A Self-Contained Real Estate
Appraisal Report of
A Proposed 21 Unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all
Located on the Northside of Germantown Road
Just South of Country Club Road
at Municipal Number 619 Germantown Road
Within the Corporate Limits of
Minden, Webster Parish, Louisiana
For
First Republic Bank
Attn: Mr. David Knight, MAI
1220 North 18th Street
Post Office Box 2066
Monroe, Louisiana 71207
As Of
September 8, 1998
Prepared by
Robert M. McSherry, MAI
Louisiana State Certified General Real Estate Appraiser No. G0891
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
ROBERT M. MC SHERRY, MAI
3760 Chelsea Drive
Baton Rouge, Louisiana 70809
Phone (504)924-8093
September 8, 1998
First Republic Bank
Attn: Mr. David Knight, MAI
1220 North 18th Street
Post Office Box 2066
Monroe, Louisiana 71207
RE: A proposed 21 unit assisted care facility, resident manager's apartment
and 4 efficiency assisted care units all located on the north side of
Germantown Road just south of Country Club Road at municipal address 619
Germantown Road, within the corporate limits of Minden, Webster Parish,
Louisiana.
Dear Sir:
In accordance with your request to provide an estimate of the Estimated
Market Value of Fee Simple Interest of the Going Concern of the property
identified as a proposed 21 unit Assisted Care Facility, Resident Manager's
Apartment and 4 Efficiency Assisted Care Units all located within the
corporate limits of Minden, Webster Parish, Louisiana, we have personally
inspected the subject site and reviewed the submitted plans and specifications
for the proposed improvements and conducted a thorough review and analysis
of all matters pertinent for the Estimate of Market Value herein contained.
Market Value as defined by the Department of the Treasury, Office of
the Comptroller of the Currency, August 24, 1990, is, "The most probable
price which a property should bring in a competitive and open market under
all conditions requisite to a fair sale, the buyer and seller, each acting
prudently, knowledgeably and assuming the price is not affected by undue
stimulus. Implicit in this definition is the consummation of a sale as
of a specified date and the passing of title from seller to buyer under
conditions whereby:
a. buyer and seller are typically motivated;
b. both parties are well informed or well advised, and each acting in
what he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
Robert M. McSherry, MAI
Page Two
d. payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
e. the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Fee Simple Interest is defined by the Appraisal Institute as being, "a
fee without limitations to any particular class of heirs or restrictions
but subject to the limitations of eminent domain, escheat, police power
and taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation."
It includes the incremental value associated with the business concern,
which is distinct from the value of the real estate only. Going concern
value includes an intangible enhancement of the value of an operating
business enterprise which is produced by the assemblage of the land, building,
labor, equipment, and marketing operation. This process creates an
economically viable business that is expected to continue. Going concern
value refers to the total value of a property, including both real property
and intangible personal property attributed to business value. Special
purpose properties such as the subject are appropriate for only one use or
for a very limited number of uses. The highest and best use of a special
purpose property as improved, is probably the continuation of its current use,
if that use remains viable. Therefore, in the case of special purpose
properties a going concern value is considered appropriate.
In this instance the subject property has an excellent location within
a viable market. As long as quality management is maintained, it's Market
Value would be the same as it's Going Concern Value.
Included is our appraisal report which contains the various exhibits
and data utilized in arriving at the herein contained estimate of Market
Value for the subject property.
It is our opinion that the property herein identified as the proposed
21 Unit Assisted Care Facility, Resident Manager's Apartment and 4 Efficiency
Assisted Care Units all located at 619 Germantown Road within the corporate
limits of Minden, Webster Parish, Louisiana, was estimated to have a Market
Value based on Stabilized Net Operating Income, as of September 8, 1998,
of:
TWO MILLION ONE HUNDRED THOUSAND DOLLARS
($2,100,000.00)
Robert M. McSherry, MAI
Page Three
Allocated:
LAND: $ 140,000.00
IMPROVEMENTS: $1,885,000.00
FURNITURE, FIXTURES & EQUIPMENT: $ 75,000.00
GOODWILL OF GOING CONCERN -0-
The "As Is" Value of the property, derived by the utilization of the
Discounted Cash Flow Methodology, is estimated to be, as of September
8, 1998, but subject to completion of the property in accordance with
submitted plans and specifications within a reasonable period of time,
of:
TWO MILLION FORTY THOUSAND DOLLARS
($2,040,000.00)
The subject property is proposed at the present time and this appraiser
has been provided plans and specifications for the property. The herein
contained Estimate of Market Value is conditioned upon the completion
of the improvements in accordance with the plans and specifications utilizing
quality materials and workmanship within a reasonable period of time.
A final inspection by this appraiser will be required to ascertain the
assumptions utilized in preparing this appraisal report have been fulfilled.
This appraisal report was prepared in accordance with and compliance
of the Uniform Standards of Professional Appraisal Practice promulgated
by the Appraisal Foundation and the Guide Notes to the Standards of
Professional Practice adopted by the Appraisal Institute. These standards
contain binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, analysis, or opinion.
These uniform standards also set the requirements to communicate the
appraiser's analysis, opinions, and conclusions in a manner that will be
meaningful and not misleading in the marketplace, accordingly, the Departure
Provision does not apply.
Robert M. McSherry, MAI
Page Four
A complete set of plans and specifications have been provided First Republic
Bank and delivered under separate cover.
If we may be of further service to you in regard to this property or in
any other manner, please do not hesitate to contact us at your earliest
convenience.
Respectfully submitted,
/S/ROBERT M MCSHERRY
Robert M. McSerry, MAI
Louisiana State Certified General
Real Estate Appraiser No. G0891
Robert M. McSherry, MAI
[Area Location Map of Surrounding Cities]
EXECUTIVE SUMMARY
Location: Northside of Germantown Road just south of
Country Club Drive within the Corporate
Limits of Minden, Webster Parish,
Louisiana
Interest Appraised: Fee Simple Interest
Site: 5.72 Acres or 249,163 Square Feet, more
or less
Building Description: The property will include twenty-one (21)
assisted care living units, a resident
manager's apartment and 4 efficiency
assisted care units all located within a
single, T-shaped building. The common
area amenities including a full service
kitchen, a dining area, activities area,
office/reception area, adequate bathrooms
which would be fully equipped to satisfy
the needs of the residents of the assisted
care facilities as well as storage areas
and other required additions to render the
subject property a functional assisted
care facility catering to those requiring
assisted care.
Construction characteristics include a
reinforced poured concrete foundation,
wood framing, with a combination of brick
veneer and vinyl siding exterior walls
with the roof being of composition
shingles. Although the property is
proposed at the present time, this
appraiser is aware of a similar property
which has been constructed by the owners
of the subject and our physical
inspection of this existing complex has
been utilized in conjunction with the
submitted plans and specifications.
The property is considered to be a
most functional assisted living facility
and is considered a most attractive
property and should be well accepted
by the local market.
Robert M. McSherry, MAI
Highest and Best Use: Assisted care facility including all
required amenities.
Cost Approach to Value $2,255,000.00
Market Approach to Value $2,150,000.00
Income Approach to Value:
Stabilized Net Income: $2,100,000.00
Discounted Cash Flow Value: $2,040,000.00
Final Value Estimate:
Stabilized Net Income: $2,100,000.00
"As Is" Value: $2,040,000.00
Allocated:
Land $ 140,000.00
Improvements $1,885,000.00
Furniture, Fixtures
and Equipment $ 75,000.00
Goodwill of Going
Concern -0-
Robert M. McSherry, MAI
IDENTIFICATION OF THE PROPERTY
The property being inspected, analyzed and for which the Market Value
Estimate of the Fee Simple Interest of the Going Concern is applicable
is a four 4 acre tract of land which will be basically a rectangular in
shape and having frontage along the north side of Germantown Road and
located within the corporate limits of Minden, Webster Parish, Louisiana.
The property is located in portions of Section 14, T9N-R9W, Webster Parish,
Louisiana and, as a condition of this appraisal report, a complete legal
description and a metes and bounds survey of the subject site will be
required to ascertain the assumptions utilized within this appraisal report
have been fulfilled.
The subject site is the "heart" of a larger ten (10) acre parcel with
the subject site encompassing the vast majority of the usable land area
contained within the total site area.
"A 5.72 acre, more or less, tract of land situated in Section 14,
Township 19 North, Range 9 West, Minden, Webster Parish, Louisiana being
more particularly described as follows:"
"Beginning at a point of the West right-of-way of Germantown Road 347.85
feet West and 1,063.61 feet South of the Northeast corner of the
Southwest Quarter of the Northwest Quarter of said Section 14; thence South
31 degrees 18 minutes West along the West right-of-way of Germantown Road
86.57 feet to the point of beginning; thence run South 31 degrees 18
minutes West along the West right-of-way of Germantown Road 634.44 feet;
thence run North 86 degrees 00 minutes West 393.09
Robert M. McSherry, MAI
feet; thence North 4 degrees 00 minutes East 124.64 feet; thence run
North 34 degrees 18 minutes East 469.61 feet; thence run South 88 degrees
40 minutes East 469.20 feet to the point of beginning. Containing 5.72
acres, more or less."
Robert M. McSherry, MAI
PURPOSE OF THE APPRAISAL
The purpose of this report is to communicate, in a narrative format,
the data and reasoning that the appraisers have utilized to form the herein
contained estimate of Market Value of the Fee Simple Interest of the Going
Concern for the property identified as a proposed 21 assisted care facility
and 4 efficiency assisted care units all located on the north side of
Germantown Road, Minden, Louisiana.
OBJECTIVE OF THE APPRAISAL
The objective and function of this appraisal report is to provide an
estimate of the Market Value of the Fee Simple Interest of the Going Concern
of the property for use by First Republic Bank in order to provide long
term financing of the subject property for the Biltmore Group, L.L.C.
The Subject property was personally inspected by this appraiser both
before and after the date of this appraisal and the submitted plans and
specifications reviewed. As the property is proposed construction, a
final inspection of the property will be required by the appraiser to
ascertain the assumptions utilized within this appraisal report have been
fulfilled and this appraisal is also conditioned upon being completed
in accordance with the plans and specifications utilizing quality materials
and workmanship throughout. Other additional conditions are contained
in an additional section of this report.
Robert M. McSherry, MAI
DATE OF THE APPRAISAL
The effective date of this appraisal is September 8, 1998. The subject
site was personally inspected by this appraiser both before and after
this date and the submitted plans and specifications for the proposed
improvements were also reviewed by the appraiser prior to the date of
the appraisal.
