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Downtown Study 3 ADDITIONAL INFORMATION • Shaner Appraisals, Inc. ADDITIONAL INFORMATION 0 • SHANER APPRAISALS, INC. Addenda • 275 GLOSSARY • Reproduction Cost The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superaclequacies, and obsolescence of the subject building. (p. 244 Use Value The value a specific property has for a specific use; may be the highest and best use of the property or some other use specified as a condition of the appraisal; may be used where legislation has been enacted to preserve farmland, timberland, or other open space land on urban fringes. tp. 303) 411 • SHANER APPRAISALS, INC. Addenda • 274 GLOSSARY • • The appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions. (USPAP, 2002 ed.) (p.141) Investment Value The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached. See also Market value (p. 152) Leased Fee Interest An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leasee are specified by contract terms contained within the lease. (p. 161) Leasehold Interest The interest held by the lessee (the tenant or renter) through a lease transferring the rights of use and occupancy for a stated term under certain conditions. See also Negative leasehold; Positive leasehold. (p. 162) Market Value The most probable price which a property will 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 US. 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. • (12 C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended at 57 Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994) (p. 177) Negative Leasehold A lease situation in which the market rent is less than the contract rent. (p. 193) Neighborhood A group of complementary land uses; a congruous grouping of inhabitants, buildings,or business enterprises. (p. 193) Positive Leasehold A lease situation in which the market rent is greater than the contract rent. (p. 215) Replacement Cost The estimated cost to construct, at current prices as of the effective appraisal date, a building with utility equivalent to the building being appraised, using modern • materials and current standards, design and layout. (p. 244) SHANER APPRAISALS, INC. Addenda • 273 GLOSSARY • GLOSSARY Unless otherwise noted, the following definitions are taken from The Dictionary of Real Estate Appraisal,Fourth Edition,published by the Appraisal Institute in 2002. Accrued Depreciation The difference between the reproduction or replacement cost of the improvements on the effective date of the appraisal and the market value of the improvements on the same date. (p.4) Appraisal in.)The act or process of developing an opinion of value;an opinion of value. (adj.) Of or pertaining to appraising and related functions such as appraisal practice or appraisal services. (USPAP, 2002 ed.) (p. 15) Extraordinary Assumption An assumption,directly related to a specific assignment,which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. An extraordinary assumption may be used in an assignment only if: • It is required to properly develop credible opinions and conclusions; • The appraiser has a reasonable basis for the extraordinary assumption; • Use of the extraordinary assumption results in a credible analysis;and • • The appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions. (USPAP,2002 ed.) (p. 107) Fee Simple Estate Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power,and escheat. (p. 113) Highest and Best Use The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability. (p. 135) Hypothetical Condition That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. A hypothetical condition may be used in an assignment only if: • Use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis,or for purposes of comparison; • Use of the hypothetical condition results in a credible analysis;and i SHANER APPRAISALS, INC. Addenda • 272 GLOSSARY _._.,__,.�...n..._...� , . n.,..... . , A Shaner Appraisals, Inc. GLOSSARY SHANER APPRAISALS, INC. Addenda • 271 COMPANY PROFILE • PROPERTY TYPES APPRAISED: Single family and multi-family residential properties Relocation appraisals Industrial buildings Office buildings Retail buildings Assisted Living Centers Office Condominiums Apartment Complexes Retail Buildings Residential Subdivisions All types of Vacant Land Special use properties Blight studies Review commercial and residential appraisals Condemnation and Right of Way appraisals Market studies APPRAISAL PURPOSES/USES: New loans Refinancing Condemnation Litigation Support Estate planning and probate Tax disputes • Acquisitions Development and construction Feasibility analysis Highest and best use studies Marketability studies Rent surveys SHANER APPRAISALS, INC. Addenda • 270 COMPANY PROFILE APPRAISER'S QUALIFICATIONS e ALLEN SKEENS EDUCATION: Graduate 1988-Juris Doctorate Degree in Law University of Kansas School of Law, Lawrence, Kansas Graduate 1984- Bachelor of General Studies Degree Triple Major in Philosophy, Psychology & Sociology University of Kansas, Lawrence, Kansas PROFESSIONAL EDUCATION: Residential Case Study Seminars and Continuing Education Real Estate Appraisal Principles Real Estate Appraisal Procedures Standards of Professional Practice Appraising Manufactured Housing Introduction to GIS Applications for Appraisers Standards and Ethics for Professionals Appraiser Financing Update Residential Design and Functional Utility Small Hotel/Motel Valuation Appraising Nursing Facilities Analyzing Operating Expenses Residential Property Construction & Inspection Valuation of Detrimental Conditions in Real Estate Appraising from Blueprints and Specifications The FHA and the Appraisal Process III Internet Search Strategies for Appraisers Small Income Property Valuation Home Inspections Environmental and Lead Paint Update Real Estate Finance Overview of Real Estate Principles National USPAP Update Using your HP12C Financial Calculator Analyzing Distressed Real Estate The Art of Residential Appraisal Review Negotiation Strategies PROFESSIONAL AFFILIATION: Licensed Appraiser, Certificate L-1193 State of Kansas, expires June 30, 2007 EXPERIENCE: May 1980- Present Real Estate Appraiser Shaner Appraisals Overland Park, Kansas Over 4,000 appraisals completed involving the valuation of land, residential property and commercial property. • SHANER APPRAISALS, INC. Addenda • 269 COMPANY PROFILE • OFFICES HELD President.Kansas City Chapter of the Appraisal Institute, 1992 President,Kansas City Chapter of the Society of Real Estate Appraisers, 1987- 1988 American Institute of Real Estate Appraisers: Chairman.Candidate Guidance Committee 1986 Chairman,Admissions Committee 1987 Chairman.Program Committee 1990- 1991 Secretary.Treasurer.Vice-President Society of Real Estate Appraisers: Chairman,Education Committee 1986 Chairman.Program Committee 1987 Secretary.Second Vice-President,First Vice-President OTHER ACTIVITIES Approved instructor for Appraisal Institute 1987-Present Approved instructor for Appraisal Foundation 2002-Present Overland Park Chamber of Commerce Board 1997-2004 Chairman,Overland Pork Chamber of Commerce 2003 Elder,Shawnee Presbyterian Church Swope Parkway Health Center Foundation Board 1990-2000 Chairman of Board 1992, 1993, 1995 Midtown Community Development Corporation Board 1992-2000 Vice President 1998-2000 Blue Valley Educational Foundation Board 1992- 1998 Alliance of Community Educators 2002-Present • • SHANER APPRAISALS, INC. Addenda • 268 COMPANY PROFILE • APPRAISER'S QUALIFICATIONS BERNIE C.SHANER, SRA, MAI EDUCATION Graduate 1970-B.S.in Business Administration University of Kansas,Lawrence,Kansas PROFESSIONAL EDUCATION Completed and passed all required courses to obtain SRA and MAI designations Courses and Seminars Attended: Case Studies in Commercial Highest and Best Use U.S.Dept.of Housing.Multifamily Accelerated Processing Multifamily Trends Conference Section 8/HUD:Rent Comparability Studies Appraisal Consulting: A Solutions Approach for Professionals Instructor Certification Course,Appraisal Foundation Condemnation Appraising:Advanced Topics and Applications Appraisal Courses Taught In the Past Five Years: Real Estate Appraisal Principles,2002,2003,2004,2005,2006 Standards of Professional Practice,2002,2003 Uniform Business Practices.2003 Standards of Professional Practice.Part C, 2002.2003.2004,2005, 2006 Kansas Property Tax,2002 EXPERIENCE February 1978-Present • Chairman,Shaner Appraisals.Inc. Overland Park,Kansas April 1972-February 1978 Associate Appraiser,Bliss Associates,Inc. Kansas City,Missouri Has completed appraisals involving the valuation of land,residential property and all types of commercial and industrial property. Qualified in Kansas,Missouri,Texas,Nebraska, Colorado and Washington D.C.courts as an expert witness. PROFESSIONAL AFFILIATIONS Member of Appraisal Institute.MAI#7268 Designation awarded 1985.currently certified through December 31,2007, SRA designation awarded 1978,currently certified through December 31.2007. Certified General Real Estate Appraiser State of Missouri, #RA 001 153 State of Kansas, #G-431 • SHANER APPRAISALS, INC. Addenda • 267 COMPANY PROFILE • Grubb&Ellis TRI Capital Hallmark Cards Wal-Mart Stores, Inc. Hunt Midwest Washington Capital J.A. Peterson Company Weingart Foundation Price Brothers Realty Yarco Companies Principal Life Insurance Company YWCA Principal Mutual Life Zimmer Real Estate Services Accounting and Law Firms Armstrong Teasdale Schlafly& Davis Norton, Hubbard, Ruzicka&Kaeamer Blackwell,Sanders, Peper,Martin Payne&Jones Craft, Fridkin& Rhyne Parkinson, Foth,Orrick& Brown Deloitte&Touche Polsinelli Shalton &Welte Ferree, Bunn,O'Grady& Runberg Pricewaterhouse Coopers Husch&Epenberger Shook Hardy& Bacon Lathrop&Gage Shugart Thompson& Kilroy McAnany VanCleave& Phillips, P.A. Spencer Fayne Britt& Browne MHM Property Tax Consultants Stinson Morrison Hecker Mitchell, Kristl & Lieber Wallace,Saunders,Austin, Brown&Enochs Ernst&Young Williams Law Office • • SHANER APPRAISALS, INC. Addenda • 266 COMPANY PROFILE PARTIAL CLIENT LIST III Government Agencies/Municipalities City of Kansas City DeSoto School District City of Gardner Gardner School District City of Overland Park Shawnee Mission School District City of Leawood Johnson County Airport Commission City of Lee's Summit Johnson County Appraiser's Office City of Lenexa Johnson County Board of County Commissioners City of Merriam Johnson County Parks and Recreation Dept. City of Olathe Johnson County Wastewater District City of Shawnee Kansas Department of Transportation City of Wichita Kansas Highway Patrol Dept. of Housing& Urban Development(HUD) U.S. Department of Justice Olathe School District U.S.Postal Service Blue Valley School District GSA Lending Institutions Bank One Commerce Bank Bank Midwest, N.A. Country Club Bank Bank of America Credit Suisse First Boston Bank of Blue Valley EF&A Funding Blue Ridge Bank&Trust First Federal Bank Berkshire Mortgage Financial First Kansas Bank Bridger Commercial Funding First Mortgage Investment Corporation Capitol Federal Savings First National Bank of Olathe • Central Bank of Kansas GMAC Commercial Mortgage Collateral Mortgage Gold Bank Great Southern Bank Quantum First Capital Heartland Bank Red Mortgage Capital, Inc. Hillcrest Bank Security Bank of Kansas Intrust Bank Southern Pacific Bank Key Bank Commercial Mortgage Southwest Bank LaSalle Bank Triad Mortgage& Realty Metcalf Bank UMB Bank Midland Loan Services Union Bank Missouri Bank&Trust United Missouri Bank MuniMae Midland, LLC US Bank Newman Financial Services Valley View State Bank North American Savings Bank Washington Mortgage Northmarq Capital, Inc. Wells Fargo Peoples Bank Corporations, Developers and Institutional Clients Allianz Life Insurance Company American States Insurance Allstate Insurance Property Tax Research Company Associates Relocation Protective Life Insurance Company Boy Scouts of America Salvation Army Burlington Northern Savage& Browning CALPERS Sentinel Real Estate Company Cessna Aircraft Company Shawnee Mission Medical Center Colliers Turley Martin Tucker Shelter Insurance Copaken,White& Blitt Jeffrey Smith Company Excel Corporation State Farm Fire and Casualty Insurance FMC Corporation Stern Brothers GE Capital Stephens&Company,Inc. • General Services Administrations Terra Venture,Inc. SHANER APPRAISALS, INC. Addenda • 265 COMPANY PROFILE • COMPANY PROFILE SHANER APPRAISALS, INC. 10990 Quivira, Suite 100 Overland Park, Kansas 66210 Phone (913) 451-1451 / Fax (913) 529-4121 Shaner Appraisals, Inc. is a full-service real estate valuation and consulting firm located in Overland Park, Kansas. Founded by Bernie Shaner in 1978, Shaner Appraisals has established a solid reputation for professional real estate services. The firm employs twelve full-time appraisers, including three MAI and one SRA designated member of the Appraisal Institute. Our professionals represent over 150 years of valuation and related experience, and two of our members are past presidents of the Kansas City Chapter of the Appraisal Institute. The firm's primary market is Kansas and Missouri, but Shaner Appraisals