberia" neighborhood. The most recent sale (LAND
SALE A) is significantly higher than the older sales, but likely was because it
was one of the few remaining vacant sites in the area available for sale. The
other two sales (Sale Nos. 6 & 7) are dated (1993), but are considered reliable
indicators of neighborhood waterfront land values.
COMPARABLE LAND SALE Nos. 8 THRU 13 are sales of waterfront parcels located in
the Morgan City/Amelia, Louisiana market area. This St. Mary Parish neighborhood
is industrial oriented and waterfront land sales/leases are much more prevalent
than in the neighborhood of the appraised properties. LAND LEASE COMPARABLE NOS.
14 THRU 24 are waterfront ground leases located in the Morgan City-Amelia
market. This group of Comparable Sales and Leases are utilized to value the
waterfront parcels of the appraised properties ("West Yard", "East Yard", "Allen
Process Systems", and "OBI").
In comparing the land comparables to the appraised parcels, they must be
adjusted to the appraised parcels to account for differences between these
properties and each of the appraised tracts. In order to complete the analysis,
six (6) main factors are considered in the adjustment process:
1. Property rights conveyed
2. Financing terms
3. Conditions of sale
4. Expenditures immediately after purchase
5. Market conditions (time)
6. Location, physical/economic characteristics, use, non-realty components
Each of the Land Sales involved the transfer of Fee Simple ownership rights
while the leased parcels involved the leasing of the market oriented underlying
land rights. In this present analysis, the appraiser is estimating the current
market value of the Unencumbered Fee Simple ownership rights in each of the
seven (7) appraised parcels (i.e. assuming unencumbered by lease).
While several of the appraised parcels ("East Yard", "Allen Process Systems",
"OBI") are owned by others, in this first analysis, the appraiser estimates the
value of the Unencumbered Fee Simple Interest in the underlying land assuming
unencumbered by lease. This analysis assists the appraiser in determining
whether or not there is any inherent or marketable value in the Leasehold
Interest in the underlying land in these leased parcels.
II-31
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
ANALYSIS OF LAND COMPARABLES (CONTINUED)
Each of the Comparable Land Sales were "Cash Sale" transactions and thus the
Sale prices were not considered affected by any finance terms. Thus, none of the
sales are adjusted for "FAVORABLE FINANCING TERMS".
The appraiser has verified the terms of each land sale and waterfront lease with
a party (Vendor, Vendee, sales agent, appraiser, etc.) to the transaction. Each
was verified as an "arm's length" transaction.
Other than COMPARABLE LAND SALE NO. 3, no adjustments are considered necessary
for "CONDITIONS OF SALE". COMPARABLE LAND SALE NO. 3 is the purchase of an
adjacent 16.46 acre tract by "Omega Services". According to the President
(Thomas Granger) of "Omega", the company had to have this parcel to expand its
fabrication yard. The price paid was excessive (approximately "double the market
price" according to Mr. Granger). Based upon an analysis of comparative data
(COMPARABLE LAND SALE NOS. 1, 2 AND 4), it would support a +/-50% to +/-60%
downward adjustment of "CONDITIONS OF SALE" to Comparable Land Sale No. 3.
No adjustment is considered applicable to the Comparable Land Sales for
"EXPENDITURES IMMEDIATELY AFTER PURCHASE". This was verified during the
interviews of the sale participants (Vendor, Vendee, sales agent, appraiser,
etc.) of each of the sales.
"MARKET CONDITIONS" reflect the change in the prices paid for real property due
to changes in market conditions and the purchasing power of money over time.
This adjustment is derived by analyzing changes that have occurred over time and
determining their effect on the property during the time period. Changes may
result in appreciation or depreciation in value due to inflation or deflation.
Although this adjustment is often referred to as a "time" adjustment, time is
not the cause of the adjustment. Market conditions which shift over time create
the need for an adjustment, not time itself.
The current demand for waterfront industrial property is good. According to Port
Executive Director, Roy Pontiff, "The Port of Iberia" is presently full. As a
result, an additional +/-153 acres of waterfront property is being developed by
the Port Commission. The project is not yet complete and approximately one-half
of the development has been pre-leased at rental rates based on +/-$50,000 per
acre (raw land value). This demand factor suggests that waterfront land values
are rising.
Comparable Land Sale No. 8 is the resale of COMPARABLE LAND SALE NO. 11. The
calculated appreciation rate over the six month time period is +17.65%. A
portion of this increase (+/-15%) is due to the "below market" conditions of
sale attributable to COMPARABLE LAND SALE NO. 11. Thus, when these factors are
considered, the imputed adjustment due to "MARKET CONDITIONS" from this sale is
approximately +6% per year.
II-32
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
ANALYSIS OF LAND COMPARABLES (CONTINUED)
COMPARABLE LAND SALE NOS. 1, 2 AND 4 have comparable locations and comparable
sizes. The difference in price per acre is approximately 13% over the +/-2 year
time period. When these factors are considered, the imputed adjustment due to
"MARKET CONDITIONS" from these sales is approximately 6.5% a year.
Based upon these analyses, the appraiser has adjusted the Comparable Land Sales
about 6% per year for changes in "MARKET CONDITIONS" between the date of sale
and current date of this valuation. This rate of increase is greater than
general inflation trends (2%-4% per year) but this would be considered
consistent with the ongoing demand for a limited supply of good industrial land
in the area.
LOCATION is often an important consideration. The "Universal Partners" Parcel is
located adjacent to "The Port of Iberia" which is comparable to the locations of
COMPARABLE LAND SALE NOS. 1 THRU 4. COMPARABLE LAND SALE NO. 5 is considered to
have a superior location (closer to U.S. Highway 90) and must be adjusted down
for this superior feature. The size of the location adjustment is derived by
comparing Comparable Land Sale No. 5 to the adjusted values of the other four
sales.
The waterfront tracts have similar adjustments. Differences, if any, are subtle.
Industrial synergy at the Port ofIberia is comparable to synergy in the Morgan
City/Amelia neighborhood. COMPARABLE LAND SALE NOS. A, 6 & 7 are waterfront
tracts located adjacent to "The Port of Iberia" and the most recent of these
sales is emphasized in this value analysis.
ZONING is not considered an issue. Like the appraised properties, most of the
comparable properties are unzoned but located in industrial oriented
neighborhoods.
LAND SIZE is often an important factor. Land Size adjustments in the market
place have not shown any real consistency. The trend, however, is apparent.
Smaller sized parcels typically sell for more per unit than comparable larger
parcels. The reverse is also true. The trend is evident. Lease rates are "The
Port" are based on a percentage of land value. Among similar waterfront tracts,
rent per acre for smaller sized parcels is greater than the unit rent for
similar larger parcels. Thus, the LAND SIZE adjustments are made to attempt to
reflect these market trends.
Thus, the land analysis adjustments are considered to be market supported. Some
of the adjustments for size and time are relatively large. Due to the limited
amount of sales data, large adjustments are necessary. Comparable Land Sale A is
utilized even though it is so much smaller than the appraised sites. This sale
is the most recent neighborhood waterfront land sale and thus it is considered
important to this land value analysis.
The adjustment process relative to each of the Appraised Parcels are summarized
on the following pages:
11-33
"WEST YARD-NORTH PARCEL"
(+/-66.61 ACRES, WATERFRONT TRACT)
COMPARABLE LAND SALES ANALYSIS
[OMITTED]
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
LAND VALUE ESTIMATE "WEST YARD - NORTH PARCEL"
The sales analysis grid indicates a unit value range for the "West Yard - North
Parcel" of $36,367 to $46,953 per acre. A wide range is common in a "seller's
market" scenario. Because of a limited supply of waterfront industrial property,
sales are limited and property owners are in the enviable position of "naming
their price".
Because of the inconsistent nature of the adjusted per acre value range, the
appraiser have also considered the comparative waterfront lease data.
COMPARABLE LAND LEASE NOS. 22 - 24 are recently negotiated waterfront leases of
property located in the Amelia neighborhood of St. Mary Parish. Like the
appraised parcels, these are waterfront tracts located on a relatively shallow
(12'- 15') waterway which connects with the Intracoastal Waterway. These three
lease agreements were renegotiated in 1999 and are reflective of current
industrial market conditions. The land areas range in size between 8.531 acres,
10.72 acres, and 44.78 acres. Our study of land leases indicates that rates are
typically set based on an 8%-12% return. Most ground-lease agreements are based
on a 10% rate of return. This was verified by an interview with the "H & B Young
Foundation" which is a major waterfront land owner in the Morgan City/Amelia
market. We also interviewed Mr. Charles Thibodaux and Mr. Frank Domino who own a
significant amount of waterfront industrial property. The consensus is that a
10% capitalization is common for ground-lease agreements. By capitalizing the
per acre per year lease rates of Comparable Land Lease Nos. 22, 23 and 24, an
estimated underlying land value range of between $33,497 and $58,610 per acre is
derived. The larger sized tract (Comparable Land Lease No. 24) represents the
low end of the range which is consistent with the fact that among similar
properties, larger tracts typically generate lower unit values.
The "West Yard - North Parcel" is relatively large. It is an excellent
industrial fabrication site. It has frontage (+/-880 feet) on the east side of
Port Road and water-frontage along the west bank of the Rodere Canal (navigable
waterway) totals approximately 2,380 feet. There are two boat slips and a
loading ramp located on the east side of this parcel. Although the shape of the
parcel is irregular, its depth and overall size are such that the utility of the
tract is not adversely affected by its irregular shape.
Based on the abundance of comparative data, the appraiser has concluded a value
of $30,000 per acre as the current Market Value of the underlying land of the
+/-66.61 acre "West Yard- North Parcel".
"WEST YARD - NORTH PARCEL" - LAND VALUE SUMMARY:
+/-66.61 ACRES @ $30,000 PER acre = $ 1,998,300
ESTIMATED MARKET VALUE OF
UNENCUMBERED FEE SIMPLE INTEREST
IN THE "WEST YARD-NORTH PARCEL"
CONSIDERED "AS IF VACANT LAND" -SAY-
$ 2,000,000
B-35
"WEST YARD-SOUTH PARCEL"
(+/-27.79 ACRES, WATERFRONT TRACT)
COMPARABLE LAND SALES ANALYSIS
[OMITTED]
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
LAND VALUE ESTIMATE "WEST YARD - SOUTH PARCEL"
The sales analysis grid on the preceding page indicates a wide unit value range
for the "West Yard - South Parcel" of $38,331 to $50,306 per acre. The unit
value from Comparable Land Sale No. 8 is above that reflected by the other two
sales. The other two sales support a more consistent value range between $38,331
and $41,200. The mean indication from these two sales of $39,766 per acre.
This waterfront land area has +/-1,460 feet on the west side of the Rodere Canal
and a relatively new boat slip which further enhances its market appeal. A
negative feature is the fact that it does not have frontage on a public road.
Access is via a right-of-way across the "West Yard - North Parcel". The
appraiser has adjusted the sales downward under the "Other" category to reflect
the lack of road frontage.
Thus, the appraiser has concluded a market value estimate of $40,000 per acre as
the unit value of the underlying land of the "West Yard - South Parcel".
"WEST YARD - SOUTH PARCEL" - LAND VALUE SUMMARY:
+/-27.79 ACRES @ $40,000 PER ACRE = $ 1,111,600
ESTIMATED MARKET VALUE OF
UNENCUMBERED FEE SIMPLE INTEREST
IN THE "WEST YARD-SOUTH PARCEL"
CONSIDERED "AS IF VACANT LAND" -SAY- $ 1,110,000
-----------
"EAST YARD-NORTH PARCEL"
(+/-28.0 Acres, Waterfront TRACT)
COMPARABLE LAND SALES ANALYSIS
[OMITTED]
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
LAND VALUE ESTIMATE "EAST YARD - NORTH PARCEL"
The sales analysis grid on the preceding page indicates a wide unit value range
for the "East Yard - North Parcel" of $45,095 to $60,368 per acre. The unit
value from Comparable Land Sale No. 8 is clearly inconsistent with the abundance
of data. The other two sales support a more consistent value range between
$45,095 and $53,560.
This waterfront land area has +/-2,200 feet of frontage on the south side of
Port Road and +/-450 feet of frontage on the west side of Curtis Lane (Iberia
Parish Road 911). Frontage along the east bank of the Rodere Canal totals +/-600
feet. Two boat slips extend from the canal into the west side of the property.
Thus, the appraiser has concluded a market value estimate of $45,000 per acre as
the unit value of the underlying land of the "East Yard - North Parcel".
"EAST YARD - NORTH PARCEL" - LAND VALUE SUMMARY-.
+/-28.0 ACRES @ $45,000 PER ACRE = $ 1,260,000
ESTIMATED MARKET VALUE OF
UNENCUMBERED FEE SIMPLE INTEREST
IN THE "EAST YARD-NORTH PARCEL"
CONSIDERED "AS IF VACANT LAND" -SAY- $ 1,260,000
-----------
"EAST YARD-SOUTH PARCEL"
(+/-19.53 Acres, Waterfront Tract)
COMPARABLE LAND SALES ANALYSIS
[OMITTED]
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
LAND VALUE ESTIMATE "EAST YARD - SOUTH PARCEL"
The sales analysis grid on the preceding page indicates a wide unit value range
for the "East Yard - South Parcel" of $45,095 to $60,368 per acre.
A highly unusual aspect of this parcel is the fact that it has a very irregular
shape. The tract "narrows down" near its center and this has an adverse effect
on utility. Although the appraiser has no comparative data with which to
forecast the value loss, the appraiser would believer that the value of this
property is less than the value of a similar tract without the highly irregular
shape. Positive attributes include frontage along the east bank of the Rodere
Canal (+/-550 feet) and a boat slip which extends +/-1,127 feet along the north
boundary line. The tract also has frontage (+/-350 feet) on the west side of
Curtis Lane.
Because of the irregular shape of this parcel, the appraiser has concluded a
market value estimate of $45,000 per acre as the unit value of the underlying
land of the "East Yard - South Parcel".
"EAST YARD - SOUTH PARCEL" - LAND VALUE SUMMARY:
+/-19.53 ACRES @ $45,000 PER ACRE = $ 878,850
ESTIMATED MARKET VALUE OF
UNENCUMBERED FEE SIMPLE INTEREST
IN THE "EAST YARD-NORTH PARCEL"
CONSIDERED "AS IF VACANT LAND" -SAY- $ 880,000
---------
11-41
"ALLEN PROCESS SYSTEMS LEASED PARCEL"
(+/-20.585 ACRES, WATERFRONT TRACT)
COMPARABLE LAND SALES ANALYSIS
[OMITTED]
SITE VALUATION
SITES "AS IS VACANT & UNENCUMBERED BY LEASES"
(CONTINUED)
LAND VALUE ESTIMATE "ALLEN PROCESS SYSTEMS LEASED PARCEL"
The sales analysis grid on the preceding page indicates a wide unit value range
for the "Allen Process Systems Leased Parcel" of $45,095 to $60,368 per acre.
This parcel has good industrial utility. It has +/-820 feet of frontage on the
south side of Port Road and +/-1,000 feet along the western bank of the
Commercial Canal (navigable waterway). There is a boat slip located in the
southeast corner of this parcel and a rail spur crosses the property.
Based upon the analysis, the appraiser has concluded a market value estimate of
$50,000 per acre as the unit value of the underlying land of the "Allen Process
System Leased Parcel" assuming it was unencumbered by lease.
"ALLEN PROCESS SYSTEM LEASED PARCEL" - LAND VALUE
SUMMARY:+/-20.585 ACRES @ $50,000 PER ACRE = $ 1,029,250
ESTIMATED MARKET VALUE OF
UNENCUMBERED FEE SIMPLE INTEREST
IN THE "ALLEN PROCESS SYSTEM LEASED
PARCEL" CONSIDERED "AS IF VACANT
LAND" AND UNENCUMBERED BY LEASE" -SAY- $ 1,030,000
-----------
WEST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
According to information provided by Mr. Mark Borel of Berard, Habetz &
Associates (New Iberia, Louisiana), the "West Yard-North Parcel" encompasses a
+/-66.61 acre area and has frontage (+/-880 feet) on the east sidE of Port Road.
Unifab Road provides access to this land area. Water-frontage along the west
bank of the Rodere Canal (navigable waterway) totals approximately 2,380 feet.
There are two boat slips and a loading ramp located on the east side of this
parcel. Although the shape of the parcel is irregular, its depth and overall
size are such that the utility of the tract is not adversely affected by its
irregular shape. Approximately 24 acres are super-stabilized (12"-15" deep) for
heavy fabrication work. The remaining land area (+/-40 acres) has average
stabilization features (1 "-3" deep). Portions of the Rodere Canal shoreline are
erosion protected by bulkhead materials (+/-1,480 linear feet).
The Main Office Building located on this parcel as well as the Main Industrial
Fabrication Buildings. The buildings contain a total of +/-308,162 square feet
and most are in average physical condition (20-25 years old). Other improvements
include cranes, waterfront bulkheading (+/-1,390 linear feet), and site
stabilization material. This industrial yard has seven work-stations. The land
and BUILDINGS ON THIS PARCEL ARE OWNED BY "UNIFAB". THE APPRAISER'S ESTIMATE OF
CURRENT MARKET Value is of the UNENCUMBERED FEE SIMPLE INTEREST in and to the
appraised property.
The MAIN OFFICE BUILDING contains +/-12,978 square feet. This "Class S"
structure has a concrete slaB foundation, corrugated metal walls/roof, brick
veneer front, and sliding glass windows. The entire building is heated/cooled by
five (5) ground-mounted air-conditioning compressors. Interior features include
vinyl covered wall panels, a suspended ceiling panel system, recessed
fluorescent lights, vinyl floor cover, and carpet. The building was constructed
in 1980 and appears to be +/-21 years old. It is in average condition. The
estimated total useful economic life of the MAIN OFFICE BUILDING is +/-45 years.
With an estimated effective age of 21 years, accrued physical depreciation is
estimated at approximately 47%.
The PERSONNEL/SAFETY OFFICE BUILDING is a "Class C" structure with a wood
exterior and concrete pier foundation. The hip-styled roof has asphalt roof
shingles. The building appears to be +/-20 years old and is in fair to poor
condition. Construction features include vinyl floor cover, prefinished wall
panels, textured ceilings, and fluorescent light fixtures. The exterior of the
building has plywood panels. The estimated effective age of the PERSONNEL/SAFETY
OFFICE BUILDING is 30 years. The estimated total useful economic life of the
+/-1,109 square foot building is +/-40 years. The imputed accrued physical
depreciation rate is +/-75%.
The "Class S" COMPRESSOR BUILDING contains +/-1,083 square feet. This building
has a +/- 12-foot eave, concrete slab foundation, and corrugated metal
walls/roof. The building does not have any finished office space. Other features
include roof vents, fluorescent light fixtures, and wall vents. The building is
approximately 20 years old and is in average condition and thus has an estimated
effective age of 20 years. Based on an estimated total life of +/-40 years, the
building is estimated to have +/-50% accrued physical depreciation.
111- 16
WEST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
(CONTINUED)
The "Class S" COMPRESSOR/PIPE BUILDING contains +/-15,768 square feet and has
+/-256 square feet of finished office space. The building is approximately 25
years old and is in average condition. Construction features include a concrete
slab foundation (heavy-duty), incandescent lights, roof vents, fiber-glass
panels (natural light), and wall ventilation fans. The office space in this
building has asphalt floor tile, vinyl covered wall panels, fluorescent light
fixtures, and a window air-conditioning unit. The estimated effective age of
this building (+/-25 years) is similar to its chronological age. With an
estimated total useful life of +/-45 years, the estimated accrued physical
depreciation IS 56%. Attached to the building is a +/-968 square foot work slab.
The CRANE SYSTEM has automatic controls and includes three 10-ton bridge cranes
and one 5-ton crane (+/-60-foot span, +/-265-foot rail). Also included are two
jib cranes (2-ton units). The CRANE SYSTEM in the COMPRESSOR/PIPE BUILDING has
an expected total useful life of +/-30 years and an effective age of about 20
years, the appraiser has estimated accrued physical depreciation to the crane
system of +/-66.7%.
The DIESEL STORAGE BUILDING is a "Class S" structure which is in poor condition.
The building contains +/-1,026 square feet. The eave height of the building
varies between 20 feet and 25 feet. Construction features include a concrete
slab foundation, corrugated metal walls/roof, pole infrastructure, and
incandescent lights. Interior walls and ceiling are exposed metal. The building
is open on the west end. Based on a total useful life of +/-40 years and an
effective age of +/-30 years, the estimated accrued physical depreciation is
75%.
The small (+/-256 sf) free-standing RESTROOM BUILDING is a "Class S" structure
will corrugated metal walls and roof. It has concrete floors, a wall ventilation
fan, incandescent light fixtures, and a floor drain. Fixtures include three
toilets and a urinal. The building appears to be +/-20 years old and is in
average condition. The building would have an estimated effective age of 20
years. With an estimated total useful life of +/-40 years, the estimated accrued
physical depreciation is 50%.
The +/-40,575 WAREHOUSE BUILDING has a concrete slab foundation, corrugated
metal walls/roof, natural light panels, wall-mounted ventilation fans, exterior
lights, and fluorescent fixtures. This +/-20-year old building is in average
condition and has a +/-25-foot eave. Second floor office space totals +/-5,164
square feet and the concrete apron has +/-8,400 square feet. Office features
include vinyl floor tile, window air-conditioning system, vinyl covered wall
panels, a suspended ceiling panel system, and recessed fluorescent light
fixtures. The estimated effective age is +/-20 years. The estimated total
economic life of the building is +/-45 years which indicates a 45% estimated
accrued physical depreciation.
The +/-11,200 square foot MAINTENANCE SHOP BUILDING has a +/-30-foot eave,
concrete slab foundation, exterior lights, sliding doors (3), and roof vents.
Finished office space totals +/-1,200 square feet and there is a concrete apron
(+/-3,600 so. Office interior features include prefinished wall panels, window
air-conditioning system, fluorescent lights, vinyl floor cover, and a suspended
ceiling panel system. The shop/warehouse area is open on the south end of the
building. The building has an effective age of +/-20 years and a total useful
life of +/-45 years (45% estimated accrued physical depreciation). The CRANE
SYSTEM includes two 5-ton bridge
111- 17
WEST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
(CONTINUED)
cranes (+/-60-foot span, +/-120-foot rail). The cranes appear to be +/-15 years
old and are thus estimated to have accrued physical depreciation of +/-50%.
The HAND-RAIL SHOP is a large structure (+/-27,180 so with corrugated walls/roof
and a steel infrastructure. Construction features include a heavy-duty slab,
wall vents, and incandescent light fixtures. The building is open on the south
end. The interior of the building has exposed metal walls and ceiling. With an
estimated effective age of about 25 years and a total economic life of 45 years,
the estimated accrued physical depreciation is +/-56%. The CRANE SYSTEM
(automatic controls) includes two 20-ton bridge cranes and a 5-ton unit. The
span is approximately 60 feet and the rail system extends +/-220 feet. The CRANE
SYSTEM has an estimated effective age of 15 years out of a total estimated
economic life of 30 years or has an estimated +/-50% accrued physical
depreciation.
On the east side of the HAND-RAIL BUILDING is a CONCRETE WORK SLAB (+/-18,000
sf). With an effective age of 20 years and a total economic life of 40 years,
the estimated accrued physical deprecation rate is 50%.
The PAINT SHED and PAINT STORAGE BUILDING have a combined square footage of
+/-3,930. The attached concrete apron totals +/-980 square feet. Construction
features include a concrete slab foundation, incandescent light fixtures,
fiber-glass panels (natural light), wall ventilation fans, and sliding metal
doors (west side). The buildings appear to be +/-20 years old and have a +/-
14foot eave. The condition of the improvements is average. The estimated
effective age of these buildings is +/-20 years. With an estimated total useful
life of +/-40 years,. the estimated accrued physical depreciation is 50%.
The MAIN FABRICATION SHOP is a huge "Class S" structure with an +/-87-foot eave
and fourteen 20-ton bridge cranes (automatic controls, +/-70-foot span,
+/-450-foot rail). Attached to the west side of the shop is the ROLL-MILL with
additional cranes (two 10-ton bridge cranes, two 25-ton bridge cranes, one 5-ton
bridge crane, and three 10-ton bridge cranes). These cranes have automatic
controls, a +/-60-foot span, and a +/-700-foot rail. The MAIN FABRICATION SHOP
has +/-131,587 square feet and the ROLL-MILL adds another +/-56,1 10 square
feet. Work slabs and aprons total +/-40,400 square feet. Construction features
of the shop include a heavy-duty slab foundation, steel frame infrastructure,
metal walls/roof, incandescent light fixtures, and fiberglass natural light
panels. A portion of the shop floor is stabilized limestone. The second floor
shop office area has prefinished wall panels, vinyl floor cover, a suspended
ceiling panel system, recessed fluorescent lights, and is heated/cooled by a
central air-conditioning system. The ROLLMILL has a +/-35-foot eave with an
enclosed office area (quality-control, drafting). The office features include
vinyl floor cover, exposed concrete floors, batt insulation wall/ceiling panels,
suspended fluorescent light fixtures, vinyl covered wall panels, a suspended
ceiling panel system, and recessed fluorescent lights. The office space is
heated/cooled by a central airconditioning system.