Robert M. McSherry, MAI
DEFINITION OF SIGNIFICANT TERMS
Market Value, as defined by the Department of the Treasury, Office of
the Comptroller of the Currency, August 24, 1990, is, "The most probable
price which a property should bring in a competitive and open market under
all conditions requisite to a fair sale, the buyer and seller, each acting
prudently, knowledgeably and assuming the price is not affected by undue
stimulus. Implicit in this definition, is the consummation of a sale as
of a specified data and the passing of title from seller to buyer under
conditions whereby:
a. buyer and seller are typically motivated;
b. both parties are well informed or well advised, and each acting in
what he considers his own best interest;
c. a reasonable time is allowed for exposure in the open market;
d. payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
e. the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Fee Simple Interest is defined by the Appraisal Institute as being, "a
fee without limitations to any particular class of heirs or restrictions
but subject to the limitations of eminent domain, escheat, police power
and taxation. An inheritable estate".
Going Concern Value is "the value created by a proven property operation."
It includes the incremental value associated with the business concern,
which is distinct from the value of the real estate only. Going concern
value includes an
Robert M. McSherry, MAI
intangible enhancement of the value of an operating business enterprise
which is produced by the assemblage of the land, building, labor, equipment,
and marketing operation. This process creates an economically viable
business that is expected to continue. Going concern value refers to
the total value of a property, including both real property and intangible
personal property attributed to business value. Special purpose properties
such as the subject are appropriate for only one use or for a very limited
number of uses. The highest and best use of a special purpose property
as improved, is probably the continuation of its current use, if that
use remains viable. Therefore, in the case of special purpose properties
a going concern value is considered appropriate.
Robert M. McSherry, MAI
PROPERTY RIGHTS APPRAISED
This assignment concerns the appraisal of the Fee Simple Interest with
Fee Simple Interest defined in Real Estate Appraisal Terminology as being,
"a fee without limitations to any particular class of heirs or restrictions
but subject to the limitations of eminent domain, escheat, police power
and taxation. An inheritable estate".
STATEMENT OF OWNERSHIP AND RECENT HISTORY
The larger tract from which the subject property was partitioned was
under the ownership of Luther Moore and Donald Hinton Trust and was conveyed
to Senior Retirement Center of Minden, LLC. The 5.57 acre tract which
is the subject of this appraisal report is located on the north side of
Germantown Road just south of Country Club Road within the corporate limits
of Minden, Webster Parish, Louisiana. The subject site is to be surveyed
and a complete metes and bounds description provided this appraiser as
a condition of this appraisal report. The subject is a portion of a larger
ten (10) acre tract which was purchased for $150,000.00 on April 30,
1998.
Although the original site purchased for the construction of the subject
improvements encompassed a total of ten (10) acres of gross land area,
the usable portion of this site was substantially less and estimated to
be between six (6) and seven (7) acres. The remaining three plus (3+)
acres of the original site is considered unusable land due to it's steep
topography but can be used in conjunction with the cut and fill operation
which will be necessary in the
Robert M. McSherry, MAI
development and preparation of the actual subject site prior to the
construction of the improvements.
It is noted that the indicated price per acre for the total tract purchased
on April 3, 1998, was $15,000 per acre. When the usable land is utilized
in the calculation, the indicated price per acre increased to approximately
$25,000.00 per acre prior to other costs which were incurred during the
acquisition of the site. These costs include the addition of a separate
Real Estate Commission in the amount of approximately $10,000.00 as well
as interest expense during the approximate eight (8) month holding period
from the time the subject property was optioned, the rezoning process
completed and the actual purchase consummated. The 5.57 acre tract which
is the subject of this appraisal report is considered to be the "heart"
of the subject property and due to it's superior location within the site,
superior topography as well as smaller size, a substantial increase in
the per acre value is estimated for this portion of the property.
The subject property had been owned by the prior owners for a period
in excess of five years and no speculative transactions have affected
the subject property according to records found in the Webster Parish
Clerk of Court's Office. The site will require considerable preparation
prior to construction and it's anticipated sales price is considered slightly
below it's true market value.
Robert M. McSherry, MAI
ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal report has been made with the following assumptions and
limiting conditions:
1. No responsibility is assumed for the legal description or for matters
including legal or title consideration. Title to the property is
assumed to be good and marketable unless otherwise stated.
2. The property is appraised free and clear of any and all liens or
encumbrances unless otherwise stated.
3. Responsible ownership and competent property management are assumed.
4. The information furnished by others is believed to be reliable.
No warranty, however, is given for its accuracy.
5. All engineering is assumed to be correct. The plot plans and
illustrative material in this report are included only to assist the
reader in visualizing the property.
6. It is assumed that there are no hidden or apparent conditions of the
property, subsoil, or structures that render it more or less valuable.
No responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
7. It is assumed that there is full compliance with all applicable
federal, state, and local environmental regulations and laws unless
noncompliance is stated, defined, and considered in the appraisal
report.
8. It is assumed that all applicable zoning and use regulations and
restrictions have been complied with, unless a nonconformity has been
stated, defined, and considered in the appraisal report.
9. It is assumed that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any
local, state or national government or private entity or organization
have been, or can be obtained or renewed for any use on which the
value estimate contained in this report is based.
Robert M. McSherry, MAI
10. It is assumed that the utilization of the land and improvements is
within the boundaries or property lines of the property described and
that there is no encroachment or trespass unless noted in the report.
11. The distribution, if any, of the total valuation in this report
between land and improvements applies only under the stated program of
utilization. The separate allocations for land and buildings must
not be used in conjunction with any other appraisal and are invalid if
so used.
12. The appraisers herein, by reason of this appraisal, are not required
to give further consultation, testimony, or be in attendance in court
with reference to the property in question unless arrangements have
been previously made.
13. Possession of this report, or a copy thereof, does not carry with
it the right of publication. It may not be used for any purpose by
any person other than the party to whom it is addressed without the
written consent of the appraisers, and in any event only with proper
written qualification and only in its entirety.
14. Neither all nor any part of the contents of this report (especially
any conclusions as to value, the identity of the appraisers, or the
firm with which the appraisers are connected) shall be disseminated to
the public through advertising, public relations, new, sales, or other
media without the prior written consent and approval of the appraisers.
15. The existence of hazardous materials, which may or may not be present
on the subject property, was not observed by the appraisers. The
appraisers have the knowledge of the existence of such materials
on or in the subject property. However, the appraisers are not
qualified to detect such substances and the presence of potential
hazardous materials may affect the value of the property. This value
estimate contained within this report is predicated on the assumption
that no such hazardous materials are present on or in the property.
No responsibility is assumed for any such conditions or for any
expertise or any knowledge required to discover these items. This
should be accomplished by an expert in the field and is a condition of
this appraisal report.
16. That the appraiser has personally inspected the subject property
and finds no obvious evidence of structural deficiencies, except as
stated in this report; however, no responsibility for hidden defects
or conformity to specific governmental requirements, such as the
Americans with Disabilities (ADA) or fire, building and safety,
earthquake, or occupancy codes, etc., can be assumed without provision
of specific professional or governmental inspections.
Robert M. McSherry, MAI
17. This property is proposed at the present time and the appraisal is
conditioned upon the completion of the subject property in accordance
with the submitted plans and specifications utilizing quality materials
and workmanship throughout. A final inspection by the appraiser would
be required in order to ascertain the assumptions utilized in arriving
at the herein contained Estimate of Market Value have been fulfilled.
18. This appraisal is not based on a requested minimum valuation, a
specific valuation or the approval of the loan.
Robert M. McSherry, MAI
CITY/AREA DATA
The Minden and the Webster Parish areas are considered one and the same
with the population trends for both being very similar with the following
population trends noted:
Population
Present
1970 1980 1990 Estimate
City 13,966 15,074 13,661 14,000
Parish 39,939 43,631 41,989 43,000
State 3,641,306 4,205,900 4,219,973 4,219,973
The City of Minden provides numerous municipal services including public
water, public sewer, electricity is provided by the City of Minden which
is served by Swepco with natural gas provided by ARKLA Gas. Telephone
service is provided by BellSouth and all services and utilities including
police and fire protection are considered adequate.
The educational requirements of the area are provided by four elementary
schools, one middle school, one junior high school and one high school
as well as one private facility. The higher educational requirements
are fulfilled by Northwest Technical Institute in Minden, Louisiana State
University, Southern University and Centenary Colleges all located in
Shreveport, approximately 30 miles distance with Louisiana Tech University
and Grambling State University also located within 30 miles of the City
of Minden.
Transportation requirements are provided by Interstate 20, the major
east-west interstate highway through the southern United States as well
as U.S. Highways 79 and 80, Louisiana Highway 371, 159 and 3008. Greyhound
Bus Lines
Robert M. McSherry, MAI
provides bus service to the area with rail service provided by Kansas
City Southern.
The health requirements in the area are provided by one hospital with
a total of 21 beds as well as two nursing homes with a total of 374 beds
and two medical clinics. There are seventeen medical doctors, twelve
dentists and two DVM's servicing the area.
Recreational requirements are fulfilled by public facilities including
four tennis courts, three swimming pools and nine city parks. Although
the city does not provide a golf course, there is a country club available
in the area.
The major employers found in the Minden Webster Parish area are as follows:
Major Area Employers
Company Name Location Product Employees
Fibrebond Minden Portable Comm Bldgs 550
Mister Twister Minden Fishing Tackle 100
Ruskin Minden Industrial Air 135
Inland Container Minden Corrugated Boxes 137
Clement Industries Minden Trailers 150
Reynolds Contractors Minden Metal Fabrication 160
McInnis Construction Minden Construction 120
Minden Medical Center Minden Health Care 305
Town and Country
Nursing Home Minden Nursing Care 130
IHS of Minden Minden Nursing Care 225
In summary, the Minden and Webster Parish area is one of stability and
moderate growth. The major employers in the area have been in existence
for an extended period of time and are gradually expanding their employee
base
Robert M. McSherry, MAI
and this trend will continue over the foreseeable future. A large number
of the residents living in the Minden area work within the major metropolitan
area of Shreveport/Bossier City and this is also considered a positive
factor as Minden is considered to be somewhat of a bedroom community for
this larger metropolitan area. All indications indicate a positive and
stable future for both Minden and the Webster Parish area.
Robert M. McSherry, MAI
NEIGHBORHOOD DATA
A Neighborhood may be defined as a homogeneous grouping of individuals,
buildings, or business enterprises within a larger community. These groupings
are usually devoted to residential use, trade and service activities,
or cultural and civic activities. Residential neighborhoods tends to
reflect characteristics of their inhabitants, expressing the mutual desires
of people with comparable interests, related traditions, and similar social
and economic status.
Neighborhood Boundaries
The neighborhood in which the subject property is located is considered
to be that area lying in the northern portion of the City of Minden.
The main arterial roadway through the neighborhood is considered to be
Germantown Road, a dual laned, asphalt, municipally maintained roadway
which provides access into the downtown area of Minden as well as the
outlying areas of northern Webster Parish.