has also completed assignments throughout the United States. The firm provides Market Studies, Feasibility Analyses, Litigation Support and Valuation Services for all types of property from multi-family residences to shopping centers, office buildings and industrial complexes. Shaner Appraisals also has extensive experience in eminent domain matters and in valuing special purpose properties such as nursing homes, underground storage facilities, microwave towers, and rock quarries. All assignments are completed or reviewed by an MAI designated appraiser. LIST OF SERVICES VALUATION/COUNSELING PURPOSES Commercial property appraisals Financing Residential property appraisals Ad valorem tax disputes Eminent domain appraisals Trusts and estates • Expert witness testimony Condemnation Property tax appeals Investment analysis Market studies Arbitration Feasibility studies Portfolio valuation Litigation support Collateral assessment Due diligence research Right of way acquisition Appraisal review Financial structuring Partial interest valuation Conservation easement valuation Rent studies General real estate counseling Blight studies PROPERTY TYPES APPRAISED Office buildings—single/multi-tenant, standard office, medical office, surgery centers Retail centers—single/multi-tenant, neighborhood, community, regional shopping centers Industrial buildings—flex, R&D,distribution, manufacturing, underground, self-storage Land —All types Multi-family apartment complexes, LIHTC, HUD Nursing homes Hotels, motels,extended stay facilities Single family homes,condominiums,duplexes Churches Easement corridors • SHANER APPRAISALS, INC. Addenda • 264 Downtown Salina H.D. Lee Complex Shaner Appraisals, Inc. • APPRAISER QUALIFICATIONS III SHANER APPRAISALS, INC. Addenda • 263 Downtown Salina H.D. Lee Complex • ADDENDA Appraiser Qualifications Glossary Additional Information • • SHANER APPRAISALS, INC. Addenda • 262 Downtown Salina H.D. Lee Complex • • • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 261 Downtown Salina H.D. Lee Complex • • Based on population forecasts the amount of multi-family development that has taken place appears to have been adequate to meet the demand. However, when the migration rates are applied based on actual historical population trends there is a deficit in the amount of multi-family properties that are being added each year. The supply and demand appear to have been relatively in equilibrium over the past decade. However, the low vacancy rates, along with the lack of new market-rate competition does suggest that not only can the market adequately absorb some new inventory, it actually needs it. • The average rental rate for the area is low when compared to similar communities statewide although they have increased at steady levels. According to 2000 Census data, monthly rental rates for the city of Salina averaged $379, and 69% of renters paid between $250 and $500 per month. • There are fewl loft units in downtown and the vast majority of these are owner occupied units that have been custom builds. • Based on current quoted rental rates for competing properties in the immediate area, and our opinion of how the subject compares to each of these properties, the market rent for the one bedroom/one bath unit type is • reconciled at $580 per month, or $0.83 per square foot for a 700 square foot unit. • Based on current quoted rental rates for competing properties in the immediate area, and our opinion of how the subject compares to each of these properties, the market rent for the two bedroom/one bath unit type is reconciled at $655 per month, or $0.73 per square foot for a 900 square foot unit. • There are very few two bath units in the market place. Based on the comparable properties surveyed it is our opinion that the second bath will demand a premium of an extra $50 in rent per month. The market rent for the two bedroom/two bath unit type is recommended to be $705 per month, or $0.78 per square foot. • Demand from household growth analysis for multi-family indicates a need for 44 to 53 units per year for both the PMA and SMA. • The largest demand field available is that from turnover which could create up to 412 units per year from the PMA and SMA combined. • SHANER APPRAISALS, INC. Market Analysis —Multifamily • 260 Downtown Salina H.D. Lee Complex estimated 68.7% of the population in the primary market and 70.2% of the • secondary market earn in excess of this amount. This bodes well for the subject. • It appears that the middle-income households have the financial ability for upward mobility but do not have any alternatives currently available in the market. As such, it appears that the City of Salina is ripe for market-rate units to be constructed. • Most of the apartments in town are older with below average levels of maintenance. • There have been few new properties built in the town within recent years. All of the latest construction involved senior housing or low-income tax credit properties. Multi-family growth has historically come in spurts, with a timeframe elapsing between large complex developments to allow for the market to absorb the new units. • Overall, rental rates in the City of Salina are considered to be low. • Since 1990 only 705 multi-family units have been added to the market within the City of Salina. This accounts for just over 39 units per calendar year and represents 26.9% of the total housing stock increase during this timeframe. Of the 705 units, Chapel Ridge and the Reserves at Prairie Glen • accounted for 392 LIHTC units while those developed for the senior population numbered 235. Therefore, only 78, or 11% are considered to potentially be representative of market rate units. • No large market-rate apartment complexes have been introduced into the City of Salina community for over 25 years. • There are currently no plans filed with the Planning Department in the City of Salina for any type of future apartment complex development. • Total vacancies in 1990 were 1,119, or 6.1% of all the housing units within the market area. However, there were 615 vacancies of 6,168 renter occupied housing units, which creates a rental vacancy of 10%. In 2000 there were only 494 vacancies of 6,279 renter occupied housing units, which created a rental vacancy of 7.9%. Our survey of apartments included almost 500 units and of those reporting vacancy rates the range was 2% to 15% with an average of 8%. • The projections for the five year period from 2007-2012 indicates that 183 rental units will need to be added to supplement the population growth. That creates an annual demand of 37 units. • Very little empirical market data is available with respect to absorption rates. • SHANER APPRAISALS, INC. Market Analysis— Multifamily • 259 Downtown Salina H.D. Lee Complex • • The proposed subject, McCune Bird/Lee Buildings, is recommended to have loft apartment units located on the upper three floors of the remodeled buildings, which will contain retail and office usage on the lower two floors. • A portion of the market for the loft apartments is likely to come from office and retail tenants. • The subject loft units should contain primarily a mixture of one bedroom and two bedroom units. Rental rates for similar size properties range broadly from approximately $0.40 to $0.82 per square foot for the garden apartment units. • The downtown loft units should have higher rental rates per square foot than the nearby garden apartments due primarily to their superior age, condition, quality and trendiness of being located in a mixed-use project. In our opinion, the market rent for the proposed subject loft units should be $0.75- 0.80 per square foot. This is an effective rent without any concessions. • Although the architect's preliminary conceptual design does not include any • one bedroom units our research indicates the market would support smaller units, which is typical of loft developments in general. In discussions with loft developers, it appears that there is strong demand for at least partitioning a bedroom even if the walls are shorter than ceiling height. It is our recommendation that there be a separate bedroom or partitioning for a bedroom at a minimum and identification of the units as one-bedroom loft apartments. • We estimate absorption of the loft units at an average rate of 6 — 10 units per month with adequate pre-leasing and marketing based on the lack of competing projects in the area and general absorption principles. • The quality of these units should be superior to other apartments that exist in Salina and should represent a Class A-/B+ rating. Unit features should include walk-in closets, open span ceilings with exposed joists, exposed exterior brick walls, fully equipped kitchens with microwave and washer/dryer units and extra storage. • The primary source of demand for new multifamily housing is the formation of new households from population growth. • Based on the affordability analysis, a minimum annual household income of • $28,200 will be required for a two-bedroom apartment. In 2007, an SHANER APPRAISALS, INC. Market Analysis —Multifamily • 258 Downtown Salina H.D. Lee Complex • DEMAND FROM HOUSEHOLD GROWTH Multifamily Demand from PMA (295 x 30,0%) 89 units Proportion of Income Qualified Households in PMA ($28,200) 68.7% Estimated Income Qualified New Renter Households in PMA 61 units Capture Rate for New Households in PMA 50% Subject's Capture of New Households in PMA 31 units One-Bedroom Units(40%) 12 units Two-Bedroom Units(50%) 16 units Three-Bedroom Units(10%) 3 units Multifamily Demand from SMA(193 x 26.0%) 50 units Proportion of Income Qualified Households in SMA($28,200) 70.2% Estimated Income Qualified New Renter Households in SMA 35 units Capture Rate for New Households in SMA 50% Subject's Capture of New Households in SMA 18 units One-Bedroom Units (40%) 7 units Two-Bedroom Units(50%) 9 units Three-Bedroom Units(10%) 2 units DEMAND FROM TURNOVER • Turnover in the PMA (6,098 x 60%) 3,659 units Proportion of Income Qualified Households in PMA ($26,000) 68.7% Estimated Income Qualified Households from Turnover 2,513 units Capture Rate for Turnover in PMA 15% Subject's Capture of Turnover in PMA 377 units Turnover in the SMA(6,931-6,098 x 60%) 500 units Proportion of Income Qualified Households in SMA($26,000) 70.2% Estimated Income Qualified households from turnover 351 units Capture Rate for Turnover in SMA 10% Subject's Capture of Turnover in SMA 35 units i SHANER APPRAISALS, INC. Market Analysis — Multifamily • 257 Downtown Salina H.D. Lee Complex • MARKET RECOMMENDATIONS —MULTIFAMILY General Conclusions Based on the supply and demand projections contained in the attached report, we have developed the following basic conclusions: ESTIMATED UNIT SIZE 1 bdrm/1 bath Units: 600-800 square feet 2 bdrm/1 bath Units: 800-900 square feet 2 bdrm/2 bath Units: 900-1,000 square feet 3 bdrm/2 bath Units: 1,000-1,200 square feet ESTIMATED UNIT MIX 1 bdrm/1 bath Units: 40-60% 2 bdrm/1 bath Units: 0-20% • 2 bdrm/2 bath Units: 40-60% 3 bdrm/2 bath Units: 0-10% ESTIMATED MARKET RENTS 1 bdrm/1 bath Units: $500-600 per month or$0.63-1.0/SF 2 bdrm/1 bath Units: $600-700 per month or $0.67-0.88/SF 2 bdrm/2 bath Units: $700-800 per month or $0.70-0.89/SF 3 bdrm/2 bath Units: $800-900 per month or $0.67-0.90/SF ill SHANER APPRAISALS, INC. Market Analysis—Multifamily • 256 Downtown Salina H.D. Lee Complex Based upon the subject's perceived market position, it should achieve an absorption • rate of 6 to 10 units per month, which imputes a lease-up period of 12-18 months for the units within the existing structures. If construction were to commence in the near term, completion of construction is projected to occur within 12 months. Thus, the anticipated period for construction and lease-up to stabilized occupancy is less than 30 months. However, some lease-up should occur during the construction period which would minimize the overall time until the property reaches stabilized occupancy. The most likely residents for the subject property lofts also happen to represent the age ranges that are showing the highest population increases according to the demographic data analyzed for the City of Salina. That includes young singles, young couples with no children, baby boomers and empty nesters. It is important to market the office and/or retail usage to the loft residents for potential business use. This will help occupancy in more than one use area of the project at the same time. This should be an especially appealing alternative for young business professionals that want more than a "home" office. In that regard, it is important that the retail and office space maintain a variety of uses that would appeal to the residents of the loft apartments. They should be able to obtain the majority of the daily services they require from the block they live in, or within a few blocks of walking to the south in the downtown central business • district. As in most development projects, parking is a key issue that needs to be addressed. The lofts need on-site parking and it is recommended that a covered parking