III - 18
WEST YARD-NORTH PARCEL
VALUATION
F CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: MAIN
OFFICE
------
Estimated Replacement Cost New $ 605,000
Less: Physical Depreciation (47%) -$ 284,400
Less: Economic/Functional Loss (10%) -$ 60,500
---------
Estimated Contributory Value of
Main Office $ 260,100
PERSONNEL/SAFETY OFFICE BUILDING
Estimated Replacement Cost New $ 42,300
Less: Physical Depreciation (75%) -$ 31,700
Less: Economic/Functional Loss (10%) -$ 4,200
---------
Estimated Contributory Value of
Personnel/Safety Office Building $ 6,400
COMPRESSOR BUILDING
Estimated Replacement Cost New $ 12,800
Less: Physical Depreciation (50%) -$ 6,400
Less: Economic/Functional Loss (10%) - $1,300
Estimated Contributory Value of
Compressor Building $ 5,100
COMPRESSOR PIPE BUILDING
Estimated Replacement Cost New $ 394,000
Less: Physical Depreciation (56%) -$ 220,600
Less: Economic/Functional Loss (15%) -$ 59,100
---------
Estimated Contributory Value of
Compressor Pipe Building $ 114,300
COMPRESSOR PIPE BUILDING CRANES
Estimated Replacement Cost New $ 214,000
Less: Physical Depreciation (66.7%) -$ 142,700
Less: Economic/Functional Loss (15%) -$ 32,100
---------
Estimated Contributory Value of
Compressor Pipe Building Cranes $ 39,200
---------
SUB-TOTAL - THIS PAGE $ 425,100
WEST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: (CONTINUED)
SUB-
TOTAL -- PRIOR PAGE (CONTINUED) $ 425,100
DIESEL STORAGE BUILDING
Estimated Replacement Cost New $ 20,400
Less: Physical Depreciation (75%) -$ 15,300
Less: Economic/Functional Loss (10%) -$ 2,000
----------
Estimated Contributory Value of
Diesel Storage Building $ 3,100
RESTROOM BUILDING
Estimated Replacement Cost New $ 3,500
Less: Physical Depreciation (50%) -$ 1,800
Less: Economic/Functional Loss (10%) -$ 400
----------
Estimated Contributory Value of
Restroom Building $ 1,300
WAREHOUSE BUILDING
Estimated Replacement Cost New $ 989,200
Less: Physical Depreciation (45%) -$ 445,100
Less: Economic/Functional Loss (10%) -$ 98,900
----------
Estimated Contributory Value of
Warehouse Building $ 445,200
MAINTENANCE SHOP BUILDING
Estimated Replacement Cost New $ 330,100
Less: Physical Depreciation (45%) -$ 148,500
Less: Economic/Functional Loss (10%) -$ 33,000
----------
Estimated Contributory Value of
Maintenance Shop Building $ 148,600
MAINTENANCE SHOP BUILDING CRANE SYSTEM
Estimated Replacement Cost New $ 100,000
Less: Physical Depreciation (50%) -$ 50,000
Less: Economic/Functional Loss (15%) -$ 15,000
----------
Estimated Contributory Value of
Maintenance Shop Building Crane System $ 35,000
----------
SUB-
TOTAL -- THIS PAGE $1,058,300
WEST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: (CONTINUED)
SUB-
TOTAL - PRIOR PAGE (CONTINUED) $1,058,300
HAND RAIL SHOP BUILDING
Estimated Replacement Cost New $ 800,000
Less: Physical Depreciation (56%) -$ 448,000
Less: Economic/Functional Loss (15%) -$ 120,000
----------
Estimated Contributory Value of
Hand Rail Shop Building $ 232,000
HAND RAIL SHOP BUILDING CRANE SYSTEM
Estimated Replacement Cost New $ 260,000
Less: Physical Depreciation (50%) -$ 130,000
Less: Economic/Functional Loss (15%) -$ 39,000
----------
Estimated Contributory Value of
Hand Rail Shop Building Crane System $ 91,000
PAINT STORAGE BUILDING
Estimated Replacement Cost New $ 50,100
Less: Physical Depreciation (50%) -$ 25,100
Less: Economic/Functional Loss (15%) -$ 7.500
----------
Estimated Contributory Value of
Paint Storage Building $ 17,500
MAIN FABRICATION SHOP COMPLEX
Estimated Replacement Cost New $7,750,000
Less: Physical Depreciation (56%) -$4,340,000
Less: Economic/Functional Loss (15%) -$1,162,500
----------
Estimated Contributory Value of
Main Fabrication Shop Complex $2,247,500
MAINTENANCE SHOP BUILDING CRANE SYSTEM
Estimated Replacement Cost New $1,875,000
Less: Physical Depreciation (33.3%) -$ 624,400
Less: Economic/Functional Loss (15%) -$ 281,300
Estimated Contributory Value of
Maintenance Shop Building Crane System $ 969,300
----------
SUB- - THIS PAGE
TOTAL TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS $4,615,600
WEST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: (CONTINUED)
SUB-TOTAL -- PRIOR PAGE (CONTINUED)
TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS $4,615,600
ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
CONCRETE WORK SLAB
Estimated Replacement Cost New $ 145,000
Less: Physical Depreciation (50%) -$ 72,500
Less: Economic/Functional Loss (15%) -$ 21,800
----------
Estimated Contributory Value of
Concrete Work Slab $ 50,700
STEEL BULKHEAD MATERIAL
Estimated Replacement Cost New $1,840,000
Less: Physical Depreciation (28.5%) -$ 524,400
Less: Economic/Functional Loss (15%) -$ 276.000
----------
Estimated Contributory Value of
Steel Bulkhead Material $1,039,600
SUPER STABILIZED YARD AREA
Estimated Replacement Cost New $1,570,000
Less: Physical Depreciation (40%) -$ 628,000
Less: Economic/Functional Loss (15%) -$ 235,500
----------
Estimated Contributory Value of
Super Stabilized Yard Area $ 706,500
LIGHTLY STABILIZED YARD AREA
Estimated Replacement Cost New $1,000,000
Less: Physical Depreciation (75%) -$ 750,000
Less: Economic/Functional Loss (10%) -$ 100,000
----------
Estimated Contributory Value of
Lightly Stabilized Yard Area $ 150,000
----------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENTS $1,946,800
PLUS: TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS $4,615,600
ESTIMATED CURRENT MARKET VALUE OF
UNDERLYING LAND "AS IF VACANT"
(66.61 acres @ $30,000/acre, rounded) $2,000,000
----------
TOTAL $8,562,400
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN WEST YARD NORTH PARCEL LEASED PROPERTY
VIA COST APPROACH TO VALUE -SAY- $8,560,000
----------
WEST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
(CONTINUED)
Located on the east side of the ROLL-MILL BUILDING is a piling rack with two
15-ton bridge cranes and one 30-ton crane unit (+/-60-foot span, +/-340-foot
rail). A 30-ton "Gaffey" gantry crane was added within the last two years. The
piling rack has a heavy-duty concrete slab for working on large/heavy pieces of
equipment and machinery. Overall, the +/-25 year old fabrication structure is in
average physical condition. The FABRICATION COMPLEX (SHOP, ROLL-MILL, OFFICES,
PILING RACK) appear to be +/-25 years old. With an estimated total usefuL life
of +/-45 years, the imputed accrued physical deprecation rate is +/-56%. The old
crane systems appear to be in good working condition and have an estimated
effective age of +/-10 years. The older cranes have a value loss of
approximately 33.3%. The newly added crane would have an effective age of +/-2
years out of a total useful life of 30 years or physical deterioration incurable
of 6.7%.
According to information provided by Mr. Mark Borel (Berard, Habetz, &
Associates, Inc.), approximately forty (40) acres of the yard area has LIGHT
STABILIZATION MATERIALS (V-3" deep). The SUPER-STABILIZED AREAS total +/-24
acres. The estimated total useful life of the stabilization (1"-3" deep)
material is +/-10 yeaRS. Super-stabilization material (12"-15" deep) has a much
longer estimated total useful life (+/-35 years). The light-stabilization
material has been applied a +/-75% physical depreciation rate. The
super-stabilized area is applied approximately 40% depreciated. STEEL BULKHEAD
along the sides of the south boat slip totals +/-830 linear feet. TIMBER
BULKHEAD amounts to +/-560 linear feet along the north slip. The estimated
useful economic life of the STEEL BULKHEAD MATERIAL is +/-35 years. The bulkhead
material is in good condition and would have an estimated effective (observed)
age of 10 years. This implies a physical deterioration rate of +/-28.5%. The
TIMBER BULKHEAD MATERIAL is in average condition and would have an estimated
accrued physical depreciation of +/-50%.
WEST YARD-NORTH PARCEL
(CONTINUED)
VALUATION
In order to estimate the current value of the FEE SIMPLE OWNERSHIP INTEREST, the
appraiser has utilized a COST APPROACH analysis and a SALES COMPARISON APPROACH
analysis, and INCOME APPROACH analysis.
COST APPROACH
The estimated value of the underlying +/-66.61 acre waterfront site "assuming
vacant" was estimated earlier in the report in the SITE VALUATION section to be
$2,000,000 ($30,000 per acre, rounded).
The cost analysis is based on cost data provided by a Cost Consultant (Fred
Moran) for the prior appraisal assignment performed in May 2000 which have been
indexed to date of appraisal. The accrued depreciation estimates are based on
the appraiser's observations during the inspections of the property made in
October 2001.
Based on our inspection of the"West Yard-North Parcel" building improvements,
deferred maintenance appears to be negligible. Other than minor repairs and
painting, deferred maintenance is not a factor. The appraiser has estimated
$20,000 as the cost of minor repairs, equipment service, and painting and
utilized this estimate as Deferred Maintenance.
The appraiser has estimated and applied a value loss to account for functional
and/or economic obsolescence to most of the "West Yard-North Parcel" buildings
and site improvements in the range of 10% to 15% depending upon the amount of
accrued physical depreciation already charged. These estimated value losses (of
+/-10% to +/-15%) reflects the specialized nature of the buildings and site
improvements. The percentage of loss is applied to the estimated replacement
cost neW of each improvement because this is the manner in which the 10%/15%
loss factor was derived.
Based on the preceding analysis of estimated replacement cost and estimates of
the various components of accrued depreciation, the ESTIMATED MARKET VALUE OF
THE UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE "WEST YARD-NORTH PARCEL"
OWNED PARCEL is summarized on the following page.
III-20
RECAPITULATION OF
SALES COMPARISON APPROACH TO VALUE
WEST YARD - NORTH PARCEL OWNED PROPERTY
BREAKDOWN METHOD ANALYSIS
CONTRIBUTORY VALUE OF BUILDINGS
IMPROVEMENTS INDUSTRIAL BUILDING
IMPROVEMENTS
295,184 S.F.@ $8.00 /S.F. AVG. $2,361,472
MAIN OFFICE BUILDING
12,978 S.F.@ $25.00 /S.F. AVG. $ 324,450
TOTAL CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS
308,162 S.F.@ $8.72 /S.F. AVG. $2,685,922
LESS: ESTIMATED DEFERRED MAINTENANCE $ 20,000
CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
Steel and Timber Bulkheads & Stabilized Areas
TOTAL CONTRIBUTORY VALUE OF SITE IMPROVEMENTS $1,900,000
CONTRIBUTORY VALUE OF CRANE SYSTEMS $1,134,500
CONTRIBUTORY SITE VALUE
66.610 Acres @ $30,000.00 /Acre $ 2000000
----------
TOTAL $7,700,422
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN WEST YARD-NORTH PARCEL OWNED PROPERTY
VIA SALES COMPARISON APPROACH TO VALUE -SAY $7,700,000
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH
The SALES COMPARISON APPROACH involves direct comparisons of the property being
appraised to similar properties that have sold in the same or in a similar
market in order to derive a Market Value indication for the property being
appraised. This approach is often referred to as the MARKET DATA APPROACH.
Located in the ADDENDUM of this report are the detailed write-ups of ten
industrial property sales (Improved Comparable Sales). For the analysis of the
Industrial Buildings of the "East Yard-North Parcel" Owned Parcel, the appraiser
has selected Improved Comparable Sale Nos.2 and 6 thru 10. The Main Office
Building is treated separately from this analysis. The emphasized sales are
summarized on the following chart.
ESTIMATED
BUILDING VALUE
SALE EFFECTIVE CONTRIBUTORY PSF
NO. SALE PRICE DATE VALUE BUILDING
- ------- ------------ ------- ------------- ----------
2 $ 1,806,948 12/00 $ 488,948 $ 7.98
6 $ 3,800,000 5/97 $ 900,000 $ 7.98
7 $11,000,000 3/97 $2,500,000 $14.04
8 $21,250,475 2/94 $1,115,475 $10.22
9 $ 4,500,000 3/97 $1,875,000 $ 6.45
10 $ 3,880,000 10/96 $1,000,000 $ 8.17
These industrial property sales of fabrication facilities are considered to be
the best available indicators of value for the appraised property. Land values
and equipment (if any) are extracted based on comparative land sales and
information provided by a party familiar with the sale transaction. Equipment
typically has a contributory value less than its depreciated cost. Contributory
Land value estimates are based on comparable neighborhood land sales. The sales
selected have been chosen due to their similarities based on building sizes,
ages, condition, and date of sale. Each Improved Comparable Sale must be
adjusted to the appraised property to account for differences between these
properties and the appraised property. Six main factors have been considered in
the adjustment process:
1. Property rights conveyed
2. Financing terms
3. Conditions of sale
4. Expenditures immediately after purchase
5. Market conditions (time)
6. Location, physical/economic characteristics, use, non-realty components
111-25
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COM ARISON A ROACH CONTINUED
Most of the Improved Comparable Sales involved the transfer of Fee Simple
ownership rights or market oriented Leased Fee ownership rights. Only Sale No. 7
was the sale of a Leasehold Interest. In the current analysis, the appraiser is
estimating the current market value of the UNENCUMBERED FEE SIMPLE ownership
rights in the "EAST YARD - NORTH PARCEL" OWNED PROPERTY "assuming unencumbered
by lease". Accordingly, no adjustment is considered necessary for "property
rights conveyed".
In addition, no adjustment is considered necessary for "financing terms" as each
sale was a Cash Sale transaction to the seller and if any financing was involved
it was via market rate first mortgage financing.
The appraiser has verified the terms of each Improved Comparable Sale with a
party (Vendor, Vendee, sales agent, appraiser, etc.) to the transaction. Each
was verified as an "arm's length" transaction. No adjustment is necessary for
"conditions of sale".
An adjustment was considered necessary to Improved Comparable Sale No. 10 for
"expenditures immediately after purchase". The other sales were utilized in
their "As Is condition" at time of sale. This was verified during our interview
of the sale participants (Vendor, Vendee, sales agent, appraiser, etc.).
"Market Conditions" reflect the change in the prices paid for real property due
to changes in market conditions and the purchasing power of money over time."
This adjustment is derived by analyzing changes that have occurred over time and
determining their effect on the property during the time period. Changes may
result in appreciation or depreciation in value due to inflation or deflation.
Although this adjustment is often referred to as a "time" adjustment, time is
not the cause of the adjustment. Market conditions which shift over time create
the need for an adjustment, not time itself. Only Sale No. 2 is relatively
recent which requires no time adjustment. The other sales are somewhat dated and
thus upward time adjustments are considered necessary based upon an annual rate
of about 2%.
In the Breakdown Method Analysis for each sale, the contributory land value is
extracted from or deducted from each sale price in order to arrive at a
contributory value of the building improvements. Since "location" differentials
are typically reflected in underlying land value, the appraiser has not applied
a "location" adjustment to the Improved Comparable Sales.
The necessary adjustments required tend to center on "building size",
"condition/construction quality", "office percentage", and "economic
characteristics".
Building size is often a factor. Among similar office and industrial buildings,
smaller sized buildings tend to sell for more per unit that comparable larger
buildings.
III-26
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH (CONTINUED)
The "West Yard-North Parcel" complex contains +/-308,162 total square feet or
295,184 square feet of industrial building area when the Main Office Building is
deducted. The sizes of the comparable building sales range between 61,241 square
feet (Sale 2) to 290,559 square feet (Sale 9). Due to the imperfect nature of
the real estate market, size adjustments are not mathematically precise. The
trend, however, is clear. Smaller sized facilities typically sell for more per
unit than comparable larger sized buildings (and vice verse). Thus, the "size"
adjustments are not considered significant to the sales being in the 5% to 15%
range.
Adjustments for "construction quality/condition" are based on age/life
comparisons. "Office percentage" has an impact on value. The greater the
percentage of office space, the greater, generally speaking, the value of the
building. The "West Yard-North Parcel" complex has +/- 15,741 square feet of
office/finished space in the Industrial Buildings which is +/-5.3% of total
building square footage. This is a relatively small percentage of total
industrial building space.
The sales comparison adjustment analysis for the industrial buildings on the
appraised property is summarized on the following adjustment grid.
The sales analysis grid reflects a contributory building unit value range prior
to adjustments between $6.45 and $14.04 per square foot. Sale 2 is the most
recent sale and indicates a unit value of $7.98 per square foot and is a much
smaller facility. Sale 6 is a smaller fabrication facility located in Gulfport,
Mississippi which was considered superior in condition and quality. Sale 7 is
the sale of the leasehold interest in a large fabrication facility in Amelia,
Louisiana which was considered superior in age/condition, quality. Sale 8 is a
large fabrication facility in Port Aransas, Texas which sold in February 1994,
but was considered fairly similar to the appraised property. Sale 9 is a large
fabrication facility in Cordova, Alabama which was considered very similar to
the appraised property. Finally, Sale 10 is an October 1996 sale of a large
fabrication facility in Pelican Island (near Galveston, Texas) which was also
considered similar to the appraised property.
After adjustments for noted differences, primarily size and
age/condition/quality, the sales indicate a range of values for the appraised
industrial buildings of $6.97 to $9.86 per square foot of gross building area.
These sales indicate a mean indication of $8.19 per square foot and a median
indication of $7.96 per square foot of gross industrial building area.
Based on these considerations, the appraiser has concluded a mid-range unit
value estimate for the industrial buildings of the appraised facilities of about
$8.00 square foot.
The Main Office Building is treated separately based upon a separate analysis of
small office buildings from the general market and would have an estimated
contributory building value of about $25.00 per square foot of building area,
net of land value.
111-27
SALES COMPARISON APPROACH
WEST YARD - NORTH PARCEL OWNED PROPERTY
COMPARABLE SALE ADJUSTMENT CHART
PRICE PER SQUARE FOOT OF GROSS BUILDING AREA ANALYSIS
CONTRIBUTORY VALUE OF INDUSTRIAL BUILDING IMPROVEMENTS
[OMITTED]
WEST YARD-NORTH PARCEL
VALUATION
LCONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
The indications of current market value of the Unencumbered Fee Simple Interest
in and to the "West Yard-North Parcel" Owned Property "As if Unencumbered by
Lease" from the two approaches to value utilized in this report are:
COST APPROACH $8,560,000
SALES COMPARISON $7,700,000
In analyzing the two approaches to value used in this report for the
Unencumbered Fee Simple Interest, it is important to consider and weigh the
inherent merits and weaknesses of each.
The COST APPROACH gives us a good idea of the Physical Value of the appraised
property, i.e. - the cost to replace the physical structures. For relatively new
or proposed properties without functional or economic obsolescence, when the
actual costs are based upon competitive bids, this is generally an excellent
indicator of value. In "normal" market situations, where the site is developed
to its highest and best use and there is balance between demand and supply, the
Cost Approach is generally considered to be a good value indicator. However,
there is still a considerable amount of external obsolescence present in the
market. The appraiser has attempted to accurately portray the prevailing market
conditions in the estimates of various forms of accrued depreciation, and a
comparison of the value conclusions in the COST AND SALES COMPARISON APPROACHES
seem to show that the COST APPROACH is a relatively effective indicator of the
Market Value of the appraised property. However, the COST APPROACH and its
resultant value estimate is based upon costs and not upon the economics of the
project.
The SALES COMPARISON APPROACH is most sensitive to direct actions by purchasers
and sellers for office/warehouse properties. It is also the approach best
understood by the layman and generally yields the best indication of value. The
appraiser analyzed a number of sales of other industrial facilities from the
general area. While there are sales of industrial buildings available, the data
is not always truly comparable to the appraised facility which is a specialized
manufacturing property. Considerable adjustment is necessary to the comparable
sales, which tends to weaken the approach. These sales which were the most
recent sales of similar sized industrial facilities provided a good basis for
comparison to the appraised property and thus yielded a credible indication of
value.
The INCOME APPROACH is generally considered the most reliable method in which to
estimate the value of income producing properties. This method reflects the
present value of the future benefits to the income stream, and therefore,
indirectly reflects the actions of typical buyers and sellers in the market for
investment properties. In the immediate case, the appraised property, is such a
large specialized industrial manufacturing facilities with significant
specialized features which would generally not be placed in a building which was
constructed as an investment property. Thus, this type of facility is typically
not leased. Thus, the Income approach was not utilized in this analysis.
111-30
WEST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
(CONTINUED)
Historically, projects which have specialized features do not translate well in
the market to alternative users. In the immediate case, the specialized features
would be considered superadequacies for the typical purchaser or renter of the
property and thus not fully reflective in the indications from the SALES
COMPARISON APPROACH. These extra features would have perceived "added" value to
the Owner Occupant or the User needing them and thus have "Value in Use" to
them, but would not likely translate into "market value" to an alternative user.
Thus, in the final analysis, in making an estimate of MARKET VALUE of the
Unencumbered Fee Simple Interest in the West Yard - North Parcel Owned Property,
some reliance should be given to the two approaches, but most given to the SALES
COMPARISON APPROACH indication, with slightly less reliance on the COST APPROACH
INCOME APPROACH INDICATION,.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE WEST YARD-NORTH PARCEL OWNED
PROPERTY would have an estimated CURRENT MARKET VALUE in "As IS CONDITION",
assuming a normal exposure period, of:
SEVEN MILLION SEVEN HUNDRED THOUSAND
AND 00/100 ($7,700,000.00) DOLLARS.
An allocation of this Unencumbered Fee Simple Interest Market Value Estimate
would be:
ESTIMATED CONTRIBUTORY VALUE OF
UNDERLYING LAND $2,000,000
ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $1,900,000
ESTIMATED CONTRIBUTORY VALUE OF
CRANEWAYS $1,130,000
ESTIMATED CONTRIBUTORY VALUE OF
BUILDINGS $2,670,000
----------
TOTAL "FEE SIMPLE" MARKET
VALUE ESTIMATE IN CURRENT
"AS IS CONDITION" $7,700,000
----------
III-31
WEST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE
The appraiser has also been asked to estimate the CURRENT disposition value of
the Unifab's Ownership Interest (Fee Simple) in and to the appraised property
UNDER A DISPOSITION MARKETING PERIOD OF 12 MONTHS OR LESS. In order to attract a
Purchaser to a large facility like the appraised property under a condensed
marketing period of 12 months or less, it is likely that a significant discount
from the market value estimate of the property would have to be given in order
to entice Purchasers to acquire the Fee Simple Interest in the property in a
condensed marking period.
In order to estimate "Disposition Value", the appraiser has considered current
market conditions for the appraised property and the likely market participants
who might acquire the appraised property. The appraised property is a very large
facility and thus would have a much smaller potential pool of purchasers.
For the DISPOSITION VALUE analysis, the appraiser has conducted interviews of
representatives of a number of companies involved in the fabrication and/or oil
and gas business including analysts and consultants as well as brokers. Also
considered any other adverse conditions which might affect marketability under a
condensed marketing period.
In a discussion with the CFO of a competing company who acquired another large
fabrication facility in 1997 stated that "if we knew what was going to happen to
the fabrication business over the last few years, we would have never acquired
that facility!" He went on to say that at the time they thought they were paying
30% to 40% less than its "true value".
In another discussion with the CEO of a competing company who owns a similar
large fabrication facility he stated that while his company is in the position
to invest in another facility if the opportunity were right, he believed that
"the discount would have to be hefty for an immediate sale" and went on to state
that "at least a 40% to 50% discount would be necessary to get them interested".
He cautioned that holding costs, labor and retro-fit time frame would be major
concerns in their decision making. He stated that "since the oil patch is
currently in a depressed state that any property would have to be held for at
least one year and likely more before it would make economic sense". He
concluded that it would take "a significant discount" to facilitate a sale in
less than 12 months.
In another discussion with the President of a competing company who owns a
similar large shipyard/fabrication facility he concluded that "the discount
would have to be at least a 30% to 40% to sell in less than 12 months because
one would have to consider the time period to boost business to compensate for
the fixed costs of ownership ".
III-32
WEST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE (CONTINUED)
In discussions with a real estate broker who has brokered several very large
industrial properties over the years including fabrication facilities, some of
his comments were:
- At present there are no real buyers for large fabrication yards.
- There must be a "carrot out there " to attract a potential buyer for
a large expensive yard.
- The typical marketing period is two to three years and to promulgate
a sale in 12
months or less, the discount must be at least 30%.
- The discount must be 30% - 50% of "normal market value "just to get
the market to move on a property.
In discussions with another real estate broker who has brokered several very
large industrial properties over the years including fabrication facilities,
some of his comments were:
- I can't think of a single potential purchaser at present for a large
fabrication yard.
- I would tell a potential client that wants to sell a big fabrication
facility that the marketing time will be highly dependent on where
we are in the oil and gas cycle at the time the property is listed.
With current depressed market conditions, I would tell them that it
may take three years to sell no matter what price it is listed for.
- I'm not sure that given the current state of the market that you
could sell a large fabrication facility in 12 months or less, no
matter how much "discount" you apply.
It is from this basis of information that the appraiser has attempted to
quantify a discount for the West Yard - North Parcel which is Unifab's Main
Yard. The "West Yard-North Parcel" complex contains +/-308,162 square feet of
total gross building area on +/-66.61 acres of land and thus would qualify as a
"large fabrication facility".
Based upon the above information, the appraiser would believe that a discount of
about 40% from the current market value estimate of $7,700,000 would be
appropriate in order to sell the appraised property in a condensed marketing
period of 12 months or less.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE WEST YARD-NORTH PARCEL OWNED
PROPERTY would have an estimated CURRENT DISPOSITION VALUE in "As IS CONDITION",
assuming a condensed marketing period of 12 months or less, of:
FOUR MILLION SIX HUNDRED THOUSAND
AND 00/100 ($4,600,000.00) DOLLARS.
111-33
WEST YARD - SOUTH PARCEL
PROPERTY DESCRIPTION
This tract is part of the Main Fabrication Yard of UNIFAB and is owned by
UNIFAB. According to the enclosed sketch, the West Yard-South Parcel is
estimated to contain about +/-27.79 acres. This irregular shaped waterfront
industrial site fronts on the west side of the Rodere Canal. Access to thiS
portion of the "UNIFAB" Main Yard Property would be via an access across the
West Yard-North Parcel.
There are no buildings on the West Yard-South Parcel. The +/-27.79 acre site is
improved with a boat slip constructed about two to three years ago. Waterfront
bulkhead material (+/-537 linear feet), light-stabilization material (+/-20
acres), and heavy stabilization materials (+/-3.3 acres) make this portion of
the property ideal for waterfront industrial fabrication work.
As indicated by the enclosed photographs, the surface area is relatively level
and covered with stabilization materials (shell, limestone, and/or gravel).
"UNIFAB" is presently using this parcel for outside fabrication work.
