Summary Appraisal Report Allen Ridge

160 Pages·2013·16.3 MB·English

BUSINESS VALUATION • PROFESSIONAL SERVICES VALUATIONS • ASSET APPRAISALS • REAL ESTATE • TRANSACTION ADVISORY • CONSULTING

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DRAFT
Fair Market Value and Fair Market Rent of the Fee Simple Estate

Allen Ridge Medical Center
Parcel Nos. 3 and 8
280 North Lecanto Highway
Lecanto, Florida 34461

SUMMARY APPRAISAL REPORT

Appraisal Date: February 6, 2013
Distribution Date: March 19, 2013

Prepared for
Mr. Robert Priselac
Citrus County Hospital Board of Trustees
Citrus County Hospital Board
123 South Pine Avenue
Inverness, Florida 34452

2515 McKinney Avenue, Suite 1500 • Dallas, Texas 75201 • Telephone:  [phone] • Fax: [phone]
3100 West End Avenue, Suite 940 • Nashville, Tennessee 37203 • Telephone: [phone] • Fax: [phone]
March 19, 2013

Mr. Robert Priselac
Citrus County Hospital Board of Trustees
Citrus County Hospital Board
123 South Pine Avenue
Inverness, Florida 34452

Re: Fair Market Value and Fair Market Rent of Parcel Nos. 3 and 8 – Allen Ridge Medical Center

Dear Mr. Priselac,

At your request, we have estimated the Fair Market Value and the Fair Market Rent of the Fee Simple Estate in the real
estate identified as Allen Ridge Medical Center located at 280 North Lecanto Highway, Lecanto, Citrus County,
Florida. The subject property consists of approximately 36,083 square feet of gross building area in seven buildings
located on 84.273 acres of land. The appraised improvements are currently utilized as medical office and diagnostic
facilities. The effective date of the valuation is February 6, 2013, the date of inspection. The following analysis is not
to be used for any other purpose or distributed, in whole or in part, to third parties, other than Citrus County Hospital
Board and their duly authorized representatives, the Internal Revenue Service, Office of Inspector General and other
regulatory authorities without the express written consent of VMG Health.

The opinions presented are subject to thDe followRing extAraordinFary asTsumptions. An extraordinary assumption is
directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false,
could alter the appraiser’s opinions or conclusion. Within this specific assignment, according to the Citrus County
Property Appraiser, the gross building area of the subject premises is 36,083 square feet for the subject prorperties.
Should the actual gross building area differ from the provided area, the appraiser reserves the right to amend the
contents of this Summary Appraisal Report, including the conclusion. In addition, within this specific assignment, the
property is subject to the Interlocal Agreement Regarding CR491 Medical Corridor Project, dated March 12, 2013,
between Citrus County, Florida, (“County”) a political subdivision of the State of Florida and the Citrus County
Hospital Board (“CCHB”). The Agreement documents the unsigned agreement contemplated as the date of appraisal.
Should the future actions described in the Interlocal Agreement change, including the Development Agreement and
zoning, the appraiser reserves the right to amend the contents of this Summary Appraisal Report, including the
conclusions.

The opinions presented are subject to the following hypothetical conditions. A hypothetical condition is a condition,
directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective
date of the assignment results, but is used for the purpose of analysis. The property is subject to the Lease Agreement
between Citrus County Hospital Board and Citrus Memorial Health Foundation, Inc. For purpose of this analysis, the
lease is not considered; the property rights appraised are those of the Fee Simple Estate. The Citrus Hematology and
Oncology Center located at 522 North Lecanto Highway is subject to a ground lease. For purpose of this analysis, the
lease is not considered; the property rights of the building, site improvements and associated land appraised are those
of the Fee Simple Estate.

Chateau Plaza 3100 West End Avenue
2515 McKinney Avenue Suite 940
Suite 1500 Nashville, Tennessee 37203
Dallas, Texas 75201 P 615.777.7300
P 214.369.4888 F 615.777.7301
F 214.369.0541 www.vmghealth.com
Based on this analysis, the estimate of the Fair Market Value of the Fee Simple Estate as of February 6, 2013 for the
subject real estate is reasonably estimated to be:

TEN MILLION FIVE HUNDRED THOUSAND DOLLARS
$10,500,000

Based on this analysis, it is our opinion that the Fair Market Rent range for the subject properties located at 508-520
North Lecanto Highway is $9.00 to $11.00 per square foot as of February 6, 2013. Implicit in this rental rate estimate
is a NNN basis, with the tenant being responsible for all operating costs. The lease term would be three to five years,
without concessions, on an “as is” basis. The rate does not include an annual CPI increase in the base rate. With
regard to the subject property located at 522 North Lecanto Highway, it is our opinion that the Fair Market Rent range
is $23.00 to $25.00 per square foot as of February 6, 2013. Implicit in this rental rate estimate is a NNN basis, with the
tenant being responsible for all operating costs. The lease term would be a minimum of five years, without
concessions, on an “as is” basis. The rate does include an annual CPI increase in the base rate.