structure be constructed that will connect to the existing buildings to the southeast. The problem this creates is that it will block the downtown view of the residents that are located on the south side of the building. The parking garage should have certain levels that are only accessible to loft tenants or some type of reserved parking for the residents. Potentially, some of the parking facility could then be utilized for business and commercial visitors to the project development. Although there is on-street parking, it would not be sufficient to support the contemplated development plans. Another option is tying into parking lots located just to the southwest area of the site that could be accessed via construction of overhead walkways. These lots are reported to be city owned and could conceivably be acquired and adapted for the specified purpose. • SHANER APPRAISALS, INC. Market Analysis —Multifamily • 255 Downtown Salina H.D. Lee Complex • ESTIMATED UNIT SIZE 1 bdrm/1 bath Units: 600-800 square feet 2 bdrm/1 bath Units: 800-900 square feet 2 bdrm/2 bath Units: 900-1,000 square feet 3 bdrm/2 bath Units: 1,000-1,200 square feet ESTIMATED MARKET RENTS 1 bdrm/1 bath Units: $500-600 per month or $0.63-1.0/SF 2 bdrm/1 bath Units: $600-700 per month or $0.67-0.88/SF 2 bdrm/2 bath Units: $700-800 per month or$0.70-0.89/SF 3 bdrm/2 bath Units: $800-900 per month or$0.67-0.90/SF ESTIMATED UNIT MIX 1 bdrm/1 bath Units: 40-60% 2 bdrm/1 bath Units: 0-20% 2 bdrm/2 bath Units: 40-60% 3 bdrm/2 bath Units: 0-10% • The market rents, although competitive, should be higher than other market rate projects within the City of Salina. Traditionally, downtown loft units have demanded slightly higher rental rates per square foot than garden apartments. Further, the location within a mixed-use development, which is unique to this market area and indicative of a nationwide developmental market trend, should increase interest and peak demand. Another factor to consider is the lack of recent new housing stock as the subject property would represent the newest development within the primary or secondary market area. Other important considerations include the fact that based on the affordability analysis completed in this report, a good percentage of current renters appear to be spending less money on housing than they can afford due to the lack of available alternative such as that conceptualized for the subject property. Lastly, based on conversations with real estate professionals, developers and property managers throughout the primary market area; it appears that the availability of a two bedroom unit with a second bath would be a highly sought commodity. For all these reasons, a strong market rate is indicated. In our opinion, the market rent for the subject loft units should be in the $0.75-0.80 per square foot range. This is an effective rental rate without concessions. • SHANER APPRAISALS, INC. Market Analysis —Multifamily • 254 Downtown Salina H.D. Lee Complex • DATA, ESTIMATES AND FORECAST General Conclusions Based on the supply and demand projections, we developed the following basic apartment market trend conclusions. • The subject would have a good location being a part of a developing mixed-use commercial/retail and residential project just north of the central business district. • The subject is a conceptual plan and would be in new condition when completed. The subject should consist of primarily one and two bedroom units and should feature unit amenities such as standard kitchen appliances, microwaves, walk-in closets, washer and dryer appliances and extra storage. Common area amenities should include a fitness center, media room and hi-fi wireless internet access throughout the complex. • The primary market area is identified as the city of Salina. The secondary market area is all of Saline County and portions of bordering counties that make up the Micropolitan Statistical Area. • An estimated 488 new households are forecasted within the next five years within the entire market area. • • Demand for rental housing such as that visualized for the subject is evident in the market due to a lack of new market rent properties in the market area. • Rental rate growth has remained fairly constant over the past few years for both the primary market and secondary markets.. • Population growth is expected to remain moderate and steady. Economic growth is also anticipated to occur. Interest rates are expected to slightly increase in the coming year. The result should impact occupancy and absorption positively. • SHANER APPRAISALS, INC. Market Analysis— Multifamily • 253 Downtown Salina H.D. Lee Complex • • Lost units are estimated at 10 per year, primarily through the demolition of dilapidated structures, or conversion of subdivided single-family structures back to lower-density or single-family use. Between the years 2000-2007, 1036 new housing units have actually been added based on information provided by the City of Salina. The 1,036 new housing units represent 148 housing units per year. Thus based on historical data, approximately 45 new rental units have been added to the housing stock each year (148 x .30), while it was forecasted that 53 new rental units were required (177 x .30). Of the 1,036 units added since 2000, utilizing an estimate that 30% of the total units should represent rental properties, reflects approximately 311 of the new units added should have been rental properties. In actuality, according to building permit records obtained from the City of Salina, 331 new rental units were constructed during this timeframe. Thus, an average of 44 new rental units was added annually over the past seven and a half year span. However, it should be noted than none of these additions were for market rate units. This trend is predicted to continue. As such, demand for rental units should grow somewhere between 44 and 53 units each year based on these various demand models and methodology. The prior section indicated that demand from household growth would amount to 49 units per year and there is an even larger number of 0 demands from turnover that represents opportunity for the subject property to capture new tenants. For market rate apartments of new quality and condition, demand is likely to be even higher as all of the most recent entrants of new housing available to market participants have been low income and senior properties. • SHANER APPRAISALS, INC. Market Analysis— Multifamily • 252 Downtown Salina H.D. Lee Complex • The most recent study of the Salina Housing Authority projected that between the years 2000-2020, 3549 additional housing units will be needed, which represents 177 units per year. With a 30% proportion of rental units that reflects 1,065 new rental units, or approximately 53 new units per year. SALINA HOUSING AUTHORITY STUDY Projected Housing Need,2000-2020 2000 2000.2010 ' 2010.2020 Total Population at the End of Period 45,679 49,321 53,253 Household Population at End of Period 44,312 47,845 51,659 Average People/Household 2.39 2.38 2.38 Household demand at End of Period 18,541 20,103 21,706 Projected Vacancy Rate 5.49% 5.49% 5.49% Unit Needs at End of Period 19,618 21,271 22,966 Replacement Need 100 100 200 Cumulative Need 1,753 1,796 3,549 Average Annual Construction 175 180 177 Source:U.S.Bureau of the Census;RDG Planning&Design The projections from the Salina Housing Authority provided above are made based on the following assumptions: • The method used to project annual demands is to compare the number of units needed in a given year(number of households plus projected vacancy rate) with the number of units available during that year(housing supply during the year less the units that leave the housing supply and must be replaced). Twenty-year demands are based on multiples of the five-year population demand computed in this section. • Household size in Salina is expected to decrease slightly during the twenty-year period from 2.39 in 2000 to 2.38 in 2020. • The City's non-household population (people in institutions, group quarters, or nursing homes) does not produce a demand for conventional housing. These forecasts project that the non-household population will remain at its 2000 rate of 3.0%. • Salina's 2000 vacancy rate of 5.49% will remain the same through 2020. • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 251 Downtown Salina H.D. Lee Complex • DEMAND FROM TURNOVER Turnover in the PMA(6,098 x 60%) 3,659 units Proportion of Income Qualified Households in PMA($26,000) 68.7% Estimated Income Qualified Households from Turnover 2,513 units Capture Rate for Turnover in PMA 15% Subject's Capture of Turnover in PMA 377 units Turnover in the SMA(6,931-6,098 x 60%) 500 units Proportion of Income Qualified Households in SMA($26,000) 70.2% Estimated Income Qualified households from turnover 351 units Capture Rate for Turnover in SMA 10% Subject's Capture of Turnover in SMA 35 units Pent-Up Demand Pent-up demand represents the requirement for additional rental housing in a market that is not operating in equilibrium with the current supply. The primary and secondary market areas are considered to have been operating in equilibrium with respect to supply and demand for rental housing, evidenced by the nominal level of multifamily construction in the recent past. Thus, the level of pent-up demand in the local market appears to be nominal. Pent-up demand exists when there is too little product available in the marketplace. In the case of the subject property, although there is market vacancy there may still be pent-up demand for unique, high-quality new apartments simply because there is nothing of that sort currently available. Presently, 6,098 rental households exist in the PMA, and 6,931 rental households are in the SMA, which account for 30.1% and 26.1% of the housing markets, respectively, which is an average of 28% for the entire market area. The 2012 estimates for the percentage of rental households in the market are almost identical to those that were forecast for 2007. It is clear based on prior household income analysis that there would be some segment of the market that would opt for a new, good quality apartment in a unique setting, particularly due to the fact that no such property type currently exists. However, we have included nothing for pent-up demand in this analysis as these renters would likely come from those already established by turnover. Competitive Supply Currently there are no multi-family properties under construction nor are there any planned or proposed properties within the City of Salina according to the City Planning Department. As such, should the subject property be developed there is • likely to be no direct competition other than existing rental stock. SHANER APPRAISALS, INC. Market Analysis —Multifamily • 250 Downtown Salina H.D. Lee Complex Of the 488 new rental households in both market areas, 68.7% in the PMA and • 70.2% in the SMA were shown to have sufficient income ($28,200) to meet the affordability factor for the proposed rates. DEMAND FROM HOUSEHOLD GROWTH Multifamily Demand from PMA(295 x 30.0%) 89 units Proportion of Income Qualified Households in PMA($28,200) 68.7% Estimated Income Qualified New Renter Households in PMA 61 units Capture Rate for New Households in PMA 50% Subject's Capture of New Households in PMA 31 units One-Bedroom Units(40%) 12 units Two-Bedroom Units(50%) 16 units Three-Bedroom Units(10%) 3 units Multifamily Demand from SMA(193 x 26.0%) 50 units Proportion of Income Qualified Households in SMA($28,200) 70.2% Estimated Income Qualified New Renter Households in SMA 35 units Capture Rate for New Households in SMA 500/0 Subject's Capture of New Households in SMA 18 units One-Bedroom Units (40%) 7 units Two-Bedroom Units(50%) 9 units Three-Bedroom Units(10%) 2 units As previously discussed, the subject is expected to capture significantly more than • its proportionate share of new renters due to the lack of competitive planned projects. With no new multifamily development current under construction or planned for the foreseeable future, the subject would likely capture a significant portion of new renter households. However, because the design and quality would be different from anything in the Salina market, we have projected a more conservative capture rate of 50% for both the PMA and the SMA. Demand from Turnover An inventory of 6,098 rental units currently exists in the PMA, and 6,931 rental units are in the SMA. The apartment market, in general, represents a transient population of renters typically realizing a turnover rate of 60% per year. Turnover in the PMA would account for 3,659 units and 500 additional units in the SMA based on owner-occupied to rental ratios. According to the affordability factor previously discussed, income qualified households number 2,513 and 351 units in the PMA and SMA, respectively. The subject should expect conservative capture rates of 15% in the PMA and 10% in the SMA, since tenants will likely opt for newer apartment homes rather than the older existing stock. The proceeding table shows the