VALUATION
In order to arrive at an estimate of the current market value of the
Unencumbered Fee Simple Interest in and to this property, the appraiser has
utilized a Sales Comparison Approach analysis to estimate the Market Value of
the Unencumbered Fee Simple Interest in and to the +/-27.79 acre land area
"assuming it were vacant land". As indicated in the SITE VALUATION Analysis
section of this report, the underlying land of the West Yard-South Parcel has an
estimated unit value of $40,000 per acre. This portion of the "UNIFAB" complex
has excellent market appeal for industrial fabrication work and our unit value
reflects the size, location, and attributes (waterfront, boat slip) of the
+/-27.79 acre land area.
From the Analysis contained in the SITE VALUATION section of the report, with
this waterfront land area having +/-1,460 feet on the west side of the Rodere
Canal, the appraiser concluded a market value estimate of $40,000 per acre as
the unit value of the underlying land of the "West Yard - South Parcel".
COST APPROACH
Site improvements include a recently constructed boat slip and stabilization
materials. According to information provided by "UNIFAB" officials, the boat
slip reportedly cost $2,500,000. This included the cost of materials, labor, and
dredging. The appraiser's Cost Consultant has estimated that the replacement
cost new of the bulkhead material (+/-537 linear feet) as well as the
super-stabilized yard area (+/-3.3 acres) and the remaining land area (+/-20
acres) with light-stabilization materials.
Because site improvements are an integral part of the +/-27.79 acre industrial
site, the appraiser has utilized a depreciated Cost Analysis to estimate the
contributory value of these Site Improvements to the Underlying Land Tract. Site
improvements are not sold separate from land.
IV-8
WEST YARD - SOUTH PARCEL
VALUATION
(CONTINUED)
Our firm's study of industrial properties over time reveals that Site
Improvements rarely contribute "full replacement value" to the industrial entity
which they complement. The appraiser has estimated that the Contributory Value
of each Site Improvement is less than its "replacement cost new". The difference
would be attributable to accrued depreciation from all causes including physical
deterioration, functional obsolescence and economic/locational obsolescence.
Accrued depreciation is "the difference between replacement cost new of building
improvements and the present worth of those improvements, both measured as of
the date of the appraisal." Depreciation includes those things on and off the
site that reduce the market value of the improvements below the unit
reproduction cost.
In the immediate case, the appraiser has applied the Physical Age-Life Method in
conjunction with the Breakdown Method Analysis of Sales to estimate accrued
depreciation. Each component of depreciation is estimated (physical
deterioration, functional obsolescence, and external obsolescence).
Based on our inspection of the West Yard-South Parcel site improvements,
deferred maintenance is negligible.
The physical age-life method is utilized to estimate physical incurable
deterioration applicable to the site improvements. The estimated useful economic
life of the steel bulkhead material is +/-35 years. The bulkhead material is two
to three years old and the appraiser has estimates its effective (observed) age
to be +/-3 years. This implies a physical deterioration rate of 8.5% (3 years
effective age _ 35 years useful life, rounded).
The estimated useful life of the super-stabilization (12"-15" deep) material is
+/-40 years. The - normal stabilization material has a much shorter useful life
(+/-10 years). The observed age of the super-stabilized area (+/-3.3 acres) is
+/-3 years (+/-7.5% imputed depreciation rate). The effective age of the +/-20
acRe portion with typical (1 "-3" deep) site stabilization is +/-5 years (+/-50%
imputed depreciation rate).
The appraiser has applied a 20% value loss to account for functional and/or
economic obsolescence to the West Yard-South Parcel Site Improvements. This
estimated value loss (+/-20%) reflects the general-use nature of the boat slip
bulkhead and site stabilization materials. The percentage of loss is applied to
the replacement cost new of each site improvement because this is the manner in
which the appraiser derived the +/-20% loss factor.
Based on the preceding analysis of the various components of accrued
depreciation, the estimated CURRENT MARKET VALUE of the UNENCUMBERED FEE SIMPLE
INTEREST in and to the WEST YARD-SOUTH PARCEL is summarized on the following
page:
IV-9
WEST YARD - SOUTH PARCEL
VALUATION
(CONTINUED)
ESTIMATED MARKET VALUE : WEST YARD-SOUTH PARCEL
ESTIMATED CONTRIBUTORY VALUE SITE IMPROVEMENTS:
BULKHEAD - 527 L.F.
Replacement Cost New $1,300,000
Less: Physical Depreciation (8.5%) (110,500)
Less: Economic/Functional Loss (20%) (260,000)
----------
ESTIMATED CONTRIBUTORY VALUE OF BULKHEAD $ 929,500
LIGHT SITE STABILIZATION - (1 "-3" DEEP)
Replacement Cost New $ 500,000
Less: Physical Depreciation (50%) (250,000)
Less: Economic/Functional Loss (20%) (100,000)
----------
ESTIMATED CONTRIBUTORY VALUE OF
LIGHT SITE STABILIZATION $ 150,000
SUPER SITE STABILIZATION (12"-15" DEEP)
Replacement Cost New $ 215,000
Less: Physical Depreciation (7.5%) (16,000)
Less: Economic/Functional Loss (20%) (43,000)
----------
ESTIMATED CONTRIBUTORY VALUE OF
SUPER SITE STABILIZATION $ 156,000
---------
TOTAL ESTIMATED CONTRIBUTORY
VALUE OF SITE IMPROVEMENTS $1,235,500
ESTIMATED CURRENT MARKET VALUE OF
UNDERLYING LAND "AS IF VACANT":
(+/-27.79 ACRES (a) $40,000/ACRE, ROUNDED) $1,110,000
----------
TOTAL $2,345,500
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN WEST YARD/SOUTH PARCEL
VIA COST APPROACH TO VALUE
(+/-27.79 ACRES (a) $84,383/ACRE) -SAY- $2,345,000
----------
IV - 10
WEST YARD - SOUTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE
The appraiser has also been asked to estimate the CURRENT disposition value of
the Unifab's Ownership Interest (Fee Simple) in and to the appraised property
UNDER A DISPOSITION MARKETING PERIOD OF 12 MONTHS OR LESS. In order to attract a
Purchaser to a large industrial site with slip and stabilized areas like the
appraised property under a condensed marketing period of 12 months or less, it
is likely that a significant discount from the market value estimate of the
property would have to be given in order to entice Purchasers to acquire the Fee
Simple Interest in the property in a condensed marking period.
In order to estimate "Disposition Value", the appraiser has considered current
market conditions for the appraised property and the likely market participants
who might acquire the appraised property. The appraised property is mostly
vacant waterfront land in an area of little available land which has a slip and
good stabilized areas and thus would have decent market appeal.
For the DISPOSITION VALUE analysis, the appraiser has conducted interviews of
representatives of a number of companies involved in the fabrication and/or oil
and gas business including analysts and consultants as well as brokers. Also
considered any other adverse conditions which might affect marketability under a
condensed marketing period.
It is from the information provided from the interviews that the appraiser has
attempted to quantify a discount for the West Yard - South Parcel. The "West
Yard-South Parcel" contains about 27.79 acres of land together with a boat slip,
good bulkheading and some heavy stabilized areas and some light stabilized
areas. The major drawback of the site is the fact that it does not have direct
street frontage, but rather access is via a servitude across the adjoining
property.
Based upon the above information, the appraiser would believe that a discount of
about 25% from the current market value estimate of $2,345,000 would be
appropriate in order to sell the appraised property in a condensed marketing
period of 12 months or less.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE WEST YARD-SOUTH PARCEL OWNED
PROPERTY would have an estimated CURRENT DISPOSITION VALUE in "As IS CONDITION",
assuming a condensed marketing period of 12 months or less, of:
ONE MILLION SEVEN HUNDRED FIFTY THOUSAND
AND 00/100 ($1,750,000.00) DOLLARS.
EAST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
According to information provided by Mr. Bill Dunbar of John Chance & Associates
(Lafayette, Louisiana), the "East Yard-North Parcel" encompasses a +/-28 acre
area. Although this parcel is irregular shaped, it has good industrial utility.
This waterfront parcel has +/-2,200 feet of frontage on the south side of Port
Road and +/-450 feet of frontage on the west side of Curtis Lane (Iberia Parish
Road 911). Frontage along the east bank of the Rodere Canal totals +/-600 feet.
Two boat slips extend from the canal into the west side of the property.
Bulkhead erosion protection extends approximately 332 feet and most this parcel
(+/-20 acres) has typical stabilization features.
The "East Yard-North Parcel" is improved with seven (7) major industrial
buildings (+/-39,448 total building gross square footage). The "East Yard" was
once the "Main UNIFAB" yard. Today, the buildings are used mainly for storage
and overflow work from the "West Yard" and from Allen Processing. Most of the
buildings are 20-30 years old and are in fair physical condition. This yard area
has five work stations. Approximately 25 acres have average (1 "-3") industrial
stabilization features. The +/-28 acre parcel fronts not only on the Rodere
Canal, but also has frontage on two boat slips. Bulkhead material totals +/-332
feet. All of the buildings are reportedly owned by "UNIFAB". The land area is
leased from three separate third-party land owners. The appraiser's estimate of
Current Market Value is of the Lessee's Leasehold Interest in and to the
appraised property.
The MAIN OFFICE BUILDING contains +/-4,398 square feet. This wood-frame
structure has a concrete pier foundation and asphalt roof shingles (gable style
roof). The building has a +/- 10foot eave and appears to be 15 to 20 years old.
The entire building is heated/cooled by a central air-conditioning system
(ground-mounted compressors). Interior features include carpet, prefinished wall
panels, celotex ceiling panels, and fluorescent light fixtures. Concrete parking
totals +/-3,200 square feet. The estimated replacement cost new includes the
"Class D" office building and concrete parking area. This frame building is
considered to be in average physical condition. The estimated total useful
economic life of the MAIN OFFICE BUILDING is +/-40 years. With an estimated
effective age of+/-16 years, accrued physical depreciation incurable is
estimated at approximately 40%.
The "Class S" FABRICATION/SHOP BUILDING contains +/-15,620 square feet.
Approximately 50% of the building has a +/-40-foot eave height. There is a small
office area on the second floor above the shop/warehouse area. Exterior walls
and roof are corrugated metal and the shop area has a heavy-duty concrete slab
foundation. Lighting in the shop area is provided by incandescent light fixtures
and fiber-glass panels (natural light). The office space (+/-492 sf) has modest
interior features (vinyl floor cover, prefinished wall panels, fluorescent
lights, windowunit air-conditioning). This building is approximately 25 years
old and is in fair-to-average physical condition. The estimated effective age of
the fabrication shop building is about 25 years out of a total useful economic
life of +/-40 years. The imputed accrued physical depreciation rate is 62.5%.
The CRANE SYSTEM includes a 5-ton bridge crane and two 3-ton cranes. The crane
system span is +/-60 feet and the length of the rail is +/-120 feet. All three
cranes have automatic controls. With an estimated total expected useful lifE of
+/-30 years, the appraiser has applied a 50% accrued physical depreciation rate
to the crane system.
V-14
EAST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
(CONTINUED)
The SHIPPING/RECEIVING BUILDING is a "Class S" structure with a total square
footage of +/-7,019. This +/-25 year old structure is in fair condition. The
buildiNg has a concrete slab foundation, corrugated metal walls/roof, and
fiber-glass panels (natural light). The eave height of the building is
approximately 20 feet. The small office area (+/-1,500 sf) is in very poor
condition and should be demolished. The west end of the structure has exposed
walls/roof and partially "torn-out" insulation panels. This area should be
cleaned up and insulated with new panels. Cost consultant Moran estimates $6,000
as the cost of converting the former office area to warehouse space, installing
new insulation panels, and refurbishing the building. The estimated effective
age of this twenty-five year old building is considered to be +/-20 years
(assuming the deferred maintenance was cured). The estimated total economic life
of the building is +/-40 yearS which implies a 50% accrued physical depreciation
rate.
The small (+/-949 so FUEL DEPOT SHED is in fair condition. The shed appears to
be +/-25 years old. The +/-31'x +/-30.6' structure has limestone floor, steel
fraMe, corrugated metal walls/roof, and is open on the north side. This building
would have an estimated effective age of +/-30 years out of an estimated total
useful life of +/-40 years, and thus the accrued physical depreciation rate is
75%.
The "Class S" WAREHOUSE BUILDING contains +/-2,452 square feet. Attached to the
south side of the building is a +/-675 square foot METAL CANOPY. This building
iS approximately 25 years old and appears to be in fair condition. Building
features include a +/-20-foot eave, heavy-duty concrete foundation, corrugated
metal walls/roof, fluorescent lights, and fiber-glass panels (natural light).
There is a large sliding door on the west side of the building. The concrete
apron (+/-5,475 sf) is in poor condition. The estimated effective age is +/-25
years out of an estimated total economic life of the building is +/-40 years
which indiCates a 62.5% physical depreciation rate.
Located in the northwest corner of the "East Yard-North Parcel" is a +/-4,000
square foot "Class S" OFFICE BUILDING. The building is in fair condition and is
approximately 25 years old. Construction features include an +/-18-foot eave,
corrugated metal walls/roof, concrete slab foundation, and a frame
infrastructure. The interior is modest (prefinished wall panels, asphalt floor
tiles, suspended acoustical ceiling panels, and recessed fluorescent lights).
Portions of the interior have carpet. The entire building is heated/cooled by a
central air-conditioning system (ground-mounted compressors). As the enclosed
photographs reveal, the interior of the office building is in poor condition.
Also, there is evidence that the roof leaks. We estimate +/-$20,000 as the cost
of refurbishinG this office building. Once deferred maintenance is cured, the
condition of the building will be improved and its effective age will be
lowered. Assuming deferred maintenance is cured in accordance with our
recommendations, the estimated effective age of the building will be +/-15
years. With a projected total useful economic life of +/-45 years, the accrued
physical depreciation incurable rate is +/-33.3%.
V-15
EAST YARD-NORTH PARCEL
PROPERTY DESCRIPTION
(CONTINUED)
The "Class S" MECHANIC SHOP BUILDING is located on the south side of the
+/-4,000 square foot office building. The mechanic shop building is a "Class S"
structure with a +/-20-foot eave height. The building has corrugated walls/roof,
a painted concrete floor, wall ventilation fans, suspended incandescent light
fixtures, and natural light panels. The building is approximately 25 years old
and is in average physical condition. The building is estimated to have an
effective age consistent with its chronological age (+/-25 years). Based on a
total useful economic life of +/-40 years, the estimated physical depreciation
ratE is 62.5% Also included in this building is a 10-TON BRIDGE CRANE (automatic
controls, +/-35-foot span, +/-45-foot rail). The CRANE SYSTEM in the MECHANIC
SHOP BUILDING has an expected total useful life of +/-30 years and thus a 50%
accrued physical depreciation rate is estimated for the crane system.
According to information provided by Mr. Mark Borel (Berard, Habetz, &
Associates, Inc.), approximately twenty-five (25) acres of the yard area has
LIGHT STABILIZATION materials (l "-3" deep). The estimated total useful life of
the stabilization (1"-3" deep) material is +/-10 years. Super-stabilization
materiaL (12"-15" deep) has a much longer useful life (+/-35 years). The
observed age of the lightly-stabilized area (+/-25 acres) is +/-8 years (+/-80%
imputed physiCal depreciation rate). STEEL BULKHEAD along the sides of the
central boat slip and north boat slip totals +/-332 linear feet. The estimated
total useful economiC life of the STEEL BULKHEAD material is +/-35 years. The
bulkhead material is in good condition and would have an estimated effective
(observed) age of 10 years. This implies a physical deterioration rate of 28.5%.
EAST YARD-NORTH PARCEL
VALUATION
As indicated, the underlying land is owned by various third parties (not
affiliated with "UNIFAB"). According to information provided by Mr. Pete Roman
(Chief Financial Officer of "UNIFAB"), all of the buildings located on the "East
Yard-North Parcel" are owned by "UNIFAB". The site improvements are also owned
by "UNIFAB".
The current contract rental amount for the right to use and occupy the entire
"East Yard" (both North and South Parcels) is $198,348 per year. For purposes of
this analysis, the appraiser has allocated +/-60% of the total rent to the North
Parcel or about $120,348 per year and allocated +/-40% or about$78,000 per year
to the "East Yard-South Parcel".
In order to value the LEASEHOLD INTEREST in and to the property leased from
three separate individuals, the appraiser has first estimated the value of the
Fee Simple Ownership Interest relative to the East Yard-North Parcel facility
(i.e. assuming it were unencumbered by leases). By comparing estimated market
rent to contract rent, we can effectively determine the value, if any, of the
Leasehold Interest.
In order to estimate the current value of the FEE SIMPLE OWNERSHIP INTEREST
"ASSUMING UNENCUMBERED BY LEASE", the appraiser has utilized a COST APPROACH
analysis, SALES COMPARISON APPROACH analysis, and INCOME APPROACH analysis.
COST APPROACH
The estimated value of the underlying +/-28 acre waterfront site "assuming
vacant and unencumbered by lease" was estimated earlier in the report in the
SITE VALUATION section to be $1,260,000 ($45,000 per acre, rounded).
The cost analysis is based on cost data provided by a Cost Consultant (Fred
Moran) for the prior appraisal assignment performed in May 2000 which have been
indexed to date of appraisal. The accrued depreciation estimates are based on
the appraiser's observations during the inspections of the property made in
October 2001.
Based on our inspections of the "East Yard-North Parcel" building improvements,
the appraiser has estimated that it would take about $50,000 to repair the
improvements and thus utilized this an the estimate of the cost of curing
deferred maintenance. This cost included refurbishing the +/-4,000 OFFICE
BUILDING and upgrading the SHIPPING/RECEIVING BUILDING as well as some of the
other older improvements on the property which have gone into disrepair. The
accrued depreciation estimates for physical incurable and functional/economic
obsolescence assumes that the deferred maintenance is cured in accordance with
these estimates and recommendations.
The appraiser has estimated and applied a 20% value loss to account for
functional and/or economic obsolescence to most of the "East Yard-North Parcel"
buildings and site improvements, but has estimated and applied a 15% value loss
to the Main Office Building, Fabrication/Shop Building and Crane Systems,
Shipping & Receiving Building and Warehouse
V-17
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
Building. These estimated value losses (of+/-15% to +/-20%) reflects the
general-use nature of the buildings and site improvements. The percentage of
loss IS applied to the estimated replacement cost new of each improvement
because this is the manner in which the 15%/20% loss factor was derived.
Based on the preceding analysis of estimated replacement cost and estimates of
the various components of accrued depreciation, the ESTIMATED MARKET VALUE OF
THE UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE "EAST YARD-NORTH PARCEL"
LEASED PARCEL "ASSUMING UNENCUMBERED BY LEASE" is summarized on the following
page.
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUEDI
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS:
MAIN OFFICE (4,398 SF)
Estimated Replacement Cost New $ 183,000
Less: Physical Depreciation (40%) 73,200
Less: Economic/Functional Loss (15%) 27,500
Estimated Contributory Value of ---------
Main Office $ 82,300
FABRICATION/SHOP BUILDING (15,620 SF)
Estimated Replacement Cost New $ 532,250
Less: Physical Depreciation (62.5%) 332,750
Less: Economic/Functional Loss (15%) 80,000
Estimated Contributory Value of ---------
Fabrication/Shop Building 119,500
FABRICATION/SHOP CRANE SYSTEM
Estimated Replacement Cost New $ 136,000
Less: Physical Depreciation (50%) 68,000
Less: Economic/Functional Loss (15%) 20,400
Estimated Contributory Value of ---------
Fabrication/Shop Crane System 47,600
SHIPPING/RECEIVING BUILDING (7,019 SF)
Estimated Replacement Cost New $ 83,500
Less: Physical Depreciation (50%) 41,800
Less: Economic/Functional Loss (20%) 16,700
Estimated Contributory Value of ---------
Shipping/Receiving Building 25,000
FUEL SHED (949 SF)
Estimated Replacement Cost New $ 7,200
Less: Physical Depreciation (75%) 5,400
Less: Economic/Functional Loss (18%) 1,300
Estimated Contributory Value of ---------
Fuel Shed 500
--------
SUB-TOTAL - THIS PAGE $274,900
V-19
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH (CONTINUED)
SUB-TOTAL FROM PRIOR PAGE $274,900
WAREHOUSE BUILDING (2,452 SF)
Estimated Replacement Cost New $ 35,600
Less: Physical Depreciation (62.5%) 22,250
Less: Economic/Functional Loss (15%) 5,350
--------
Estimated Contributory Value of
Warehouse Building 8,000
SECOND OFFICE BUILDING (+/-4,000 SF)
Estimated Replacement Cost New $165,700
Less: Physical Depreciation (33%) 55,200
Less: Economic/Functional Loss (20%) 33,500
--------
Estimated Contributory Value of
Office Building (+/-4,000 sf) 77,000
MECHANIC SHOP BUILDING (4,000 SF)
Estimated Replacement Cost New $ 91,900
Less: Physical Depreciation (63%) 57,500
Less: Economic/Functional Loss (20%) 18,400
--------
Estimated Contributory Value of
Mechanic Shop Building 16,000
MECHANIC SHOP CRANE SYSTEM
Estimated Replacement Cost New $ 50,000
Less: Physical Depreciation (50%) 25,000
Less: Economic/Functional Loss (20%) 10,000
--------
Estimated Contributory Value of
Mechanic Shop Crane System 15 000
--------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF
BUILDING IMPROVEMENTS: $390,900
Less: Deferred Maintenance (50,000)
--------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF
BUILDING IMPROVEMENTS: $340,900
ESTIMATED CONTRIBUTORY VALUE OF SITE
IMPROVEMENTS:
STEEL BULKHEAD MATERIAL (332 LF)
Estimated Replacement Cost New $736,250
Less: Physical Depreciation (28.5%) 210,000
Less: Economic/Functional Loss (20%) 147,250
--------
Estimated Contributory Value of
Steel Bulkhead Material $379,000
V-20
EAST YARD-NORTH PARCEL
VALUATION
f CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH (CONTINUED)
SUB-TOTALS FROM PRIOR PAGE
TOTAL ESTIMATED CONTRIBUTORY VALUE
OF BUILDING IMPROVEMENTS: $ 340,900
ESTIMATED CONTRIBUTORY VALUE OF SITE
IMPROVEMENTS (prior page): $ 379,000
LIGHTLY-STABILIZED YARD AREA
Estimated Replacement Cost New $ 625,000
Less: Physical Depreciation (80%) 500,000
Less: Economic/Functional Loss (10%) 62 500
----------
Estimated Contributory Value of
Lightly-Stabilized Yard Area 62,500
----------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $ 441,500
ESTIMATED CURRENT MARKET VALUE OF
UNDERLYING LAND "AS IF VACANT"
(+/-28 acres @ $45,000/acre, rounded) $1,260,000
----------
$2,042,400
TOTAL
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN EAST YARD NORTH PARCEL LEASED PROPERTY
VIA COST APPROACH TO VALUE -SAY-
$2,040,000
----------
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH
The Income Approach is the procedure in appraisal analysis which converts
anticipated benefits (dollar income or amenities) to be derived from the
ownership of property into a value estimate. In the Income Approach to Value,
the gross annual income attributable to the appraised property is estimated.
From this amount, all applicable expenses are deducted. The anticipated future
net operating income and reversion are then discounted to present value at a
market supported rate.
Because of the anticipated stable nature of "East Yard-North Parcel" income and
expenses, the appraiser has utilized the Direct Capitalization Method.
In order to estimate potential gross income, the appraiser has analyzed
comparative rent data. In the ADDENDUM of this report are the Industrial Rent
Comparables utilized for this analysis. The "East Yard-North Parcel" facility
has buildings with a total gross building area of +/-39,448 square feet. This is
a mid-sized industrial complex in fair-to-average physical condition. These type
facilities are often leased on a "triple net" basis. The appraiser has a
sufficient amount of comparative income data to effectively utilize an income
analysis.
The Contributory Value of the Site Improvements and Crane Systems in the COST
APPROACH TO VALUE is about $441,500 for the Site Improvements and about $62,600
for the Craneways for a total of about $504,100. None of the Rent Comparables
studied have extensive site improvements and crane systems (like "East
Yard-North Parcel"). The appraiser therefore has added the estimated
contributory value ($500,000) of these items to the value estimated based upon
the Income Approach to Value.
Based upon our analysis of other facilities and for valuation purposes, the
appraiser has allocated +/-11.0 acres to this mid-sized building complex. This
allocation would result in a land-tobuilding ratio of 12.15:1. Most mid-sized
multi-building industrial facilities are located on 1015 acre tracts. The
remaining waterfront land (+/-17 acres) is considered "Excess Land" or yard area
with an estimated value of $45,000 per acre ($765,000). The "Excess Land" area
is not intrinsic to the income generated by the buildings and +/-11.0 acre
waterfront area. The appraiser has therefore added the estimated contributory
value of $765,000 for the "Excess Land" to the estimated value derived in the
Income Approach from the building improvements and +/-11.0 acre "Utilized" land
area.
Comparative income data indicates that many mid-sized industrial properties
which are leased are often leased "triple net". The Lessee is typically
responsible for most operating expenses. The Lessor (landlord) pays for the cost
of structural maintenance, replacement reserves, and management.
The Rent Comparables indicate "triple net" rental rates between $2.50 and $3.50
per square foot per year. Like the appraised property, these are older
industrial facilities located inside the Lafayette/New Iberia market area.
Because the "East Yard-North Parcel" has buildings with fair-to-average
construction quality/condition, the appraiser has concluded an estimated current
market value of the appraised facility as a mid-range rate of $3.00 per square
foot of building area. The property has a good waterfront location inside a
preferred industrial development. Without the benefit of this superior location,
the market rental rate estimate would be lower.
V-22
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH (CONTINUED)
Waterfront acreage is superior to sites located on or adjacent to U.S. Highway
90 (where some of the Rent Comparables are located). The office portion of the
appraised facility (+/-8,890 so is +/-22.5% of the total building complex and
this has a positive effect on the estimated market rental rate. Based upon this
analysis, the estimated current market rent projected for the Buildings and
Utilized Land Area of the "East Yard-North Parcel" facility would be about
$118,500 per year.
Income loss due to vacancy and collection problems should not be significant.
"The Port" development is full and with strong demand for waterfront locations,
vacancy should be minimal. The appraiser has projected a Vacancy and Credit Loss
Allowance of 5% of gross income. As indicated by our market study, many
industrial facilities are leased on a "triple net" basis. The estimated market
rental rate assumes that the Lessee would be responsible for all operating
expenses except management and replacement reserves.