These concluded estimates of Fair Market Value and Fair Market Rent of the Fee Simple Estate are well within the
parameters established by the competing properties. Please refer to the attached analysis for further detail.

Respectfully submitted,
DRAFT

Charles B. Nolen, MAI
Manager
Florida Certified General Real Estate Appraiser RZ3509
Chateau Plaza 3100 West End Avenue
2515 McKinney Avenue Suite 940
Suite 1500 Nashville, Tennessee 37203
Dallas, Texas 75201 P 615.777.7300
P 214.369.4888 F 615.777.7301
F 214.369.0541 www.vmghealth.com
SUMMARY APPRAISAL REPORT Page 3

TABLE OF CONTENTS
Overview ....................................................................................................................................... 4
Report Format ........................................................................................................................... 4
Identification of Property ............................................................................................................ 4
Purpose of the Appraisal ........................................................................................................... 4
Property Rights .......................................................................................................................... 4
Client and Intended Use of the Appraisal .................................................................................. 5
Effective Date of Valuation ........................................................................................................ 5
Definitions .................................................................................................................................. 5
Scope of Engagement ............................................................................................................... 7
Competency Statement ............................................................................................................. 9
Property History ....................................................................................................................... 10
SUMMARY OF SALIENT FACTS – PARCEL NOS. 3 AND 8 .............................................................. 12
REGIONAL ANALYSIS ................................................................................................................... 14
HEALTHCARE MARKET OVERVIEW .............................................................................................. 26
Neighborhood Analysis ............................................................................................................... 32
DRAFT
Site Description ........................................................................................................................... 36
Improvements Description .......................................................................................................... 41
Highest and Best Use Analysis ................................................................................................... 43
Highest and Best Use as Vacant ............................................................................................. 44
Highest and Best Use as Improved ...................................................................................... 45
Conclusion .............................................................................................................................. 45
Valuation ..................................................................................................................................... 46
Cost Approach ............................................................................................................................ 47
Sales Comparison Approach ...................................................................................................... 82
Income Capitalization Approach ................................................................................................. 99
VALUE RECONCILIATION ............................................................................................................ 111
MARKETING AND REASONABLE EXPOSURE TIME ANALYSIS ...................................................... 113
ASSUMPTIONS & LIMITING CONDITIONS ..................................................................................... 114

CITRUS COUNTY HOSPITAL BOARD
SUMMARY APPRAISAL REPORT Page 4

Overview
REPORT FORMAT
This is a Summary Appraisal Report which is intended to comply with the reporting
requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of
Professional Appraisal Practice for a Summary Appraisal Report.
As such, it presents only summary discussions of the data, reasoning and analyses that
were used in the appraisal process to develop the appraiser's opinion of the Fair Market
Value and the Fair Market Rent of the real estate identified in this report.
Supporting documentation concerning the data, reasoning and analyses is retained in
the appraiser’s 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.
IDENTIFICATION OF PROPERTY
The subject of this appraisal assignment consists of seven medical office buildings
(36,083 gross square feet) on the contiguous tract of land containing 3,670,925 square
feet or 84.273 acres. DRAFT
All estimates are based on information provided from the Citrus County Property
Appraiser or from personnel associated with Citrus County Hospital Board or the Citrus
Memorial Health Foundation, Inc.

The effective date of the valuation is February 6, 2013, the date of inspection.
PURPOSE OF THE APPRAISAL
The purpose of the appraisal is to provide our opinion of the Fair Market Value and the
Fair Rental Value of the Fee Simple Estate for the premises fully identified in this
Summary Appraisal Report.
PROPERTY RIGHTS
The property rights appraised are those of the Fee Simple Estate. Fee Simple Estate is
defined in The Dictionary of Real Estate Appraisal, Fifth Edition:
"Absolute ownership unencumbered by any other interest or estate, subject only to the
limitations imposed by the governmental powers of taxation, eminent domain, police
power or escheat.”
CITRUS COUNTY HOSPITAL BOARD
SUMMARY APPRAISAL REPORT Page 5

CLIENT AND INTENDED USE OF THE APPRAISAL
The intended user (client) of this Summary Appraisal Report is Citrus County Hospital
Board and their duly authorized third-party representatives. VMG Health is not
responsible for the unauthorized use of this Summary Appraisal Report. The intended
use of this analysis is to assist Citrus County Hospital Board with an evaluation of the
possible benefits to persons residing in Citrus County from the sale or lease of the
Hospital Facilities to a not-for-profit or for-profit entity.
EFFECTIVE DATE OF VALUATION
This report was prepared in February and March 2013. We conducted an on-site
inspection of the subject premises on February 6, 2013. The effective date of this
assignment is February 6, 2013, the date of inspection.
DEFINITIONS
The following is a list of definitions applicable to this assignment.