Trends in the neighborhood tend to be for construction of either multi-family
apartment complexes or the Azalea Terrace Housing for the Elderly which
is a subsidized housing complex for the elderly. This property was financed
by bonds issued by the Louisiana Public Finance Authority and requires
a certain percentage of the residents to be under the median income level
of the parish as a whole. Both the apartment complex identified as Rose
Hill and the housing complex for the elderly identified as Azalea Terrace
are fairly new construction and have been well maintained and are both
considered positive influences in the subject neighborhood.
Robert M. McSherry, MAI
There is a public elementary school located directly across Germantown
Road from the subject site and is also not considered detrimental to the
area. Other land uses include primarily detached single family dwellings
which range in value from a low of $40,000.00 to a high of $200,000.00.
The area is also the location of the majority of the vacant developable
land located within the corporate limits of Minden. The trends in the
area are considered most positive as access is well provided and the overall
location of the neighborhood is considered to be in the path of growth
for the City of Minden. No adverse physical characteristics were noted
during the inspection of the area.
It is noted that a large number of the residents of Minden are employed
in the metropolitan area of Shreveport/Bossier City. This trend of persons
utilizing smaller municipalities as their residential base and commuting
to the larger metropolitan areas should continue over the foreseeable
future and is considered a positive factor in the continued development
and growth of Minden and Webster Parish.
Robert M. McSherry, MAI
OVERVIEW OF ASSISTED LIVING INDUSTRY
In anticipation that more elderly Americans will live in assisted living
homes than nursing homes in the near future, consumer industry groups
are saying it is time to put some minimum standards into law. One of
the most important things for the industry is to try not to admit residents
it cannot provide quality care for. Many assisted living homes charge
additional fees for personal services residents may come to need as they
grow older. Some will help residents if they get sick by permitting periodic
visits from nurses, for example, or providing supervision for people with
Alzheimer's Disease.
In order to minimize residents need to move, the consumer or trade groups
say assisted living facilities should be required to offer at least some
help with the dozen daily activities including meals, using the bathroom,
taking medication and shopping. Those facilities which accept people
with Alzheimer's or other types of dementia would also be required to
provide 24 hour awake staff and special training for those workers.
Assisted living has become the hottest new housing option for older people
by promising to provide a happy medium between their homes and a full
nursing home facility. Industry estimates show that the number of elderly
Americans living in settings that could be described as assisted living
has probably doubled from 560,000 in 1990 to as many as 1,000,000 in 1997.
By early next century, experts predict assisted living homes will care
for more elderly Americans than nursing homes.
Robert M. McSherry, MAI
Although numbers are inexact, assisted living facilities ranging from
luxury apartment buildings to modest group homes provide housing along
with personal services and some health care. Residents may be too frail
to live alone but too healthy to need the 24 hour medical attention of
nursing homes. Assisted living can be less expensive than nursing homes.
A 1997 survey by the National Center for Assisted Living found that 52%
costs $1,001.00 to $2,000.00 per month and 24% cost less than $1,000.00
per month. In contrast, monthly nursing home fees average above $3,000.00.
Assisted living's affordability has attracted the attention of law makers
worried about how the nation will ensure elderly care for the huge baby
boom generation now middle aged.
Medicaid programs for the poor in 28 states have begun to cover some
assisted living services and the Department of Health and Human Services
is conducting a fact finding survey.
Unlike nursing homes, assisted living homes are not regulated by the
Federal Government. Fewer than half of the states require licensing before
it opens. That allows for flexibility and partly explains assisted living's
popularity.
In summary, the assisted living facilities currently expanding throughout
the United States are the most popular and desirable alternative living
situation for those elderly which require some minimal level of care but
not the extensive level required by nursing home patients. As the population
continues to grow older but maintain better health, the appeal thus
desirability of assisted living facilities will continue to be enhanced.
Robert M. McSherry, MAI
SCOPE OF THE APPRAISAL
The appraiser has personally inspected the subject site and conducted
an in-depth inspection of the neighborhood in which the subject property
is located observing it's trends of development and characteristics.
Vacant land sales utilized in conjunction with the Cost Approach to Value
and in determining the estimated Market Value of the subject site, as
if vacant, and owned in Fee Simple have been inspected by this appraiser
and a combination of data provided by the Marshall Valuation Service Cost
Manual and other available in-file data has been utilized in the process
of estimating the replacement cost new of the subject improvements.
In the final analysis, the appraiser has utilized and relied upon the
experience of judgment based on the opinion of the quality and quantity
of the data in arriving at the final value estimate of the Fee Simple
Interest in the subject property.
The Income Approach to Value has been completed utilizing a stabilized
net income capitalized into value and a discounted cash flow method.
Economic rents were determined by rent comparables and current data utilized
with respect to expense projections. Information provided by the publication
"Trends in the Health Care Industry" as well as information provided by
other actual ongoing facilities similar to the subject have been utilized
in the process of estimating the projected expenses which were included
in the Income Approach to Value. Although the subject property is proposed
at the present time and has no income or expense history, it is considered
to be a functional facility and a facility which is demand with respect
to providing long term assisted living care.
Robert M. McSherry, MAI
DESCRIPTION OF THE PROPERTY
Site Data
Size, Shape and Topography
The subject site will be a 5.72 acre parcel of land which will be basically
rectangular in shape and lying along the north side of Germantown Road,
a two laned, asphalt street which provides access to the downtown area
of Minden, Louisiana. The topography of the property is rolling and will
require substantial grading and site preparation prior to construction.
This is not considered truly detrimental. Inspection of the site did
not reveal any detrimental physical characteristics which would affect
the development of the subject property to it's highest and best use or
the proposed utilization of the property.
The 5.72 acre parcel which is the subject site is a portion of a larger
10 acre tract of land which was purchased in April of 1998. This tract
contains approximately three (3) to four (4) acres of unusable land located
at the rear and along the northern side of the tract which features extremely
rough topography, ravines and is, for the most part, unbuildable. This
portion of the property can be used in connection with the cut and fill
operation necessary to prepare the actual building site for construction
with an estimated site preparation expense of $60,000.00 projected by
area dirt contractors.
Utilities
The subject property is located inside the corporate limits of Minden,
Webster Parish, Louisiana and is provided with all city utilities and
services available to properties within the corporate limits of Minden
including electrical service, police and fire protection, public water,
sewerage disposal, and refuge disposal.
Robert M. McSherry, MAI
Telephone service and natural gas service is provided by the local utility
companies servicing the area.
Access
Access to the subject development is provided as a result of the location
of Germantown Road along the southern boundary of the site. Germantown
Road is a dual laned, asphalt, municipally maintained traffic artery servicing
primarily local traffic and provides access into the downtown area of
Minden to the south and the outlying areas of Webster Parish to the north.
There exists an intersection with Interstate 20 in the southern portion
of the City of Minden, Interstate 20 being the major east-west interstate
highway through the southern United States with I-20 providing access
into the metropolitan area of Shreveport/Bossier City, approximately 30
miles to the west.
Numerous other municipal traffic arteries dissect the area and provide
adequate access to the subject site from all areas of Minden and Webster
Parish.
Zoning
Review of the zoning map found in the Minden City Hall indicates the
subject property to be currently zoned "R-4", Multi-Family Residential.
The proposed utilization of the site as a site for an assisted living
facility requires the site to be zoned "R-4" and this zoning will result
in the proposed utilization being a legal conforming use.
This appraiser has not conducted an in-depth review with respect to the
abstract to the subject site but no deed restrictions or other restrictive
covenants are assumed to exist which would affect the development of the
subject property to
Robert M. McSherry, MAI
its highest and best use. However, this should be ascertained by competent
legal authority and is a condition of this appraisal report.
Drainage
Review of Flood Hazard Maps found in the Minden Municipal Office indicated
the subject property to be located in a Flood Zone "C" and flood insurance
is not required for the subject property. The applicable flood map is
identified as Map No. 220237-0005-D with an effective date of March 3,
1992. A copy of this map is contained in the Addenda of this report.
Again it is noted that flood insurance is not required for the subject
property according to available maps but this should be ascertained by
competent surveyor or engineer.
Tax Data
The subject property is proposed construction property and the taxes
on the vacant land only are minimal. The subject property will be placed
on the Webster Parish tax rolls the year after it is completed and at
that time will be assessed and the tax liability can be estimated. For
the purposes of this appraisal report and for the utilization in the Income
Approach, taxes have been projected based on comparable properties but
are subject to change once the property is completed and placed on the
tax roles.
The 1998 millage rates applicable to the subject property are as follows:
Robert M. McSherry, MAI
City 8.87 Mills
Parish 72.28 Mills
Total 81.15 Mills
Assisted living facilities such as the subject are assessed at 10% of
Market Value and conversations with representatives of the Webster Parish
Tax Assessor's Office indicate an estimated Market Value for tax purposes
will be approximately 20% less than actual Market Value. Thus:
Estimated Value of Subject $2,100,000.00
Estimated Assessed Value $1,680,000.00
10% - Assessed Value $ 168,000.00
$168,000.00 X 81.15 Mills = Estimated Tax Liability $13,633.20
Robert M. McSherry, MAI
LOCATION MAP
Robert M. McSherry, MAI
DESCRIPTION OF THE IMPROVEMENTS
Assisted Living Facility
The proposed facility containing the assisted living units will be constructed
within a single T-shaped building but a building comprised of different
component sections housing the assisted living units in two wings with
the public areas located in the center or core of the building. The building
is a modified T-shape and encompasses a total of 22,217 square feet of
heated area. The assisted living units contained within this facility
will contain approximately 485 square feet of living area and feature
a bedroom, living room, kitchenette and full bath with shower while the
efficiency units will contain approximately 200 square feet of area.
The gross building area was calculated by Mr. Mike Wallace, the preparer
of the plans and specifications for the property.
Construction characteristics for this building include reinforced poured
concrete foundation with adequate grade beams and both interior and perimeter
footings with the exterior being wood framing utilizing a combination
of brick veneer vinyl with the roof being a composition shingle roof over
wood decking. Windows will be insulated, horizontal slide aluminum windows
with each unit of the assisted care units having their own central HVAC
unit with the common areas utilizing central, zoned units.
Interior construction will include a combination of vinyl and carpet
or ceramic tile flooring, painted or vinyl covered sheetrock walls with
acoustical ceilings. Lighting will be both standard and fluorescent fixtures.
Robert M. McSherry, MAI
Amenities to be contained within the assisted care portion of the building
include a full service kitchen, dining room, activities area, whirlpool
area, staff laundry, TV rooms, offices and other required amenities as
well as an apartment for the resident managing couple.
As previously noted, the total gross area contained within this portion
of the subject property is 22,217 square feet. Within this total, 21
assisted living units, 4 efficiency assisted units, the manager's apartment
and remaining common areas will be contained. Parking will be poured
concrete and located at strategic locations around the site and will be
adequate to fulfill the requirements of both the tenants and staff.
