2008 Summary Appraisal Report - City of Lake Oswego

169 Pages·2008·6.54 MB·English

SUMMARY
APPRAISAL REPORT

WEST END OFFICE BUILDING + EXCESS LAND
4101 Kruse Way
Lake Oswego, Oregon 97035

PREPARED FOR
CITY OF LAKE OSWEGO
C / O Brant Williams
380 Avenue A, Suite 200
Lake Oswego, Oregon 97034

PREPARED BY
Stephen K. Hotaling, MAI
Kurt M. Mueller, MAI
MUELLER AND COMPANY, INC.
8220 SW Warm Springs Street, Suite 100
Tualatin, Oregon 97062
Telephone: [phone]
www.mcportland.com
MUELLER AND COMPANY‚ INC.

Kurt M. Mueller, MAI / Stephen K. Hotaling, MAI / Chad M. Ellis / Mark S. Basse Real Estate Appraisers & Consultants

October 8, 2008

CITY OF LAKE OSWEGO
C / O Brant Williams
380 Avenue A, Suite 200
Lake Oswego, Oregon 97034

RE: WEST END OFFICE BUILDING + EXCESS LAND
4101 Kruse Way
Lake Oswego, Oregon 97035

Mr. Williams:

At your request, we have prepared the following Summary Appraisal Report of the
above-cited office building plus excess land.

We have appraised the captioned property using generally accepted appraisal
principles and practices. The following appraisal is intended to comply with the
requirements of the Federal Financial Institutions Reform, Recovery and Enforcement
Act (FIRREA); the Interagency Appraisal and Evaluation Guidelines, the Uniform
Standards of Professional Appraisal Practice (USPAP), the Code of Professional Ethics
and Standards of Professional Appraisal Practice of the Appraisal Institute, and the
client’s appraisal guidelines. The purpose of this appraisal is to estimate market value
as defined by the FDIC/OTS, in accordance with Title XI of FIRREA (1989).

The appraisal is presented in the Summary Report format according to Standards
Rule 2-2(b). As such, it presents only summary discussions of the data, reasoning, and
analyses used to develop our opinions of value. Supporting documentation concerning
the data, reasoning, and analysis is retained in our files. The depth of discussion
contained in this report is specific to the needs of the client, and for the intended use
stated within this report. We are not responsible for the unauthorized use of this report.
8220 SW Warm Springs Street ▀ Suite 100 ▀ Tualatin, Oregon 97062-9097 ▀ Phone: [phone] ▀ FAX: [phone]
CITY OF LAKE OSWEGO
C / O Brant Williams
October 8, 2008
Page Two

Based on our inspection of the subject property, research of relevant market data, and
our analyses, it is the appraisers’ opinion that the market values of the fee simple
interest in the subject property, under current market conditions, is as follows:

TYPE OF VALUE DATE OF VALUE VALUE CONCLUSION
"As Is" Market Value September 23, 2008 $21,320,000 *
Hypothetical Market Value
September 23, 2008 $21,640,000 **
(Assuming Rezone of Master Site)
* This value includes a current “as is” market value of $5,120,000 to the OC/ R-3 excess land.
** This value includes a hypothetical market value of $5,440,000 to the rezoned CR&D excess site.

The preceding value conclusions assume the subject property is appropriately priced
and competently promoted, a marketing and exposure period of 12 to 18 months is
anticipated.

EXTRAORDINARY ASSUMPTION: The land area allocations in this report are based on net
buildable area, RC / RP zone areas, and right of way area estimates provided by the
client, with further allocations made based on zoning minimum ratios and market
standard for parking. However, given the irregular / non-contiguous areas formed by the
remaining buildable site areas, it is possible that a detailed architectural and/or civil
engineering site analysis could yield materially different land area allocations which
would impact the final value conclusions in this report. Thus, the client is advised to
seek professional expertise in regard to the preceding if a more accurate valuation is
required.