The estimated management expense is based upon +/-5% of effective gross income
or about $5,600 per year. Local property managers typically charge 3%-10% for
management responsibilities. The "East Yard-North Parcel" building complex is a
mid-size facility with a simple design and management responsibilities should be
relatively routine.
For other operating expenses of a Lessor under a Triple Net Lease, the appraiser
has estimated Structural maintenance at about $0.20 per square foot or about
$7,900 per year. The tenant(s) will presumably be responsible for routine
maintenance and repairs. Hazard insurance will cover the cost of some repairs
and since the analysis includes a Replacement Reserve Allowance for short-lived
building components, structural maintenance costs should not be excessive.
Very few industrial owners and lessors include a Reserve for Replacement
Allowance in their expense statements. Each property owner interviewed believed
that a replacement should be handled from cash flow at the-time of the
replacement. Further, most believe that the typical holding period eliminates
the need for a reserve. Several property owners were consulted and each believed
that the idea of a reserve is theoretically a "good idea", but in the local
industrial market it generally is not practiced.
Regardless, the appraiser believes a prudent investor would set aside funds to
replace worn floor cover, ceiling panels, and faulty air-conditioning
compressors. The appraiser has estimates that a reasonable amount would be about
$0.10 per square foot of gross building area. This amounts to about $3,400 per
year and is consistent with the age/condition of the office/warehouse building
complex and also with national industrial investor criteria.
The next step is to estimate the proper income capitalization rate. Based on the
appraiser's study of comparative capitalization rate data, the appraiser has
concluded an overall capitalization rate applicable to the appraised property to
be a rate in the range of 11% to 12%. This is consistent with the age, physical
condition, size, and location of the "East Yard-North Parcel" industrial
complex. Based upon the analysis of this data, the appraiser has concluded an
appropriate overall capitalization rate for the appraised properties would be
11'/2%.
V-23
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH (CONTINUED)
The income analysis is summarized on the next page. The depreciated cost of the
site improvements and crane systems are added as separate items because the Rent
Comparables do not contain crane systems and/or site improvements comparable to
the "East Yard-North Parcel". The estimated Contributory Market Value of the
"Excess Land area of about +/-17 acres of $765,000 is also added. In addition,
as estimated in the COST APPROACH TO VALUE, the estimated deferred maintenance
of +/-$50,000 (estimated cost to cure) is subtracted.
EAST YARD-NORTH PARCEL
VALUATION
(Continued)
INCOME APPROACH (CONTINUED)
RECONSTRUCTED OPERATING STATEMENT
"EAST YARD-NORTH PARCEL" (Buildings & Utilized
Land Area)
Potential Gross Income
(Buildings and Utilized Land Area)
39,448 S.F. GBA x $3.00/S.F. $118,500
Less:Vacancy and Collection Loss
Estimated @ 5% - 5,925
Effective Gross Income $ 112,575
Less: Operating Expenses
Real Estate Taxes by tenant
Building Insurance by tenant
Management (5%) $ 5,600
Repairs/Maintenance (routine) by tenant
Utilities by tenant
Janitorial by tenant
Structural Maintenance $ 7,900
Replacement Reserves $ 3,400
Total Operating Expenses $ 16,900
--------
Net Operating Income $ 95,675
DIRECT CAPITALIZATION PROCESS
Net Operating Income Capitalized at
11'/2% Overall Cap Rate
$95,675 _ .1150 = $831,956
INDICATED MARKET VALUE OF BUILDINGS
AND UTILIZED LAND AREA VIA
INCOME APPROACH TO VALUE -say- $ 832,000
LESS: DEFERRED MAINTENANCE -($ 50,000)
ADD: ESTIMATED CONTRIBUTORY VALUE OF SITE
IMPROVEMENTS $ 440,000
ADD: ESTIMATED CONTRIBUTORY VALUE OF CRANE SYSTEMS $ 60,000
ADD: ESTIMATED CONTRIBUTORY VALUE OF 17 ACRES
EXCESS LAND $ 765,000
----------
Total Estimated Property Value $2,047,000
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN EAST YARD-NORTH PARCEL LEASED PROPERTY
VIA INCOME APPROACH TO VALUE -SAY- $2,050,000
----------
V-25
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH
The SALES COMPARISON APPROACH involves direct comparisons of the property being
appraised to similar properties that have sold in the same or in a similar
market in order to derive a Market Value indication for the property being
appraised.
Located in the ADDENDUM of this report are the detailed write-ups of the
industrial property sales (Improved Comparable Sales) utilized for this
appraisal assignment. For the analysis of the "East Yard-North Parcel" Leased
Parcel, the appraiser has selected Improved Comparable Sale Nos. 1, 2, 3, and 4.
The emphasized sales are summarized on the following chart.
ESTIMATED
BUILDING VALUE
SALE EFFECTIVE CONTRIBUTORY PSF
NO. SALE PRICE DATE VALUE BUILDING
- ---- ---------- ----- ------------ --------
1 $2,100,000 06/01 $ 300,000 $ 13.42
2 $1,806,948 12/00 $ 488,948 $ 7.98
3 $1,500,000 09/00 $ 765,000 $ 15.57
4 $2,960,625 06/98 $ 420,625 $ 10.58
These four industrial property sales are considered to be the best available
indicators of value for the appraised property. Land values and equipment (if
any) are extracted based on comparative land sales and information provided by a
party familiar with the sale transaction. Equipment typically has a contributory
value less than its depreciated cost. Contributory Land value estimates are
based on comparable neighborhood land sales.
The sales selected have been chosen due to their similarities based on building
sizes, ages, condition, and date of sale.
Each Improved Comparable Sale involved the transfer of Fee Simple ownership
rights or market oriented Leased Fee ownership rights. In the current analysis,
the appraiser is estimating the current market value of the Unencumbered Fee
Simple ownership rights in the "East Yard - North Parcel" Leased Property
"assuming unencumbered by lease". Accordingly, no adjustment is considered
necessary for "property rights conveyed".
No adjustment is considered necessary to Improved Comparable Sales for
"expenditures immediately after purchase". This was verified during our
interview of the sale participants (Vendor, Vendee, sales agent, appraiser,
etc.).
V-26
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH (CONTINUED)
"Market Conditions" reflect the change in the prices paid for real property due
to changes in market conditions and the purchasing power of money over time.
This adjustment is derived by analyzing changes that have occurred over time and
determining their effect on the property during the time period. Changes may
result in appreciation or depreciation in value due to inflation or deflation.
Although this adjustment is often referred to as a "time" adjustment, time is
not the cause of the adjustment. Market conditions which shift over time create
the need for an adjustment, not time itself. The four sales are relatively
recent and thus only a minor upward time adjustment is considered necessary with
the largest adjustment to Improved Comparable Sale No. 4 which occurred in June
1998.
In the Breakdown Method Analysis for each sale, the contributory land value is
extracted from or deducted from each sale price in order to arrive at a
contributory value of the building improvements. Since "location" differentials
are typically reflected in underlying land value, the appraiser has not applied
a "location" adjustment to the Improved Comparable Sales.
The necessary adjustments required tend to center on "building size",
"condition/construction quality", "office percentage", and "economic
characteristics".
Building size is often a factor. Among similar office and industrial buildings,
smaller sized buildings tend to sell for more per unit that comparable larger
buildings.
The "East Yard-North Parcel" complex contains a gross building area of +/-39,448
square feet. The sizes of the comparable building sales range between 22,356
square feet (Sale 1) to 61,241 square feet (Sale 2). Due to the imperfect nature
of the real estate market, size adjustments are not mathematically precise. The
trend, however, is clear. Smaller sized facilities typically sell for more per
unit than comparable larger sized buildings (and vice verse). Thus, the "size"
adjustments are not considered significant to the sales being in the 5% to 10%
range.
Adjustments for "Age/Condition/Quality" are based on age/life comparisons,
overall condition and "Office percentage". The greater the percentage of office
space, the greater, generally speaking, the value of the building. The "East
Yard-North Parcel" complex has +/-8,890 square feet of office space which is
+/-22.5% of total building square footage.
The sales comparison analysis adjustment analysis is summarized on the following
adjustment grid.
The sales analysis grid reflects a contributory building unit value range prior
to adjustments between $7.98 and $15.57 per square foot. Sale I is the most
recent sale and indicates a unit value of $13.42 per square foot. It was a newer
facility and thus in better overall condition, but had no office space included
in the sale. Sale 2 included a mix of similar older buildings on the site which
had more overall square footage and had a similar percentage (24%) of
office/finished space. Sale 3 is a newer industrial structure in the local
market which had only 5% of office/finished space. Sale 4 also included a mix of
similar older buildings on the site which had similar gross building areas, but
had a slightly smaller percentage (18%) of office/finished space.
SALES COMPARISON APPROACH
EAST YARD - NORTH PARCEL LEASED PROPERTY
COMPARABLE SALE ADJUSTMENT CHART
PRICE PER SQUARE FOOT OF GROSS BUILDING AREA ANALYSIS
CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS
[OMITTED]
RECAPITULATION OF
SALES COMPARISON APPROACH TO VALUE
EAST YARD - NORTH PARCEL LEASED PROPERTY
BREAKDOWN METHOD ANALYSIS
CONTRIBUTORY VALUE OF BUILDINGS IMPROVEMENTS
39,448 S.F. @ $9.05 /S.F. AVG.
TOTAL CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS $ 357,000
LESS: ESTIMATED DEFERRED MAINTENANCE -$ 50,000
CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
Steel and Timber Bulkheads & Stabilized Areas
TOTAL CONTRIBUTORY VALUE OF SITE IMPROVEMENTS $ 440,000
$60,000
CONTRIBUTORY VALUE OF CRANE SYSTEMS
CONTRIBUTORY SITE VALUE
28.000 Acres @ $45,000.00 /Acre $1,260,000
----------
TOTAL $2,067,000
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN EAST YARD-NORTH PARCEL LEASED PROPERTY
VIA SALES COMPARISON APPROACH TO VALUE -say $2,070,000
----------
EAST YARD-NORTH PARCEL
VALUATION
CCONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
The indications of current market value of the Unencumbered Fee Simple Interest
in and to the "East Yard-North Parcel" Leased Property "As if Unencumbered by
Lease" from the three approaches to value utilized in this report are:
COST APPROACH $2,040,000
INCOME APPRAOCH $2,050,000
SALES COMPARISON $2,070,000
In analyzing the three approaches to value used in this report for the
Unencumbered Fee Simple Interest, it is important to consider and weigh the
inherent merits and weaknesses of each.
The COST APPROACH gives us a good idea of the Physical Value of the appraised
property, i.e. - the cost to replace the physical structures. For relatively new
or proposed properties without functional or economic obsolescence, when the
actual costs are based upon competitive bids, this is generally an excellent
indicator of value. In "normal" market situations, where the site is developed
to its highest and best use and there is balance between demand and supply, the
Cost Approach is generally considered to be a good value indicator. However,
there is still a considerable amount of external obsolescence present in the
market. The appraiser has attempted to accurately portray the prevailing market
conditions in the estimates of various forms of accrued depreciation, and a
comparison of the value conclusions in the COST AND SALES COMPARISON APPROACHES
seem to show that the COST APPROACH is a relatively effective indicator of the
Market Value of the appraised property. However, the COST APPROACH and its
resultant value estimate is based upon costs and not upon the economics of the
project.
The SALES COMPARISON APPROACH is most sensitive to direct actions by purchasers
and sellers for office/warehouse properties. It is also the approach best
understood by the layman and generally yields the best indication of value. The
appraiser analyzed a number of sales of other industrial facilities from the
general area. While there are sales of industrial buildings available, the data
is not always truly comparable to the appraised facility which is a specialized
manufacturing property. Considerable adjustment is necessary to the comparable
sales, which tends to weaken the approach. These sales which were the most
recent sales of similar sized industrial facilities provided a good basis for
comparison to the appraised property and thus yielded a credible indication of
value.
The INCOME APPROACH is generally considered the most reliable method in which to
estimate the value of income producing properties. This method reflects the
present value of the future benefits to the income stream, and therefore,
indirectly reflects the actions of typical buyers and sellers in the market for
investment properties. In the immediate case, the appraised property, was
originally designed and built for specialized manufacturing. The buildings have
a number of specialized features which would generally not be placed in a
building which was
V-31
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
(CONTINUED)
constructed as an investment property. The estimated rental rate was based upon
"warehouse" rates and did not take into account the craneways which were
attributed a separate contributory value. Market criteria was utilized in the
estimates of the Income Stream as well as in the process for converting the
income stream into an estimate of value. Thus, this approach is also considered
to yield a fairly reliable indication of value of the project.
Historically, projects which have specialized features do not translate well in
the market to alternative users. In the immediate case, the specialized features
would be considered superadequacies for the typical purchaser or renter of the
property and thus not fully reflective in the indications from either the SALES
COMPARISON APPROACH or INCOME APPROACH TO VALUE. These extra features would have
perceived "added" value to the Owner Occupant or the User needing them and thus
have "Value in Use" to them, but would not likely translate into "market value"
to an alternative user.
Thus, in the final analysis, in making an estimate of MARKET VALUE of the
Unencumbered Fee Simple Interest in the East Yard - North Parcel Leased
Property, some reliance should be given to all approaches, but most given to the
SALES COMPARISON APPROACH indication, with slightly less reliance on the COST
APPROACH OR INCOME APPROACH indications, and thus an estimate at the indication
from the SALES COMPARISON APPROACH would be considered the best estimate of the
appraised property's current market value.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE EAST YARD-NORTH PARCEL LEASED
PROPERTY "ASSUMING UNENCUMBERED BY LEASE" would have an estimated CURRENT MARKET
VALUE in "As IS CONDITION", assuming a normal exposure period, of:
TWO MILLION FIFTY
THOUSAND AND 00/100
($2,050,000.00) DOLLARS.
An allocation of this Unencumbered Fee Simple Interest Market Value Estimate
would be:
ESTIMATED CONTRIBUTORY VALUE OF
UNDERLYING LAND $1,250,000
ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $ 440,000
ESTIMATED CONTRIBUTORY VALUE OF
CRANEWAYS $ 60,000
ESTIMATED CONTRIBUTORY VALUE OF
BUILDINGS $ 300,000
----------
TOTAL FEE SIMPLE MARKET
VALUE ESTIMATE
$2,050,000
----------
V-32
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE
The task now is to estimate the current market value, if any, of the Leasehold
ownership interest in and to the appraised property held by "UNIFAB".
In the valuation of a LEASEHOLD INTEREST, the value of the LEASEHOLD INTEREST
can be considered to be the difference between the estimate of the current
market value of the UNENCUMBERED FEE SIMPLE INTEREST in and to the property
assuming it was not encumbered by a lease and the estimate of the current market
value of the LEASED FEE INTEREST in and to the property by virtue of the
existing Lease. This is known as the INDIRECT METHOD.
The DIRECT METHOD for the valuation of a LEASEHOLD INTEREST utilizes an INCOME
APPROACH TO VALUE in order to estimate the Net Income to the Leasehold Interest.
The LEASEHOLD INTEREST (LESSEE'S INTEREST) in a property consists of the right
to receive the net income generated by subleasing the property over the term of
the lease to others less the contract rent provided by the underlying lease with
the landlord plus any benefits but minus any penalties, according to the
provisions of the lease. Basically the valuation of a LEASEHOLD INTEREST is the
present value of the Net Income to the Leasehold Interest over the term of the
lease. The appropriate discount rate includes consideration of the risks
inherent in receiving the income stream, as well as a comparison of rates of
return available with competing investments with similar income characteristics.
According to Mr. Pete Roman ("UNIFAB" CFO), "UNIFAB" is currently paying three
different landowners ("Lemaire", "Sutton", and "Theriot") for various portions
of the appraised property a total rent of $198,348 per year for the use of the
"East Yard" land area. This annual rental amount represents the cost of
occupying and using the waterfront land area. According to Mr. Pete Roman
("UNIFAB" Chief Financial Officer), the site improvements, crane systems, and
buildings are the property of "UNIFAB".
Earlier in the report, the appraiser estimated the current market value of the
underlying land to be $1,260,000 ($45,000 per acre). For purposes of this
analysis, the appraiser has allocated +/-60% of the total rent for the East Yard
of $198,348 to the North Parcel or about $120,348 per year and allocated +/-40%
or about$78,000 per year to the "East Yard-South Parcel".
"UNIFAB" is presently paying rent based on terms and conditions stipulated by
three separate but similar ground-lease agreements. The-"Sutton" lease agreement
has a primary term which extends from May 1, 1991, to October 31, 2003 (+/-25
months remaining). There are two option periods (10 years each). The lease
agreement required a monthly payment of $4,334 until October 31, 1996.
Thereafter and during the option periods, rental amounts are CPI adjusted. The
landowner pays ad valorem taxes but is reimbursed by "UNIFAB" for the tax
increase over the 1977 tax base. This is basically a "triple net" ground-lease
with standard industrial lease terms (Lessee must provide proof of liability
insurance, right of entry, etc.).
V-33
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
The "Theriot" lease agreement has a primary term which extends from August 1,
1991, to October 31, 2003 (+/-25 months remaining). There are two option periods
(10 years each). The lease agreement required a monthly payment of $803.90 until
October 31, 1996. Thereafter and during the option periods, rental amounts are
CPI adjusted. The landowner pays ad valorem taxes but is reimbursed by "UNIFAB"
for the tax increase over the 1993 tax base. This is basically a "triple net"
ground-lease with standard industrial lease terms (Lessee must provide proof of
liability insurance, right of entry, etc.).
The "Lemaire" lease agreement has a primary term which extends from November 1,
1993, to October 31, 2003 (+/-25 months remaining). There are two option periods
(10 years each). The lease agreement required a monthly payment of $9,425.35
until October 31, 1998. Thereafter and during the option periods, rental amounts
are CPI adjusted. The landowner pays ad valorem taxes but is reimbursed by
"UNIFAB" for the tax increase over the 1993 tax base. This is basically a
"triple net" ground-lease with standard industrial lease terms (Lessee must
provide proof of liability insurance, right of entry, etc.).
As a result of changes in the CPI index, current monthly rent totals $198,348
per year. Approximately 60% ($120,348) of the total is allocated to the "East
Yard-North Parcel". As indicated, the primary terms of the ground-lease
agreements extend to October 31, 2003. There are approximately 25 months
remaining. Each ground-lease provides for an additional two 10year options.
The appraiser has studied rates of return relative to all types of properties.
Investors typically seek rates that range from 11% to 15% for improved property.
Ground-lease rental rates typically center on a 10% rate. Using a 10% rate of
return on land value (10% overall capitalization rate) as the market rental rate
would indicate that the "East Yard-North Parcel" land area (+/-28 acres) would
normally generate about $126,000 per year in rental income if leased at current
market rates ($1,260,000 estimated value x 10% rental rate).
"UNIFAB" is currently paying $120,348. The difference is approximately $5,650
per year which represents a difference of less than 4'/2%. The contract rental
amount is a slightly "below market" rental amount which means that the Leasehold
Estate has a slight advantage in the ground-lease agreements. The difference
between Contract Rental Rate and Market Rental Rate which is approximately
$5,650 per year would represent a small advantage to the Leasehold Interest held
by "UNIFAB" over the remaining term of the leases.
V-34
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
The lease agreements have remaining current terms of approximately 25 months.
Each lease agreement has an option period or periods which extends beyond the
+/-25 months remaining on the primary terms. With the rental rate increases for
the option periods based upon the change in the Consumer Price Index, the rent
for the option periods under the three leases will likely be very close to
market rates for the next ten year term. Thus a potential investor in the
Leasehold Interest in this property would not considered that there is a
significant leasehold advantage in the underlying land leases and thus would not
speculate beyond the +/-25 months remaining on the current primary term.
However, due to the fact that the Lessee, UNIFAB, has a significant investment
in leasehold improvements and uses the sites for storage of oil platforms and
for overflow construction from their Main Yard (West Yard), it is most certain
that it would exercise its options to renew for another ten years beyond the
+/-25 months remaining on the current lease terms.
Therefore the appraiser has considered that the "Leasehold Interest in the
Property" would be properly stated as the present value of the $5,650 per year
"UNIFAB" Leasehold Rent Advantage in the three underlying land leases over the
+/-25 months remaining on the existing terms.
Discounting $5,650 per year for 25 months at a market oriented 12% annual rate
results in a present value estimate (rounded) of $9,500. The $9,500 estimated
market value would represents the Present Value of the "UNIFAB" Leasehold Rent
Advantage in the underlying land of the appraised property.
Since the "Leasehold Improvements" are owned by "UNIFAB" and it is likely that
they will continue to be used for at least the next +/-12 years (current lease
terms plus 10 year option), the appraiser has added the contributory value of
the "UNIFAB" owned Leasehold Improvements (Buildings, Crane Systems and Site
Improvements) estimated earlier in the report at about $800,000 in order to
arrive at an estimate of current market value of "UNIFAB's Total Leasehold
Interest in the East Yard-North Parcel Leased Property of $810,000.
V-35
EAST YARD-NORTH PARCEL
VALUATION
(Continued)
Leasehold Interest Value Estimate (Continued)
MARKET VALUE ESTIMATE OF UNIFAB'S
LEASEHOLD INTEREST IN THE
"EAST YARD - NORTH PARCEL"
LEASED PROPERTY:
ESTIMATED CONTRIBUTORY VALUE OF
"UNIFAB" OWNED LEASEHOLD
IMPROVEMENTS
Estimated Contributory Value of
Site Improvements $ 440,000
Estimated Contributory Value of
Craneways $ 60,000
Estimated Contributory Value of
Buildings $ 300,000
---------
Total Estimated Contributory Value of
"Unifab" Owned Leasehold Improvements $800,000
ESTIMATED PRESENT VALUE OF RENT
ADVANTAGE IN UNDERLYING LAND LEASES $ 9,500
--------
Total $809,500
TOTAL ESTIMATED CURRENT MARKET
VALUE OF UNIFAB'S LEASEHOLD
INTEREST IN "EAST YARD - NORTH
PARCEL" LEASED PROPERTY -say- $810,000
--------
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE
The appraiser has also been asked to estimate the CURRENT DISPOSITION VALUE of
the Unifab's Ownership Interest (Leasehold Interest) in and to the appraised
property UNDER A DISPOSITION MARKETING PERIOD OF 12 MONTHS OR LESS. In order to
attract a Purchaser to a facility like the appraised property under a condensed
marketing period of 12 months or less, it is likely that a significant discount
from the market value estimate of the property would have to be given in order
to entice Purchasers to acquire the Leasehold Interest in the property in a
condensed marking period.
In order to estimate "Disposition Value", the appraiser has considered current
market conditions for the appraised property and the likely market participants
who might acquire the appraised property. The appraised property is a medium
sized facility and thus would have a decent potential pool of purchasers.
For the DISPOSITION VALUE analysis, the appraiser has conducted interviews of
representatives of a number of companies involved in the fabrication and/or oil
and gas business including analysts and consultants as well as brokers. Also
considered any other adverse conditions which might affect marketability under a
condensed marketing period.
In a discussion with the CFO of a competing company who acquired another large
fabrication facility in 1997 stated that "if we knew what was going to happen to
the fabrication business over the last few years, we would have never acquired
that facility!" He went on to say that at the time they thought they were paying
30% to 40% less than its "true value". He also said that there are always a lot
of people interested in smaller facilities where it doesn't take a tremendous
amount of work to keep it going.
In another discussion with the CEO of a competing company who owns a similar
large fabrication facility he stated that while his company is iri the position
to invest in another facility if the opportunity were right, he believed that
"the discount would have to be hefty for an immediate sale" and went on to state
that "at least a 40% to 50% discount would bee necessary to get them
interested'. He cautioned that holding costs, labor and retro-fit time frame
would be major concerns in their decision making. He stated that "since the oil
patch is currently in a depressed state that any property would have to be held
for at least one year and likely more before it would make economic sense". He
concluded that it would take "a significant discount" to facilitate a sale in
less than 12 months. He also said that smaller facilities were more saleable.
In another discussion with the President of a competing company who owns a
similar large shipyard/fabrication facility he concluded that "the discount
would have to be at least a 30% to 40% to sell in less than 12 months because
one would have to consider the time period to boost business to compensate for
the fixed costs of ownership ".
V-37
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE (CONTINUED)
In discussions with a real estate broker who has brokered several very large
industrial properties over the years including fabrication facilities, some of
his comments were:
- At present there are no real buyers for large fabrication yards.
- There must be a "carrot out there " to attract a potential buyer for
a large expensive yard.
- The typical marketing period is two to three years and to promulgate
a sale in 12 months or less, the discount must be at least 30%.
- The discount must be 30% - 50% of "normal market value "just to get
the market to move on a property.
- He was also of the opinion that a smaller yard may attract buyers at
less of a discount.
In discussions with another real estate broker who has brokered several very
large industrial properties over the years including fabrication facilities,
some of his comments were:
- I would tell a potential client that wants to sell a smaller
fabrication facility that the marketing time will be highly
dependent on where we are in the oil and gas cycle at the time the
property is listed. With current depressed market conditions, I
would tell them that it may take three years to sell no matter what
price it is listed for.
- I think that given the current state of the market that you could
sell a small fabrication facility in 12 months or less, with a 25%
to 40% "discount "from market value.
It is from this basis of information that the appraiser has attempted to
quantify a discount for the East Yard - North Parcel which is Unifab's Old Yard.
The "East Yard-North Parcel" complex contains +/-39,448 square feet of total
gross building area on +/-28 acres of land and thus would qualify as a "small
fabrication facility".
Based upon the above information, the appraiser would believe that a discount of
about 25% from "Unencumbered Fee Simple Interest" would be appropriate in order
to sell the appraised property in a condensed marketing period of 12 months or
less. With Unifab's Ownership Interest being a Leasehold Interest, the
"discount" is applied to the "Unencumbered Fee Simple Interest" of $2,050,000
and then the discount (+/-$5 10,000) deducted from the Leasehold Market Value
Estimate of $810,000.
Thus, after careful consideration of all factors, it is my opinion that the
LEASEHOLD INTEREST IN AND TO THE EAST YARD-NORTH PARCEL LEASED PROPERTY would
have an estimated CURRENT Disposition Value in "As Is Condition", assuming a
condensed marketing period of 12 months or less, of:
THREE HUNDRED THOUSAND AND 00/100 ($300,000.00) DOLLARS.