Landscaping will be extensive and utilized in conjunction with the natural
topography of the area should be most pleasing.
Each assisted living unit will include a toilet, lavatory and tub/shower
unit, through wall air conditioning unit with heat strip, drop-in over/range
unit with vent hood as well as adequate closet and cabinet space.
A complete set of working drawings will be provided the appraiser as
a condition of this appraisal to ascertain the assumptions utilized within
this report have been fulfilled. A final inspection by the appraiser
will be required.
As noted, the subject is proposed construction and this appraisal is
conditioned upon the completion utilizing quality materials and workmanship
with a final inspection by the appraiser required to ascertain the preliminary
plans and specifications provided this appraiser were correct.
Robert M. McSherry, MAI
[Subject Property Location Map Indicating the Subject Property]
Robert M. McSherry, MAI
HIGHEST AND BEST USE
Introduction
The Appraisal Institute defined highest and best use as follows, "that
legal use, at the time of the appraisal, which is the most profitable
likely use to which a property can be put."
There are several basic factors which must be considered in order to
make a proper determination of Highest and Best Use:
1. The use must be legal, that is, legally adaptable regarding zoning
and other restrictions;
2. The use must be probable, not conjectural or speculative;
3. The property must be physically adaptable to use contemplated,
4. There must be a demand for such use;
5. The use must be profitable, the highest return to the land over the
longest period of time.
Highest and best use of the land (or site) if vacant and available for
use may be different from the highest and best use of the improved property.
This is true if the improvement is not an appropriate use, but it makes
a contribution to the total property value in excess of the value of the
site.
The above five tests have been applied to the subject property's vacant
site. In arriving at the estimate of highest and best use, the subject
site has been carefully analyzed.
Robert M. McSherry, MAI
HIGHEST AND BEST USE ASSUMING A VACANT SITE
Permissible Use
An investigation has been conducted in order to determine the zoning
classification that encumbers the subject property. The results of this
investigation has revealed that the subject site is currently zoned "R-4".
This is the required zoning for the development of the site to it's proposed
utilization as an assisted care facility and, accordingly, this use is
a legal, conforming, permissible use.
Possible Use
Inspection of the subject property's neighborhood has been made to determine
any physical limitations that might be present. The result of this inspection
has revealed the neighborhood is developed with mix of property types.
The zoning which is currently applicable to the subject property does
allow for an assisted care facility to be constructed on the site as well
as other types of multi-family construction. This zoning classification
will allow the property to be developed as proposed within this appraisal
report and this is considered the most highly probable use to which the
subject property could be put.
In the final analysis, the proposed utilization of the subject property
is considered to constitute one of it's Highest and Best Uses.
Robert M. McSherry, MAI
THE APPRAISAL PROCESS
The real estate appraisal profession typically utilizes three basic approaches
in the process of estimating the value of a parcel of real property.
These approaches include the Cost Approach, the Income Approach and the
Market Data Approach. The Cost Approach utilizes an estimate of reproduction
or replacement costs new of the building and other on-site improvements
to be contained within the subject property less accrued depreciation
from all sources including physical curable and incurable deterioration,
functional obsolescence and economic obsolescence to arrive at an estimate
of depreciated reproduction or replacement costs for the improvements.
The estimated value of the site, as if vacant, and determined by the
comparison of the subject site with other similar parcels in either the
immediate proximity of the subject or in other comparable areas is added
to the depreciated reproduction or replacement cost estimate of the
improvements to provide an indication of value of the property being
appraised from the Cost Approach.
The Cost Approach is generally accorded the greatest credence in instances
where the property being appraised is either a proposed property or a
new property having little or no accrued depreciation or instances where
the property being appraised represents a special purpose type property.
In these instances, the Cost Approach is an accurate indication of value
for the property and is accorded considerable credence in the reconciliation
process.
The Income Approach to Value utilizes an estimate of gross annual income
to be generated by the property being appraised as determined to be
representative of economic rentals for this type property within the area
less an allowance
Robert M. McSherry, MAI
considered typical for vacancy and collection losses to arrive at an
estimate of effective gross annual income which is to be generated by
the property. Expenses typically associated with the operation of this
type property in accordance with prevailing lease terms and conditions
in the area as well as data provided by analysis of the operating history
of other similar type properties are projected and deducted from the effective
gross annual income to arrive at an estimate of net operating income before
recapture attributable to the subject. This net operating income is then
capitalized by the most appropriate method available with respect to the
subject property in particular and the appraisal problem in general into
an indication of value for the property being appraised from the Income
Approach. Another method of utilizing the Income Approach is the Gross
Income Multiplier technique. This technique identifies the relationship
between the sales price (value) of a property and its gross annual income
earning potential. The Gross Income Multiplier is derived by dividing
the sales price of a property by its gross potential income and, thus,
is an excellent indicator of buyer, seller and investor attitudes toward
the property being analyzed. An effective gross income multiplier is
also excellent as it utilizes the actual gross income after vacancy to
derive the multiplier. use depends upon available data.
The Market Data or Direct Sales Comparison Approach utilize sales of
comparable improved properties in either the immediate proximity of the
subject or in other comparable areas to derive a unit of comparison.
Each of the various comparable sales are carefully reviewed and analyzed
by the appraiser, adjusted for any dissimilarities between the subject
property and the comparable sale in such areas as date of sale, location,
design, condition, and other physical characteristics to result in an
adjusted unit of comparison to be utilized in the
Robert M. McSherry, MAI
Market Data or Direct Sales Comparison Approach to provide an indication
of value for the property being appraised.
The reconciliation is the method whereby all data provided by the various
approaches utilized in the appraisal report are carefully analyzed and
accorded weight in varying degrees. The approach which is considered
to be the most representative of current buyer, seller and investor attitudes
towards the subject property is accorded the greatest credence in the
final analysis but all the approaches are interrelated and all data gathered
and utilized in the various approaches must be carefully analyzed in the
reconciliation process and to ignore any available data would be improper.
Robert M. McSherry, MAI
COST APPROACH TO VALUE
The Cost Approach to Value, like the Sales Comparison and Income Approaches,
is based on comparison. in the Cost Approach, the cost to construct a
building and the value of any existing building are compared. The Cost
Approach to Value reflects market thinking in the recognition that market
participants relate value to cost. Buyers tend to judge the value of
an existing structure by comparing it to the value of a newly constructed
building with optimal functional utility. Moreover, buyers adjust the
prices they are willing to buy by estimating the cost to bring an existing
structure to desired levels of functional utility.
Thus, by applying the Cost Approach, an appraiser attempts to estimate
the difference in worth to a buyer between the property being appraised
and a newly constructed building with optimal utility. An appraiser makes
a sound value estimate by estimating the cost to construct a reproduction
of or a replacement of the existing structure and then deducts all evidence
of accrued depreciation in the property being appraised from the cost
of the reproduction or replacement structure and the resulting figure,
plus the value of the land, plus any entrepreneurial profit provides a
value indication through the application of the Cost Approach.
The decision to utilize reproduction or replacement costs is most pertinent
and the selection plays and important part in contributing to the validity
of the Cost Approach. Replacement cost is defined in Real Estate Appraisal
Terminology as being, "the cost of construction at current prices of a
building having utility equivalent to the building being appraised but
built with modern materials and
Robert M. McSherry, MAI
according to the current standards, design and layout. The use of the
replacement cost concept presumably eliminates all functional obsolescence
and the only depreciation to be measured is physical deterioration and
economic obsolescence." The appraisers will utilize the replacement cost
method supported by Marshall Valuation Service in conjunction with the
construction cost estimate provided by knowledgeable contractors/engineers
or architects.
DEPRECIATION
All types of accrued depreciation affecting the subject improvements
were considered. Accrued depreciation is defined as, "the difference
between reproduction cost new as of the date of the appraisal and the
present contributory value of the improvements." Accrued depreciation
is divided into three basic categories: physical deterioration (which
includes curable and incurable), functional obsolescence (including curable
and incurable), and economic obsolescence (which is always incurable).
The following is a discussion of each type of depreciation and the
observed depreciation applicable to the subject property.
Physical Deterioration, Curable
This type of depreciation is defined as, "the loss in value from cost
new which can be recovered or offset through correction, repair, or
replacement of the defective items causing the loss, providing the
resultant value approximates the cost of the work." The property is
proposed thus no deferred maintenance is present.
Robert M. McSherry, MAI
Physical Deterioration, Incurable
This type of depreciation is defined as, "the loss from cost new which
is impossible to offset or which would involve an expenditure substantially
in excess of the value increase resulting therefrom." The property is
proposed and has an effective are of 0 years and a total economic life
of 30 years.
Functional Obsolescence
Functional obsolescence is defined as, "the loss from cost new as of
the date of the appraisal which is caused by a superadequacy, inadequacy,
unattractive style, poor or inefficient layout or design." Items causing
functional obsolescence can be either curable or incurable; it is curable
only when it is profitable to cure the item. Incurable, functional
obsolescence involves items of initiate which would not be economical to
correct because the value would not increase so much as the cost of
correction. Based on my inspection of the subject improvements, it is my
opinion that they are totally adequate and comparable to similar properties
in the same general price range, therefore, no loss of value from functional
obsolescence exists.
Economic Obsolescence
This type of depreciation is defined as, "the loss from cost new as of
the date of the appraisal due to causes external to the property boundaries."
To measure this type of obsolescence the appraiser capitalizes the rent
lost due to the external factor for the prorata share applicable to the
building. As indicated in the site date, there are no undesirable external
influences and, thus, there is no loss to the subject improvements due
to economic obsolescence.
Robert M. McSherry, MAI
Entrepreneurial Profit
For the Cost Approach to provide a sound indication of value, a market
derived entrepreneurial profit must be added to the direct and indirect
costs. The profit figure is typically expressed as a percentage of total
direct and indirect costs. Entrepreneurial profit is a necessary element
in the motivation to construct the improvements. However, part or all
of the profit may be lost as functional or external obsolescence if the
market indicates that the improvements have a Market Value less than the
current reproduction or replacement cost less physical deterioration.