Fair Market Value – Fair Market Value is defined by the Internal Revenue Service as
"the price that property wouldD sell fRor on tAhe opFen maTrket. It is the price that would be
agreed on between a willing buyer and a willing seller, with neither being required to act,
and both having reasonable knowledge of the relevant facts." The term herein, is also
used interchangeably in this analysis with the term Market Value. Market Value means
“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 buyer under conditions whereby:

1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what they consider
their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of financial
arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold unaffected by
special or creative financing or sales concessions granted by anyone associated
with the sale.
CITRUS COUNTY HOSPITAL BOARD
SUMMARY APPRAISAL REPORT Page 6

Furthermore, The Stark Law defines “fair market value” as “the value in arm’s length
transactions, consistent with the general market value.” “General market value” means
“the compensation that would be included in a service agreement as the result of bona
fide bargaining between well-informed parties to an agreement who are not otherwise in
a position to generate business for the other party at the time of the agreement.”
Fair Market Rent – The most probable rent that a property should bring in a competitive
and open market reflecting all conditions and restrictions of the lease agreement
including permitted uses, use restrictions, expense obligations, term, concessions,
renewal and purchase options, and tenant improvements (TIs).1 Implicit in this
definition are the following conditions:
 Lessee and lessor are typically motivated.
 Both parties are well informed or well advised, and acting in what they
consider their best interests.
 A reasonable time is allowed for exposure in the open market.
 The rent payment is made in terms of cash in United States dollars, and is
expressed as an amount per time period consistent with the payment
schedule of the lease contract.
 The rental amount represents the normal consideration for the property
DRAFT
leased unaffected by special fees or concessions granted by anyone
associated with the transaction.
This assignment includes the following identified property.
Real Property – The interests, benefits, and rights inherent in the ownership of real
estate.2
Improvements – Buildings or other relatively permanent structures or developments
located on, or attached to, land.3
Extraordinary Assumption – An assumption, directly related to a specific assignment,
as of the effective date of the assignment results, which, if found to be false, could alter
the appraiser’s opinions or conclusions.4
Within this specific assignment, the gross building area of 36,083 square feet for the
building improvements is based on information from the Citrus County Property
Appraiser. Should the actual gross building area differ from the provided area, the

1 The Dictionary of Real Estate Appraisal, 5th Edition (Chicago: Appraisal Institute, 2010).
2The Dictionary of Real Estate Appraisal, Page 161, 5th Edition (Chicago: Appraisal Institute, 2010).
3 The Dictionary of Real Estate Appraisal, Page 98,5th Edition (Chicago: Appraisal Institute, 2010).
4 “Uniform Standards of Professional Practice” (The Appraisal Foundation, 2012-2013 Edition).
CITRUS COUNTY HOSPITAL BOARD
SUMMARY APPRAISAL REPORT Page 7

appraiser reserves the right to amend the contents of this Summary Appraisal Report,
including the conclusion.
Within this specific assignment, the property is subject to an “Interlocal Agreement
Regarding CR491 Medical Corridor Project,” dated March 12, 2013, between Citrus
County, Florida, (“County”) a political subdivision of the State of Florida and the Citrus
County Hospital Board (“CCHB”). The Agreement documents the then unsigned
Interlocal Agreement contemplated as the date of appraisal. Should the future actions
described in the Interlocal Agreement change, including the Development Agreement
and zoning, the appraiser reserves the right to amend the contents of this Summary
.
Appraisal Report, including the conclusions
Hypothetical Condition – A condition, directly related to a specific assignment, which
is contrary to what is known by the appraiser to exist on the effective date of the
assignment results, but is used for the purpose of analysis. 5

The subject property is subject to the Lease Agreement between Citrus County Hospital
Board and Citrus Memorial Health Foundation, Inc. According to the Fourth
Amendment to the Lease Agreement, the commencement date is March 1, 1990 and
the expiration date is June 15, 2033, with an option to renew for an additional forty-five
DRAFT
(45) year term. For purpose of this analysis, the lease is not considered; the property
rights appraised are those of the Fee Simple Estate.