V-38
EAST YARD-SOUTH PARCEL
PROPERTY DESCRIPTION
According to information provided by Mr. Bill Dunbar of John Chance & Associates
(Lafayette, Louisiana), the "East Yard-South Parcel" encompasses a +/- 19.53
acre area. Although this parcel is irregular shaped, it has adequate industrial
utility. Frontage along the east bank of the Rodere Canal totals +/-550 feet. A
boat slip extends +/-1,127 feet along the north boundary line of this portion of
the property. The tract also has frontagE (+/-350 feet) on the west side of
Curtis Lane. According to information provided by a local engineering firm
(Berard, Habetz, & Associates, Inc.), approximately three acres of this
industrial yard are superstabilized (12"-15" deep). The rest of the parcel has
typical industrial stabilization features. A steel bulkhead is located at the
end of the central boat slip (+/-130 linear feet).
The "East Yard-South Parcel" is improved with four major building improvements
(+/- 14,994 combined square footage). The buildings are in fair condition. Like
the "North Yard", this area is used mainly for equipment storage and "overflow"
work from the "West Yard". This land area is leased from the "Lemaire's" and the
buildings are reportedly owned by "UNIFAB". The appraiser's estimate of Current
Market Value is of the Lessee's Leasehold Interest in and to the appraised
property.
The FABRICATION/SHOP BUILDING contains +/-6,620 square feet. This "Class S"
structure is approximately 25 years old and has a small office area (+/-165 sf).
A +/-2,000 square foot canopy is attached to the east side of the building. Shop
area construction features include a concrete slab foundation, corrugated metal
walls/roof, and suspended incandescent lights. The slab is a heavy-duty
foundation and the eave-height of the building is approximately 35 feet. Inside
the fabrication shop is a 10-ton bridge crane (+/-30' span, +/-285' rail,
automatic controls). There is a +/-2,100 concrete apron on the side of the
building. The office portion has modest construction features (prefinished wall
panels, vinyl floor cover, celotex ceiling panels, fluorescent light fixtures).
The office is not air-conditioned. Overall, the structure appears to be in
average physical condition. The replacement cost new estimate total includes the
"Class S" building, attached shed, and concrete apron. The +/-6,620 square foot
fabrication structure is +/-25 years old and is in average physical condition.
With an estimated effective age of +/-25 years and a total estimated useful
economic life of the fabrication/shop building is +/-45 years, estimated accrued
physical depreciation is approximately 56%. The 10-ton BRIDGE CRANE UNIT IN THE
FABRICATION/SHOP BUILDING has an expected total useful life of +/-30 years, the
appraiser haS estimated that the accrued physical depreciation rate to the crane
system would be about 50%.
The "Class S" OFFICE BUILDING appears to be +/-20 years old and is in fair
physical condition. Exterior walls and roof are corrugated metal. The building
is heated/cooled via ground-mounted air-conditioning units. Interior features
include asphalt floor tiles, sheetrock walls, prefinished wall panels, and a
suspended ceiling panel system. Approximately 60% of the floor is smooth
concrete. The restroom area has a "rough" finish (exposed concrete floors,
painted concrete block walls, fluorescent lights). A metal canopy (+/-920 sf) is
attached to the south side of the office building. This building has been vacant
for some time and reflects a lack of maintenance. Thus, the appraiser has
estimated a physical curable deterioration for this building in order to bring
it back to average condition of about $10,000. After curing this deferred
maintenance, the estimated effective age of the one-story building is +/-20
years. The estimated total economic life of the building is +/-45 years which
implies a 45% accrued physical depreciation rate.
VI-10
EAST YARD-SOUTH PARCEL
PROPERTY DESCRIPTION
(CONTINUED)
The ALLOY PIPE-SHOP BUILDING contains +/-1,590 square feet of gross building
area. Attached to the south side of the building is a concrete block FUEL
STORAGE BIN. The shop has a +/-20 foot eave height and the walls and roof are
corrugated metal. The fuel bin contains +/-384 square feet and is open on the
south end. There is a +/-1,050 square foot concrete apron on the west side of
the shop. The east end of the "Class S" shop area is screened and the west end
of the building has a large metal roll-up door. Lighting inside the shop is
provided by fluorescent fixtures. Interior walls are exposed metal (no
insulation). The building appears to be +/-25 years old and is in fair
condition. The estimated effective age of the building improvements is +/-25
years. With an estimated total economic life of +/-40 years, the accrued
physical depreciation rate is 63%.
The WAREHOUSE BUILDING contains +/-2,500 square feet and has corrugated metal
walls and roof. The eave height of this "Class S" structure is +/-25 feet.
Building features include a concrete slab foundation, exposed metal walls/roof,
and incandescent light fixtures. On the east side of the structure is a +/-1,300
square foot concrete apron. The building is approximately 20 years old and is in
fair condition. The estimated effective age is +/-20 years. The estimated total
economic life of the building is +/-40 years which indicates a 50% accrued
physical depreciation rate.
According to information provided by Mr. Mark Borel (Berard, Habetz, &
Associates, tes, Inc.), approximately three (3) acres of the yard area is
SUPER-STABILIZED (12"-15 "deep). The estimated total useful life of the
super-stabilization (12"-15" deep) material is +/-40 years. The observed age of
the super-stabilized area (+/-12 acres) is +/-10 years (+/-25% imputed accrued
physical depreciation rate). STEEL BULKHEAD along the side of the central boat
slip totals +/-130 linear feet. The total estimated useful economic life of the
STEEL BULKHEAD MATERIAL is +/-35 years. The bulkhead material is in good
condition and has an estimated effective (observed) age of 10 years. This
implies a physical deterioration rate of +/-28.5%
EAST YARD-SOUTH PARCEL
VALUATION
As indicated, the raw land is owned by various third parties (not affiliated
with "UNIFAB"). According to information provided by Mr. Pete Roman (Chief
Financial Officer, "UNIFAB"), all of the buildings located on the "East
Yard-South Parcel" are owned by "UNIFAB". The site improvements are also owned
by "UNIFAB".
The current contract rental amount for the right to use and occupy the entire
"East Yard" is $198,348 per year. For purposes of this analysis, the appraiser
has allocated +/-60% of the total rent to the North Parcel or about $120,348 per
year and allocated +/-40% or about$78,000 per year to the "East Yard-South
Parcel". The annual rent under the "Lemaire" lease is $113,104 with a
significant portion of this lease allocated to the "South Parcel".
In order to value the LEASEHOLD INTEREST in and to the property leased from
three separate individuals, the appraiser has first estimated the value of the
Fee Simple Ownership Interest relative to the East Yard-South Parcel facility
(i.e. assuming it were unencumbered by leases). By comparing estimated market
rent to contract rent, we can effectively determine the value, if any, of the
Leasehold Interest.
In order to estimate the current value of the FEE SIMPLE OWNERSHIP INTEREST
"ASSUMING UNENCUMBERED BY LEASE", the appraiser has utilized a COST APPROACH
analysis, SALES COMPARISON APPROACH analysis, and INCOME APPROACH analysis.
COST APPROACH
The estimated value of the underlying +/-19.53 arce waterfront site "assuming
vacant and unencumbered by lease" was estimated earlier in the report in the
SITE VALUATION section to be $880,000 ($45,000 per acre, rounded).
The cost analysis is based on cost data provided by a Cost Consultant (Fred
Moran) for the prior appraisal assignment performed in May 2000 which have been
indexed to date of appraisal. The accrued depreciation estimates are based on
the appraiser's observations during the inspections of the property made in
October 2001.
Based on our inspection of the "East Yard-South Parcel" building improvements,
deferred maintenance is attributable to the office building because of neglect.
The estimated cost to refurbish the OFFICE BUILDING as well as some of the other
older improvements on the property which have gone into disrepair is $10,000.
The accrued depreciation estimates for physical incurable and
functional/economic obsolescence assumes that the deferred maintenance is cured
in accordance with these estimates and recommendations.
The "East Yard-South Parcel" buildings have a combined gross building area of
+/-14,994 square feet. This is a small industrial complex and the value loss due
to functional and/or economic obsolescence is much less than the loss normally
associated with large specialized industrial complexes. Small facilities like
the appraised property routinely sell and there is a large pool of potential
buyers for small waterfront industrial properties.
VI - 12
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
As indicated throughout this report, "The Port" neighborhood is a preferred
location. All of "The Port" property is leased and there is a waiting list for
available waterfront tracts. Given this scenario and the general-use nature of
the "East Yard-South Parcel" buildings, there is no measurable value loss due to
functional and/or economic obsolescence.
Based on the preceding analysis of estimated replacement cost and estimates of
the various components of accrued depreciation, the ESTIMATED MARKET VALUE OF
THE UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE "EAST YARD-SOUTH PARCEL"
LEASED PARCEL "ASSUMING UNENCUMBERED BY LEASE" is summarized on the following
page.
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS:
FABRICATION/SHOP BUILDING
Estimated Replacement Cost New $ 210,200
Less: Physical Depreciation (56%) 117,700
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Fabrication/Shop Building $ 92,500
FABRICATION CRANE SYSTEM
Estimated Replacement Cost New $ 50,000
Less: Physical Depreciation (50%) 25,000
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Fabrication Crane System 25,000
OFFICE BUILDING
Estimated Replacement Cost New $ 137,100
Less: Physical Depreciation (45%) 61,700
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Office Building 75,400
ALLOY PIPE-SHOP BUILDING
Estimated Replacement Cost New $ 27,100
Less: Physical Depreciation (63%) 17,100
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Alloy Pipe-Shop Building 10,000
WAREHOUSE BUILDING
Estimated Replacement Cost New $ 48,600
Less: Physical Depreciation (50%) 24,300
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Warehouse Building 24 300
--------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: $ 227,200
Less: Deferred Maintenance (10,000)
---------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: $ 217,200
VI - 14
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST
APPROACH
SUB-TOTAL FROM PRIOR PAGE
TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING
IMPROVEMENTS: $ 217,200
ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENTS:
STEEL BULKHEAD MATERIAL
Estimated Replacement Cost New $ 288,300
Less: Physical Depreciation (28.5%) 82,200
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Steel Bulkhead Material $ 206,100
SUPER-STABILIZED YARD AREA
Estimated Replacement Cost New $ 196,500
Less: Physical Depreciation (25%) 49,100
Less: Economic/Functional Loss (0%) 0
---------
Estimated Contributory Value of
Super-Stabilized Yard Area $ 147,400
---------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF SITE
IMPROVEMENTS $ 353,500
ESTIMATED CURRENT MARKET VALUE OF
UNDERLYING LAND "AS IF VACANT"
(+/-19.53 acres @ $45,000/acre, rounded) $ 880,000
-----------
TOTAL $ 1,450,700
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN EAST YARD SOUTH PARCEL LEASED PROPERTY
VIA COST APPROACH TO VALUE -SAY- $ 1,450,000
-----------
V1- 15
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH
The Income Approach is the procedure in appraisal analysis which converts
anticipated benefits (dollar income or amenities) to be derived from the
ownership of property into a value estimate. In the Income Approach to Value,
the gross annual income attributable to the appraised property is estimated.
From this amount, all applicable expenses are deducted. The anticipated future
net operating income and reversion are then discounted to present value at a
market supported rate.
Because of the anticipated stable nature of "East Yard-South Parcel" income and
expenses, the appraiser has utilized the Direct Capitalization Method.
In order to estimate potential gross income, the appraiser has analyzed
comparative rent data. In the ADDENDUM of this report are Industrial Rent
Comparables utilized for this analysis. The "East Yard-South Parcel" facility
has buildings with a total gross building area of +/-14,994 square feet. This is
a small industrial complex in fair-to-average physical condition. These type
facilities are often leased on a "triple net" basis. The appraiser has a
sufficient amount of comparative income data to effectively utilize an income
analysis.
The Contributory Value of the Site Improvements and Crane Systems in the COST
APPROACH TO VALUE is about $353,500 for the Site Improvements and about $25,000
for the Craneways for a total of about $378,500. None of the Rent Comparables
studied have extensive site improvements and/or 10-ton crane system like the
"East Yard-South Parcel". The appraiser therefore has added the estimated
contributory value ($375,000) of these items to the value estimated based upon
the Income Approach to Value.
Based upon our analysis of other facilities and for valuation purposes, the
appraiser has allocated +/-4.53 acres to this small building complex. This
allocation would result in a land-to-building ratio of 13.16:1. Most small-sized
multi-building industrial facilities are located on 3-5 acre tracts. The
remaining waterfront land (+/-15 acres) is considered "Excess Land" or yard area
with an estimated value of $45,000 per acre ($675,000). The "Excess Land" area
is not intrinsic to the income generated by the buildings and +/-4.53 acre
waterfront area. We therefor have added the estimated value ($675,000) of the
"excess" land to the income based value of the buildings.
The appraiser has therefore added the estimated contributory value of $600,000
for the "Excess Land" to the estimated value derived in the Income Approach from
the building improvements and +/-4.530 acre "Utilized" land area.
Comparative income data indicates that most mid-sized industrial properties
which are leased are often leased "triple net". The Lessee is typically
responsible for most operating expenses. The Lessor (landlord) pays for the cost
of structural maintenance, replacement reserves, and management.
VI - 16
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH (CONTINUED)
The Rent Comparables indicate "triple net" rental rates between $2.50 and $3.50
per square foot per year. Like the appraised property, these are older
industrial facilities located inside the Lafayette/New Iberia market area.
Because the "East Yard-South Parcel" is a waterfront industrial complex with
older industrial buildings, the appraiser has concluded an estimated current
market value of the appraised facility as an upper range rate of $3.50 per
square foot of building area. This rate reflects the fact that the "East
Yard-South Parcel" facility has a waterfront location inside a preferred
industrial development. Waterfront acreage is superior to sites located on or
adjacent to U.S. Highway 90 (where some of the Rent Comparables are located).
The industrial complex is in fair-to-average condition but the office portion
(+/-4,065 so is +/-27.1 % of the total building complex and the waterfront
location is a superior attribute which tends to increase the rental rate. Based
upon this analysis, the estimated current market rent projected for the
Buildings and Utilized Land Area of the "East Yard-North Parcel" facility would
be about $3.50 per square foot of building area or $52,500 per year.
Income loss due to vacancy and collection problems should not be significant.
"The Port" development is full and with strong demand for waterfront locations,
vacancy should be minimal. The appraiser has projected a Vacancy and Credit Loss
Allowance of 5% of gross income.
As indicated by our market study, many industrial facilities are leased on a
"triple net" basis. Our rental rate assumes the Lessee is responsible for all
operating expenses except management and replacement reserves.
The estimated management expense is based upon +/-5% of effective gross income
or about $2,500 per year. Local property managers typically charge 3%-l0% for
management responsibilities. The "East Yard-South Parcel" building complex is a
small "Class S" facility with a simple design and management responsibilities
should be relatively routine.
For other operating expenses of a Lessor under a Triple Net Lease, the appraiser
has estimated Structural maintenance at about $0.20 per square foot or about
$3,000 per year. The tenant(s) will presumably be responsible for routine
maintenance and repairs. Hazard insurance will cover the cost of some repairs
and since our analysis includes a replacement reserve allowance for short-lived
building components, structural maintenance costs should not be excessive.
Very few industrial owners and lessors include a Reserve for Replacement
Allowance in their expense statements. Each property owner interviewed believed
that a replacement should be handled from cash flow at the time of the
replacement. Further, most believe that the typical holding period eliminates
the need for a reserve. Several property owners were consulted and each believed
that the idea of a reserve is theoretically a "good idea", but in the local
industrial market it generally is not practiced.
VI - 17
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH (CONTINUED)
Regardless, the appraiser believes a prudent investor would set aside funds to
replace worn floor cover, ceiling panels, and faulty air-conditioning
compressors. The appraiser has estimates that a reasonable amount would be about
$0.10 per square foot of gross building area. This amounts to about $1,500 per
year and is consistent with the age/condition of the office/warehouse building
complex and also with national industrial investor criteria.
The next step is to estimate the proper income capitalization rate. Based on the
appraiser's study of comparative capitalization rate data, the appraiser has
concluded an overall capitalization rate applicable to the appraised property to
be a rate in the range of 11 % to 12%. This is consistent with the age, physical
condition, size, and location of the "East Yard-South Parcel" industrial
complex. Based upon the analysis of this data, the appraiser has concluded an
appropriate overall capitalization rate for the appraised properties would be
11'/2%.
The income analysis is summarized on the next page. The depreciated cost of the
site improvements and crane systems are added as separate. items because the
Rent Comparables do not contain crane systems and/or site improvements
comparable to the "East Yard-North Parcel". The estimated Contributory Market
Value of the "Excess Land area of about +/-15 acres of $675,000 is also added.
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
INCOME APPROACH (CONTINUED)
RECONSTRUCTED OPERATING STATEMENT
"EAST YARD-SOUTH PARCEL" (Buildings & Utilized Land Area)
Potential Gross Income
(Buildings and Utilized Land Area)
14,994 S.F. GBA x $3.50/S.F.
$
52,500 Less:Vacancy and Collection Loss
Estimated @ 5% - 2625
Effective Gross Income $ 4
9,875 Less:Operating Expenses
Real Estate Taxes by tenant
Building Insurance by tenant
Management (5%) $ 2,500
Repairs/Maintenance (routine) by tenant
Utilities by tenant
Janitorial by tenant
Structural Maintenance $ 3,000
Replacement Reserves $ 1,500
-------
Total Operating Expenses $ 7,000
---------
Net Operating Income $ 42,875
DIRECT CAPITALIZATION PROCESS
Net Operating Income Capitalized at
11'/2% Overall Cap Rate
$42,875 _ .1150 $ 372,826
INDICATED MARKET VALUE OF BUILDINGS
AND UTILIZED LAND AREA VIA
INCOME APPROACH TO VALUE -say- $ 375,000
LESS: DEFERRED MAINTENANCE -($10,000)
ADD: ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENTS $ 350,000
ADD: ESTIMATED CONTRIBUTORY VALUE OF CRANE SYSTEMS $ 25,000
ADD: ESTIMATED CONTRIBUTORY VALUE OF 15 ACRES EXCESS LAND $ 675,000
----------
Total Estimated Property Value $1,415,000
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN EAST YARD-SOUTH PARCEL LEASED PROPERTY
VIA INCOME APPROACH TO VALUE -say-
$1,415,000
----------
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH
The SALES COMPARISON APPROACH involves direct comparisons of the property being
appraised to similar properties that have sold in the same or in a similar
market in order to derive a Market Value indication for the property being
appraised.
Located in the ADDENDUM of this report are the detailed write-ups of the
industrial property sales (Improved Comparable Sales) utilized for this
appraisal assignment. For the analysis of the "East Yard-North Parcel" Leased
Parcel, the appraiser has selected Improved Comparable Sale Nos. 1, 2, 3, and 4.
The emphasized sales are summarized on the following chart.
ESTIMATED
BUILDING VALUE
SALE EFFECTIVE CONTRIBUTORY PSF
NO. SALE PRICE DATE VALUE BUILDING
- --- ---------- ---- ----- --------
1 $2,100,000 06/01 $300,000 $ 13.42
2 $1,806,948 12/00 $488,948 $ 7.98
3 $1,500,000 09/00 $765,000 $ 15.57
4 $2,960,625 06/98 $420,625 $ 10.58
These four industrial property sales are considered to be the best available
indicators of value for the appraised property. Land values and equipment (if
any) are extracted based on comparative land sales and information provided by a
party familiar with the sale transaction. Equipment typically has a contributory
value less than its depreciated cost. Contributory Land value estimates are
based on comparable neighborhood land sales.
The sales selected have been chosen due to their similarities based on building
sizes, ages, condition, and date of sale.
Each Improved Comparable Sale involved the transfer of Fee Simple ownership
rights or market oriented Leased Fee ownership rights. In the current analysis,
the appraiser is estimating the current market value of the Unencumbered Fee
Simple ownership rights in the "East Yard - North Parcel" Leased Property
"assuming unencumbered by lease". Accordingly, no adjustment is considered
necessary for "property rights conveyed".
No adjustment is considered necessary to Improved Comparable Sales for
"expenditures immediately after purchase". This was verified during our
interview of the sale participants (Vendor, Vendee, sales agent, appraiser,
etc.).
VI - 20
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH (CONTINUED)
"Market Conditions" reflect the change in the prices paid for real property due
to changes in market conditions and the purchasing power of money over time.
This adjustment is derived by analyzing changes that have occurred over time and
determining their effect on the property during the time period. Changes may
result in appreciation or depreciation in value due to inflation or deflation.
Although this adjustment is often referred to as a "time" adjustment, time is
not the cause of the adjustment. Market conditions which shift over time create
the need for an adjustment, not time itself. The four sales are relatively
recent and thus only a minor upward time adjustment is considered necessary with
the largest adjustment to Improved Comparable Sale No. 4 which occurred in June
1998.
In the Breakdown Method Analysis for each sale, the contributory land value is
extracted from or deducted from each sale price in order to arrive at a
contributory value of the building improvements. Since "location" differentials
are typically reflected in underlying land value, the appraiser has not applied
a "location" adjustment to the Improved Comparable Sales. The necessary
adjustments required tend to center on "building size", "condition/construction
quality", "office percentage", and "economic characteristics".
Building size is often a factor. Among similar office and industrial buildings,
smaller sized buildings tend to sell for more per unit that comparable larger
buildings.
The "East Yard-South Parcel" complex contains a gross building area of +/-14,994
square feet. The sizes of the comparable building sales range between 22,356
square feet (Sale 1) to 61,241 square feet (Sale 2). Due to the imperfect nature
of the real estate market, size adjustments are not mathematically precise. The
trend, however, is clear. Smaller sized facilities typically sell for more per
unit than comparable larger sized buildings (and vice verse). Thus, the "size"
adjustments are not considered significant to the sales being in the 5% to 15%
range.
Adjustments for "Age/Condition/Quality" are based on age/life comparisons,
overall condition and "Office percentage". The greater the percentage of office
space, the greater, generally speaking, the value of the building. The "East
Yard-South Parcel" complex has +/-4,065 square feet of office space which is
+/-27.1% of total building square footage.
The sales comparison analysis adjustment analysis is summarized on the following
adjustment grid.
The sales analysis grid reflects a contributory building unit value range prior
to adjustments between $7.98 and $15.57 per square foot. Sale I is the most
recent sale and indicates a unit value of $13.42 per square foot. It was a newer
facility and thus in better overall condition, but had no office space included
in the sale. Sale 2 included a mix of similar older buildings on the site which
had more overall square footage and had a similar percentage (24%) of
office/finished space. Sale 3 is a newer industrial structure in the local
market which had only 5% of office/finished space. Sale 4 also included a mix of
similar older buildings on the site which had similar gross building areas, but
had a slightly smaller percentage (18%) of office/finished space.
VI-21
EAST YARD-NORTH PARCEL
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH (CONTINUED)
After adjustments for noted differences, these four sales reflect a range of
unit values for the building improvements on the appraised property of $10.78 to
$12.08 per square foot with a mean indication of $11.48 per square foot.
Based on these considerations, the appraiser has concluded a mid-range unit
value estimate for the appraised facilities buildings of about $11.50 square
foot.
SALES COMPARISON APPROACH
EAST YARD - SOUTH PARCEL LEASED PROPERTY
COMPARABLE SALE ADJUSTMENT CHART
PRICE PER SQUARE FOOT OF GROSS BUILDING AREA ANALYSIS
CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS
[Omitted]
RECAPITULATION OF
SALES COMPARISON APPROACH TO VALUE
EAST YARD - SOUTH PARCEL LEASED PROPERTY
BREAKDOWN METHOD ANALYSIS
CONTRIBUTORY VALUE OF BUILDINGS IMPROVEMENTS
14,994 S.F. @ $11.50/S.F. AVG. $ 172,400
TOTAL CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS -$ 10,000
LESS: ESTIMATED DEFERRED MAINTENANCE
CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
Steel Bulkhead & Stabilized Areas
TOTAL CONTRIBUTORY VALUE OF SITE IMPROVEMENTS $ 350,000
------------------
CONTRIBUTORY VALUE OF CRANE SYSTEMS $ 25,000
CONTRIBUTORY SITE VALUE
19.530 Acres @ $45,000.00/Acre $ 880000
------------------
TOTAL $ 1,417,400
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN EAST YARD-SOUTH PARCEL LEASED PROPERTY
VIA SALES COMPARISON APPROACH TO VALUE -say- $ 1,420,000
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
The indications of current market value of the Unencumbered Fee Simple Interest
in and to the "East Yard-South Parcel" Leased Property "As if Unencumbered by
Lease" from the three approaches to value utilized in this report are:
COST APPROACH $1,450,000
INCOME APPROACH $1,415,000
SALES COMPARISON $1,420,000
In analyzing the three approaches to value used in this report for the
Unencumbered Fee Simple Interest, it is important to consider and weigh the
inherent merits and weaknesses of each.
The COST APPROACH gives us a good idea of the Physical Value of the appraised
property, i.e. - the cost to replace the physical structures. For relatively new
or proposed properties without functional or economic obsolescence, when the
actual costs are based upon competitive bids, this is generally an excellent
indicator of value. In "normal" market situations, where the site is developed
to its highest and best use and there is balance between demand and supply, the
Cost Approach is generally considered to be a good value indicator. However,
there is still a considerable amount of external obsolescence present in the
market. The appraiser has attempted to accurately portray the prevailing market
conditions in the estimates of various forms of accrued depreciation, and a
comparison of the value conclusions in the COST AND SALES COMPARISON APPROACHES
seem to show that the COST APPROACH is a relatively effective indicator of the
Market Value of the appraised property. However, the COST APPROACH and its
resultant value estimate is based upon costs and not upon the economics of the
project.
The SALES COMPARISON APPROACH is most sensitive to direct actions by purchasers
and sellers for office/warehouse properties. It is also the approach best
understood by the layman and generally yields the best indication of value. The
appraiser analyzed a number of sales- of other industrial facilities from the
general area. While there are sales of industrial buildings available, the data
is not always truly comparable to the appraised facility which is a specialized
manufacturing property. Considerable adjustment is necessary to the comparable
sales, which tends to weaken the approach. These sales which were the most
recent sales of similar sized industrial facilities provided a good basis for
comparison to the appraised property and thus yielded a credible indication of
value.
The INCOME APPROACH is generally considered the most reliable method in which to
estimate the value of income producing properties. This method reflects the
present value of the future benefits to the income stream, and therefore,
indirectly reflects the actions of typical buyers and sellers in the market for
investment properties. In the immediate case, the appraised property, was
originally designed and built for specialized manufacturing. The buildings have
a number of specialized features which would generally not be placed in a
building which was
VI-25
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
(CONTINUED)
constructed as an investment property. The estimated rental rate was based upon
"warehouse" rates and did not take into account the craneways which were
attributed a separate contributory value. Market criteria was utilized in the
estimates of the Income Stream as well as in the process for converting the
income stream into an estimate of value. Thus, this approach is also considered
to yield a fairly reliable indication of value of the project.