The preceding cited market values exclude the value of personal property, fixtures, and
intangibles. The valuation is subject to the Assumptions and Limiting Conditions section
of the following report, as well as the explanatory comments within the report, which
should be referenced for a complete understanding of the basis on which the final value
conclusions are predicated.
08MC-247 MUELLER AND COMPANY, INC.
CITY OF LAKE OSWEGO
C / O Brant Williams
October 8, 2008
Page Two

Thank you for the opportunity to assist you in this valuation assignment.

Sincerely,

MUELLER AND COMPANY, INC.

Stephen K. Hotaling, MAI Kurt M. Mueller, MAI
Oregon State Certified General Oregon State Certified General
Appraiser License No. C000546 Appraiser License No. C000484
08MC-247 MUELLER AND COMPANY, INC.
TABLE OF CONTENTS

Letter of Transmittal

INTRODUCTION PAGE
Appraisal Information.................................................................................................... 1

DESCRIPTION
Neighborhood Description.............................................................................................. 6
Subject Property Photographs ..................................................................................... 12
Property Description..................................................................................................... 20
Site Description....................................................................................................... 20
Zoning ............................................................................................................... 26
Assessment and Tax Information....................................................................... 29
Improvement Description........................................................................................ 35
Highest and Best Use Analysis .................................................................................... 42

VALUATION
Valuation ...................................................................................................................... 45
Excess Land Valuation................................................................................................. 46
Hypothetical Excess Land Valuation............................................................................ 51
Income Capitalization Approach................................................................................... 52
Sales Comparison Approach........................................................................................ 62
Reconciliation and Final Value Conclusions................................................................. 69
Concluded “As Is” Market Value.............................................................................. 70
Concluded Hypothetical Value................................................................................ 70
Certification of Appraisal............................................................................................... 71

ADDENDA
Professional Qualifications of Stephen K. Hotaling, MAI & Kurt M. Mueller, MAI
Company Profile - Mueller and Company, Inc.
Assumptions and Limiting Conditions
Definition of Terms
Exhibit A: Preliminary Title Report
Exhibit B: Property Condition Report
Exhibit C: Engagement Letter
08MC-247 MUELLER AND COMPANY, INC. i
APPRAISAL INFORMATION

PURPOSE OF THE APPRAISAL

The purpose of this appraisal is to estimate the "as is" market value of the fee simple
interest in the subject property. We also estimated the hypothetical market value of the
fee simple interest assuming an upward rezoning of the master site.

Market value is referenced as defined by the Office of the Comptroller of the Currency
under 12 CFR, Part 34, Subpart C (for the complete summary of definitions, see
Addenda).

INTENDED USE AND USER OF THE APPRAISAL

The intended use of this appraisal report is to assist the client in internal decision
making purposes related to the ownership of the property.

The intended user includes the client, the City of Lake Oswego and the related
personnel to the subject’s ownership.

SUBJECT HISTORY, OWNERSHIP
AND MARKETING INFORMATION

HISTORY – The subject site was purchased by Safeco Insurance Company in 1979 and
subsequently developed with the existing office building. Safeco occupied the property
until July 2006 when it was purchased by the City of Lake Oswego for $20,000,000.
Uses prior to 1979 are unknown to the appraisers.

OWNERSHIP – Public records indicate title to the subject property is currently vested in
the City of Lake Oswego. The property was purchased in July 2006 for $20,000,000, or
$225.04 per SF GBA. The City currently houses their Parks and Rec Department in the
building, with half the building currently unused.

MARKETING – No other pending sales, leases or offers to buy or sell are known to the
appraisers.