The Citrus Hematology and Oncology Center located at 522 North Lecanto Highway is
subject to a ground lease. For purpose of this analysis, the lease is not considered; the
property rights of the building, site improvements and associated land appraised are
those of the Fee Simple Estate.
SCOPE OF ENGAGEMENT
The results of this investigation are presented in a Summary Appraisal Report. The
following scope was completed by Value Management Group, LLC d/b/a VMG Health
(“VMG”) for this assignment:
1. Analyzed regional, city, neighborhood and market area.
 Gather current, relevant, data related to demographic, economic,
governmental and environmental forces that have a direct or
indirect influence on the subject property.

5 “Uniform Standards of Professional Practice” (The Appraisal Foundation, 2012-2013 Edition).

CITRUS COUNTY HOSPITAL BOARD
SUMMARY APPRAISAL REPORT Page 8

 Provide supporting comments and appropriate conclusions to
describe the influence of these factors on the subject property.
 Market data was gathered from a variety of sources including local
and regional realtors, brokers and online sources.

2. Completed a visual on-site study of the subject property and the market
area or neighborhood relevant to the subject property.
 The visual on-site study of the subject property involved observing
the exterior walls and fenestration, noting the quality and condition.
Photographs were taken of the interior and exterior of the
improvements.
 The visual on-site observation of the site included the type and
condition of walkways, curbs, sidewalks, parking surfaces, security
lighting and fencing, the quality and abundance of landscaping and
the observed adequacy of water drainage and runoff, as pertinent.
Photographs were taken of notable site improvements and street
views of all adjacent roadways.
 The visual on-site observation involved an inspection of the site.
 The visual observation of the market area or neighborhood
included DdriviRng thAe adFjacenTt roadways and the major
thoroughfares in the area, noting convenience to area shopping,
retail, entertainment, employment and major arterial roadways.
The adequacy and condition of area improvements (including
condition and appeal, occupancy and competitive properties, and
any adverse influences) were also observed. Observations were
also made regarding the approximate mix of residential, multi-
family, commercial and industrial property types within the subject
neighborhood and market area.
 Reviewed relevant supporting data. The inspecting appraiser’s
visual on-site observation was supported by the review of the
available building plans.
 Reviewed data regarding taxes, utilities, easements and city
services.
 The availability or existence of all utilities, easements and city
services was determined by on-site observation and data available
from Citrus Memorial Health Foundation, Inc and the Citrus County
Board of Commissioners, Citrus County, Florida.

CITRUS COUNTY HOSPITAL BOARD
SUMMARY APPRAISAL REPORT Page 9

3. Considered comparable improved building sales and rental information.
 Comparable rents, sales and listings were analyzed by date of
leases/sales, lease structure, similarity of space use/size, direct or
indirect competition and proximity to the subject. Information was
gleaned from appraiser’s internal proprietary files as well as
available market information.
 Photographs, as available, and write-ups are provided as
applicable to the assignment for the comparable sales and leases.
 Pertinent information for the selected comparable sales and rents
are presented within the body of this Summary Appraisal Report.

4. Analyzed the data and applied the applicable approaches to value.
 The value opinions presented in this Summary Appraisal Report
are based on review and analysis of the market conditions affecting
real property value, including the attributes of competitive
properties and rental data for similar properties.
 The appraisal problem did not warrant an intensive Highest and
Best Use analysis. Given the nature of the subject real property,
VMG Health’s conclusion of Highest and Best Use is based on
logic andD obserRved evAidenceF. T
 Three traditional approaches are typically used to arrive at an
opinion of value of real property: the Cost Approach; the Sales
Comparison Approach; and the Income Capitalization Approach.
All three approaches to value were considered and those most
appropriate are relied on to address the appraisal problem and to
arrive at an opinion of the Fair Market Value and Fair Market Rent
of the Fee Simple Estate in the subject property as of the date of
this appraisal.

Specific attention is drawn to the Proposal, Definitions, General Assumptions and
Limiting Conditions, and Significant Issues for further understanding of the scope of the
appraisal. The subject site and improvement descriptions are based on a personal
inspection of the property and a review of provided data. The inspection is not a
substitute for thorough engineering studies.
COMPETENCY STATEMENT
Charles B. Nolen, MAI has valued numerous real estate projects throughout the United
States over the past 25 years. In addition, Mr. Nolen has analyzed and appraised
numerous medical projects (including hospital campuses) throughout the United States.
CITRUS COUNTY HOSPITAL BOARD