Historically, projects which have specialized features do not translate well in
the market to alternative users. In the immediate case, the specialized features
would be considered superadequacies for the typical purchaser or renter of the
property and thus not fully reflective in the indications from either the SALES
COMPARISON APPROACH or INCOME APPROACH TO VALUE. These extra features would have
perceived "added" value to the Owner Occupant or the User needing them and thus
have "Value in Use" to them, but would not likely translate into "market value"
to an alternative user.
Thus, in the final analysis, in making an estimate of MARKET VALUE of the
Unencumbered Fee Simple Interest in the East Yard - South Parcel Leased
Property, some reliance should be given to all approaches, but most given to the
SALES COMPARISON APPROACH indication, with slightly less reliance on the COST
APPROACH OR INCOME APPROACH indications, and thus an estimate at the indication
from the SALES COMPARISON APPROACH would be considered the best estimate of the
appraised property's current market value.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE EAST YARD-SOUTH PARCEL LEASED
PROPERTY "ASSUMING UNENCUMBERED by LEASE" would have an estimated CURRENT MARKET
VALUE in "As IS CONDITION", assuming a normal exposure period, of:
ONE MILLION FOUR HUNDRED TWENTY THOUSAND
AND 00/100 ($1,420,000.00) DOLLARS.
An allocation of this Unencumbered Fee Simple Interest Market Value Estimate
would be:
ESTIMATED CONTRIBUTORY VALUE OF
UNDERLYING LAND $ 880,000
ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $ 350,000
ESTIMATED CONTRIBUTORY VALUE OF
CRANEWAYS $ 25,000
ESTIMATED CONTRIBUTORY VALUE OF
BUILDINGS $ 165,000
-------------
TOTAL FEE SIMPLE MARKET
VALUE ESTIMATE $ 1,420,000
-------------
VI - 26
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE
The task now is to estimate the current market value, if any, of the Leasehold
ownership interest in and to the appraised property held by "UNIFAB".
In the valuation of a LEASEHOLD INTEREST, the value of the LEASEHOLD INTEREST
can be considered to be the difference between the estimate of the current
market value of the UNENCUMBERED FEE SIMPLE INTEREST in and to the property
assuming it was not encumbered by a lease and the estimate of the current market
value of the LEASED FEE INTEREST in and to the property by virtue of the
existing Lease. This is known as the INDIRECT METHOD.
In appraisal theory, there would be an economic value to the LEASEHOLD INTEREST
if the contract rent paid under the lease to the lessor was less than the fair
market rent of the property over time. This advantage on the part of the lessee
would be the LEASEHOLD INTEREST in the property. The Indirect Method for
estimating the value of the LEASEHOLD INTEREST, is based upon the assumption
that the LEASEHOLD INTEREST is the difference between the estimate of value of
the UNENCUMBERED FEE SIMPLE INTEREST and the estimate of value of the LEASED FEE
INTEREST.
The DIRECT METHOD for the valuation of a LEASEHOLD INTEREST utilizes an INCOME
APPROACH TO VALUE in order to estimate the Net Income to the Leasehold Interest.
The LEASEHOLD INTEREST (LESSEE'S INTEREST) in a property consists of the right
to receive the net income generated by subleasing the property over the term of
the lease to others less the contract rent provided by the underlying lease with
the landlord plus any benefits but minus any penalties, according to the
provisions of the lease. Basically the valuation of a LEASEHOLD INTEREST is the
present value of the Net Income to the Leasehold Interest over the term of the
lease. The appropriate discount rate includes consideration of the risks
inherent in receiving the income stream, as well as a comparison of rates of
return available with competing investments with similar income characteristics.
According to Mr. Pete Roman ("UNIFAB" Chief Financial Officer), "UNIFAB" is
currently paying three different landowners ("Lemaire", "Sutton", and "Theriot")
for various portions of the "East Yard" a total rent of $198,348 per year for
the use of the "East Yard" land area. This annual rental amount represents the
cost of occupying and using the waterfront land area. According to Mr. Roman,
the site improvements, crane systems, and buildings are the property of
"UNIFAB".
Earlier in the report, the appraiser estimated the current market value of the
underlying land of the East Yard-South Parcel to be $880,000 ($45,000 per acre).
For purposes of this analysis, the appraiser has allocated +/-60% of the total
rent for the East Yard of $198,348 to the North Parcel or about $120,348 per
year and allocated +/-40% or about$78,000 per year to the "East YardSouth
Parcel". The "East Yard-South Parcel" is part of the land included in the
"Lemaire" lease.
VI- 27
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
The "Lemaire" lease agreement has a primary term which extends from November 1,
1993, to October 31, 2003 (+/-25 months remaining). There are two option periods
(10 years each). The lease agreement required a monthly payment of $9,425.35
until October 31, 1998. Thereafter and during the option periods, rental amounts
are CPI adjusted. The landowner pays ad valorem taxes but is reimbursed by
"UNIFAB" for the tax increase over the 1993 tax base. This is basically a
"triple net" ground-lease with standard industrial lease terms (Lessee must
provide proof of liability insurance, right of entry, etc.).
As a result of changes in the CPI index, current monthly rent under the
"Lemarie" lease totals $113,104 per year. Approximately $78,000 of the total
"Lemaire" lease rent is allocated to the "East Yard-South Parcel". As indicated,
the primary terms of the ground-lease agreement extends to October 31, 2003.
There are approximately 25 months remaining. The ground-lease provides for an
additional two 10-year options.
The appraiser has studied rates of return relative to all types of properties.
Investors typically seek rates that range from 11% to 15% for improved property.
Ground-lease rental rates typically center on a 10% rate. Using a 10% rate of
return on land value (10% overall capitalization rate) as the market rental rate
would indicate that the "East Yard-South Parcel" land area (+/-19.53 acres)
would normally generate about $88,000 per year in rental income if leased at
current market rates ($880,000 estimated value x 10% rental rate).
"UNIFAB" is currently paying $78,000. Thus the contract rental amount is about
$10,000 per year less than the estimated "market rent" amount for the underlying
land which means that the Leasehold Estate has a small advantage in the
ground-lease agreement. The difference between Contract Rental Rate and Market
Rental Rate which is approximately $10,000 per year would represent a small
advantage to the Leasehold Interest held by "UNIFAB" over the remaining term of
the lease.
The "Lemaire" lease agreement has a remaining current term of approximately 25
months. The lease agreement has an option period or periods which extends beyond
the +/-25 months remaining on the primary terms. With the rental rate increases
for the option periods based upon the change in the Consumer Price Index, the
rent for the option periods under the lease will likely continue to be slightly
below market rates for the next ten year term. Thus a potential investor in the
Leasehold Interest in this property would considered that there is a minor
leasehold advantage in the underlying land lease. However, due to the fact that
the Lessee, UNIFAB, has a significant investment in leasehold improvements and
uses the sites for storage of oil platforms and for overflow construction from
their Main Yard (West Yard), it is most certain that it would exercise it
options to renew for another ten years beyond the +/-25 months remaining on the
current lease term.
Therefore the appraiser has considered that "UNIFAB" would have some advantage
in the underlying land lease and that the rental rate during the option period
would be below market rent levels and thus an on-going future advantage.
VI- 28
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
Therefore the appraiser has considered that the "Leasehold Interest in the
Property" would be properly stated as the present value of the $10,000 per year
"UNIFAB" Leasehold Rent Advantage in the underlying land lease over the +/-25
months remaining on the existing term.
Discounting $10,000 per year for 25 months at a market oriented 12% annual rate
results in a present value estimate (rounded) of $16,700. The $16,700 estimated
market value would represents the Present Value of the "UNIFAB" Leasehold Rent
Advantage in the underlying land of the appraised property.
Since the "Leasehold Improvements" are owned by "UNIFAB" and it is likely that
they will continue to be used for at least the next +/-12 years (current lease
terms plus 10 year option), the appraiser has added the contributory value of
the "UNIFAB" owned Leasehold Improvements (Buildings, Crane Systems and Site
Improvements) estimated earlier in the report at about $560,000 in order to
arrive at an estimate of current market value of "UNIFAB's Total Leasehold
Interest in the East Yard-South Parcel Leased Property of $575,000.
MARKET VALUE ESTIMATE OF UNIFAB'S LEASEHOLD INTEREST IN THE "EAST YARD - SOUTH
PARCEL" LEASED PROPERTY:
ESTIMATED CONTRIBUTORY VALUE OF
"UNIFAB" OWNED LEASEHOLD
IMPROVEMENTS
ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $ 350,000
ESTIMATED CONTRIBUTORY VALUE OF
CRANEWAYS $ 25,000
ESTIMATED CONTRIBUTORY VALUE OF
BUILDINGS $ 165,000
TOTAL ESTIMATED CONTRIBUTORY VALUE OF
"UNIFAB" OWNED LEASEHOLD IMPROVEMENTS $540,000
ESTIMATED PRESENT VALUE OF RENT
ADVANTAGE IN UNDERLYING LAND LEASES $ 15,000
--------
$555,000
Total
TOTAL ESTIMATED CURRENT MARKET
VALUE OF UNIFAB'S LEASEHOLD
INTEREST IN "EAST YARD - SOUTH
PARCEL" LEASED PROPERTY -say- $555,000
--------
VI- 29
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE
The appraiser has also been asked to estimate the CURRENT DISPOSITION VALUE of
the Unifab's Ownership Interest (Leasehold Interest) in and to the appraised
property UNDER A DISPOSITION MARKETING PERIOD OF 12 MONTHS OR LESS. In order to
attract a Purchaser to a facility like the appraised property under a condensed
marketing period of 12 months or less, it is likely that a significant discount
from the market value estimate of the property would have to be given in order
to entice Purchasers to acquire the Leasehold Interest in the property in a
condensed marking period.
In order to estimate "Disposition Value", the appraiser has considered current
market conditions for the appraised property and the likely market participants
who might acquire the appraised property. The appraised property is a small
sized facility and thus would have a decent potential pool of purchasers.
For the DISPOSITION VALUE analysis, the appraiser has conducted interviews of
representatives of a number of companies involved in the fabrication and/or oil
and gas business including analysts and consultants as well as brokers. Also
considered any other adverse conditions which might affect marketability under a
condensed marketing period.
In a discussion with the CFO of a competing company who acquired another large
fabrication facility in 1997 stated that "if we knew what was going to happen to
the fabrication business over the last few years, we would have never acquired
that facility!" He went on to say that at the time they thought they were paying
30% to 40% less than its "true value". He also said that there are always a lot
of people interested in smaller facilities where it doesn't take a tremendous
amount of work to keep it going.
In another discussion with the CEO of a competing company who owns a similar
large fabrication facility he stated that while his company is in the position
to invest in another facility if the opportunity were right, he believed that
"the discount would have to be hefty for an immediate sale" and went on to state
that "at least a 40% to 50% discount would be necessary to get them interested'.
He cautioned that holding costs, labor and retro-fit time frame would be major
concerns in their decision making. He stated that "since the oil patch is
currently in a depressed state that any property would have to be held for at
least one year and likely more before it would make economic sense". He
concluded that it would take "a significant discount" to facilitate a sale in
less than 12 months. He also said that smaller facilities were more saleable.
In another discussion with the President of a competing company who owns a
similar large shipyard/fabrication facility he concluded that "the discount
would have to be at least a 30% to 40% to sell in less than 12 months because
one would have to consider the time period to boost business to compensate for
the fixed costs of ownership ".
VI- 30
EAST YARD-SOUTH PARCEL
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE (CONTINUED)
In discussions with a real estate broker who has brokered several very large
industrial properties over the years including fabrication facilities, some of
his comments were:
- At present there are no real buyers for large fabrication yards.
- There must be a "carrot out there " to attract a potential buyer for
a large expensive yard.
- The typical marketing period is two to three years and to promulgate
a sale in 12 months or less, the discount must be at least 30%.
- The discount must be 30% - 50% of "normal market value "just to get
the market to move on a property.
- He was also of the opinion that a smaller yard may attract buyers at
less of a discount.
In discussions with another real estate broker who has brokered several very
large industrial properties over the years including fabrication facilities,
some of his comments were:
- I would tell a potential client that wants to sell a smaller
fabrication facility that the marketing time will be highly
dependent on where we are in the oil and gas cycle at the time the
property is listed. With current depressed market conditions, I
would tell them that it may take three years to sell no matter what
price it is listed for.
- I think that given the current state of the market that you could
sell a small fabrication facility in 12 months or less, with a 25%
to 40% "discount "from market value.
It is from this basis of information that the appraiser has attempted to
quantify a discount for the East Yard - South Parcel which is Unifab's Old Yard.
The "East Yard-South Parcel" complex contains +/-14,994 square feet of total
gross building area on +/-19.53 acres of land and thus would qualify as a "small
fabrication facility".
Based upon the above information, the appraiser would believe that a discount of
about 25% from "Unencumbered Fee Simple Interest" would be appropriate in order
to sell the appraised property in a condensed marketing period of 12 months or
less. With Unifab's Ownership Interest being a Leasehold Interest, the
"discount" is applied to the "Unencumbered Fee Simple Interest" of $1,420,000
and then the discount (+/-$355,000) deducted from the Leasehold Market Value
Estimate of $555,000.
Thus, after careful consideration of all factors, it is my opinion that the
LEASEHOLD INTEREST IN AND TO THE EAST YARD-SOUTH PARCEL LEASED PROPERTY would
have an estimated current Disposition Value in "As IS CONDITION", assuming a
condensed marketing period of 12 months or less, of:
TWO HUNDRED THOUSAND AND 00/100 ($200,000.00) DOLLARS.
VI- 31
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
PROPERTY DESCRIPTION
According to information provided by the Port of Iberia lease documents, the
"Allen Process Systems" Leased Property contains +/-20.585 acres. The land area
is level and irregular shaped. Overall utility is good for industrial use. The
tract has +/-820 feet of frontage on the south side of Port Road and +/-1,000
feet along the western bank of the Commercial Canal (navigable waterway). There
is a boat slip located in the southeast corner of this parcel. A rail spur
crosses the property. According to the on-site manager (Pat Segura),
approximately 15 acres are superstabilized. The remainder of the site has
typical stabilization features. Erosion protection is provided by +/-682 linear
feet of bulkhead materials. The bulkhead along the Commercial Canal was replaced
over the last two years by the Port of Iberia.
This "UNIFAB" affiliate has eight (8) major permanent buildings with a combined
total building gross building area of +/-55,819 square feet. As indicated,
approximately 15 acres is superstabilized (12"-15") for heavy
equipment/fabrication work. The buildings appear to be 20-25 years old and are
in average physical condition. The land is leased from the Port of Iberia and
the buildings are reportedly owned by the Lessee, "UNIFAB". The appraiser's
estimate of Current MARKET VALUE is of the Lessee's LEASEHOLD INTEREST in and to
the appraised property.
The SERVICE DEPARTMENT BUILDING contains +/-7,626 square feet of gross building
area. Finished heated/cooled space is +/-39% (+/-2,952 so of the building. This
"Class S" building has a +/-20-foot eave and concrete slab foundation. Office
areas on the ground floor and second level have average interior features
(carpet, sheetrock walls, suspended ceiling panel system, recessed fluorescent
lights, asphalt floor tile). The finished office space is heated/cooled via a
package air-conditioning system (ground-mounted compressors). The warehouse/shop
portion of the building has suspended incandescent lights, exposed metal
walls/roof, and fiber-glass panels (natural light). There are two one-ton JIB
CRANES in the shop. This building appears to be +/-12 years old. The useful
economic life of the Service Building is estimated to be about +/-45 years. With
aN estimated effective age of +/-12 years, accrued depreciation is estimated at
approximately 27%. The JIB CRANES IN THE SERVICE BUILDING have expected useful
life estimated at +/-30 years, with an estimated effective age oF 12 years, the
appraiser has applied an estimated 40% physical depreciation rate to the Jib
Cranes.
The MAIN OFFICE BUILDING is a "Class S" structure with +/-2,222 square feet of
finished office space. The entire building is heated/cooled by a package
air-conditioning system. Office features include carpet, prefinished wall
panels, a suspended ceiling panel system, and recessed fluorescent lights. The
structure is reportedly +/-20 years old. The estimate of the effective age of
this building is +/-20 years. The estimated total economic life of the building
is +/-45 years which implies a 44% physical depreciation rate.
Located on the west side of the Main Office Building is the
SHIPPING/RECEIVING/PIPE-SPOOL BUILDING. This structure contains +/-13,547 square
feet. The "Class S" facility has a heavy-duty slab foundation, exposed metal
walls/roof, and fluorescent lights. The building was constructed in stages
(1969, 1973, 1978). It has an +/-18 foot eave and appears to be in average
physical condition. Large metal roll-up doors provide access to the building.
There are several sheds (+/-480 sf) attached to the building. Several concrete
work areas (+/-30,300 sf) serve as additional exterior work-stations. The
building has two 3-ton bridge cranes and one 2-ton bridge crane. The condition
of the structure is average. The estimated effective age of the building is
+/-25
VII-9
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
PROPERTY DESCRIPTION
(CONTINUED)
years. With an estimated total economic life of +/-45 years, the estimated
physical depreciation rate is 56%. The CRANE SYSTEMS IN THE
SHIPPING/RECEIVING/PIPE-SPOOL BUILDING have an estimated effective age off 15
years and an estimated total useful life of +/-30 years, the accrued physical
depreciation estimate is 50%.
The MAIN FABRICATION SHOP contains +/-24,476 square feet of gross building area.
This "Class S" structure was constructed in stages (1977, 1982) and appears to
be in average physical condition. Construction features include a heavy-duty
concrete slab foundation, metal walls/roof, and a 50-foot eave. The building has
two 50-ton bridge cranes (+/-70' span, +/-340' rail, automatic controls), one
10-ton bridge crane, and one 1-ton bridge crane (+/-15' span, +/-90' rail,
automatic controls). The estimated total economic life of the structure is +/-45
years while the cranes would have an estimated total useful life of +/-30 years.
The estimated effective age of the building is about +/-20 years which implies a
+/-44% accrued physical depreciation rate. The CRANE SYSTEMS appears to be +/-12
years old and the estimated accrued physical depreciation rate is 40%.
The SAND BLAST SHED contains +/-1,410 square feet. This "Class S" building is
+/-10 years old and is open on its east end. This structure is in average
physical condition and has an estimated effective age of +/-10 years. Based on
an estimated total useful life of +/-40 years, the accrued physical depreciation
rate is estimated at 25%
The +/-1,632 square foot MAINTENANCE SHED is +/-10years old and appears to be in
average condition. It has a concrete floor and metal walls/roof. This structure
would have an effective age of+/-10 years. The accrued physical depreciation
rate, based on an estimated 40 year total useful life is 25%.
The FUEL BIN contains +/-180 square feet and has a metal roof, open sides, and
concrete foundation. The estimated effective age of this structure is +/-10
years, based on an estimated 20 years implies an estimated accrued physical
depreciation rate of 50%.
The "Class S" FOREMAN'S OFFICE BUILDING contains +/-246 square feet. The walls
and roof are corrugated metal. The interior is modest. The estimated effective
age of this structure is +/- 15 years, based on an estimated 45 year total
useful life implies an estimated accrued physical depreciation rate of 33%.
According to Mr. Pat Segura of "Allen Process Systems", approximately 15 acres
of the yard area is SUPER-STABILIZED. The estimated total useful life of the
super-stabilization (12"-15" deep) material is +/-40 years. The observed
effective age of the super-stabilized area is +/-10 years or +/-25% imputed
accrued physicaL depreciation rate. STEEL BULKHEAD along the boat slip and
TIMBER BULKHEAD along the Commercial Canal totals +/-682 linear feet. The
estimated useful economic life of the STEEL BULKHEAD material is +/-35 years.
The STEEL BULKHEAD material is in good condition and it has an estimated
effective age of 10 years. This implies an estimated accrued physical
deterioration rate of +/-28.5%.
VII-10
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
PROPERTY DESCRIPTION
(CONTINUED)
The estimated total useful economic life of the TIMBER BULKHEAD material is
+/-25 years. The bulkhead material is in good condition having been replaced
within the last years. It therefore has an estimated effective age of 0 years.
The indicated accrued physical depreciation rate is 0%.
IT IS IMPORTANT TO NOTE THAT THERE ARE A NUMBER OFPORTABLE BUILDINGS ON THE SITE
INCLUDING office TRAILERS AND MOVABLE METAL BUILDINGS WHICH ARE NOT INCLUDED IN
THIS VALUATION of THE "REAL ESTATE" BECAUSE THEY ARE CONSIDERED "PERSONAL
PROPERTY"
VALUATION
As indicated, the underlying land is owned by the Port oflberia. "Allen Process
Systems" is the leasehold owner of the buildings and site improvements. The
current contract rental amount for the right to use and occupy the property
owned by "The Port" is $49,445.50.
In order to value the LEASEHOLD INTEREST in and to the property leased from the
Port of Iberia, the appraiser has first estimated the value of the Fee Simple
Ownership Interest relative to the entire "Allen Process System" facility (i.e.
assuming it were unencumbered by lease). By comparing estimated market rent to
contract rent, we can effectively determine the value, if any, of the Leasehold
Interest.
In order to estimate the current value of the FEE SIMPLE OWNERSHIP INTEREST
"ASSUMING UNENCUMBERED BY LEASE", the appraiser has utilized a COST APPROACH
analysis, SALES COMPARISON APPROACH analysis, and INCOME APPROACH analysis.
COST APPROACH
The estimated value of the underlying +/-20.585 acre waterfront site "assuming
vacant and unencumbered by lease" was estimated earlier in the report in the
SITE VALUATION section to be $1,030,000 ($50,000 per acre, rounded).
The cost analysis is based on cost data provided by a Cost Consultant (Fred
Moran) for the prior appraisal assignment performed in May 2000 which have been
indexed to date of appraisal. The accrued depreciation estimates are based on
the appraiser's observations during the inspections of the property made in
October 2001.
Based on our inspection of the "Allen Process Systems" building improvements,
deferred maintenance is negligible.
VII-11
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
The appraiser has estimated and applied a 15% value loss to account for
functional and/or economic obsolescence to most of the "Allen Process Systems"
buildings and site improvements. Because of the specialized nature of the
Fabrication Building, Shipping/Receiving/Pipe-Spool Building and the small
buildings attached to them, an estimated 20% rate is applied. The Main Office
Building is considered more functional for most uses and thus only a 10%
Functional/ Economic Obsolescence rate is estimated for it. The 10% to 20%
estimated value loss estimate reflects the general-use nature of most of the
buildings and the site improvements. The percentage of loss is applied to the
cost new of each improvement because this is the manner in which the 10% to 20%
loss factors was derived.
Based on the preceding analysis of estimated replacement cost and estimates of
the various components of accrued depreciation, the ESTIMATED MARKET VALUE OF
THE UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE "ALLEN PROCESS SYSTEMS"
LEASED PARCEL "ASSUMING UNENCUMBERED BY LEASE" is summarized on the following
page.
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
RECAPITULATION OF COST APPROACH
ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS:
SERVICE BUILDING
Estimated Replacement Cost New $ 204,700
Less: Physical Depreciation (27%) (55,300)
Less: Economic/Functional Loss (15%) (30,700)
Estimated Contributory Value of ----------
Service Building $118,700
SERVICE SHOP CRANES
Estimated Replacement Cost New $ 3,600
Less: Physical Depreciation (40%) (1,400)
Less: Economic/Functional Loss (15%) (500)
Estimated Contributory Value of ----------
Service Shop Cranes 1,700
MAIN OFFICE BUILDING
Estimated Replacement Cost New $ 92,600
Less: Physical Depreciation (44%) (40,700)
Less: Economic/Functional Loss (10%) (9,300)
Estimated Contributory Value of ----------
Main Office Building 42,600
SHIPPING/RECEIVING/PIPE-SPOOL BLDG.
Estimated Replacement Cost New $ 512,700
Less: Physical Depreciation (56%) (287,100)
Less: Economic/Functional Loss (20%) (102,500)
Estimated Contributory Value of ----------
Shipping/Receiving/Pipe Spool Bldg. 123,100
PIPE-SPOOL BUILDING CRANE SYSTEMS
Estimated Replacement Cost New $ 115,900
Less: Physical Depreciation (50%) (58,000)
Less: Economic/Functional Loss (20%) (23,100)
Estimated Contributory Value of ----------
Pipe-Spool Building Crane Systems 34,800
--------
SUB- - THIS PAGE $320,900
VII - 13
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH (CONTINUED)
SUB- FROM PRIOR PAGE $ 320,900
TOTAL
FABRICATION SHOP
Estimated Replacement Cost New $ 696,100
Less: Physical Depreciation (44%) (306,300)
Less: Economic/Functional Loss (20%) (139,200)
--------------
Estimated Contributory Value of
Fabrication Shop 250,600
FABRICATION SHOP CRANES
Estimated Replacement Cost New $ 360,000
Less: Physical Depreciation (40%) (144,000)
Less: Economic/Functional Loss (20%) (72,000)
--------------
Estimated Contributory Value of
Fabrication Shop Cranes 144,000
SANDBLAST SHED
Estimated Replacement Cost New $ 14,600
Less: Physical Depreciation (25%) (3,700)
Less: Economic/Functional Loss (20%) (2,900)
--------------
Estimated Contributory Value of
Sandblast Shed 8,000
MAINTENANCE SHED
Estimated Replacement Cost New $ 23,200
Less: Physical Depreciation (25%) (5,800)
Less: Economic/Functional Loss (20%) (4,600)
--------------
Estimated Contributory Value of
Maintenance Shed 12,800
FOREMAN'S OFFICE BUILDING
Estimated Replacement Cost New $ 3,000
Less: Physical Depreciation (33.3%) (1,000)
Less: Economic/Functional Loss (20%) (600)
--------------
Estimated Contributory Value of
Foreman's Office Building 1,400
----------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS: $ 737,700
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
COST APPROACH (CONTINUED)
RECAPITULATION OF COST APPROACH (CONTINUED)
TOTAL ESTIMATED CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS:
FROM PRIOR PAGE $ 737,700
ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENTS:
FUEL BIN
Estimated Replacement Cost New $ 1,200
Less: Physical Depreciation (50%) (600)
Less: Economic/Functional Loss (20%) (200)
-----------
Estimated Contributory Value of
Fuel Bin
400
STEEL BULKHEAD MATERIAL
Estimated Replacement Cost New $ 377,000
Less: Physical Depreciation (28.5%) (107,400)
Less: Economic/Functional Loss (20%) (75,400),
-----------
Estimated Contributory Value of
Steel Bulkhead Material
194,200
TIMBER BULKHEAD MATERIAL
Estimated Replacement Cost New $ 632,500
Less: Physical Depreciation (0%) (0)
Less: Economic/Functional Loss (20%) (126,500)
-----------
Estimated Contributory Value of
Timber Bulkhead Material 506,000
SUPER-STABILIZED YARD AREA
Estimated Replacement Cost New $ 982,000
Less: Physical Depreciation (25%) (245,500)
Less: Economic/Functional Loss (20%) (196,400)
-----------
Estimated Contributory Value of
Super-Stabilized Yard Area 540,100
----------
TOTAL ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENT $1,240,700
ESTIMATED CURRENT MARKET VALUE OF
UNDERLYING LAND "AS IF VACANT"
(+/-20.585 acres @ $50,000/acre,
rounded) $1,030,000
----------
TOTAL $3,008,400
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN ALLEN PROCESS SYSTEMS LEASED PROPERTY
VIA COST APPROACH TO VALUE -SAY- $3,010,000
----------
VII - 15
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
INCOME APPROACH
The Income Approach is the procedure in appraisal analysis which converts
anticipated benefits (dollar income or amenities) to be derived from the
ownership of property into a value estimate. In the Income Approach to Value,
the gross annual income attributable to the subject property is estimated. From
this amount, all applicable expenses are deducted. The anticipated future net
operating income and reversion are then discounted to present value at a market
supported rate.