The results of the investigation and analysis of this market data will
appear as follows:
Robert M. McSherry, MAI
COMPARABLE LAND SALE 1
Date of Sale: September 12, 1988
Location: Westside of Germantown Road south of
Country Club Drive, Minden, Webster
Parish, Louisiana
Brief Legal Description: Tract in located in the SW 1/4 of the NE
1/4 of the SE 1/4 of Section 15,
T19N-R9W, Webster Parish, Louisiana
Recordation Data: CB 704, Page 695, Webster Parish,
Louisiana
Grantor: R.D. Hinton
Grantee: Rose Hill Estates, Limited Partnership
Sales Price: $37,500.00
Terms of Sale: Cash
Cash Equivalency Price: $37,500.00
Site Size: 2.5 acres or 108,900 square feet
Indicated Price/Acre: $15,000.OO/Acre
Indicated Price/Sq. Ft.: $.34/Square Foot
Utilities: All available
Flood Zone: N/A
Zoning: "R-4"
Confirmation: Deed Records
Robert M. McSherry, MAI
COMPARABLE LAND SALE 2
Date of Sale: July 14, 1994
Location: Westside of Germantown Road south of
Country Club Drive, Minden, Webster
Parish, Louisiana
Brief Legal Description: Tract located on portions of Sections
14 and 15, T19N-R9W, Minden,
Webster Parish, Louisiana
Recordation Data: CB 804, Page 93, Webster Parish,
Louisiana
Grantor: Luther Moore and Donald Hinton
Trust
Grantee: Azalea Terrace Apartments, Limited
Partnership
Sales Price: $57,000.00
Terms of Sale: Cash
Cash Equivalency Price: $57,000.00
Site Size: 2.82 acres or 122,839 square feet
Indicated Price/Acre: $20,212.00/Acre
Indicated Price/Sq. Ft.: $.46/Square Foot
Utilities: All available
Flood Zone: N/A
Zoning: "B-4"
Confirmation: Deed Records
Robert M. McSherry, MAI
ANALYSIS OF COMPARABLE LAND SALES
The two vacant comparable land sales contained within this appraisal
report and utilized for analysis purposes are sales of two sites located
either adjacent to or directly to the south of the subject property.
Vacant Land Sale 1 was developed with a small multi-family complex and,
although somewhat dated, is considered to be reflective of attitudes in
the area. This property is somewhat smaller in size requiring a slight
upward adjustment but was similar in physical characteristics at the time
of sale requiring no adjustment for the physical characteristics or for
location.
Vacant Comparable Land Sale 2 is located south of and adjacent to the
subject property and again it is somewhat smaller requiring a slight upward
adjustment. This property has been developed with a housing complex for
the elderly which utilizes low interest financing which requires a certain
number of units to be rented to persons having less than the per capita
income in the parish and this complex is not considered truly competitive
with the subject property. Again, this property required substantial
site preparation prior to development, similar to the subject, and requires
no adjustment for physical characteristics or location.
Analysis of these two sales indicates an adjustment for the time differential
to be required. The analysis of these paired sales indicates an annual
increase in value of 5% and, accordingly, both of these sales have been
adjusted accordingly for the time differential between the date of this
appraisal report and the date of the comparable sales conveyance.
Robert M. McSherry, MAI
This appraiser conducted a thorough and in-depth review of vacant and
comparable land sales transactions in the Minden, Louisiana area. Although
a number of sales are found which have occurred in the immediate proximity
of Interstate 20, the location of these sales and the Highest and Best
Use are decidedly different than those for the subject site and were not
felt appropriate to this appraisal assignment.
The subject property was originally a 10 acre tract purchased in April
of 1998. However, the actual contract to purchase the property was executed
approximately seven (7) months prior to this date with additional costs
accumulated with respect to the purchase price of the site including a
real estate commission, legal work required for the rezoning of the subject
property as well as carrying costs of the money borrowed for the deposit
paid on the site during this holding period. In addition, of the total
10 acres, approximately six (6) to seven (7) acres are considered usable
land with the remaining acreage considered unusable without extensive
and cost prohibitive site preparation. However, this unusable portion
of the site can be used to provide fill for the primary site which will
be needed in the preparation of the primary site for the construction
of the improvements. Thus, the effective price paid for the subject property
based on usable acreage only is somewhat in excess of the $15,000.00 per
acre indicated by the deed when all the appropriate additional expenses
are added and only the usable land area is considered in the calculations.
It is also important to note that the 5.72 acre site has been taken from
what is considered the "heart" of the site and is the best land thus
indicating an additional adjustment.
Robert M. McSherry, MAI
In the final analysis, after each of the sales have been carefully analyzed
and adjusted for dissimilarities, it is our opinion that the available
market data indicates a market value of the subject property as if vacant
but prior to site preparation for construction of $25,000.00 per acre.
Therefore, the Estimated Value of the subject property, as if vacant,
is thus summarized:
5.72 acres @ $25,000.00/acre = $143,000.00
INDICATED VALUE OF SITE,
AS IF VACANT, BUT PRIOR TO
SITE PREPARATION (R/T) $140,000.00
Robert M. McSherry, MAI
VACANT LAND SALES ADJUSTMENT CHART
Sale Number Subject 1 2
Property Rights Appraised Leased Fee Leased Fee Leased Fee
Financing Terms Cash Equivalent Cash Equivalent Cash Equivalent
Condition of Sale Arms Length Arms Length Arms Length
Sale Date Current September 1, 1998 July, 1994
Size/Acres 5.72 2.50 2.82
Effective Price/Acre N/A $15,000.00 $20,212.00
Market Condition Current +50% +20%
Location -0- -0-
Size +10% +10%
Physical Characteristics -0- -0-
Adjusted Price/Acre $24,000.00 $26,275.00
Gross Income Multiplier 7.9 8.5
[COMPARABLE LAND SALES MAP INDICATING COMPARABLE LAND SALES LOCATIONS]
DISCUSSION OF COST APPROACH
In the construction of any project, the total cost of development can
be divided into basic categories: direct or hard cost, and indirect or
soft costs. As defined in Real Estate Appraisal Terminology, the definition
of Direct Costs is, "the cost of direct labor and materials devoted
specifically to a unit of work. In construction, these costs are directly
related to site acquisition and construction of the improvements..." Defined
in this same text, Indirect Cost is, "that cost in the development of a
property which would not be included in a general contract for construction
or for land acquisition..."
Direct costs include the cost of items such as land acquisition, construction
of the buildings, equipment and fixtures, the builder's profit and overhead,
any temporary buildings for on-the-job usage, power line installation,
and the electrical power used in the construction. As indicated in the
Cost Approach Schedule which follows, direct or hard costs have been broken
down into categories of building area, elevators and other primary building
costs.
Indirect, or soft costs, generally include fees, financing costs, and
overhead. As the Cost Approach Schedule indicates, the indirect costs
fall into 8 categories. The permits and fees sections include the estimated
costs of a building permit, an appraisal, a survey and accounting and
inspection charges. Architectural engineering estimates have been based
on typical market charges. The legal expenses includes work done on both
interim and permanent loan packages. The insurance costs indicated are
limited to construction-period coverage including the builder's risk.
Robert M. McSherry, MAI
The closing cost estimate includes costs of closing both the interim
and permanent loans. The interest expense is based on typical current
market conditions and covers the period of time required to complete the
construction of the project. The loan commitment fees are also based
on current typical market conditions.
The appraiser's have relied upon the Marshall Valuation Service, a publication
of Marshall & Swift, 1617 Beverly Boulevard, Post Office Box 26307, Los
Angeles, California, in estimating the replacement costs new of the subject
property improvements.
The Cost Approach to Value, as it applies to the property being appraised,
is as follows:
Robert M. McSherry, MAI
COST APPROACH TO VALUE
Cost Source: Marshall-Swift Cost Manual and
Actual Costs Provided by Fred Bayles
Direct Costs:
Primary Structure
22,217 sq. ft. @ $59.70/sq. ft. $1,326,354.00
Total Direct Costs: Improvements $1,326,354.00
Indirect Costs:
Plans, Specifications, Inspection Included in Direct Costs
Contractor's Overhead/Profit $170,000.00
Interim Interest $ 65,250.00
Legal, Audit, Appraisal $ 60,400.00
Financing Fees - Construction $ 30,000.00
Misc. Expenses $ 50,000.00
Financing Fees - Long Term $162,500.00
Total Indirect Costs $ 538,150.00
Total Replacement Costs New: Improvements $1,864,504.00
Less:Accrued Depreciation
Physical Curable -0-
Physical Incurable -0-
Functional Obsolescence -0-
Economic Obsolescence -0-
Total Accrued Depreciation -0-
Depreciated Replacement Costs: Improvements $1,864,504.00
Add: Land Value
5.57 acres @ $25,000.00/acre $ 140,000.00
Add: Site Preparation $ 60,000.00
Add: Furniture, Fixtures and Equipment $ 75,000.00
Add: Parking, Walks, Landscaping, Porches $ 25,000.00
Robert M. McSherry, MAI
Add: Entrepreneurial Profit @ 5% $ 93,200.00
Total All Costs and Value Components $2,257,704.00
INDICATED VALUE OF SUBJECT FROM
COST APPROACH (R/T) $2,255,000.00
Note: Cost of Furniture, Fixture and Equipment based on costs association
with actual costs experienced by Southside Garden Assisted Care
Facility and Arbor House of West Monroe, Louisiana.
Robert M. McSherry, MAI
MARKET DATA APPROACH TO VALUE
Market data is discussed in all the approaches to value. Data analysis
is needed in the Cost Approach to develop a land value indication and
to support costs and depreciation indicators; in the Income Approach to
establish rent levels, vacancy indications, expenses, and capitalization
rates; and in the Direct Sales Comparison Approach to establish comparability.
The appraiser has carefully perused the Louisiana market with respect
to sales of properties considered similar to the subject property and
none were found. However, available data from other appraisers has revealed
the sale of three similar type properties in other areas of the United
States and these are included merely for analysis purposes as follows:
Robert M. McSherry, MAI
IMPROVED PROPERTY SALE 1
VENDOR: American Retirement, Inc.
VENDOR: Horizon Retirement, Inc.
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: February, 1993
CONSIDERATION: $6,480,000.00
TERMS: $2,224,000.00 cash, assumption of a
mortgage balance of $4,316,000.00.
terms are considered to be cash
equivalent.
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: $1,706,255.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $751,844.00
UNIT INDICATORS: SP/Unit = $58,909.00
SP/SF = $ 67.46
SP/GI = 3.80 GIM
NOI/SP = 0.1160 OAR
Robert M. McSherry, MAI
IMPROVED PROPERTY SALE 2
VENDOR: American Retirement, Inc.
VENDOR: Emeritus Corporation
LOCATION: 2601 Chimney Rock Road,
Hendersonville, North Carolina
RECORDATION: N/A
DATE: September, 1995
CONSIDERATION: $9,483,523.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 110 unit senior living
community constructed in 1988. The
units are housed in a three-story
building of wood frame construction.
Construction quality is considered to be
average; condition at the time of sale
was good. The gross building area is
approximately 96,058 square feet with
an average unit size of 873 square feet.
ESTIMATED GROSS INCOME: Approximately $2,175,000.00
ESTIMATED EXPENSE RATIO: Approximately 56 percent
NET OPERATING INCOME: Approximately $957,000.00
UNIT INDICATORS: SP/Unit = $86,214.00
SP/SF = $ 98.73
SP/GI = 4.36 GIM
NOI/SP = 0.1009 OAR
Robert M. McSherry, MAI
IMPROVED PROPERTY SALE 3
VENDOR: ABD Investments, Inc.