estimated number of household created from turnover in the PMA and SMA. • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 249 Downtown Salina H.D. Lee Complex • Many loft projects include an abundance of studio units. However, in discussions with loft developers, it appears that there is strong demand for partitioning a bedroom even if the walls are shorter than ceiling height. It is our recommendation that there be a separate bedroom or at a minimum some type of partitioning for a bedroom area and that the units be identified as one-bedroom loft apartments. There is also a strong demand for two bedroom units in the primary market area. Two bedroom units are not necessarily always occupied by two residents. Many times a single person chooses a two bedroom unit to be able to utilize the second bedroom as an office. This is particularly true in loft style buildings that are part of a mixed-use development that stresses the live, work and play" concept, whereby many of the residents do work out of their home. Also, empty nesters generally prefer a second bedroom for guests (adult children who visit), as an office or for use for a particular hobby. Based on these market observances it is our recommendation that the unit mix for the subject be as follows: • One bedroom/One bath 40-60% ■ Two bedroom/One bath 0-20% ■ Two bedroom/Two bath 40-60% • Three bedroom/Two bath 0-10% The existing subject buildings will have three floors designated for multi-family loft apartments. The gross building area footprint of each floor is 31,700 square feet creating a total area of 95,100 square feet. However, not all of the space is going to be able to be utilized for the actual units. Elevators, stairwells and interior hallways need to be accounted for, as do common areas. We have recommended some type of small work-out exercise room as well as a media room for residents. Based on similar projects we are estimating the loss of gross area to be approximately 10%. As such, the subject property would have a net rentable area of approximately 85,590 square feet. Demand from Household Growth The primary source of demand for new multifamily housing is the formation of new households from population growth. In total, household growth of 488 households is projected from 2007-2012. This estimate pertains to household growth. However, the subject development would most likely be utilized as a rental property. Approximately 30.1% of the units in the primary market area are renter-occupied and 26.1% of the units in the secondary market area are renter-occupied. Therefore, we have estimated that the growth in housing units in the market will continue to be renter-occupied at approximately the same percentages. Of the 488 new households introduced to the market within the next five years, 139 will likely opt for rental housing. • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 248 Downtown Salina H.D. Lee Complex • Listed below is the breakdown of household sizes within the market areas. Primary Market Area 1 Person Household 30.1% 2 Person Household 34.2% 3 Person Household 14.7% 4 Person Household 12.5% 5 Person Household 5.8% 6 Person Household 1.8% 7+Person Household 0.8% Secondary Market Area 1 Person Household 28.1% 2 Person Household 35.3% 3 Person Household 14.8% 4 Person Household 13.0% 5 Person Household 6 2% 6 Person Household 1.8% 7+Person Household 0.8% As such, the greatest level of demand presently exists for one and two-bedroom units. Discussions with local realtors and property managers also indicate that there is only a small portion of the market that is interested in three bedroom units. However, what appear to be lacking in terms of tenant demand are two bedroom units that contain two baths. In terms of the rental comparables surveyed for this analysis, the following table . reflects the unit breakdowns in the complexes based on bedrooms. 1 bedroom 2 bedroom 3 bedroom Gold Key Apartments 84% 5% 0% Southwind Apartments 75% 25% 0% Airport Apartments 0% 84% 16% Briarwood Garden 20% 80% 0% Oaktree Apartments 56% 37% 7% Country Hill Apartments 75% 25% 0% Hillcrest Apartments 43% 57% 00/0 Quail Creek Apartments 45% 55% 0% Heather Ridge 40% 60% 0% Range 0-84% 5-84% 0-16% Averages 49% 48% 3% The typical tenant for the one bedroom and some two bedroom units located in loft apartments is single. The analyst reviewed the tenant profile for several downtown Kansas City loft complexes. These complexes indicated a strong percentage of singles. One project indicated 79% single, another indicated 80% single, and the third indicated 82% single. The typical household size for this market is 1.25 persons. According to the US Census, urban housing typically appeals to young professionals, young couples without children, empty nesters and baby-boomers. • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 247 Downtown Salina H.D. Lee Complex • DEMAND ESTIMATE AND ANALYSIS Existing Rental Housing and Total Housing Stock The following table shows the total number of households in the PMA and SMA. PMA SMA 1990 Housing Units 18,468 23,720 2000 Housing Units 19,599 25,450 2007 Housing Units 20,269 26,541 Of the estimated housing units in 2007 for the primary market area, 63.4% (12,855) are owner-occupied, and 30.1% (6,098) are occupied by renters. In the secondary market 66.7% (17,692) are owner-occupied and 26.1% (6,931) are renter-occupied. According to the demographic projections, the vacancy rate in 2007 of the existing housing inventory was 7.2% in the PMA and 6.5% in the SMA. Based upon our survey of the local apartment market and our inspection of the community, it appears that most of the vacancy is associated with older single-family homes. Over 67% of the housing stock in Salina was built prior to 1970. Within the primary market, there are at least two LIHTC properties that accept • tenants based upon income level. These projects are Chapel Ridge with 296 units and the Reserves at Prairie Glen with 96 units. The City of Salina also has some Section 8 housing. Since these units have restricted rental rates, they were not employed in the rental analysis to determine market rental rates, although they do represent some level of competition to market rate communities. According to ESRI data, the average rent in the PMA for 2000 was $379 per month, which reflects the inferior age and quality of the existing rental product. According to Census data, the median home value in the primary market area increased from $45,365 to $83,874, which represents an annual rate appreciation of 6.34%. During the same timeframe, the median home value in the secondary market area increased from $43,822 to $82,935, which represents an annual rate appreciation of 6.59%. The 2007 median home values are $114,251 for the PMA and $1 13,612 for the SMA. Household Size The average household size in the PMA and SMA for 2007 was 2.38 and 2.42, respectively. It is not known how many one-bedroom rental units exist within the market area, or what percentage of the one-person households are renters. Also, while some portion of one-person households may occupy two-bedroom units, many two-person households may occupy one-bedroom units. One-and two-person households comprise 64.3% and 63.4% of the population in the PMA and SMA, • respectively. SHANER APPRAISALS, INC. Market Analysis—Multifamily • 246 Downtown Salina H.D. Lee Complex TWO BEDROOM/ONE BATH ADJUSTMENT GRID • Average Rental Rate from Survey $475 Year Built $25 Condition $50 Quality of Construction $25 Square feet of Living Area $0 Garage $50 Appliances/Washer-Dryer $25 Balcony/Patio ($15) Pool/Recreation Area ($15) Storage $10 Project Location $0 Curb Appeal $25 Adjusted Rental Rate $655 TWO BEDROOM/TWO BATH ADJUSTMENT GRID Average Rental Rate from Survey $475 Year Built $25 Condition $50 Quality of Construction $25 Square feet of Living Area $0 Garage $50 Appliances/Washer-Dryer $25 Balcony/Patio ($15) Pool/Recreation Area ($15) Storage $10 Project Location $0 Curb Appeal $25 Additional Bath $50 Adjusted Rental Rate $705 Final Correlation of Estimated Market Rental Rates 1 bdrm/1 bath 700 SF $580/month $0.83/SF 2 bdrm/1 bath 900 SF $655/month $0.73/SF 2 bdrm/2 bath 900 SF $705/month $0.78/SF • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 245 Downtown Salina H.D. Lee Complex • 200 to 300 square foot differences; and 20 0/o for differences greater than 300 square feet. Based on current quoted rental rates for competing properties in the immediate area, and our opinion of how the subject compares to each of these properties, the market rent for the two bedroom/one bath unit type is reconciled at $655 per month, or $0.73 per square foot for a 900 square foot unit. There are very few two bath units in the market place. Based on the comparable properties surveyed it is our opinion that the second bath will demand a premium of an extra $50 in rent per month. The market rent for the two bedroom/two bath unit type is recommended to be $705 per month, or $0.78 per square foot. • • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 244 Downtown Salina H.D. Lee Complex ONE BEDROOM ADJUSTMENT GRID • Average Rental Rate from Survey $398 Year Built $25 Condition $50 Quality of Construction $25 Square feet of Living Area $0 Garage $50 Appliances/Washer-Dryer $25 1 Balcony/Patio ($15) Pool/Recreation Area ($15) Storage $10 Project Location $0 Curb Appeal $25 �..,.:. ,�',�� x,t,x e f C+at11x�. +• : .. , �3 Two-Bedroom Units The majority of the two bedroom units in the market contain one or one and a half baths. They range in size from 570 square feet to 1,100 square feet with an average of 869 square feet. The monthly rental range is from $430 to $575 with an average of $475. This indicates an average of $0.55 per square foot. The initial analysis will be of a one bath unit. The recommended two bedroom unit should contain 900 feet and have two full baths. We will make one base adjustment for each item of consideration taking into account the overall makeup of the majority of the rental comparables. We have made the same adjustments for most factors, except the following: • Square Foot Area. Our examination of market rents shows that differences in size do not necessarily equate to a difference in rent on a dollar-for-dollar basis since the rental rate reflects many physical characteristics (e.g., unit amenities, number of bedrooms, appliances). Additional size only accounts for additional living space, but not additional features. Our recommendation for unit size for the two bedroom units was 800 to 1,000 square feet, which has a mid-point of 900 feet. The two bedroom units surveyed averaged 869 feet in size. No adjustment is considered necessary for differences of 50 square feet or less. However, based upon empirical market evidence, if the apartments that are actually constructed are not 900 feet then we would adjust 35% of the total rent per square foot of a unit for differences of 50 to 100 square feet. Our survey also found that larger differences in size do not demand the same adjustments. Therefore, we would adjust 30% for 100 to 200 square foot differences; 25% for • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 243 Downtown Salina H.D. Lee Complex • • Pool/Recreation Area. The subject property is recommended to have an amenity package that would include a fitness center. Most of the rental comparables have outdoor swimming pools, playground areas and some with clubhouses. The subject property loft design is not conducive to any of these extra amenities. Therefore, a downward adjustment of $25 was made. • Storage. The subject property should have extra storage, potentially in the basement area. Few of the comparables had any type of extra storage. An upwards adjustment of$10 was made. • Project Location. The subject property would provide multifamily housing to a sector of the community where prior residential development has really not been established. Its location in the mill district north of downtown is part of the overall appeal of the mixed use project. The majority of the existing apartment rentals that were surveyed also enjoy close proximity to existing services. Overall, project location considerations are deemed to be equal and no adjustment was required. • Curb Appeal. The subject property has a very nice existing exterior. The majority of the apartments have only average curb appeal. Once the subject property is renovated the overall appearance will only improve. The fact that it will be part of a mixed-use community project will also add to the strength of its market appeal. An upward adjustment of$25 was made. • Based on current quoted rental rates for competing properties in the immediate area, and our opinion of how the subject compares to each of these properties, the market rent for the one bedroom/one bath unit type is reconciled at $580 per month, or $0.83 per square foot for a 700 square foot unit. • SHANER APPRAISALS, INC. Market Analysis —Multifamily • 242 Downtown Salina H.D. Lee Complex rates. The subject will be the only new property available and should enjoy a • very strong demand due