Because of the anticipated stable nature of "Allen Process Systems" income and
expenses, the appraiser has utilized the Direct Capitalization Method.
In order to estimate potential gross income, the appraiser has analyzed
comparative rent data. In the ADDENDUM of this report are the Industrial Rent
Comparables utilized for this analysis. The "Allen Process Systems" facility has
buildings with a total gross building area of +/-55,819 square feet. This is a
large industrial complex in average physical condition. Large industrial
facilities rarely lease and are typically owner-occupied. The appraiser has some
limited comparative rental data relative to large industrial facilities.
Although "sketchy", the income data is sufficient to allow the appraiser to
perform an income analysis of the "Allen Process Systems" facility. In addition
to comparative rental data, we have interviewed several industrial operators who
provided additional input into the income analysis.
The Contributory Value of the Site Improvements and Crane Systems in the COST
APPROACH TO VALUE is about $1,240,700 for the Site Improvements and about
$180,500 for the Craneway Systems for a total of about $1,421,200. None of the
Rent Comparables studied have extensive site improvements and crane systems
(like "Allen Process Systems"). The appraiser therefore has added the estimated
contributory value ($1,375,000) of these items to the value estimated based upon
the Income Approach to Value.
Comparative income data indicates that those large industrial properties which
are leased are often leased "triple net". The Lessee is typically responsible
for most operating expenses. The Lessor (landlord) pays for the cost of
structural maintenance, replacement reserves, and management.
The Rent Comparable indicate "triple net" rental rates between $3.00 and $4.50
per square foot per year. Based upon this data, the appraiser has concluded a
mid-range rental rate of about $3.50 per square foot for the buildings of the
appraised facility. This estimate of overall market rent for the appraised
facility reflects the fact that the "Allen Process Systems" facility has a
waterfront location inside a preferred industrial development. Waterfront
acreage is considered superior to U. S. Highway 90 non-waterfront sites. The
"Allen Process Systems" industrial complex is in average condition and although
the office portion (+/-5,420 sf) is only 9.7% of the total building complex, the
waterfront location is a superior attribute which tends to increase the rental
rate. Based upon this analysis, the estimated current market rent projected for
the "Allen Process Systems" facility would be about $195,000 per year.
VII - 16
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
INCOME APPROACH (CONTINUED)
Income loss due to vacancy and collection problems should not be significant.
"The Port" development is full and with strong demand for waterfront locations,
vacancy should be minimal. The appraiser has projected a Vacancy and Credit Loss
Allowance of 5% of gross income.
As indicated by our market study, many industrial facilities are leased on a
"triple net" basis. The estimated market rental rate assumes that the Lessee
would be responsible for all operating expenses except management and
replacement reserves.
The estimated management expense is based upon +/-5% of effective gross income
or about $9,300 per year. Local property managers typically charge 3%-10% for
management responsibilities. The "Allen Process Systems" building complex is a
large "Class S" facility with a simple design and management responsibilities
should be relatively routine.
For other operating expenses of a Lessor under a Triple Net Lease, the appraiser
has estimated Structural maintenance at about $0.20 per square foot or about
$11,000 per year. The tenant(s) will presumably be responsible for routine
maintenance and repairs. Hazard insurance will cover the cost of some repairs
and since the analysis includes a Replacement Reserve Allowance for short-lived
building components, structural maintenance costs should not be excessive.
Very few industrial owners and lessors include a Reserve for Replacement
Allowance in their expense statements. Each property owner interviewed believed
that a replacement should be handled from cash flow at the time of the
replacement. Further, most believe that the typical holding period eliminates
the need for a reserve. Several property owners were consulted and each believed
that the idea of a reserve is theoretically a "good idea", but in the local
industrial market it generally is not practiced.
Regardless, the appraiser believes a prudent investor would set aside funds to
replace worn floor cover, ceiling panels, and faulty air-conditioning
compressors. The appraiser has estimates that a reasonable amount would be about
$0.10 per square foot of gross building area. This amounts to about $5,600 per
year and is consistent with the age/condition of the office/warehouse building
complex and also with national industrial investor criteria.
The next step is to estimate the proper income capitalization rate. Based on the
appraiser's study of comparative capitalization rate data, the appraiser has
concluded an overall capitalization rate applicable to the appraised property to
be a rate in the range of 11% to 12%. This is consistent with the age, physical
condition, size, and location of the "Allen Process Systems" industrial complex.
Based upon the analysis of this data, the appraiser has concluded an appropriate
overall capitalization rate for the appraised properties would be 11 %. This is
consistent with the age, physical condition, size, and location of the "Allen
Process Systems" industrial complex.
The income analysis is summarized on the next page. The depreciated cost of the
site improvements and crane systems are added as separate items because the Rent
Comparables do not contain crane systems and/or site improvements comparable to
the "Allen Process Systems" Facility.
VII - 17
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(Continued)
Income Approach (Continued)
RECONSTRUCTED OPERATING STATEMENT
"ALLEN PROCESS SYSTEMS" LEASED
PROPERTY
Potential Gross Income
Buildings and Normal Land Area
55,819 S.F. GBA x $3.50/S.F. $ 195,400
Less: Vacancy and Collection Loss
Estimated @ 5% $ 9,800
----------
Effective Gross Income $ 185,600
Less: Operating Expenses
Real Estate Taxes by tenant
Building Insurance by tenant
Management (5%) 9,300
Repairs/Maintenance (routine) by tenant
Utilities by tenant
Janitorial by tenant
Structural Maintenance $ 11,000
Replacement Reserves $ 5,600
----------
Total Operating Expenses $ 25,900
------------
Net Operating Income $ 159,700
DIRECT CAPITALIZATION PROCESS
Net Operating Income Capitalized at 11 % Overall Cap Rate
$159,700= .1100 = $ 1,448,636
INDICATED MARKET VALUE OF BUILDINGS
AND NORMAL LAND AREA VIA
INCOME APPROACH TO VALUE -say- $ 1,450,000
$ 1,250,000
ADD: ESTIMATED CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
$ 175,000
ADD: ESTIMATED CONTRIBUTORY VALUE OF CRANE SYSTEMS ------------
$ 2,875,000
Total Estimated Property Value
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST
IN ALLEN PROCESS SYSTEMS LEASED PROPERTY
VIA INCOME APPROACH TO VALUE -SAY-
$ 2,875,000
------------
VII - 18
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH
The SALES COMPARISON APPROACH involves direct comparisons of the property being
appraised to similar properties that have sold in the same or in a similar
market in order to derive a Market Value indication for the property being
appraised.
Located in the ADDENDUM of this report are the detailed write-ups of the
industrial property sales (Improved Comparable Sales) utilized for this
appraisal assignment. For the analysis of the "Allen Process Systems" Leased
Property, the appraiser has selected Improved Comparable Sale Nos. 1, 2, 3, and
4. The emphasized sales are summarized on the following chart.
ESTIMATED
BUILDING VALUE
SALE EFFECTIVE CONTRIBUTORY PSF
NO. SALE PRICE DATE VALUE BUILDING
- ------- ------------ ----- ----------- ---------
1 $ 2,100,000 06/01 $ 300,000 $ 13.42
2 $ 1,806,948 12/00 $ 488,948 $ 7.98
3 $ 1,500,000 09/00 $ 765,000 $ 15.57
4 $ 2,960,625 06/98 $ 420,625 $ 10.58
These four industrial property sales are considered to be the best available
indicators of value for the appraised property. Land values and equipment (if
any) are extracted based on comparative land sales and information provided by a
party familiar with the sale transaction. Equipment typically has a contributory
value less than its depreciated cost. Contributory Land value estimates are
based on comparable neighborhood land sales.
The sales selected have been chosen due to their similarities based on building
sizes, ages, condition, and date of sale.
Each Improved Comparable Sale involved the transfer of Fee Simple ownership
rights or market oriented Leased Fee ownership rights. In the current analysis,
the appraiser is estimating the current market value of the Unencumbered Fee
Simple ownership rights in the "Allen Process Systems" Leased Property "assuming
unencumbered by lease". Accordingly, no adjustment is considered necessary for
"property rights conveyed".
No adjustment is considered necessary to Improved Comparable Sales for
"expenditures immediately after purchase". This was verified during our
interview of the sale participants (Vendor, Vendee, sales agent, appraiser,
etc.).
VII - 19
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH (CONTINUED)
Market Conditions" reflect the change in the prices paid for real property due
to changes in market conditions and the purchasing power of money over time.
This adjustment is derived by analyzing changes that have occurred over time and
determining their effect on the property during the time period. Changes may
result in appreciation or depreciation in value due to inflation or deflation.
Although this adjustment is often referred to as a "time" adjustment, time is
not the cause of the adjustment. Market conditions which shift over time create
the need for an adjustment, not time itself. The four sales are relatively
recent and thus only a minor upward time adjustment is considered necessary with
the largest adjustment to Improved Comparable Sale No. 4 which occurred in June
1998.
In the Breakdown Method Analysis for each sale, the contributory land value is
extracted from or deducted from each sale price in order to arrive at a
contributory value of the building improvements. Since "location" differentials
are typically reflected in underlying land value, the appraiser has not applied
a "location" adjustment to the Improved Comparable Sales.
The necessary adjustments required tend to center on "building size",
"condition/construction quality", "office percentage", and "economic
characteristics".
Building size is often a factor. Among similar office and industrial buildings,
smaller sized buildings tend to sell for more per unit that comparable larger
buildings.
The "Allen Process Systems" complex contains a gross building area of +/-55,819
square feet. The sizes of the comparable building sales range between 22,356
square feet (Sale 1) to 61,241 square feet (Sale 2). Due to the imperfect nature
of the real estate market, size adjustments are not mathematically precise. The
trend, however, is clear. Smaller sized facilities typically sell for more per
unit than comparable larger sized buildings (and vice verse). Thus, the "size"
adjustments are not considered significant to the sales being in the 5% to 10%
range.
Adjustments for "Age/Condition/Quality" are based on age/life comparisons,
overall condition and "Office percentage". The greater the percentage of office
space, the greater, generally speaking, the value of the building. The "Allen
Process Systems" complex has +/-5,420 square feet of office space which is only
+/-9.7% of total building square footage. This low percentage range of office
space suggests a low-range value per square foot.
The sales comparison analysis adjustment analysis is summarized on the following
adjustment grid.
VII - 20
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
SALES COMPARISON APPROACH (CONTINUED)
The sales analysis grid reflects a contributory building unit value range prior
to adjustments between $7.98 and $15.57 per square foot. Sale I is the most
recent sale and indicates a unit value of $13.42 per square foot. It was a newer
facility and thus in better overall condition, but had no office space included
in the sale. Sale 2 included a mix of similar older buildings on the site which
had more overall square footage and had a higher percentage (24%) of
office/finished space. Sale 3 is a newer industrial structure in the local
market which had only 5% of office/finished space. Sale 4 also included a mix of
similar older buildings on the site which had similar gross building areas, but
had a slightly higher percentage (18%) of office/finished space.
After adjustments for noted differences, these four sales reflect a range of
unit values for the building improvements on the appraised property of $8.78 to
$9.66 per square foot with a mean indication of $9.30 per square foot and a
median indication of $9.37 per square foot.
The appraised facility is relatively large which also supports a unit value from
the low end of the range. Based on these considerations, the appraiser has
concluded a low mid-range unit value estimate for the appraised facilities
buildings of about $9.35 per square foot.
SALES COMPARISON APPROACH
ALLEN PROCESS SYSTEMS LEASED PARCEL
COMPARABLE SALE ADJUSTMENT CHART
PRICE PER SQUARE FOOT OF GROSS BUILDING AREA ANALYSIS
CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS
[OMITTED]
RECAPITULATION OF
SALES COMPARISON APPROACH TO VALUE
ALLEN PROCESS SYSTEMS LEASED PARCEL
BREAKDOWN METHOD ANALYSIS
CONTRIBUTORY VALUE OF BUILDINGS IMPROVEMENTS
55,819 S.F. @ $9.35 /S.F. AVG.
TOTAL CONTRIBUTORY VALUE OF BUILDING IMPROVEMENTS $ 521,900
CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
Steel and Timber Bulkheads & Stabilized Areas
$ 1,250,000
TOTAL CONTRIBUTORY VALUE OF SITE IMPROVEMENTS
CONTRIBUTORY VALUE OF CRANE SYSTEMS $ 175,000
CONTRIBUTORY SITE VALUE
20.585 Acres @ $50,000.00 /Acre $ 1,030,000
--------------
TOTAL $ 2,976,900
TOTAL ESTIMATED CURRENT MARKET VALUE
OF UNENCUMBERED FEE SIMPLE INTEREST IN
ALLEN PROCESS SYSTEMS LEASED PARCEL
VIA SALES COMPARISON APPROACH TO VALUE -SAY- $ 2,980,000
--------------
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
The indications of current market value of the Unencumbered Fee Simple Interest
in and to the "Allen Process Systems" Leased Property "As if Unencumbered by
Lease" from the three approaches to value utilized in this report are:
COST APPROACH $ 3,010,000
INCOME APPRAOCH $ 2,875,000
SALES COMPARISON $ 2,980,000
In analyzing the three approaches to value used in this report for the
Unencumbered Fee Simple Interest, it is important to consider and weigh the
inherent merits and weaknesses of each.
The Cost APPROACH gives us a good idea of the Physical Value of the appraised
property, i.e. - the cost to replace the physical structures. For relatively new
or proposed properties without functional or economic obsolescence, when the
actual costs are based upon competitive bids, this is generally an excellent
indicator of value. In "normal" market situations, where the site is developed
to its highest and best use and there is balance between demand and supply, the
Cost Approach is generally considered to be a good value indicator. However,
there is still a considerable amount of external obsolescence present in the
market. The appraiser has attempted to accurately portray the prevailing market
conditions in the estimates of various forms of accrued depreciation, and a
comparison of the value conclusions in the COST AND SALES COMPARISON APPROACHES
seem to show that the COST APPROACH is a relatively effective indicator of the
Market Value of the appraised property. However, the COST APPROACH and its
resultant value estimate is based upon costs and not upon the economics of the
project.
The SALES COMPARISON APPROACH is most sensitive to direct actions by purchasers
and sellers for office/warehouse properties. It is also the approach best
understood by the layman and generally yields the best indication of value. The
appraiser analyzed a number of sales of other industrial facilities from the
general area. While there are sales of industrial buildings available, the data
is not always truly comparable to the appraised facility which is a specialized
manufacturing property. Considerable adjustment is necessary to the comparable
sales, which tends to weaken the approach. These sales which were the most
recent sales of similar sized industrial facilities provided a good basis for
comparison to the appraised property and thus yielded a credible indication of
value.
The INCOME APPROACH is generally considered the most reliable method in which to
estimate the value of income producing properties. This method reflects the
present value of the future benefits to the income stream, and therefore,
indirectly reflects the actions of typical buyers and sellers in the market for
investment properties. In the immediate case, the appraised property, was
originally designed and built for specialized manufacturing. The buildings have
a number of specialized features which would generally not be placed in a
building which was
VII-24
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
RECONCILIATION & FINAL MARKET VALUE ESTIMATE OF UNENCUMBERED FEE
(CONTINUED)
constructed as an investment property. The estimated rental rate was based upon
"warehouse" rates and did not take into account the craneways which were
attributed a separate contributory value. Market criteria was utilized in the
estimates of the Income Stream as well as in the process for converting the
income stream into an estimate of value. Thus, this approach is also considered
to yield a fairly reliable indication of value of the project.
Historically, projects which have specialized features do not translate well in
the market to alternative users. In the immediate case, the specialized features
would be considered superadequacies for the typical purchaser or renter of the
property and thus not fully reflective in the indications from either the SALES
COMPARISON APPROACH OR INCOME APPROACH TO VALUE. These extra features would have
perceived "added" value to the Owner Occupant or the User needing them and thus
have "Value in Use" to them, but would not likely translate into "market value"
to an alternative user.
Thus, in the final analysis, in making an estimate of MARKET VALUE of the
Unencumbered Fee Simple Interest in the Allen Process Systems Leased Property,
some reliance should be given to all approaches, but most given to the the SALES
COMPARISON APPROACH indication, with slightly less reliance on the COST APPROACH
OR INCOME APPROACH indications, and thus an estimate at the indication from the
SALES COMPARISON APPROACH would be considered the best estimate of the appraised
property's current market value.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND TO THE ALLEN PROCESS SYSTEMS LEASED
PROPERTY "ASSUMING UNENCUMBERED BY LEASE" would have an estimated current market
value in "As IS CONDITION", assuming a normal exposure period, of:
TWO MILLION NINE HUNDRED FIFTY THOUSAND AND 00/100
($2,950,000.00) DOLLARS.
An allocation of this Unencumbered Fee Simple Interest Market Value Estimate
would be:
ESTIMATED CONTRIBUTORY VALUE OF
UNDERLYING LAND $ 1,030,000
ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $ 1,250,000
ESTIMATED CONTRIBUTORY VALUE OF
CRANEWAYS $ 175,000
ESTIMATED CONTRIBUTORY VALUE OF
BUILDINGS $ 495,000
-------------
TOTAL FEE SIMPLE MARKET
VALUE ESTIMATE $ 2,950,000
-------------
VII-25
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE
The task now is to estimate the current market value, if any, of the Leasehold
ownership interest in and to the appraised property held by "UNIFAB".
In the valuation of a LEASEHOLD INTEREST, the value of the LEASEHOLD INTEREST
can be considered to be the difference between the estimate of the current
market value of the UNENCUMBERED FEE SIMPLE INTEREST in and to the property
assuming it was not encumbered by a lease and the estimate of the current market
value of the LEASED FEE INTEREST in and to the property by virtue of the
existing Lease.This is known as the INDIRECT METHOD.
In appraisal theory, there would be an economic value to the LEASEHOLD INTEREST
if the contract rent paid under the lease to the lessor was less than the fair
market rent of the property over time. This advantage on the part of the lessee
would be the LEASEHOLD INTEREST in the property. The Indirect Method for
estimating the value of the LEASEHOLD INTEREST, is based upon the assumption
that the LEAfSEHOLD INTEREST is the difference between the estimate of value of
the UNENCUMBERED FEE SIMPLE INTEREST and the estimate of value of the LEASED FEE
INTEREST.
The DIRECT METHOD for the valuation of a LEASEHOLD INTEREST utilizes an INCOME
APPROACH TO VALUE in order to estimate the Net Income to the Leasehold Interest.
The LEASEHOLD INTEREST (LESSEE'S INTEREST) in a property consists of the right
to receive the net income generated by subleasing the property over the term of
the lease to others less the contract rent provided by the underlying lease with
the landlord plus any benefits but minus any penalties, according to the
provisions of the lease. Basically the valuation of a LEASEHOLD INTEREST is the
present value of the Net Income to the Leasehold Interest over the term of the
lease. The appropriate discount rate includes consideration of the risks
inherent in receiving the income stream, as well as a comparison of rates of
return available with competing investments with similar income characteristics.
"Allen Process Systems" is presently paying annual rent to the Port of Iberia in
the amount of $49,445.50. This rent represents the cost of occupying and using
"The Port" owned property (land only). The site improvements, crane systems, and
buildings are considered to be the property of "Allen Process Systems". Earlier
in the report, the appraiser estimated the current market value of the
Funderlying land to be $1,030,000 (or about $50,000 per acre).
"Allen Process Systems" is presently paying rent based on terms and conditions
stipulated by the Port of Iberia Board of Commissioners. "The Port" is an
economic entity owned by the State of Louisiana. The Port of Iberia is "a port,
harbor, and terminal district of the State of Louisiana Port property is
governed by the Port Board of Commissioners. Lease rates are based on appraised
values and improvement costs. The current annual rental rate has been
established by the Port Board of Commissioners based upon "6% of appraised
value". According to the Port of Iberia Master Lease Agreement, "Port premises
are leased for the sole purpose of erecting, constructing, operating, and
maintaining Port facilities and appurtenances, and for a receiving, shipping,
manufacturing, assembling, repair, service and storage terminal and for all
other legal purposes incidental thereto".
VII-26
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
As indicated, "Allen Process Systems" currently pays an annual rental of
$49,445.50 to "The Port". According to information provided by Roy Pontiff,
Executive Director of the Port of Iberia, the $49,445.50 rent total represents
annual payment for land only. There is a pending "bulkhead agreement" but this
document has not been executed. The bulkhead work has been completed, but not
accepted by the Port. The approximate cost of this new bulkheading was $575,000
for direct costs and about $57,500 for indirect costs for a total cost of about
$632,500. Thus, Allen Process Systems will begin paying on this increase for the
next lease year based upon 6% of this investment or about $37,950 per year.
Thus, their total rent for future years will be about $87,400.
The primary term of the ground-lease agreement extended from January 1, 1977, to
December 31, 1986. Port of Iberia Executive Director Roy Pontiff indicates that
"Allen Process Systems" has exercised the second 10-year option which will
extend to December 31, 2006 (approximately 5.25 years remaining). A third
10-year option period is available (January 1, 2007-December 31, 2016).
The appraiser has studied rates of return relative to all types of properties.
Investors typically seek rates that range from 11% to 15% for improved property.
Ground-lease rental rates typically center on a 10% rate. Using a 10% rate of
return on land value (10% overall capitalization rate) as the market rental rate
would indicate that the "Allen Process Systems" land area (+/-20.585 acres)
would normally generate about $103,000 per year in rental income if leased at
current market rates ($1,030,000 estimated value x 10% rental rate).
"Allen Process Systems" is currently paying $49,445.50, but will increase to
about $87,400 per year with the new Bulkhead. Based upon the above analysis, it
would be apparent that the current rental rate is a "below market" rental amount
because it is based on a "below market" rate of return (6%) on the underlying
land. "The Port" is a public entity which exists to create jobs and bolster the
local economy. "Below market" lease rates are utilized to attract industrial
tenants who in turn provide employment and income to the local economy. Thus, a
tenant like "Allen Process Systems" pays $49,445.50 per year and has a definite
market advantage because the market rental rate on the underlying land it is
leasing is much greater ($103,000).
The difference between Contract Land Rental Rate and Market Land Rental Rate
which is approximately $53,550 per year on the underlying land lease would
represent an advantage to the Leasehold Interest held by "Allen Process System"
over the remaining term of the lease.
In addition, "Allen Process Systems" will be paying about $38,000 per year under
the new Bulkhead Agreement. Based upon the above analysis, it would be apparent
that the current rental rate is a "below market" rental amount because it is
based on a "below market" rate of return (6%) on the cost of the bulkhead while
in normal practice, "Allen Process Systems" would have to expend the $632,500
and amortize this cost by borrowing the money at current market rates of about
8.5% and paying it off over a normal loan period of say fifteen years.
VII-27
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
Under this scenario, the annual constant on the debt would be about 12% or an
annual payment of $76,166. "The Port" is a public entity which exists to create
jobs and bolster the local economy. "Below market" lease rates are utilized to
attract industrial tenants who in turn provide employment and income to the
local economy. Thus, a tenant like "Allen Process Systems" pays $38,000.00 per
year and has a definite market advantage because the market rental rate on the
bulkhead if is leasing is much greater ($76,000).
The ground-lease agreement has a remaining primary term of approximately 5.25
years. The lease agreement has an additional option period which extends beyond
the +/-5.25 years remaining on the second option period. Its unlikely that a
potential investor in the Leasehold Interest in the property would speculate
that this advantage in land rent would extend beyond the +/-5.25 years remaining
on the current term because the Port had the right to move the rental rate to
"market rates" for the option period. However, due to the fact that the Lessee,
Allen Process Systems, has expended significant amount on leasehold improvements
and employs a significant number of people, it is most certain that it would
exercise it option to renew for another ten years beyond the +/-5.25 years
remaining on the current lease term.
Oil prices continue to fluctuate and the oil/gas industry has historically
experienced dramatic "feast or famine" economic cycles. There is constantly an
"air of uncertainty" in this market and to project future market activity beyond
+/-5.25 years into the future is highly speculative.
Therefore, the appraiser has considered that the "Leasehold Interest in the
Underling Land Lease" would be properly stated as the present value of the
$53,500 per year "Allen Process Systems" Lease Advantage ($103,000 - $49,445.50)
over the +/-5.25 year remaining term of the lease.
Discounting $53,500 per year for 5.25 years at a market oriented 10% rate
results in a present value estimate (rounded) of $198,000. The $198,000
estimated market value would represent the Present Value of the "Allen Process
Systems" Leasehold Rent Advantage in the underlying land.
Therefore, the appraiser has considered that the "Leasehold Interest in the
Bulkhead Lease" would be properly stated as the present value of the $38,000 per
year "Allen Process Systems" Lease Advantage ($76,000 - $38,000) over the
+/-5.25 year remaining term of the lease.