VENDOR: Merrill Associates, LP
LOCATION: 6725 Inglewood Avenue, Stockton,
California
RECORDATION: N/A
DATE: July, 1994
CONSIDERATION: $4,200,000.00
TERMS: Cash
SITE SIZE: N/A
IMPROVEMENTS: This is a 74 unit senior living community
constructed in 1989. The units are
housed in two-story buildings of wood
frame construction. Construction quality
is considered to be average; condition
at the time of sale was good. The gross
building area is approximately 63,730
square feet with an average unit size of
861 square feet.
ESTIMATED GROSS INCOME: Approximately $1,395,000.00
ESTIMATED EXPENSE RATIO: Approximately 70 percent
NET OPERATING INCOME: Approximately $418,500.00
UNIT INDICATORS: SP/Unit = $56,757.00
SP/SF = $ 65.90
SP/GI = 3.01 GIM
NOI/SP = 0.0996 OAR
Robert M. McSherry, MAI
[Improved Property Sales 1 & 2 Map Indicating the Suject Property]
[Improved Property Sale 3 Map Indicating the Subject Property]
SUMMARY
Sale One Sale Two Sale Three
Indicated OAR 11.6% 10.09% 9.96%
Price/Unit $58,909.00 $86,214.00 $56,757.00
Gross Income Multiplier 3.80 4.36 3.01
Estimated Expense Ratio 56% 56% 70%
The three Improved Property Sales included within this report have been
provided this appraiser by knowledgeable sources and other appraisers
and are deemed accurate as they were verified by knowledgeable and ethical
persons. The appraiser has conducted an in-depth review of conveyances
of similar type assisted living or congregate care facilities in the State
of Louisiana and none were found which were considered to be reflective
of true arms-length transactions between willing buyers and willing sellers
with no undue duress being experienced. These three Improved Property
Sales have been included for the purpose of deriving an indicated Overall
Capitalization Rate, an indicated price per unit and an indicated Gross
Income Multiplier for utilization in the analysis process with respect
primarily to the Income Approach to Value. The level of services provided
by these facilities are similar to those to be provided by the subject
property which would include three (3) meals per day, utilities, maid
service one (1) day a week, flat linen service one (1) day a week, various
assistance with respect to bathing, exercise, and transportation to various
off-site functions as well as on-site recreational functions, counseling,
with other services provided on a more extensive basis for additional
expense paid by the guest or resident of the facility. It is acknowledged
that a large number of the residents residing in the assisted care facilities
are requiring increased levels of
Robert M. McSherry, MAI
care and these additional expenses are being passed directly to the tenant
as they upset the economies of an assisted care facility having to provide
this extraordinary level of care without additional remuneration.
The price per unit indicated by Improved Property Sale 2 is considered
the best available and has been accorded the greatest credence. Accordingly:
25 Units @ $86,000.00/Unit $2,150,000.00
INDICATED VALUE OF SUBJECT FROM
THE MARKET DATA OR DIRECT SALES
COMPARISON APPROACH (R/T) $2,150,000.00
Robert M. McSherry, MAI
INCOME APPROACH TO VALUE
Introduction
The Income Approach reflects the subject's income-producing capabilities
and requires an analysis of the project's probable market rent. In the
comparative analysis, we have considered factors that would probably influence
market acceptance of properties in the area. The factors include proximity
to major traffic arteries; location; design; amenities; and the quality
of management.
To develop a supportable estimate of value using the Income Capitalization
Approach, realistic projections of income and expenses must be made.
congregate care facilities are unique forms of real estate with many unusual
characteristics, such as an intensive use of labor, costs of goods sold,
expenses categories, and product identity. Therefore, special care in data
gathering and analysis are required to create an estimate of the future
income for the subject. The appraiser will utilize data provided by the
publication, Trends in the Health Care lndustry for supporting data.
The subject property is proposed at the present time and, therefore,
has no historical income and expense data associated with the property.
The subject will contain 21 assisted care units and 4 efficiency assisted
care units all located in a single T-shaped building which will also contain
a resident manager's apartment and common areas for the operation of the
facility. The services provided the assisted living units include all
utilities, maid service, three meals a day, transportation, activities
with additional laundry and maid service available at additional expense.
Normal day to day medical treatments are also
Robert M. McSherry, MAI
available for the various tenants with any extraordinary medical expense
passed directly to the tenant.
This appraiser has had the opportunity to appraise a number of assisted
care facilities in both Louisiana and Mississippi over the last several
years and has relied on data provided by these facilities, various industry
publications and data provided by various health care consulting groups
and experts in arriving at the estimated monthly rental rates and expenses
including fixed expenses, operating expenses, staffing, dietary, reserves
and other appropriate expenses.
This appraiser has conducted rental surveys of a number of assisted care,
private pay facilities located in the Baton Rouge, Louisiana area as well
as a single facility located in West Monroe, Louisiana in order to arrive
at an estimated economic rental rate for the subject property based on
the level of services provided. The assisted care market is still a
relatively new market and the majority of the facilities have been
constructed in larger metropolitan areas such as Baton Rouge. The rental
rates commanded in these larger areas are above those which can be commanded
in smaller or more rural communities in North Louisiana and appropriate
adjustments have been made. The most comparable property is the Arbor House
of West Monroe, which was completed in December of 1997 and has experienced
stabilized occupancy with respect to the assisted care units within a six (6)
month period. These units lease for $1,725.00 per month for the basic rate
with expenses including utilities, three (3) meals a day, maid service
once a week, laundry service once a week, assistance in bathing,
transportation to shopping, church and other functions as well as in-house
recreational activities.
Robert M. McSherry, MAI
This appraiser has also recently completed an appraisal of a 33 unit
assisted care facility located in Baton Rouge, Louisiana which is very
typical with respect to the subject property. However, the monthly rate
provided by this facility is slightly higher than those in rural areas
with the base monthly rate being $1,850.00 per month. The same services
are provided including utilities, three (3) meals per day, assistance
with daily living activities including bathing, grooming, weekly bed linen
and towel service, weekly house keeping, transportation to medical and
dental appointments, worship service, planned activities as well as other
assistance required.
Based on this appraiser's personal inspection of these two facilities
and adjustment, it is our opinion that a $1,775.00 per month with services
including electricity, three (3) meals per day, maid service, transportation,
activities, assistance in the normal living activities as well as normal
day to day medical treatment being provided.
The actual income and expense data of various facilities is closely held
information and these individuals have requested confidentiality with
respect to this actual data. Accordingly, this data has been retained
in our various files.
The results of our survey and analysis indicates an economic rental rate
for the assisted care units, based on the herein listed services being
provided, of $1,775.00 per month and $1,100.00 per month for the efficiency
units with the rates remaining stable over the two year projection period.
The projected rate includes the herein listed services being provided.
Robert M. McSherry, MAI
Inflation will impact expense projections as well as increased occupancy
and these anticipated increases have also been utilized in the Income
Approach to Value.
In order to accurately project appropriate expenses for the subject property,
the appraiser has reviewed the current publication Trends On the Health
Care Industry with respect to historical operating expenses for assisted
care facilities. In addition, this appraiser has been provided itemized
comparable expense data with respect to three separate properties located
in the State of Louisiana but, due to confidentiality requirements, the
names of these properties are retained in the appraiser's file at the
request of the property owners. However, the following summary chart
is included for the benefit of the reader of this appraisal report and
it also provides support for the expense projections for the subject property.
The Income Approach to Value as it applies to the property being appraised
based on economic rental rates herein quoted and utilizing a two year
period in order to achieve a stabilized net occupancy and thus a stabilized
net operating income is reproduced as follows:
Robert M. McSherry, MAI
ITEMIZED COMPARABLE EXPENSE DATA
Property 1 Property 2 Property 3
Administrative $249,610.00 $417,960.00 $461,530.00
Dietary $186,938.00 $251,184.00 $204,983.00
Maintenance $156,914.00 $275,424.00 $193,530.00
Housekeeping/Janitorial $ 51,340.00 $ 55,512.00 $ 52,322.00
Taxes/Insurance $ 82,000.00 $110,560.00 $ 66,738.00
Utilities $ 91,328.00 $ 24,360.00 $ 65,678.00
Nursing/Other -0- $ 9,458.00 $ 10,664.00
Per Unit Expenses $ 9,522.00 $ 9,458.00 $ 10,664.00
Robert M. McSherry, MAI
INCOME APPROACH TO VALUE
Year One
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,775.00/month $ 447,300.00
4 - Efficiency Units @ $1,100.00/month $ 52,800.00
Total Gross Annual Potential Income $ 500,100.00
Less:Vacancy and Collection Losses
Assisted Living Units (25%) $ 111,825.00
Total Vacancy and Collection Loss $ 111,825.00
Effective Gross Annual Potential Income $ 388,275.00
Expenses:
Administrative $53,500.00
Plant Operations $37,400.00
Dietary $45,625.00
Housekeeping $12,500.00
Aides $41,000.00
Activities $15,000.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 212,525.00
Net Operating Income $ 175,750.00
Note: Management fee included in Administrative Expense.
Robert M. McSherry, MAI
INCOME APPROACH TO VALUE
Year Two
Gross Annual Potential Income:
21 - Assisted Living Units @ $1,775.00/month $ 447,300.00
4 - Efficiency Units @ $1,100.00/month $ 52,800.00
Total Gross Annual Potential Income $ 500,100.00
Less:Vacancy and Collection Losses
Assisted Living Units (10%) $ 44,730.00
Total Vacancy and Collection Loss $ 44,730.00
Effective Gross Annual Potential Income $ 455,370.00
Expenses:
Administrative $53,500.00
Plant Operations $44,550.00
Dietary $54,200.00
Housekeeping $13,750.00
Aides $45,100.00
Activities $16,500.00
Reserves for Replacement $ 7,500.00
Total Expenses $ 235,100.00
Net Operating Income $ 220,270.00
Note: Management Fee included in Administrative Expense.
Robert M. McSherry, MAI
JUSTIFICATION OF CAPITALIZATION RATE
Direct Capitalization is a method used to convert a single year's income
estimate into a value indication in the Income Capitalization Approach.
The direct capitalization formula using an overall property capitalization
rate is:
Value / Net Operating Income = Overall Capitalization Rate
In this appraisal, the appraisers will employ two different methods to obtain
an overall capitalization rate:
1) Band of Investment - mortgage and equity components
2) Underwriter's Method (derivation from debt coverage ratio)
Band of Investment
The appraisers contacted local lenders regarding rates and terms of alternate
investments as well as current market rates applicable for this market.
Annual Constant - In developing the mortgage components for the Band
of Investment Method, the appraisers reviewed the National Mortgage Commitment
Survey conducted by the Appraisal Institute Research Department which
surveyed sample lenders in various geographical regions throughout the
United States. The data quoted is based on national averages and do not
reflect conditions inherent in all markets. Therefore, the appraisers
contacted local lenders regarding rates and terms applicable for this
market area. Lenders in the local market are quoting rates at prime plus
1%, terms of 20 years. 75% and a loan-to-value ratio. The local market
closely approximates the national averages for the subject property type.