to the lack of true competition in the marketplace. An upward adjustment of$50 was deemed appropriate. • Quality of Construction. The subject property, if our recommendations are followed, will consist of an A-/B+ quality of construction rating. This will be superior to all of the rental stock surveyed. Due to the unique loft nature it will also have some very appealing construction features for this market. An upward adjustment of$25 was made. • Square Foot Area. Our examination of market rents shows that differences in size do not necessarily equate to a difference in rent on a dollar-for-dollar basis since the rental rate reflects many physical characteristics (e.g., unit amenities, number of bedrooms, appliances). Additional size only accounts for additional living space, but not additional features. Our recommendation for unit size for the one bedroom units was 600 to 800 square feet, which has a mid-point of 700 feet. The one bedroom units surveyed averaged exactly 700 feet in size so no adjustment for square foot area is required. However, based upon empirical market evidence, if the apartments that are actually constructed are not 700 feet then we would adjust 35% of the total rent per square foot of a unit for differences of 50 to 100 square feet. Our survey also found that larger differences in size do not demand the same adjustments. Therefore, we would adjust 30°/° for 100 to 200 square foot differences; 25% for 200 to 300 square foot differences; and 20% for differences greater than 300 square feet. No adjustment is considered necessary for differences of 50 square feet or less. • Garage. The subject will need to have some type of on-site parking available and we have recommended a covered parking garage. Only two of the properties surveyed had garages available. One had a $50 a month premium for an attached garage unit. The other complex had a variety of different rental structures that made it difficult to allocate the amount the rent was increased for the garage due to other differences. As such, under the assumption that the subject property will provide covered parking we have made an upward adjustment of$50. • Appliances. The subject property should have fully equipped kitchen appliances, which is standard for the majority of the rental properties surveyed. The subject should also have washer/dryer appliances in each unit, which is a desirable feature in the market but not typical. Some properties provide washer/dryer hook-ups but the majority of the properties have only coin- operated washer/dryer appliances available. An upward adjustment of $25 was made. • Balcony/Patio. Due to the existing construction of the subject building it will not be practical for the units to have an individual balcony and obviously being a multi-story structure will not allow for a patio. The majority of the rental properties in Salina do have some type of balcony/patio/deck area. As such, a downward adjustment of$25 was made. • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 241 Downtown Salina H.D. Lee Complex monthly rental range is from $430 to $575 with an average of $475. This indicates an average of$0.55 per square foot. The three bedroom units contain both one and two baths. They range in size from 1,250 square feet to 1,988 square feet with an average of 1,615 square feet. The monthly rental range is from $525 to $825 with an average of $703. This indicates an average of$0.44 per square foot. Estimation of Market Rent The subject property would be basically new construction as the property is now an existing shell and would need complete interior renovation. Further, additional loft units that would be constructed above the other retail properties built on the block would be completely new construction. As such, the entire property will be superior to all of the comparable rental properties in the market from a condition standpoint. As has been previously discussed the majority of the rental apartment stock within the City of Salina reflects below average maintenance levels. Based on our recommendations of A-/B+ construction quality it will also be superior to the units currently available in the market in regards to workmanship and materials. We will examine the rental market for one and two bedroom units separately. The basis of our comparison will be the average size, monthly rental rate and price per square foot. After necessary adjustments we will then estimate a final market rent • for each of the respective unit types of the subject property. One-Bedroom Units As previously discussed, the one-bedroom units range in size from 475 square feet to 886 square feet with an average of 700 square feet. The monthly rental range is from $330 to $575 with an average of $398. This indicates an average of$0.57 per square foot. All of the one-bedroom units have one bath, which would be recommended for the subject property. We will make one base adjustment for each item of consideration taking into account the overall makeup of the majority of the rental comparables. Following is an explanation of the adjustments. • Year Built. The subject would include complete renovation of an existing structure as well as additional all new construction. Although the building itself is older the improvements in that portion of the project would be almost new and the additional construction on the vacant portion of the site would obviously contain brand new product. Most of the comparables are 70's vintage with one built in the 50's that has been updated and one built in the 20's. An upward adjustment of $25 was made. • Condition. The subject property upon completion will reflect a condition rating of new. The majority of the rental housing surveyed reflects maintenance levels of below average. The Southwind apartments were updated and although they • are older than the standard '70s garden apartments enjoyed overall higher rental SHANER APPRAISALS, INC. Market Analysis —Multifamily • 240 Downtown Salina H.D. Lee Complex • COMPARABLE RENTAL SURVEY Property Name Year Built No. Units Avg Unit Avg. rent Avg. rent Occup. Size (SF) ($/SF) ($/mo.) Airport 1950/86 44 1,124 $0.40 $465 88°u Briarwood Garden 1970's 50 780 $0.54 $424 N/A Heather Ridge 1972 60 975 $0.43 $422 N/A Hillcrest 1974 56 521 $0.82 $429 N/A Country Hills 1970's 64 576 $0.65 $376 85% Quail Creek 1972 46 873 $0.48 $418 98% Southwind 1958 120 559 $0.76 $423 97.5% Oaktree 1975/77 27 916 $0.55 $500 93% Gold Key Apts 1920's 19 665 $0.51 $342 90% 111 N. Santa Fe 1920's 1 1,200 $0.42 $500 100% SEC SantaFe/Iron 1920's 1 1,250 $0.48 $600 100% Minimum 19 521 $0.40 $342 85% Maximum 120 1,124 $0.82 $500 98% • Average 54 777 $0.57 $422 91.9% The average rental unit size, not including the two lofts, was 777 square feet. The average monthly rent expenditure, not including the two lofts, was $422, which represents $0.57 per square foot. All of these comparables are older units and the subject property being new should command higher overall rental rates. Hereafter, each of the subject contemplated unit types is discussed separately, including an analysis of the comparable rentals of similar size. The subject property should contain one and two bedroom units. With only nine three bedroom units in the entire survey, it is apparent that there has historically been minimal demand for three bedroom apartment units. Tenants requiring three bedrooms are more likely to seek rental housing consisting of a single family home or perhaps some type of attached dwelling units such as a duplex or town home. The one bedroom units all contain one bath. They range in size from 475 square feet to 886 square feet with an average of 700 square feet. The monthly rental range is from $330 to $575 with an average of $398. This indicates an average of $0.57 per square foot. The two bedroom units all contain one or one and a half baths. They range in size from 570 square feet to 1,100 square feet with an average of 869 square feet. The 111 SHANER APPRAISALS, INC. Market Analysis—Multifamily • 239 Downtown Salina H.D. Lee Complex • Comparable Multifamily Rental re,—;11 ". k MI t- 4w c Lip naS. l -K f•r r �r t Name. Gold Key Apartments Address: 217-219 W Ash City.Statc.Zip• Salina Kansas,87401 County Saline Property Use. Mid Rise • Number of Units: 19 Stories 7 Year Built/Rehabbed 1920's Quality: Average Construction Type: Brick Condition Fair Bldg. Description: This is an cider budding that was previously a hotel and was converted to apartment'mils in 1903 All of the units are`unished Utilities WI Rent Water Stover Trash Survey Date. 8//2007 Occupancy. 90 Unit Type d of Units Size in Sq Ft Rent I Month Rent t Sq. Ft. STUDIO 2 480 £310 So 55 1 BR/1 BA 16 580 $340 50 59 2 BR!1 E1 1 &00 $450 S0 56 • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 238 Downtown Salina H.D. Lee Complex Comparable Multifamily Rental •..:.,.....4 i ., / + h `� q4 p1 f µ : ' r lit ,, f � 't. , ` + Y .14 .• , ' "1 I ..- .,-, se.- '\ *� .a. v -i:,,4"+" " a�irn a ` li ' tiy; - - ....�. of•.' ..,,.,...:r .�.....�.. Name: Oaktree Apartments Address: 651 Uppermilt Heights Drive City,State,Zip: Salina, Kar:sas.67401 County Saline Property Use: GardentVValkup • Number of Units: 27 Stories: 3 Year Built/Rehabbed: 1975/77 Quality: Average Construction Type: Frame Condition Average Bldg. Description: The protect contains townhoin a and Rats. tt 3s a three-story, 27 unit project with three buildings. The improvements contain 21.062 square feet of living area There are no complex amenities The project contains 12 floor pans containing 15 one bedroom, 10 two bedroom an 2 three bedroom units They vary in unit size from 651 square feet to 1.988 square feet The average unit sue is 916 square feet Utilities w/Rent Unit Amenities Trash Stanoard Appliances Water Some fireplaces Sewei Survey Date: 8/1/2007 Occupancy: 100% Unit Type #of Units Size in Sq Ft Rent/Month Rent/Sq. Ft, 1 BR/1 f3A 2 651 $370 $0 57 1 BR/1 BA 2 702 $385 $0 55 1 BR/1 BA 2 756 5400 So 51 1 BR/1 BA 2 840 S575 $0 58 1 RR/1 BA 2L 2 844 5510 50.60 1 BR/1 BA 1 886 5400 SO 45 RR/1 BA 7 861 $500 SO 58 2 BR/1 BA 2L 1 986 5550 SO 56 2 BR/1 BA 2 986 5575 SO 58 3 BR/2 5 BA 2L 1 1.612 5760 50 47 3 BR/2 5 BA 1 1.988 £825 SO 42 • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 237 Downtown Salina H.D. Lee Complex Comparable Multifamily Rental .a , e k. ..� .. _ .- . -- =Y J is.- iipippi • • yY .,':4:7,--....- - .. Name: Southwind Apartments • Address: 2963 rlonda Avenue, Saline,KS 67401 City.State,Zip: Salina KS,67401 County Saline Property Use: GardenIWalkup Number of Units: 120 Stories: 1 Year Fluilt!Rehahhed: 1958/1987 Quality: Average Construction Type: WOod flame with siding Condition Average Bldg. Description: Garden apartrndnt complex made up of 1 0 units consisting of 30 lour-plex one Story buildings(67,080 square feet NRA) Average unit size is 559 square feet Units are relatively small in compar.son to other un{ts in the market. and the layout effects some functional obsolescence due to the absence of a dining area Also one bedroomunits provide only a shower Stall in the pathroorn. whereas the market typically provides a shower/tub combination Utilities wl Rent Unit Amenities TiaslI Water standard Appliances Sewer Survey Date: 611!2007 Occupancy 98% Unit Type #of Units Site in Sg Ft Rent r Month Rent! Sq. Ft. 1 BR/1 BA GC 520 $285 50 14 I BR/1 BA w/garage 3e 520 S435 SO 84 2 BR/1 BA w/garaoe 30 676 5485, S0 72 • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 236 Downtown Salina H.D. Lee Complex Comparable Multifamily Rental 1 rwr M ,s Name: Quail Creek Apartments Address: 1515E Iron Ave CIty,State,Zip: Salina, KS,67401 County Saline Property Use: GardentiNalkup • Number of Units: 46 Stories: 3 Year Built/Rehabbed: 1972 Quality. Average Construction Type: Wood Frame wRmck vene.? Condition Average Bldg.Description: Garden apartment project made up of 46 units dvided among two buildings Two floor plans are available Average unit size is 873 square feet The structures are comprised of a concrete floor structure on the Test floor,wood frame,wood deck upper floors brick and mansard exterior, and a flat roof structure with a builr•up composition cover The property was purchased on September 1,2004 ror 528.174 per unit the buyer reported that the sale was arm's length Overall,this project is in above average condition It is very well maintained Utilities wr Rent Vnit Amenities Other Amenities Water Fully Equipped Kitchen Laundry Trash Walk-In Closets Outdoor Swimming Rood Sewer Balconies Some Carports No On-Site Management Survey Date. 6111200: Occupancy: 98% Vnit Ty C of Units Size in Sq Ft Rent r Month Rent I$A,Ft, IRR-IIA 20 /20 $380 5453 26f2-f 58A 24 1 000 $450 50 45 Survey Comments: Tne rents for the 18R units were$350 per mentn IS0 49 per sf)and the 2BR units were at 5420 par month(SO 42 per an Thus,the average rent was 5388 per month The reported occupancy level was 100% As or January 2005.the average rent increased by 1 25%pet year compounded to$418 per month Therefore,as of January 1 2000,the calculated rent would have been 5351t for a 18R and$427 for a 2BR No concessions are currently being offered • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 235 Downtown Salina H.D. Lee Complex • Comparable Multifamily Rental yr ii �: �ttp PA 1n. ,ii , Of r ) , - ,,, I I 41 _. -. _...