SCOPE OF THE APPRAISAL

The scope of this summary report is to estimate the following fee simple real property
interests in the subject property: 1) the "as is" market value, and 2) the hypothetical
market value assuming an upward rezoning of the master site; by use of all applicable
steps of the appraisal process. These steps include the following: definition of the
08MC-247 MUELLER AND COMPANY, INC. 1
APPRAISAL INFORMATION (Continued)

pertinent issues related to the appraisal assignment; inspection of the subject property,
site and improvement analyses; highest and best use analysis (as vacant, and as
improved); market data selection, verification and analysis; use of the most applicable
approaches to value; and the reconciliation of value indications and final value
estimates.

Our valuation analysis is supported by a collection, verification and analysis of
comparable land sales, lease transactions and improved property sales; further
supported by interviews with knowledgeable market participants (brokers, leasing
agents, investors, and developers). The initial sources of the comparable data were
derived from either Costar, RMLS, Metroscan, public records, other appraiser / broker
leads, or in-house data files, and unless otherwise stated in the analysis of the
comparables, were confirmed by a party to the transaction or an agent or representative
of a party to the transaction. Data transpiring within two years of the date of this report
was given the most consideration for valuation purposes. Stephen K. Hotaling, MAI and
Kurt M. Mueller, MAI inspected the subject property on September 23, 2008, as well as
exterior inspections of all comparables used in this appraisal.

The client provided access to the property as well as a wetlands report, preliminary title
report and the condition report. Various brokers were also interviewed to gain insight
into the surrounding neighborhood and subject property.

MARKETING AND EXPOSURE TIME

Marketing time is the period of time it takes an interest in real property to sell on the
market subsequent to the date of an appraisal. Exposure time is the estimated length
of time the property interest being appraised would have been on the market prior to the
hypothetical consummation of a sale at market value on the effective date of appraisal.
In other words, a retrospective estimate based on an analysis of past market conditions.

Marketing time differs from exposure time, in that the latter is presumed to precede the
date of appraisal. However, it is our opinion that unless market conditions are in a
period of significant transition, marketing time and exposure time would essentially be
equal for a property.

Based on a review of the local market for large single-tenant office buildings located in
the Portland market over the past two years, as well as current and projected trends, it
is the appraisers’ opinion that market conditions will not change substantially. Therefore,
for purposes of this analysis, marketing and exposure time will be approximately the
same.
08MC-247 MUELLER AND COMPANY, INC. 2
APPRAISAL INFORMATION (Continued)

Four of the five comparables used within the Sales Comparison Approach sold within
6 to 12 months, with the remaining sale not actively marketed. The sales with the
shortest marketing periods reflect properties with very few problems, and which were
marketed at reasonable prices by competent, aggressive, local brokers.

The subject property has a location in the premier suburban Class A office market of the
Portland Metropolitan Area. Based on continued strong demand for functional single-
tenant headquarters office properties in the subject area, the subject would typically have
good marketability. However, current uncertain economic conditions and the reduced
availability of financing could result in a longer than typical marketing period.

Assuming the subject property is appropriately priced and competently promoted, a
marketing and exposure period of 12 to 18 months is anticipated.

BUYER PROFILE ANALYSIS

The subject is currently owner-occupied by the City of Lake Oswego, and given its past
owner-occupancy by Safeco, as well as its interior layout / design, the strongest market
for the subject would be to an owner-user. Although, the subject could also be
purchased by an investor, this is a less likely scenario given the current economic
upheaval and would only occur if the property were substantially, if not entirely, pre-
leased prior to such a sale. Thus, an owner-user (either government agency, national or
regional corporate HQ facility, call center, etc.) would be the most likely purchaser of the
subject property.

PERSONAL PROPERTY, FIXTURES, AND INTANGIBLE ITEMS

The subject office building includes tenant owned furniture, fixtures, and equipment.
These items are not valued in this appraisal which reports the real property value of the
subject project only.
08MC-247 MUELLER AND COMPANY, INC. 3
REGIONAL MAP – PORTLAND METROPOLITAN AREA
08MC-247 MUELLER AND COMPANY, INC. 4
NEIGHBORHOOD MAP
08MC-247 MUELLER AND COMPANY, INC. 5