Robert M. McSherry, MAI
The appraisers reviewed available data concerning current national and
local quoted mortgage rates and talked to various lenders in the Louisiana
area which confirm that market rates and terms for loans of the quality
of the subject property are available at 9% interest rate with monthly
payments amortized for a 20 year term, a 75% loan-to-value ratio. Therefore,
the mortgage constant is derived to be .1079671.
Equity Dividend - Current rates of return available from alternative
investment vehicles are reviewed. These alternative investments are more
liquid than an investment in real estate- therefore any potential investor
would expect a higher rate of return. Based on this, we have been able
to conclude that a 9% equity dividend rate is required to attract investment
capital to the subject property's type which is considered to be slightly
more risky than other types of real estate investments.
In order to ascertain the appropriate equity dividend or "cash-on-cash"
rate, the appraiser has reviewed money rates for other alternate investments
as of September 8, 1998. The results of this analysis of comparable and
alternative money rates are as follows:
Certificates of Deposit 30 Day 4.68%
90 Day 4.96%
180 Day 5.04%
Treasury Bill Rates 3 Months 4.79%
6 Months 4.79%
52 Weeks 5.00%
30 Year Treasury Bond Rate 5.36%
Merrill-Lynch Ready Assets 30 Day 5.03% (Average Yield)
Robert M. McSherry, MAI
As can be reflected by the above alternate investment vehicles. Current
rates for both short and long term yields is between the high 4.00% to
the low 5.00% range. The projected 9.00% equity yield or "cash-on-cash"
return projected for the subject property provides an excellent return
on the investor's cash, approximately 3.00% in excess of other alternate
investment vehicles. Accordingly, the 9.00% equity dividend rate is
considered appropriate when the overall risk and competitive rates are
considered.
Derivation of Capitalization Rate - The band of investment (or weighted
average) formula for deriving an overall rate when the mortgage constant and
equity dividend rates is known as:
Mortgage Percent x Mortgage Constant
Plus
Equity Percent x Equity Dividend Rate
Equals
Overall Capitalization Rate
.75 x . 1079671 = .0809
.25 x .09 = .0225
Total = .10340
Rounded to .103
Underwriter's Method
In making loan decisions, institutional lenders use a debt coverage ratio
(DCR), which is the ratio of net operating income to annual debt service.
This measure of constraint is frequently used by institutional lenders,
who are general fiduciaries. They manage and lend the money of others,
including depositors and policy holders. Because of the fiduciary
responsibility, institutional lenders
Robert M. McSherry, MAI
are particularly sensitive to the safety and profit and are anxious to
avoid default and possible foreclosure. Consequently, when they underwrite
income property loans, institutional lenders try to provide a cushion
so that the borrower will be able to meet the debt service obligations
on the loan even if the building income declines.
The debt coverage ratio may also be used to estimate the overall
capitalization rate by multiplying the ratio by the mortgage loan constant
(RM) and the loan-to-value ratio (M). The debt coverage ratio, mortgage loan
constant, and loan-to-value ratio have already been determined to be 1.20,
.1079671 and .75, respectfully. The formula for derivation of an overall
capitalization rate from debt coverage ratio is as follows:
RO = DCR x RM x M
RO = 1.20 X .1079671 X.75
RO = .0971
R/T = .097
Review of the three (3) improved property sales contained within this
report have indicated an Overall Capitalization Rate from a low of 9.96%
to a high of 11.6%. These indicated Overall Capitalization Rates which
have been derived from available market data indicates the rate chosen
for the capitalization of the net income into an indication of value based
upon stabilized income of 10.5% is reflective of current industry attitudes
and is considered appropriate with respect to this particular appraisal
assignment.
Robert M. McSherry, MAI
Conclusion
Based on the available information we have concluded that a 10.5% is
the most appropriate capitalization rate which is derived from the actual
band of investments method and supported by the Underwriter's Method and
available market data. The location of the subject has also been considered.
Thus:
NET OPERATING INCOME
-------------------- = VALUE
OVERALL CAPITALIZATION RATE
$220,270.00
-------------------- = $2,097,809.00
.105
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH (R/T) $2,100,000.00
Robert M. McSherry, MAI
DISCOUNTED CASH FLOW ANALYSIS
The subject property will require a period in excess of one year to achieve
stabilized net income. In order to provide an estimate of the present
value of the improvements upon completion but prior to achieving stabilized
net operating income, the discounting process is utilized.
The income stream generated by the subject until stabilized income is
reached is discounted into an estimate of present value and the reversionary
value of the improvements as estimated upon achieving a stabilized net
income is also discounted to present worth. The market indicates a discount
rate of 11% to be appropriate to be utilized in discounting the income
and reversion and this is based on current rates of return on alternate
investments and the risk associated with the subject.
Robert M. McSherry, MAI
Present Worth of Income Stream
Year One: $175,750.00 x .900901 = $ 158,333.00
Year Two: $220,270.00 x .811622 = $ 178,775.00
Total Present Value of Income Stream $ 337,108.00
Present Worth of Reversion
$2,100,000.00 x .811622 $1,704,406.00
Summation:
Present Worth of Income Stream $ 337,108.00
Present Worth/Reversion $1,704,406.00
Total $2,041,514.00
INDICATED VALUE OF SUBJECT FROM
INCOME APPROACH/DISCOUNTED
CASH FLOW $2,040,000.00
Robert M. McSherry, MAI
RECONCILIATION AND FINAL VALUE
The three approaches to value have indicated the following value estimates
of the property being appraised:
COST APPROACH TO VALUE $2,255,000.00
MARKET APPROACH TO VALUE $2,150,000.00
INCOME APPROACH TO VALUE
OVERALL CAPITALIZATION RATE $2,100,000.00
DISCOUNTED CASH FLOW
ANALYSIS $2,040,000.00
The subject property is proposed construction and only preliminary plans
and specifications have been provided this appraiser in order to complete
the Cost Approach to Value. Costs are extremely difficult to estimate
and no two competent contractors will ever agree on the actual cost to
construct a property. However, this appraiser has utilized reliable sources
including the Marshall Valuation Service Cost Manual as well as actual
construction costs affecting a similar type property in order to complete
the Cost Approach to Value and this approach is considered reflective
of the cost new of the subject property.
The subject property is considered an income producing and has been valued
based on it being a Going Concern. The property is under competent ownership
and will have excellent management in place and the utilization of the
Going Concern concept is considered appropriate with respect to this particular
appraisal problem. Accordingly, the Indicated Value of the Property based
on stabilized net income being generated at the end of the second year
is
Robert M. McSherry, MAI
considered the best available indicator of it's current Market Value
and has been accorded the greatest credence in the final analysis.
Based on the data contained within this report, other in-file data, and
this appraiser's review and analysis of said data, it is our opinion that
the proposed property identified as the 21 Unit Assisted Care and 4 Unit
Efficiency Assisted Care Facility all located on Germantown Road within
the corporate limits of Minden, Webster Parish, Louisiana was estimated
to have a Market Value, as of September 8, 1998, but subject to completion
according to plans and specifications utilizing quality materials and
workmanship throughout and also subject to the other conditions contained
within this report, and based upon Stabilized Net Operating Income, of:
TWO MILLION ONE HUNDRED THOUSAND DOLLARS
($2,100,000.00)
Allocated:
Land $ 140,000.00
Improvements: $1,885,000.00
Furniture, Fixtures and Equipment $ 75,000.00
Goodwill of Going Concern -0-
The estimated "as is" value is estimated to be, as of September 8, 1998
and subject to completion within a reasonable period of time, is:
TWO MILLION FORTY THOUSAND DOLLARS
($2,040,000.00)
Robert M. McSherry, MAI
ADDENDA
Robert M. McSherry, MAI
APPRAISER'S CERTIFICATION
I certify that, to the best of my knowledge and belief....
(1) The statements of fact contained in this report are true and correct.
(2) The reported analyses, opinions, and conclusions are limited only
by the report assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinion and conclusions.
(3) I have no present or prospective interest in the property that is
the subject of this report, and I have no personal interest or bias with
respect to the parties involved.
(4) My compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event.
(5) My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
(6) I have made a personal inspection of the property that is the subject
of this report and all rent comparables.
(7) No one provided significant professional assistance to the person
signing this report.
(8) The reported analyses, opinions, and conclusions were developed,
and this report has been prepared, in conformity with the requirements
of the Code of Professional Ethics and the Standards of Professional
Practice of the American Institute of Real Estate Appraisers.
(9) The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
(10) I am not currently certified under the voluntary continuing education
program of the American Institute of Real Estate Appraisers.
Robert M. McSherry, MAI
(11) I certify that the use of this report is subject to the, requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
Estimated Market Value: /S/ROBERT M MCSHERRY
$2,100,000.00 ----------------------------
Robert M. McSherry, MAI
LA State Certified General Real Estate
Appraiser No. G0891
Allocated:
Land $ 140,000.00
Improvements $1,885,000.00
Furniture, Fixtures and
Equipment $ 75,000.00
Goodwill of Going
Concern -0-
As Of: September 8, 1998
Robert M. McSherry, MAI
QUALIFICATIONS OF ROBERT M. MC SHERRY, MAI
EDUCATIONAL BACKGROUND AND TRAINING:
Graduate of Louisiana State University, Baton Rouge, Louisiana, Bachelor
of Science Degree in Business Administration with a Major in Finance.