• — . gam' Name. Country hills Apartments Address: 730 Farrdale Road City.Stele.Zip- Salina KS 67401 County Saline • Property Use GardenlWeikup Number of Units: 64 Stories: 3 Yen! Built/Rehabbed: 10701 Quality. Average Construction Type Wood Frame Condition Ave-rage Bldg. Descnphon: Garden apartment project made-up or Ga unite dv did among eight buildings Three floor{Tans ere available Average unit sic is 570 square feet 7 n structures ate composed of concrete on ground,wood home wood deck upper floors stucco and pitched wood rear structures with a composrbon shingle corer In the summer of 2003.the exteriors were completely resided and the owner installed an in ground!rogation system and revel sod. Overall,teas protect ha= been well maintained Utilities vet Rent Unit Amenities Other Amenitiet Water Fully Equipped l itclrens Clubhouse T'aSh PaIvs!3atcon:es Outdoor Swim-ring Peer Sewer Fireplaces(some unrtsi Walk-in Closets Survey Date: 6/1(2007 Occupancy: 8J1Y. Unit Type or of Units Site in Sq Ft Rent J Month Rent I Sq. Fl 2t3R-214A lb furl $.450 SO 53 1BR IBA 16 485 $345 SOr1 1 BR-tBA FP 32 485 $355 $0.7 3 Survey Comments: Inc manager stated she stepped owing rent specials in the early 1000s Frorn 2000 to 20U the average rent rtes increased 1 10'4 per year cornpoundeo • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 234 Downtown Salina H.D. Lee Complex Comparable Multifamily Rental .,0446104416.., . . . • Name: thilcrest Apartments Address: 2140E. Crawford City,State,Zip: Salina, KS,67401 Coory Saline Property Use: GardonrVir al kup 111111 Number of Units 56 Stories: ? Year BudURehabberi: 1974ls Quality lair Cctnstruction Type: Wood Frame and siding Condition Average Bldg,Description: Garden apartment project made up of 56 units divided among four buildings Two Boor plans ate availatie Average unit size is 521 square feet The structures are comprised of concrete on grade floor structure,wood frame /..trad deck upper floor,lap siring,and a pitched wood roof structure with a composition shingle covet Utilities wi Rent Unit Amenities Other Amenities Water No Dishwashers Community Room Trash Standard Appliances Laundry Sewer Swimming Pool Piaygiound Survey Date: 6/1/2C07 Occupancy: Unit Type ft of Units Size in Sq Ft Refit Month Rent 1 Sq. Ft fir PA 24 4 is4 S2 7C., I SHANER APPRAISALS, INC. Market Analysis — Multifamily • 233 Downtown Salina H.D. Lee Complex • Comparable Multifamily Rental 3 T Wei 4 • 1 . dam« •'ate �.. ., sa y - .«; -gars•. Name: Heather Ridge Address: 2130 E Crawford City.State,Zip: Salrrw.KS.67401 County Saone • Property Use, GardenlWalkup Number of Units: s0 Stories: 3 Year Built/Rehabbed: 11372 Duality: Average Construction Type: Wood frame siorrq and buck Condition Average Bldg.Description: Garden apartment complex made up of 60 units diveoed among three buildngs Two hoot plans are available Average unit size rs 975 square feet The structures are comprised of concrete floor structure on first floor,wood frame wood dock upper floors lad siding and trick exterior and a archer[wood root Structure with 0 composition shingle corer In 1997 the lap siding was replaced The property was purchased on May 4 2004 for S20 100 net unit The buyer reported the sale.vas arm's length According to the manager scree renovation 100Int anti carpeting)ad occurred after the sale winch hae an inpact on the current rent levels this properly has been well ma Married Utilities wl Rant Unit Amenities Other Amenities Water Starroard Aprii0ncrs Management°tine I rash Dishwashers Swimming Pool Sewer Pat:es/Oalconies Survey Date: e,1r 007 Occupancy. Unit Type $of Units Size in So Ft Rent f Month R ent f Sq.Ft 113R•1BA 24 845 1380 a> BR• 313 1,061 1.450 • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 232 Downtown Salina H.D. Lee Complex • Comparable Multifamily Rental ''' ..' % *.s,,,7 . 4 . .1/4... t. .,,,,, , .V- A J r�; 40' i;f1 Name. 3natwood Garden Apartments Address: 1225 Faith Ouve Ctty,Statc.Zrp: Salina,ics.67401 County Sober-- Property Use: Garden Waikup • Number of Units: 50 Stories: 2 Year BuilURehabbed: 1911 Quality: Average Construction Type Wood Frame Condition Ati•erag. Utilities yr!Rent Unit Amenities Other Amenities 'A'd:,..1 Dishwashers Laundry `..wr P arros/tikonie Swimming Pod c.Nw• Stanrmsri Apfxranct4 Coveeed Patlung Survey Date: 6r1Q007 Occupancy' Unit Type a of Units Size in$q Ft Rent/Month Rent 1 Sq. Ft. I 1.19A 1b 700 5400 SO.ti> . •tho% 40 800 5430 SO 54 Survey Comments: Good residential.setrng Well-maintained Carport included in rent ar,COldr'y t. i,:vnor • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 231 Downtown Salina H.D. Lee Complex • Comparable Multifamily Rental u . t e ` ' 4- ,„ .y t 1 e r a ;'.IIxd y 440 t a Name:: Airport Apartments Address: 2334 Betschetl City.State.Zrp: Salina, KS, County Saline Property Use: Gard.rnNValkup Number of Units: 44 Stories: 2 • Year Built/Rehabbed_ 1950,1966 Quality: Fair to average Construction Type: Wood Flame Condition Fair to average Utilities WI Rent Unit Amenities Other Amenities Trash Dishwashers!some) Laundry Sewer WasheiiDryer Hookups Svrmming Pool Standard Appliances Playground Survey Date: 61/2007 Occupancy: 68% Unit Type *of Units Size in So Ft Rent 1 Month Rent/Sq.Ft. 2BR-1BA 22 1,100 $445 3O 40 2138-11,BA 15 1,100 $465 SO 42 3BR-iBA 4 1,250 $525 so 42 3BR-1 4BA 3 1,250 3525 50 42 Surrey Comments: Two bedroom units are all electric Mule tee three-bedroom units are gas heat and cooking Former military barracks reportedly rehabbed on 1976 and 1986 Location in predominantly industrial area surrounding airport. Poor street appeal • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 230 Downtown Salina H.D. Lee Complex Multi-family rental comparables • Following are write-ups of the various multi-family comparable rental properties reviewed within the primary market area for the subject property. SHANER APPRAISALS, INC. Market Analysis—Multifamily • 229 Downtown Salina H.D. Lee Complex • COMPETITIVE INVENTORY--SUPPLY Overview The subject property will have loft apartment units located on the upper floors of the retail/office buildings. In the Salina market, almost all of the supply of loft apartments is located in the downtown central business district. Most of the apartments within this market area are garden apartments. Therefore, in discussing the competitive supply, we have included representative nearby garden apartments, one older downtown apartment building as well as information on the few loft rentals downtown that could be confirmed. The majority of the garden apartments are clustered in fairly close proximity off of Crawford Road on the east side of Ohio Street. Complexes in this general area include Briarwood Garden, Heather Ridge, Hillcrest, Country Hills and Oaktree. Quail Creek is located a mile to the north off of Iron Street and east of Ohio Street. The Airport Apartments are located in the southwest part of town by the airport and the Southwind Apartments are converted army barracks that are located in the same general vicinity. The one apartment building surveyed downtown is the Gold Key Apartments located off of Ash Street. • There is several low income or rent-subsidized apartment complexes located within the City of Salina. Previously we have discussed the newer properties which include 296 units at Chapel Ridge and 96 units at the Reserves of Prairie Glen. Other rent-subsidized housing projects include Johnstown Towers (91 units), Lakewood Townhomes (36 units), Market Place Apartments (43 units), Oakdale Plaza (46 units), Saline Apartments (34 units) and Smoky Hill Villa (38 units). Another key market segment involves senior housing. Historically, the City of Salina has attracted elderly citizens from the outlying parts of the region due to the presence of the Salina Regional Health Center. Based on the demographics which show an increasing senior population in town there have been somewhat recent additions to the market place that have been previously mentioned which include Riverside (24 units), Willowgrove (48 units), Eaglecrest (102 units) and Pioneer Presidents Place (61 units). Other senior housing projects include Drury Place of Salina Retirement Apartments (58 units), McCall Manor(66 units), Presbyterian Manor(97 units) and Riverside Plaza (24 units). Several of the rent-subsidized projects included above also represent projects that cater to seniors, including Johnstown Towers, Market Place Apartments, Oakdale Plaza, Saline Apartments and Smoky Hill Villa. There are also multiple nursing home and assisted care facilities in the City of Salina with in excess of 500 beds. • SHANER APPRAISALS, INC. Market Analysis— Multifamily • 228 Downtown Salina H.D. Lee Complex second property is located at the southeast corner of Santa Fe and Iron. This is a • one bedroom, one bath unit that is approximately 1,250 square feet in size. It rents for $600 a month, which reflects a price of $0.46 per square foot per month. All utilities for this property are paid for by the landlord. Property Amenities Based upon amenities offered at comparable properties within the subject's market area, the unit amenities at the subject property should include: • Standard built-in appliances • Microwaves • Washer/dryer units Common amenities should include: • Fitness center • Media room • Hi-Fi Wireless Internet Access • i SHANER APPRAISALS, INC. Market Analysis —Multifamily • 227 Downtown Salina H.D. Lee Complex • low although they have increased at steady levels. In 1990 the average monthly rental rate was $329. According to 2000 Census data, monthly rental rates for the city of Salina averages $379, and 69% of renters paid between $250 and $500 per month. Census 2000 Specified Renter Occupied Housing Units by Contract Rent Number Percent Total 6.270 100.0% Paying Cash Rent 6,112 97.6% <$100 168 2.7% $100-5149 110 1.8°r6 $150-5199 248 4.0% 5200-5249 405 6.5% 5250-5299 714 11.4% 5300-5349 1.146 18.3% 5350-5399 1,123 17.9% $400-5449 839 13.4% $450-5499 481 7.7% $500-5549 295 4.7% $550-$599 165 2.6% 5600-5649 101 1.6% 5650-5699 90 1.4% 5700.5749 29 0.5% $750•$799 15 0.2% 5800-5899 9 0.1% $900-5999 19 0.3% • 51000-$1249 129 2.1% 51250-51499 0 0.0% 51500-51999 26 0.4% 52000+ 0 0.0% No Cash Rent 158 2.5% Median Rent $362 Average Rent $379 Average Gross Rent(with Utilities) $484 Although concessions are typical during the lease-up phase of many larger apartment properties, no concessions are recommended to be offered, particularly if there is no competitive new construction. According to each of the apartment managers in the community, concessions have not been necessary since demand has remained so strong with low rents and low vacancy rates. Thus, no concessions are likely to be required for the subject to achieve a timely lease-up. Most of the rentals are typical 1970's vintage garden apartments found in the southern portion of town. Gold Key is a downtown complex that is a converted hotel. It is older, reflects low maintenance levels and consists of small furnished units. There are several loft properties in downtown but the vast majority of these are owner occupied units that have been custom builds. We only found information on two loft rentals. The first is located at 111 N. Santa Fe. This is a two bedroom, one bath unit that is approximately 1,200 square feet in size. It rents for $500 a month, • or $0.42 per square foot per month and all the utilities are paid by the tenant. The SHANER APPRAISALS, INC. Market Analysis— Multifamily • 226 Downtown Salina H.D. Lee Complex The following graphs represent the absorption supply and demand scenarios in the • PMA for the years 2007-2012 for the secondary market area utilizing the standardized population forecast as well as the historically relevant migration factors. Projected Annual Population Increase (.36% annually) 225 Projected Household Increase based on 2.42 p/HH 93 Percent of Rental Units (30%) 28 Average Annual Multifamily Permits 39 Projected Number of Rental Units Needed 37 Deficit in Demand 11/13 year Projected Annual Population Increase (.36% annually) 225 Migration Rate Increase (.43% annually) 265 Total Increased Population including Migration 490 Projected Household Increase based on 2.42 p/HH 202 Percent of Rental Units (30%) 60 Average Annual Multifamily Permits 39 Projected Number of Rental Units Needed 37 Surplus in Demand 21/23 year • Based on population forecasts the amount of multi-family development that has taken place appears to have been adequate to meet the demand. However, when the migration rates are applied based on actual historical population trends there is a deficit in the amount of multi-family properties that are being added to the marketplace each year in the City of Salina to meet the market demand. The supply and demand appear to have been relatively in equilibrium over the past decade. However, the low vacancy rates, along with the lack of new