Discounting $38,000 per year for 5.25 years at a market oriented 12% rate
results in a present value estimate (rounded) of $133,000. The $133,000
estimated market value would represent the Present Value of the "Allen Process
Systems" Leasehold Rent Advantage in the new Bulkhead Agreement.
VII-28
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
Since the "Leasehold Improvements" are owned by "Allen Process Systems" and it
is likely that they will continue to be used for at least the next +/-15.25
years (current lease term plus 10 year option", the appraiser has added the
contributory value of the "Allen Process Systems" owned Leasehold Improvements
(Buildings, Craneways and Site Improvements) estimated earlier in the report at
about $1,420,000 (Building - $495,000; Crane Systems - $175,000; and Site
Improvements - $1,250,000 less contributory value of new bulkhead of
+/-$500,000) in order to arrive at an estimate of current market value of
"UNIFAB's Total Leasehold Interest in the Allen Process Systems Leased Property
of $1,750,000.
MARKET VALUE ESTIMATE OF UNIFAB'S
LEASEHOLD INTEREST IN "ALLEN PROCESS
SYSTEMS" LEASED PARCEL:
ESTIMATED CONTRIBUTORY VALUE OF
"ALLEN PROCESS SYSTEMS" OWNED
LEASEHOLD BUILDING IMPROVEMENTS
ESTIMATED CONTRIBUTORY VALUE OF
SITE IMPROVEMENTS $ 750,000
ESTIMATED CONTRIBUTORY VALUE OF
CRANEWAYS $ 175,000
ESTIMATED CONTRIBUTORY VALUE OF
BUILDINGS $ 495,000
-------------
ESTIMATED TOTAL CONTRIBUTORY VALUE OF
"ALLEN PROCESS SYSTEMS"
LEASEHOLD IMPROVEMENTS $ 1,420,000
ESTIMATED PRESENT VALUE OF RENT
ADVANTAGE IN NEW BULKHEAD LEASE $ 133,000
ESTIMATED PRESENT VALUE OF RENT
ADVANTAGE IN UNDERLYING LAND LEASE $ 198,000
-------------
TOTAL $ 1,751,000
TOTAL ESTIMATED CURRENT MARKET
VALUE OF UNIFAB'S LEASEHOLD INTEREST
IN ALLEN PROCESS
SYSTEMS LEASED PROPERTY -say $ 1,750,000
-------------
VII - 29
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
As a check against this estimate, the appraiser has performed two additional
analyses: one using the Direct Method and one using the Indirect Method.
In the Indirect Method of valuation of the Leasehold Interest, the value of the
LEASEHOLD INTEREST can be considered to be the difference between the estimate
of the current market value of the UNENCUMBERED FEE SIMPLE INTEREST in and to
the property assuming it was not encumbered by a lease and the estimate of the
current market value of the LEASED FEE INTEREST in and to the property by virtue
of the existing Lease.
The LEASED FEE INTEREST (LESSOR'S INTEREST) in a property consists of (1) the
right to receive the contract rent provided by the lease; (2) the reversion of
the real estate at the end of the lease; and (3) plus any benefits but minus any
penalties, according to the provisions of the lease. In the valuation of LEASED
FEE INTERESTS, the amount of the rental income is generally set by contract. The
contract rent for the term of the lease is income with the characteristics of an
annuity. The valuation of an annuity calls for estimating the present value of
the income stream at an appropriate discount rate for the remaining term of the
lease. This computation produces the capitalized value of the rentals. The
appropriate discount rate includes consideration of the risks inherent in
receiving the income stream, as well as a comparison of rates of return
available with competing investments with similar income characteristics. The
next step in the valuation of the LEASED FEE INTEREST is to value the present
worth of the property that reverts to the lessor at the expiration of the lease.
The classical approach to valuing the Leased Fee Interest utilizes a discounted
cash flow analysis which calculates the present value of the contract rent over
the entire term of the lease, and the present value of the projected value of
the property at the end of the lease for its reversion.
In the immediate case, the Lessee, Allen Process Systems, under the "GENERAL
CONDITIONS of LEASES OF THE PORT OF IBERIA DISTRICT" has the right to remove any
improvements they constructed during the term of the lease at the expiration of
the lease (for two months after termination) and, if not removed with this
specified period, the improvements revert to and belong exclusively to the Port.
It would be highly unlikely that the UNIFAB would pay to remove the buildings
at the end of their lease. There would be little value in moving the buildings
and other improvements to another location. Thus, it would be highly likely
that the improvements would revert to the Port of Iberia at the end of the
lease term and any extensions thereof.
Thus, on the following page, the appraiser has made an estimate of the Port of
Iberia's Leased Fee Interest in the Property. Their Leased Fee Interest would
consist of the Contract Rent of $49,445.50 per year over the next 5.25 years
plus the Contract Rent for the next ten year period which the appraiser has
estimated at a then market rate on land only of about $85,000 as well as the
right to receive the leasehold improvements at the end of the lease. For the
calculation of the Reversion, the appraiser has forecast that underlying land
value will increase about 2% per year over the next +/-15 years while the value
of the Leasehold improvements will decrease about 3% per year over the
projection period.
VII-30
ALLEN PROCESS SYSTEMS LEASED PROPERTY
PORT OF IBERIA'S LEASED FEE INTEREST ESTIMATE NET INCOME TO LEASED
FEE INTEREST
[OMITTED]
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
From the analysis on the preceding page, the appraiser has estimated the current
market value of the Port of Iberia's Leased Fee Interest in the Allen Process
Systems Leased Property to be about $1,050,000.
Under the Indirect Method, the estimated value of UNIFAB's Leasehold Interest in
the Allen Process Systems Leased Property would be the difference between the
Unencumbered Fee Simple Interest Estimate of $2,950,000 and the Leased Fee
Interest Estimate of $1,050,000 or $1,900,000.
SUMMARY OF INDIRECT METHOD OF LEASEHOLD INTEREST
ESTIMATED VALUE OF UNENCUMBERED FEE
SIMPLE INTEREST IN ALLEN PROCESS SYSTEMS
LEASED PROPERTY $ 2,950,000
LESS: ESTIMATED VALUE OF PORT OF IBERIA'S
LEASED FEE INTEREST IN THE PROPERTY ($ 1,050,000)
-------------
INDICATED VALUE OF UNIFAB'S LEASEHOLD
INTEREST IN ALLEN PROCESS SYSTEMS
LEASED PROPERTY $ 1,900,000
-------------
The DIRECT METHOD for the valuation of a LEASEHOLD INTEREST utilizes an INCOME
APPROACH TO VALUE in order to estimate the Net Income to the Leasehold Interest.
The LEASEHOLD INTEREST (LESSEE'S INTEREST) in a property consists of any
advantage the lessee has in the lease defined as the differential between market
rent over the term of the lease and.the contract rent. This Rent Income
Advantage calculated a net income as the differential between market rent over
the term of the lease less the contract rent provided by the underlying lease
with the landlord plus any benefits but minus any penalties, according to the
provisions of the lease. Basically the valuation of a LEASEHOLD INTEREST is the
present value of the Net Income Advantage to the Leasehold Interest over the
term of the lease. The appropriate discount rate includes consideration of the
risks inherent in receiving the income stream, as well as a comparison of rates
of return available with competing investments with similar income
characteristics.
In order to estimate the Leasehold Rent Advantage, the appraiser has attempted
to converted the Unencumbered Fee Simple Interest estimate in an indication of
effective market rent value. The effective market rent for the appraised
utilizes INCOME APPROACH TO VALUE methods. The unencumbered fee simple property
value is converted into an indication of market rent by means of capitalization.
The anticipated market rental rate or income is based
VII - 32
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
upon a capitalization rate which in its most basic sense includes a combination
of a rate of "return on" the investment as well as "recapture of the investment
or "return of' the investment. The capitalization rate for vacant land is
typically less than that for improved property. This is due to the fact that
under a land lease the landlord receives rent which is the "return on" his
investment in the land and then receives the "return of his investment in the
land back at the expiration of the lease a non-depreciating asset (land) whereas
under a lease with improvements, the landlord needs to receive both a "return
on" his investment as well as at least a portion of the "return of' or
"recapture of' his investment in the improvements because at the expiration of
the lease the building improvements have aged and likely are not worth the same
as at the beginning of the lease.
Based upon data collected by the appraiser over time, the appropriate
capitalization rate to convert rental rates on long term leases for land is
typically in the 9% to 10% range whereas the appropriate capitalization rate to
convert rental rates on long term leases with improvements is typically in the
10.5% to 12.5% range with very special purpose improvements ranging up to 15%.
Appropriate rates are applied to the Building and Building Improvements
including the Craneways and the Site Improvements in order to convert their
contributory values into estimates of current rental rates.
The estimated current market rent for the Allen Process Systems Property would
be summarized as follows:
ESTIMATED PROPERTY VALUE
Estimated Land Value $ 1,030,000
Estimated Site Improvements Value $ 1,250,000
Estimated Bldg Improvements Value $ 670,000
-------------
ESTIMATED PROPERTY VALUE $ 2,950,000
Effective
CAPITALIZATION
RATE
ESTIMATED MARKET RENT
LAND RENT 10.00% $ 103,000
SITE IMPROVEMENTS RENT 13.50% $ 168,750
BUILDING IMPROVEMENTS RENT 12.50% $ 83,750
-------------
TOTAL ESTIMATED MARKET RENT $ 355,500
EFFECTIVE OVERALL CAP RATE 12.05%
VII - 33
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
Thus, on the following page, the appraiser has made an estimate of the UNIFAB's
Leasehold Interest in the Property using the Direct Method. Their Leasehold
Interest would consist of the Rent Advantage (i.e. Market Rent less Contract
Rent) over the remaining +/-5.25 years of the current term as well as the last
ten year option to renew. The Contract Rent is estimated at $87,400 per year
over the next 5.25 years and then the Contract Rent for the next ten year period
has been estimated at a then market rate on land only of about $68,200 plus the
Bulkhead Rent of $38,000 or a total of about $106,200.
The current estimated market rent of $355,500 is held at that level for over the
remainder of the existing lease term (i.e. +/-5.25 years) and then changed to a
new market rent for the next five year term of about $330,600. For the
calculation of the market rent beginning in January 2007, the appraiser has
forecast that underlying land value will increase about 2% per year over the
next +/-17 years while the value of the Building and Site improvements will
decrease about 3% per year over the projection period. Similar rates of return
are utilized for market rent estimate. Thus, the market rent for the last five
years of the projection is estimated at about $311,800.
From the analysis on the next page, the appraiser has estimated the current
market value of UNIFAB's Leasehold Interest in the Allen Process Systems Leased
Property to be about $1,660,000.
SUMMARY OF DIRECT METHOD OF LEASEHOLD INTEREST
INDICATED VALUE OF UNIFAB'S LEASEHOLD
INTEREST IN ALLEN PROCESS SYSTEMS
LEASED PROPERTY $ 1,660,000
-------------
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
LEASEHOLD INTEREST VALUE ESTIMATE (CONTINUED)
RECONCILIATION AND FINAL MARKET VALUE ESTIMATE
From the three separate analyses on the preceding pages, the appraiser has
estimated the current market value of UNIFAB's Leasehold Interest in the Allen
Process Systems Leased Property to be:
1) ADDITIVE METHOD $1,750,000
2) INDIRECT METHOD $1,900,000
3) DIRECT METHOD $1,660,000
The three analyses reflect fairly similar estimates of current market value and
thus would tend to lead the appraiser to a conclusion within their ranges.
The last two methods were utilized as a check against the first method and thus
considered to adequately support an estimate of current market value at that
estimate.
Thus, based upon my analysis and reasoning, it would be my opinion that the
estimated current market value of UNIFAB's Leasehold Interest in and to the
Allen Process Systems Leased Property, as of October 5, 2001, would be:
ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND AND 00/100 ($1,750,000.00) DOLLARS.
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE
The appraiser has also been asked to estimate the CURRENT DISPOSITION VALUE of
the Unifab's Ownership Interest (Leasehold Interest) in and to the appraised
property UNDER A DISPOSITION MARKETING PERIOD OF 12 MONTHS OR LESS. In order to
attract a Purchaser to a facility like the appraised property under a condensed
marketing period of 12 months or less, it is likely that a significant discount
from the market value estimate of the property would have to be given in order
to entice Purchasers to acquire the Leasehold Interest in the property in a
condensed marking period.
In order to estimate "Disposition Value", the appraiser has considered current
market conditions for the appraised property and the likely market participants
who might acquire the appraised property. The appraised property is a medium
sized facility and thus would have a decent potential pool of purchasers.
For the DISPOSITION VALUE analysis, the appraiser has conducted interviews of
representatives of a number of companies involved in the fabrication and/or oil
and gas business including analysts and consultants as well as brokers. Also
considered any other adverse conditions which might affect marketability under a
condensed marketing period.
In a discussion with the CFO of a competing company who acquired another large
fabrication facility in 1997 stated that "if we knew what was going to happen to
the fabrication business over the last few years, we would have never acquired
that facility!" He went on to say that at the time they thought they were paying
30% to 40% less than its "true value". He also said that there are always a lot
of people interested in smaller facilities where it doesn't take a tremendous
amount of work to keep it going.
In another discussion with the CEO of a competing company who owns a similar
large fabrication facility he stated that while his company is in the position
to invest in another facility if the opportunity were right, he believed that
"the discount would have to be hefty for an immediate sale" and went on to state
that "at least a 40% to 50% discount would be necessary to get them interested'.
He cautioned that holding costs, labor and retro-fit time frame would be major
concerns in their decision making. He stated that "since the oil patch is
currently in a depressed state that any property would have to be held for at
least one year and likely more before it would make economic sense". He
concluded that it would take "a significant discount" to facilitate a sale in
less than 12 months. He also said that smaller facilities were more saleable.
In another discussion with the President of a competing company who owns a
similar large shipyard/fabrication facility he concluded that "the discount
would have to be at least a 30% to 40% to sell in less than 12 months because
one would have to consider the time period to boost business to compensate for
the fixed costs of ownership ".
VII - 37
"ALLEN PROCESS SYSTEMS" LEASED PROPERTY
VALUATION
(CONTINUED)
DISPOSITION VALUE ESTIMATE (CONTINUED)
In discussions with a real estate broker who has brokered several very large
industrial properties over the years including fabrication facilities, some of
his comments were:
- At present there are no real buyers for large fabrication yards.
- There must be a "carrot out there " to attract a potential buyer for
a large expensive yard.
- The typical marketing period is two to three years and to promulgate
a sale in 12 months or less, the discount must be at least 30%.
- The discount must be 30% - 50% of "normal market value "just to get
the market to move on a property.
- He was also of the opinion that a smaller yard may attract buyers at
less of a discount.
In discussions with another real estate broker who has brokered several very
large industrial properties over the years including fabrication facilities,
some of his comments were:
- I would tell a potential client that wants to sell a smaller
fabrication facility that the marketing time will be highly
dependent on where we are in the oil and gas cycle at the time the
property is listed. With current depressed market conditions, I
would tell them that it may take three years to sell no matter what
price it is listed for.
- I think that given the current state of the market that you could
sell a small fabrication facility in 12 months or less, with a 25%
to 40% "discount "from market value.
It is from this basis of information that the appraiser has attempted to
quantify a discount for the Allen Process Systems Leased Property. The "Allen
Process Systems" complex contains a gross building area of +/-55,819 square feet
on +/-20.6 acres of land and thus would qualify as a "medium sized fabrication
facility".
Based upon the above information, the appraiser would believe that a discount of
about 30% from "Unencumbered Fee Simple Interest" would be appropriate in order
to sell the appraised property in a condensed marketing period of 12 months or
less. With Unifab's Ownership Interest being a Leasehold Interest, the
"discount" is applied to the "Unencumbered Fee Simple Interest" of $2,950,000
and then the discount (+/-$885,000) deducted from the Leasehold Market Value
Estimate of $1,750,000.
Thus, after careful consideration of all factors, it is my opinion that the
LEASEHOLD INTEREST IN AND TO THE ALLEN PROCESS SYSTEMS LEASED PROPERTY would
have an estimated CURRENT DISPOSITION VALUE in "As IS CONDITION", assuming a
condensed marketing period of 12 months or less, of:
EIGHT HUNDRED SIXTY-FIVE THOUSAND
AND 00/100 ($865,000.00) DOLLARS.
VII - 38
ALLEN PROCESS SYSTEMS LEASED PROPERTY LEASEHOLD INTEREST ESTIMATE
NET INCOME TO LEASEHOLD INTEREST THROUGH END OF OPTION TERM OF
LEASE
CONSTRUCTED OPERATING STATEMENT
BASED MARKET RENT - CONTRACT RENT DIFFERENTIAL
THROUGH END OF OPTION TERM
[OMITTED]
"UNIVERSAL PARTNERS" OWNED PARCEL
PROPERTY DESCRIPTION
According to the enclosed legal description and survey, the "Universal Partners"
Parcel contains +/-9.56 acres. This is a vacant tract of land with frontage
(+/-231.14 feet) on the north side of Port Road. The Rodere Canal meanders along
the western boundary and causes the irregular shape of the western line. The
northern boundary is +/-587.67 feet and the eastern line is 925.39 feet. The
portion of the Rodere Canal which borders the western boundary line is not
navigable. This parcel is a "dry" tract.
As indicated by the enclosed photographs, the surface area is relatively level
and grass covered. "UNIFAB" is presently using this parcel for equipment
storage. Site improvements are negligible. "Unifab" owns this +/-9.56 acre tract
and therefore the estimate of market value is of the Fee Simple ownership
interest.
Located between the north edge of Port Road and the south boundary line of the
"Universal Partners" Parcel are a railroad right-of-way and an electric line
servitude. Large "A-frame" structures are located inside the transmission line
servitude.
VALUATION
Because the "Universal Partners" Parcel is an unimproved +/-9.56 acre land area,
the estimate of Market Value is based solely on a SALES COMPARISON APPROACH
analysis. From the analysis contained in the SITE VALUATION section of this
report, because of its non water frontage, the irregular shape of the parcel and
the existence of the railroad right-of-way and transmission line servitude, the
appraiser concluded an estimated current unit market value for the "Universal
Partners" Parcel of $8,000 per acre. This is a marginal "dry" industrial tract
located on the northern fringe of "The Port". Historical demand for this type
property has been limited.
+/-9.56 Acres x $8,000 per acre = $76,480
ESTIMATED MARKET VALUE
OF FEE SIMPLE INTEREST IN AND TO
THE "UNIVERSAL PARTNERS" OWNED PARCEL -say- $76,000
Ix-5
"UNIVERSAL PARTNERS" OWNED PARCEL
VALUATION
(Continued)
DISPOSITION VALUE ESTIMATE
The appraiser has also been asked to estimate the CURRENT DISPOSITION VALUE of
the Unifab's Ownership Interest (Fee Simple) in and to the appraised property
UNDER A DISPOSITION MARKETING PERIOD OF 12 MONTHS OR LESS. In order to attract a
Purchaser to a small nonwaterfront industrial site like the appraised property
under a condensed marketing period of 12 months or less, it is likely that a
significant discount from the market value estimate of the property would have
to be given in order to entice Purchasers to acquire the Fee Simple Interest in
the property in a condensed marking period.
In order to estimate "DISPOSITION VALUE", the appraiser has considered current
market conditions for the appraised property and the likely market participants
who might acquire the appraised property. The appraised property is vacant
non-waterfront land which is located across the railroad tracks from its street
frontage and is used as a storage yard. Thus it would be considered to have poor
market appeal.
For the DISPOSITION VALUE analysis, the appraiser has conducted interviews of
representatives of a number of companies involved in the fabrication and/or oil
and gas business including analysts and consultants as well as brokers. Also
considered any other adverse conditions which might affect marketability under a
condensed marketing period.
It is from the information provided from the interviews that the appraiser has
attempted to quantify a discount for the Universal Partners Parcel. The
"Univeral Partners Parcel" contains about 9.56 acres of land. The drawback of
the site is the fact that it does not have water frontage and is located across
railroad tracks from the street and thus has impaired access. There is currently
a similar tract for sale which has been on the market for some time with little
market activity.
Based upon the above information, the appraiser would believe that a discount of
about 35% from the current market value estimate of $76,000 would be appropriate
in order to sell the appraised property in a condensed marketing period of 12
months or less.
Thus, after careful consideration of all factors, it is my opinion that the
UNENCUMBERED FEE SIMPLE INTEREST IN AND to the Universal Partners OWNED PROPERTY
would have an estimated current Disposition Value in "As Is Condition", assuming
a condensed marketing period of 12 months or less, of:
FIFTY THOUSAND AND 00/100 ($50,000.00) DOLLARS.
IX-6
"BULK SALE" ANALYSIS
ESTIMATED MARKET VALUE TO A SINGLE PURCHASER
Based on the appraiser's investigation and application of conventional appraisal
approaches, the estimated current market value of UNIFAB's applicable ownership
interests (Fee Simple or Leasehold) in and to the various appraised properties,
as of October 5, 2001, is summarized as follows:
ESTIMATED CURRENT MARKET
VALUE AS STANDALONE
PROPERTIES IN "AS IS CONDITION":
West YARD-NORTH PARCEL FEE OWNERSHIP $7,700,000
WEST YARD-SOUTH PARCEL FEE OWNERSHIP $2,345,000
UNIVERSAL PARTNERS PARCEL FEE OWNERSHIP $ 76,000
EAST YARD-NORTH PARCEL LEASEHOLD INTEREST $ 810,000
EAST YARD-SOUTH PARCEL LEASEHOLD INTEREST $ 555,000
ALLEN PROCESSING PARCEL LEASEHOLD INTEREST $1,750,000
OBI PARCEL LEASEHOLD INTEREST $ 900,000,
SUM TOTAL OF MARKET VALUE ESTIMATES AS STANDALONE PROPERTIES IN "AS IS
CONDITION"ASSUMING NORMAL MARKETING PERIOD: $14,136,000
In order to arrive at an estimate of current market value for UNIFAB's ownership
interest in all of the properties, it would not be proper to simply add up the
above individual tract values and arrive at a total value for all of the
properties.
The above value estimates estimate the current market values for seven separate
properties considered as "Separate, Standalone Properties" considered marketed
separately over a normal marketing period. In the immediate case, the appraiser
has been asked to estimate the current market value of the entire appraised
property to a "Single Purchaser". In order to attract a "Single Purchaser" to
the entire appraised property, it is likely that a discount from the market
value as "Separate, Standalone Properties" would have to be given in order to
entice a Single Purchaser to acquire all of the properties in a single
transaction. The potential purchaser would have to believe that they "are
getting a great dear' in order to acquire all of UNIFAB's interests in the seven
separate appraised properties. The Single Purchaser market for all of the
appraised properties would be significantly fewer purchasers than the potential
purchasers of the individual properties, especially the smaller properties.
Several of the parcels are competing tracts, that is, they are located close to
one another and if they were offered "for sale" in the open market at the same
time, they would, in essence, be competing against one another. This competing
aspect indicates a longer marketing period and competitive pricing. A User
considering any of the smaller properties such as the East Yard-South Parcel or
the Allen Process Systems Leased Property or OBI Leased Property for acquisition
would not be a likely purchaser of all of the appraised properties.
X-1
"BULK SALE" ANALYSIS
(CONTINUED)
ESTIMATED MARKET VALUE TO A SINGLE PURCHASER (CONTINUED)
The large user purchaser of the entire property would likely consider selling
off these portions of the property separately and thus discount their individual
value in making a purchase decision for the entire property. The same could be
said of the Main Plant Property (West Yard) which could likely be broken into
two separate components. Thus, there would be a much more limited market for the
entire property to a Single Purchaser than of the individual components and thus
the need to reflect a discount off of "Separate, Standalone" Value estimates.
In the immediate case, it is unlikely that a user capable of utilizing all of
the appraised properties is currently in the marketing looking for a facility at
this time. Thus, it is likely that the property could take some time to sell to
a user who would then undertake the sale of some of the properties to other
users.
Thus, in order to entice an purchaser to all of UNIFAB's ownership holdings in a
normal marketing period, the likely discount would have to be at least 15% off
of the total estimated market value of $14,136,000.
Thus, a "bulk sale" discount is applied to the combined total of the Fee
Simple/Leasehold ownership values of the various "UNIFAB" parcels. In order to
combine these parcels and sell them as a "package", the appraiser has estimates
an extended marketing period (12 to 36 months) due to the fact that the supply
of available land "for sale" will necessarily be increased. The 12 to 36 month
extended marketing period reflects the fact that current demand for Port of
Iberia industrial waterfront property exceeds demand. By discounting the sum
total of the individual values of the appraised properties, the extended
marketing period is accounted for.
Thus, after careful consideration of all factors, it would be my opinion that
UNIFAB'S OWNERSHIP INTEREST (FEE SIMPLE OR LEASEHOLD) in and to All Appraised
Properties in the Iberia Port Area would have an estimated CURRENT MARKET VALUE
in "As IS CONDITION" to a SINGLE PURCHASER, as of October 5, 2001, assuming a
normal marketing period of twelve to thirty-six months, of:
TWELVE MILLION AND 00/100
($12,000,000.00) DOLLARS.
X-2
"BULK SALE" ANALYSIS
(Continued)
ESTIMATED MARKETING/EXPOSURE PERIODS
EXPOSURE TIME is defined by Appraisal Institute literature as "the estimated
length of time the property interest being appraised would have been offered on
the market prior to the hypothetical consummation of a sale at market value on
the effective date of the appraisal".
Marketing time is "an estimate of the amount of time it might take to sell a
property interest in real estate at the estimated Market Value level during the
period immediately after the effective date of an appraisal. Marketing time
exists after the effective date".
Based on market demand for large and mid-sized industrial waterfront properties
and interviews with knowledgeable market participants, the ESTIMATED EXPOSURE
TIME relative to any one of the individual "UNIFAB" properties would be in the
twelve to thirty-six month range with the smaller properties having a shorter
exposure period and the larger properties having a longer exposure period..
The Estimated Marketing Period of anyone of the individual "UNIFAB" properties
would also be in the twelve to thirty-six month range. A realistic sale price is
implied and professional, aggressive marketing is a must.
For all of the UNIFAB Properties to a Single Purchaser, the ESTIMATED EXPOSURE
TIME AS WELL AS ESTIMATED MARKETING PERIOD would be more extended in the
eighteen to thirty-six month range at the estimated current market value to a
Single Purchaser.