Real Estate Appraisal Course 1-A, Basic Fundamentals, Methods and
Techniques, 1974, AIREA
Real Estate Appraisal Course 1-B, Capitalization, 1975, AIREA
Real Estate Appraisal Course VIII, Single-Family Residential Appraisal,
1974, AIREA
Real Estate Appraisal Course II, Techniques and Application, 1976 and
1980, AIREA
Real Estate Appraisal Course III, Rural Properties, 1979
Real Estate Appraisal "Industrial Valuation" Course, 1984
Seminar: R-41C - New Orleans, Louisiana, AIREA, 1978
"Standards of Professional Practice" Course, AIREA, 1987
"Capitalization Theory and Techniques, Part A" Course, AIREA, 1987
"Standards of Professional Practice" Course, Appraisal Institute, 1992
"Advanced Level Finance I & II", 1997
"Risk Management/Ethics/Fair Housing", 1997
"How to Value Louisiana Timberland", 1997
"Uniform Standards of Professional Appraisal Practice" Seminar, 1997
PROFESSIONAL EXPERIENCE
Real Estate Broker, State of Louisiana (1971)
Monroe Redevelopment Agency, Monroe, Louisiana (1971)
Robert M. McSherry, MAI
Ford, Bacon & Drive Construction and Engineering Company, Monroe,
Louisiana (1972)
Mississippi power and Light Company, Jackson, Mississippi (1973-1976)
Cameron-Brown South, Inc., Mortgage Bankers, Baton Rouge, Louisiana
(1976-1977)
Real Estate Appraiser, Monroe, Louisiana (1978-1985)
Real Estate Appraiser, Baton Rouge, Louisiana and Jackson, Mississippi
(1985-Present)
PROFESSIONAL MEMBERSHIPS:
Residential Member, American Institute of Real Estate Appraisers,
Certification Number 1040
Licensed Real Estate Broker, State of Louisiana
Fee Inspector for the Louisiana Homeowners Warranty Corporation
FNMA Approved Level III Appraiser, Number 1027135
Member, American Institute of Real Estate Appraisers - MAI Designation
(1981), Number 6291
Certified Licensed General Appraiser, State of Louisiana, Number 0891
Robert M. McSherry, MAI
PHOTOGRAPHS
Robert M. McSherry, MAI
[PHOTO OF SUBJECT PROPERTY]
[PHOTO OF SUBJECT PROPERTY]
Robert M. McSherry, MAI
[PHOTO OF SUBJECT PROPERTY]
Robert M. McSherry, MAI
[PHOTO OF SUBJECT PROPERTY LOOKING NORTH DOWN GERMANTOWN ROAD]
[PHOTO OF SUBJECT PROPERTY LOOKING SOUTHWEST DOWN GERMANTOWN ROAD]
Robert M. McSherry, MAI
[Letter of Engagement and Appraisal Ckeck List]
[FIRST REPUBLIC BANK'S LOGO HERE]
Date: September 8, 1998
Appraiser's Name: Robert M. McSherry, MAI
Address: 3760 Chelsea Drive
Baton Rouge, LA 70809
Re: Proposed Assisted Living Facility (26 Units)
TBA Germantown Road
Minden, LA
Access/Information Contact: Mr. Fred Bales
Report Due Date: On or before Septernber 15, 1998
Dear Mr, McSherry:
This letter is to confirm your engagement by First Rcpublic Bank, to
perforrn a "complete appraisal" (self-contained report), of the above
referenced real property within the agreed upon time frame and for the
agreed upon fee. Please ensure that your appraisal report is addressed to
First Republic Bank.
The purpose of the appraisal is to estimate the market value. The
property interest to be appraised is the fee simple interest, unless
the subject is encumbered by a legally bindinig lease. If this is the
case, then the leased fee interest should also be appraised,
In order to be acceptable to First Republic Bank, your appraisal report
must comply with the following:
FIRREA STANDARDS
1. Conform to generally accepted appraisal standards as evidenced by the
Uniform Standards of Professional Appraisal Practice (USPAP).
2. Be written and contain sufficient information and analysis to support
the bank;s decision to engage in the loan transaction.
3. Analyze and report appropriate deductions and discounts for proposed
construction or renovations, partailly leased buildings, non-market
lease terms and tract developments with unsold units.
4. Be performed by sate licensed or state certified appraiser(s).
5. Be based upon the definition of market value and this definition will
be included in your report.
[FIRST REPUBLIC BANK LOGO HERE]
Mr. Robert McSherry, MAI
September 8. 1998
RE: Proposed Assisted Living facility
Germantown Road
Minden, LA
Page 2
Market Value is defined by the United States Treasury Dep@ent, Comptroller
of the Currency, as:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer
and seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition
is the consummation of a sale as of a specified date and the passing
of title from seller to burner under conditions whereby:
1. Buver and seller are typically motivated.
2. Both parties are well informed or well advised, and acting in what
they consider their best interests.
3. A reasonable time is allowed for exposure in the open market.
4. Payment is made in terms of cash, in United States dollars or in
terms of financial arrangements comparable thereto.
5. The price represents the normal consideration for the property
sold unaffected bv special or creative financing or sales
concessions granted anyone associated with the sale.
First Republic Bank Appraisal Standards
1. All value estimates will be reported based on the "as is" physical
condition of the real estate. Exceptions to this standard are allowed
on appraisals for construction loans, renovation loans and development
loans. In these instances, the value is reported ander the assumption
that all proposed improvements are completed and available for sale, rent
or use on the date of the appraisal; absorplion period and any and all
holding costs must also be taken into consideration for the "as is" value.
2. All appraisals of owner-occupied properties will reflect the value
of the property, assuming that the owner-occupied space is vacant and
available for absorption. If it is partially owner-occupied, the portion
occupied by the owner should be considered vacant for appraisal purposes
and all appropriate deductions for leasing commissions, tenant
improvement, rent loss, capital costs, etc. must be incorporated into
your Income Approach, if the Income Approach is applicable to your
appraisal.
3. All assumptions in the appraisal will bc reasonable.
4. The appraisal report will contain a certification stating that the
appraiser engaged by the bank inspected the suject property and all
comparable data.
5. The appraisal report will contain a statement regarding investigation
and observation of environmental hazards.
6. All information sources will be disclosed in the appraisal report.
7. The appraisal report will contain a disclosure of any previous appraisals
or real estate related financial transactions by the appraiser associated
with the subject property.
Mr. Robert M. McSherry, MAI
September 8, 1998
RE: Proposed Assisted Living Facility
Germantown Road
Minden, LA
Page 3
First Republic Bank Appraisal Standards (con't)
8. A copy of the legal description (as per deed) will be included in the
appraisal report.
9. All appraisal Rrports will cortain location maps of comparable data
and the subject property.
10. A copy of the site survey will be included in the appraisal report,
if available.
11. A copy of the subject's flood map will be included in the appraisal
report.
12. Current tax information on the subject property will be included
in the appraisal report (excludirg single-family residences). If the
improvements are proposed, the tax burden upon completion should be
estimated.
13. Sufficient description of existing (or proposed) improvements and
adequate photographs of the subject property will be included.
14. Copies of operating statements, rent rolls and lease summaries will
be included in all appraisals of exsting income producing properties.
If proposed, includes pro-formas of anticipated performance.
15. Detailed information on comparable sales and rentals is required.
16. All adjustments to comparable sales and rentals will be discussed.
17. Capitalization and discount rates will be adequately supported.
18. A discounted cash flow analysis (DCF) will be included in each
appraisal report of a multiple tenant, income producing property less
adequate explanation is given for its omission. A DCF will be included
in appraisals of leasehold and leased fee valuations. All assumptions
and projections used in DCF's will be clearlv stated and adequately
supported.
19. Residential properties (1-4 units) require a complete appraisal,
summary report (URAR or appropriate form), or a complete appraisal,
narrative self-contained report.
20. Non-residential properties require a complete appraisal, self-contained
report,
21. A signed copy of the appraiser engagement letter, including the
appraisil checklist (completed), will be included in the appraisal
report
22. Three (3) signed original appraisal reports are required.
Mr. Robert M. McSherry, MAI
September 8, 1998
RE: Proposed Assisted Living Facility
Germantown Road
Minden, LA
Page 4
The following items are enclosed with this letter:
Appraiser to obtain all other necessary information from contact
Please notify me immediately of any problems in obtaining access or necessary
information that mav delay completion of the report by the agreed upon
date.
Sincerely,
FIRST REPUBLIC BANK
/S/DAVID M KNIGHT
David M. Knight, MAI
Vice President
Credit Administration
Enclosures
Your appraisal report will be owned by First Republic Bank, which is
entitled to retain the report, photocopy the report, and disclose all
or any portion, of the report information therein to any third party
within First Republic Bank as deemed appropriate.
The above stated conditions are hereby acknowledged and accepted. I
also understand that First Republic Bank is the client in this appraisal
assignment and any matters relating to value estimates will not be divulged
to any third party without the written approval of First Republic Bank.
In addition, any information furnished by First Rcpublic Bank which is
not considered to be public record, including but not limited to, financial
statements, operating statements, income statements, cost estimates.
construction contracts and property leases may not be divulged to any third
party without the witten approval of First Republic Bank.
APPRAISER'S SIGNATURE: /S/ROBERT M MCSHERRY
--------------------------
DATE: 9/8/98
--------------------------
Mr. Robert McSherry, MAI
September 8, 1999
RE: Proposed Assisted Living Facility
Germantown Road
Minden, LA
Page 5
APPRAISAL CHECKLIST
Please review each item on this checklist and note the page number where
the information can be located within the report when possible. If the
question is not applicable to the subject property type being appraised,
please answer with N/A (Statements in Italic - not applicable to residential
form reports)
Page No.
X Definition of Market Value
- -------
X Statement of compliance with USPAP and also indicate that the
- ------- Departure Provision does not apply
X Legal description of subject property as per deed
- -------
X Prior sales history of subject preceding the date of the appraisal
- ------- (1 year for 1-4 famiiv residential properties, and 3 years for all
other property types)
X Approoriate, deductions and discounts are analyzed and reported for
- ------- any proposed construction, or any completed properties that are
panially leased or leased at other than market rents as of the date
of the appraisal, or any tract developments with unsold units
X Subject location map
- -------
X Site Survey and/or Subdivision plat Copy of subject Flood Zone Map
- -------
X Statement regarding investigation of enviromental hazards
- -------
X Current Tax information on subject/Past due taxes/Tax estimate if
- ------- actual is different from market
X Detailed information and photograph(s) on comparable sales & rentals
- ------- (address, lot & square, recordation information, vendor & vendee,
lessor & lessee [if partnership/corporation list names of principals],
site description, sales data, sales price, and listed days an market
prior to sale),
X Specific land and improved sales adjustments are discussed - a
- ------- matched pairs analysis is the preferred method to estimate the amount
of adjustments in the Sales Comparison Approach
X Land sales adjustment grid included
- -------
X Comparable land sales location map
- -------
X Comparable improved sales location map
- -------
X Comparable rental location map
- -------
X Capitalization rate is derived from, or supported by, comparable sales
- ------- data or other market derived data
X Discounted Cash Flow analysis is presented, or reason for its
- ------- exclusion is discussed
X Letter of transmittal identifies First Republic Bank as the client
- ------- 3 original, signed appraisal reports are provided to First Republic
Bank
X An Original engagement letter is signed and included as an addendum
- ------- to the appraisal report
X Copy of this checklist is completed and included as an addendum to
- ------- the appraisal report
X A certification statement that you personally inspected the subject
- ------- property and all comparable is included in the report
X Report was completed within specified time - or any extension beyond
- ------- the required time frame was explained in the report, and approved by
First Republic Bank
Flood Map
[FLOOD MAP INDICATING THE SUBJECT PROPERTY]
Plat of Subject Site
[PLAT OF SUBJECT SITE]
Rent Comparable One Location Map
[MAP INDICATING LOCATION OF RENT COMPARABLE 1]
Rent Comparable Two Location Map
[MAP INDICATING LOCATION OF RENT COMPARABLE 2]