market-rate competition does suggest that not only can the market adequately absorb some new inventory, it actually needs it. Based upon the apparent demand in the area and the unique design and quality of the multifamily units at the subject site, we anticipate absorption rates of 6 to 10 units per month, which would impute a lease-up period (to stabilized occupancy) of 12 to 18 months for the subject if approximately units were developed. Rental Rates The existing rental properties within the community are generally of older vintage and have as amenities a laundry area, swimming pool and playground area. The only new rental developments in the area over the course of the last 15 years are low-income and senior housing. Consequently, the average rental rate for the area is • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 225 Downtown Salina H.D. Lee Complex SECONDARY MARKET AREA 1990 Census 2000 1990.2000 Number Percent Number Percent Annual Rata Housing Units by Occupancy Total 23.720 100.0% 25.450 100.0% 0.71% Occupied Housing Units 22.092 93.1% 23,886 93.8% 0.78% Owner Occupied Housing Units 14,999 63.2% 18.793 68.0% 1.14% Renter Occupied Housing Units 7.093 29.9% 7,073 27.8% -0.03% Vacant Housing Units 1.628 8.9% 1,584 8.2% 4.27% For Rent 707 3.0% 591 2.3% -1.78% For Sale Only 238 1.0% 293 1.2% 2.10% Rented or Sold,not Occupied 125 0.5% 89 0.3% -3.34% For SeasonattRecreationaVOccasional Use 55 0.2% 96 0.4% 5.73% For Migrant Workers 1 0.0% 1 0.0% 0.00% Other Vacant 502 2.1% 514 2.0% 0.24% Absorption No new market rate apartment complexes have been built in the City of Salina in many years. Consequently, very little empirical market data is available with respect to absorption rates. There have been two properties that have been constructed within the past few years. The first is the Reserves at Prairie Glen. This complex was built in two phases with a phase containing 48 units built in 2004 and a second phase of 48 additional units added in 2006. This project was built utilizing Section 42 tax credits and has set rental rates. According to the management of the complex the first phase was filled before the second phase was opened so full absorption was realized within the two year period between constructions. There are a few vacancies remaining but occupancy is reported to be in excess of 90%. The second project was the Pioneer Presidents Place which provided senior apartments. This facility reached approximately 75-80% occupancy almost immediately but did take some time to reach stabilization due primarily to the fact that residents had to meet both age AND income qualifications. However, all 61 units were reported to have been filled within just over a year. Based on historic indications and forecasting, population in the market area can reasonably be expected to increase at an annual average of 225 people. Utilizing the average household size of 2.42 people, this would indicate approximately 93 additional households will be added to the market each year. Between 2000 and 2007, the increase was attributed to owner occupied housing while the total number of renter occupied units actually decreased. However, the projections for the five year period from 2007-2012 indicates that 183 rental units will need to be added to supplement the population growth. That creates an annual demand of 37 units. This is based on population forecasts that do not take into account the migration patterns that have historically existed within this marketplace that have been • previously discussed in this report. SHANER APPRAISALS, INC. Market Analysis —Multifamily • 224 Downtown Salina H.D. Lee Complex was pre-leased based on a waiting list from the first phase, before actual III construction begun. The Pioneer Presidents Place Senior Facility reached approximately 75-80% occupancy almost immediately but did take some time to reach stabilization due primarily to the fact that residents had to meet both age AND income qualifications. PRIMARY MARKET AREA 1990 Census 2000 1990.2000 Number Percent Number Percent Annual Rate Housing Units by Occupancy Total 18 468 100.0% 19.599 100.0% 0.60% Occupied Housing Units 17.349 93.9% 18,523 94.5% 0.66% Owner Occuped Housing Units 11.181 60 5% 12.244 62.5% 0.91% Renter Occupied Housing Units 6.168 33.4% 6,279 32.0% 0.18% Vacant Housing Units 1 119 6.1% 1.076 5 5% -0.39% For Rent 615 3.3% 494 2 5% -2.17% For Sale Only 162 0.9% 198 1.0% 2 03% Rented or Sold not Occupied 67 0 4% 64 0.3% -0.46% For Seasonal/Recreational/Occasional Use 15 0.1% 49 0.3% 12.57% For Migrant Workers 1 0.0% 1 0.0% 0.00% Other Vacant 259 1.4% 270 1.4% 0.42% • • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 223 Downtown Salina H.D. Lee Complex • SECONDARY MARKET AREA Housing Units by Occupancy Status and Tenure Census 2000 2007 2012 Number Percent Number Percent Number Percent Total Housing Units 25,450 100.0% 26.541 100,0% 27.222 100.0% Occupied 23,866 93.8% 24.623 92.8% 25.111 92.2% Owner 18.793 86.0% 17.692 66.7% 17.997 66.1% Renter 7,073 27.8% 6.931 26.1% 7.114 26.1% Vacant 1,584 6.2% 1,918 72% 2.111 T.8% Vacancy Rates One of the primary measures of the supply and demand relationship is the number of vacant apartment units available in the market. According to demographic data, overall vacancy rates were 6.1% in 1990, 5.5°/n, in 2000 and are projected in 2007 to be 6.5%. For this market area the projected current vacancy appears to be at the high end based on historical data of the 1990-2000 censuses as well as a survey of the properties within the market area. However, it should also be noted that the vacant housing numbers listed below not only include housing units that are for rent, but also those for sale. Typically, the multi-family units would represent the "for rent" vacancies and single family homes that are being utilized for income producing purposes would represent the "for sale only" vacancies. • Total vacancies in 1990 were 1,119, or 6.1% of all the housing units within the market area. However, there were 615 vacancies of 6,168 renter occupied housing units, which creates a rental vacancy of 10%. In 2000 there were only 494 vacancies of 6,279 renter occupied housing units, which created a rental vacancy of 7.9%. Since 1990, 705 new multi-family units have been added within the City of Salina, yet the number of renter households actually decreased from 6,168 in 1990 to 6,098 in 2007. The number of renter occupied housing units increased from 6,168 in 1990 to 6,279 in 2000 but the past seven years has shown a loss of 181 units. From 1990 to 2000 supply increased by 374 multi-family units according to building permits records. This indicates that some units were removed from the market, most likely due to poor condition. During that same time-frame vacancy decreased by 121 rental units and occupancy increased by 111 units. This is indicative of stability in the market. The decline from 2000-2007 can be most adequately explained by the existence of historically low interest rates which resulted in a dramatic increase in home purchases. One reason that vacancy remains somewhat stable is the fact that minimal new construction of multi-family units has taken place in the past several years. As stated previously in this report, there have been no market-rate apartments introduced into the City of Salina for over 25 years. The two most current projects were the Reserves at Prairie Glen and Pioneer Presidents Place. According to the manager of the Reserves at Prairie Glen the property filled up very quickly, even though the • tenant had to meet certain income qualifications. In fact, much of the second phase SHANER APPRAISALS, INC. Market Analysis —Multifamily • 222 Downtown Salina H.D. Lee Complex • Meanwhile, single family development has been very steady over this same timeframe. While only 39 multi-family units were added per year, 106 single family units were. Over the past 18 years, there have been 13 years where single family building permits have numbered between 85 and 125 units. However, for multi- family properties there have been seven years with no units, 3 years with 6-8 units, 4 years with 25-72 units and 4 years with 102-152 units. The multi-family unit growth was spread out and came in spurts to allow for property absorption into the market. No market-rate apartments have been introduced into the City of Salina community for over 25 years. One reason for this is likely the low overall rental rates, which make developments without incentives not typically economically feasible. According to the City Planner there have been some preliminary discussions with the developers of the Prairie Glen property regarding construction of a market-rate development. This is due primarily to the strong interest they received when marketing the Prairie Glen apartments from residents who did not meet the income qualifications that were required for occupancy but were desirous of a "new" apartment. However, currently there are no plans filed with the Planning Department in the City of Salina for any type of future apartment complex development. Housing Units Ill The number of housing units in the primary and secondary market area has increased at moderate levels since 1990. However, the number of renter occupied units has decreased recently, both in actual numbers of units in the market and also as a percentage of the overall number of housing units. Between 2000 and 2007 the City of Salina showed a reduction in rental units of 181, from 6,279 to 6,098. This decline in rentals is reflective of the low mortgage interest rates that made home ownership a more cost effective alternative to leasing. Based on the estimated amount of rental properties currently available in the City of Salina as of 2007, ESRI forecasts an additional 151 within the next five years. This would amount to just over 30 new units per year. PRIMARY MARKET AREA Mousing Units by Occupancy Status and Tenure Census 2000 2007 2012 Number Percent Number Percent Number Percent Total Housing Units 19.599 100.0% 20,269 100.0% 20,706 100.0% Occupied 18,523 94.5% 18,953 93.5% 19,248 93.0% Owner 12,244 82.5% 12,855 63.4% 12,999 82.8% Renter 6,279 32.0% 6,098 30.1% 6,249 30.2% Vacant 1,076 5.5% 1,316 6.5% 1,458 7.0% • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 221 Downtown Salina H.D. Lee Complex • The only significant apartment construction that has occurred in the local market in the last 20 years is represented by senior housing and low-income housing (i.e., less than 60% of the median income). Noting the previous table the first large multi- family project in recent years was Chapel Ridge, which built 144 units in 1996 and 152 additional units in a second phase in 1998. These are low-income housing tax credit (LIHTC) properties. The next large construction projects came in 2001 when Riverside Plaza (48 units) and Willowgrove (24 units) entered the market providing senior housing. In 2003, the Eaglecrest Retirement Community constructed 102 senior units. In 2004, the Reserves at Prairie Glen built out their first phase, which contained 48 low-income tax credit units. This was followed in 2005 by the Reserves at Prairie Glen adding 48 more units in a second phase. Also, in 2005 the Pioneer Group completed the Presidents Place Senior Apartments, which contained 61 units. RECENT MULTI-FAMILY CONSTRUCTION Year Number Project Name Project Type Built of Units Chapel Ridge Phase 1 1996 144 LIHTC Chapel Ridge Phase 2 1998 152 LIHTC Riverside Plaza 2001 48 Senior • Willowgrove 2001 24 Senior Eaglecrest Retirement 2003 102 Senior Reserves Prairie Glen 1 2004 48 LIHTC Reserves Prairie Glen 2 2005 48 LIHTC Presidents Place Apts. 2005 61 Senior Tqu } � ° 627 'iii Since 1990 only 705 multi-family units have been added to the market within the City of Salina. This accounts for just over 39 units per calendar year and represents 26.9% of the total housing stock increase during this timeframe. Of the 705 units, Chapel Ridge and the Reserves at Prairie Glen accounted for 392 LIHTC units while those developed for the senior population numbered 235. Therefore, only 78, or 11% are considered to be potentially be representative of market rate units. This is the maximum amount but some of the other properties included in the building permit analysis may also include additional senior or tax-credit properties. Multi-family growth of large projects has traditionally been spread out over the years. There were 74 units constructed in the years 1990-1994, 304 units within 1995-1998, 78 units in the years 1999-2002, 259 units between 2003 and 2007 • and no units since 2005. SHANER APPRAISALS, INC. Market Analysis—Multifamily • 220 Downtown Salina H.D. Lee Complex Multi-family growth has historically come in spurts, with a timeframe elapsing III between large complex developments to allow for the market to absorb the new units. Construction Trends for new single- and multifamily residential construction are exhibited in the building permit chart that follows that shows annual permits from 1990-2007 for single family detached, single family attached/duplex, total single family and multi- family. Historically low interest rates were available to home buyers, which generated a significant amount of new home construction in the recent past, whereas multifamily construction began to lag from preceding years. The construction of single-family homes continues to be the strongest competition for apartments in the local market due to the affordability of housing in the area. 1990 80 0 80 0 1991 77 8 85 6 1992 96 3 99 25 1993 124 32 156 0 1994 100 25 125 33 1995 100 32 135 0 1996 105 40 145 144 1997 87 28 115 8 III 1998 80 36 116 152 1999 82 28 110 6 2000 88 34 122 0 2001 71 14 85 72 2002 74 11 85 0 2003 91 17 108 102 2004 91 18 109 48 2005 67 18 85 109 2006 93 18 111 0 2007 46 2 48 0 • SHANER APPRAISALS, INC. Market Analysis — Multifamily • 219 Downtown Salina H.D. Lee Complex • Property and Investment Classification For the purpose of analysis, we separate apartment complexes into three categories: Classes A, B and C. These categories are defined as follows: • Class A - Generally regarded as the highest quality space available in the marketplace, Class A buildings are typically of recent construction and are situated in prime locations. They are characterized by high quality construction and finishes, sophisticated amenities and top rental rates. A+ property would suggest "trophy" properties with the above noted characteristics. • Class B - Regarded as modern (although not necessarily new) buildings or old (i.e. Class C) structures recently renovated to modern standards. These buildings are characterized by good locations, reasonably high occupancy levels and competitive rental rates. • Class C - Lowest quality space available in the marketplace that is used for apartment activity. These buildings are generally old, but in fair condition. Rental rates are the lowest within the market and amenities are minimal. The subject units would be loft apartments. Based on the subject's age, location and recommended quality of construction, the market would generally consider the • subject Class A-/B+ apartment units. Each class is indirectly affected by the other classes. All apartments in the subject's submarket were examined in regards to competition. Greater Salina Apartment Market Overview The community of Salina has realized steady economic growth over the course of the last two decades. As shown in the previous section, the population of the city and county increased at moderate levels over the last 15 years. Only a nominal level of new apartment construction has occurred in the recent past. Most of the existing inventory of apartments is of 1950s or 1970s vintage. Although over 30% of the households consist of renters, only 7.3% of the housing stock comprises structures of five units or more in both the primary and secondary market area. Due to the relatively small community, no third-party data is available with respect to the current or historical status of the local apartment market. Thus, our analysis of the multifamily market is based upon conversations with local market participants (e.g., brokers, developers, public officials) and a sampling of rental data from our surveys. Traditionally, according to past rental surveys, vacancy rates have been fairly low in the market area. Most of the apartments in town are older with below average levels of maintenance. Overall, rental rates in the City of Salina are considered to be low. There have few new properties built in the town within recent years. All of • the latest construction involved senior housing or low-income tax credit properties. SHANER APPRAISALS, INC. Market Analysis— Multifamily • 218 Downtown Salina H.D. Lee Complex demographics (population, household growth, and household income) indicate a moderate but steady increase. The Salina Housing Authority in their 2002 study forecasted that based on affordability there would be a demand for 1,065 additional rental units from the years 2000-2020. This represents 53 units per year. Since 2000, there have been actually 331 new multi-family units added to the local inventory. This amounts to just under 51 units per year for the past 6.5 year period. Based on income levels and affordability, the Salina Housing Authority determined that approximately 33% of the new rentals should be in the less than $400/month range, 32% with rents from $400 to $625 per month and the remaining 34% with rents above $625/month. As the majority of the units that have been recently introduced to the market have been income restricted and/or for senior housing it is likely that the higher priced rental units that can be supported by the income levels of the residents have not yet been built. Households with higher incomes may be leasing units that could instead be rented by lower income households except for the fact that they have no other options. It appears that the middle-income households have the financial ability for upward mobility but do not have any alternatives currently available in the market. As such, it appears that the City of Salina is ripe for market-rate units to be constructed. • • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 217 Downtown Salina H.D. Lee Complex • 2000 2007 2012 Households by Income Number Percent Number Percent Number Percent <$15,000 3,594 15.0% 2,751 11.2% 2,317 9.2% $15,000-524,999 3,536 14.8% 2,626 10.7% 2.181 8.7% $25,000-534,999 3,871 16.2% 2.908 11.8% 2,530 10.1% $35,000-549,999 4,845 20.2% 4.842 19.7% 4,131 16.5% $50,000-574,999 4,999 20.9% 5.620 22.8% 5,969 23.8% 575,000-599,999 1,705 7.1% 3,177 12.9% 3,590 14.3% 5100,000-$149,999 903 3.8% 1.791 7.3% 3,009 12.0% $150,000-$199,000 218 0.9% 483 2.0% 717 2.9% 5200,000+ 260 1.1% 425 1.7% 867 2.7% Median Household Income $37,443 $47,093 $54,606 Average Household Income $46,508 $58263 $68,852 Per Capita Income $18,928 $23.782 $28,116 Based upon the standard affordability factor of 30%, the rental rate, including a utility allowance, should not exceed 30% of the total income of the household. The majority of the rental properties in the marketplace have water, trash and sewer expenses paid for by the landlord and included in the rent. Therefore, the only utility allowance that the tenant is typically responsible for is electricity. For purposes of our analysis, we estimate an appropriate utility allowance of $50 per month to cover electrical costs. Based upon the reconciled monthly rental rate for two-bedroom units ($655), gross rent will amount to $705 per month including utilities, or$8,460 annually. IIIThe minimum annual household income can be calculated by dividing the annual gross rent by the affordability factor ($8,460 T 30%), which imputes a minimum income of $28,200 will be required for a two-bedroom apartment. In 2007, an estimated 68.7% of the population in the primary market and 70.2% of the secondary market earn in excess of this amount. According to the data, the median household income for the respective market areas has been steadily increasing. The minimum income established for the subject property is well below the median income for households in the PMA and SMA, which bodes well for the subject. Further, the median household income and income distribution is very similar to comparable sized communities across the State of Kansas. PMA SMA 1990 Median Household Income $25,125 $25,281 2000 Median Household Income $36,084 $37,443 2007 Median Household Income $46,256 $47,093 2012 Median Household Income $54,277 $54,606 Demographic Conclusions In light of the social and economic attributes of the Salina, Kansas area, we are optimistic about the short-term and long-term outlook. All the important 110 SHANER APPRAISALS, INC. Market Analysis-Multifamily • 216 Downtown Salina H.D. Lee Complex Percentage Renters 29.9% 27.8% 26.1% 26.1% • The number of households over the past 17 years has shown steady increases although the average household size has shown a slight decrease. The percentage of renters is higher in the PMA than the SMA due primarily to the lack of rental properties available outside of the City of Salina in the semi-rural areas that make up the majority of the remainder of the secondary market. Household numbers have increased at very similar rates to overall population increases which reflect good stability. In the decade of the nineties the PMA gained 1,174 new households, for an increase of 6.8%. In the same timeframe the SMA gained an additional 602 households for a total of 1,776, which represented an 8% increase. Current and future projections are based on this historical data. Income The proceeding table shows the income levels for the PMA for and the SMA. HOUSEHOLD INCOME: PMA 2000 2007 2012 Households by Income Number Percent Number Percent Number Percent 515.000 2,951 15.9% 2,212 11.7% 1.842 9.6% 515.000•524.999 2.859 15 4% 2.098 11.1% 1.710 8.9% 525,000-534,999 3.113 16.8% 2,256 11.9% 1.931 10.0% . 535.000-549.999 3.754 20.3% 3.745 19.8% 3.124 16.2% $50,000•574.999 3 647 19.7% 4.253 22.4% 4.569 23.7% 575.000-599.999 1.180 6.4% 2.392 12.6% 2 726 14.2% 5100.000-$149.999 683 3.7% 1,312 6.9% 2.271 11.8% 5150.000-$199.000 158 0 9% 363 1.9% 560 2.9°% 5200.000+ 192 1 0% 323 1.7% 514 2.7% Median Household Income 536.084 548,256 554.277 Average Household Income 544.888 557,317 568.556 Per Capita Income 518.593 523,811 528.496 HOUSEHOLD INCOME: SMA • SHANER APPRAISALS, INC. Market Analysis - Multifamily • 215 Downtown Salina H.D. Lee Complex • Predicted and Actual Population Change,Salina 1990 2000 Change %Change Predicted Population 42,303 43,875 1,572 3.7% Actual Population 42,303 45,679 3,376 8.0% Predicted Male Population 20,277 21,196 919 4.5% Actual Male Population 20,277 22,355 2,078 10.2% Predicted Female Population 22,026 22,679 653 3.0% Actual Female Population 22,026 23,324 1.298 5.9% Source:U.S.Bureau of the Census;RDG Planning&Design Regarding population projections, it makes sense to look at historical data to forecast future trends. Taking into account the Salina Housing Authority study, if the City of Salina maintains the same percent of annual growth from the past decade and migration rates also stay constant, then the population would be 53,253 by 2020. Thus, the projections for 2007-12 provided in this report as prepared by ESRI, which do not take into account the migration statistics would be considered to represent the low end of the population forecast. The median age in the U.S. was 35.3 in 2000 and 36.5 in 2007. In the City of Salina the median age of the population was 35.3 in 2000 and 36.4 in 2007. • Increases in median age are due primarily to the aging of the "baby-boom" generation. The main age groups that showed population growth within the primary market area between the years 2000-2007 were 20-29, 45-64 and over 80. The main age groups that are forecasted for population growth within the primary market area between the years 2007-12 are 25-34, 55-64 and over 80. Household Growth The primary source of demand for new multifamily housing is the formation of new households from population growth. The following tables show the household growth, average family size, and percentage of renters for the PMA and SMA. HOUSEHOLD COMPOSITION: PMA 1990 2000 2007 2012 No. Households 17,349 18,523 18,953 19,248 Avg. Household Size 2.41 2.39 2.38 2.38 Percentage Renters 33% 32% 30.1% 30.2% HOUSEHOLD COMPOSITION: SMA 1990 2000 2007 2012 No. Households 22,092 23,866 24,623 25,111 • Avg. Household Size 2.44 2.44 2.42 2.42 SHANER APPRAISALS, INC. Market Analysis—Multifamily • 214 Downtown Salina H.D. Lee Complex • MARKET ANALYSIS — MULTIFAMILY General Characteristics of the Housing Market Area The primary employment sectors for the PMA are trade services, manufacturing, government and healthcare, which is similar to the SMA. Healthcare and social assistance proceed, respectively. Manufacturing is an important and stable employment sector in the PMA and SMA. Exide Battery, Great Plains Mtg. and Phillips Lighting represent significant manufacturing companies located within the area. Demographic Characteristics and Population The subject property is located just north of downtown in northern Salina, Kansas. The demographic information for the PMA is defined by the Salina city limits. The SMA includes the Saline County area, as well as portions of several adjoining counties. PMA SMA 1990 Total Population 42,303 54,935 2000 Total Population 45,679 59,760 2007 Total Population 46,458 61,339 As shown in the preceding table, the market areas have experienced increasing populations at moderate levels over the course of the last 17 years. The percentage of population increase during the decade of the nineties was 8% for the PMA and 9.8% for the SMA. According to research compiled by the Salina Housing Authority the actual growth of the City of Salina within the last census period of 1990-2000 exceeded the predicted growth based on statistical models utilizing a cohort-survival forecast method. The natural population growth (based on births over deaths) should have increased the population by 1,572, or 3.7% between 1990 and 2000. However, it actually increased by 3,376 people, which represented an 8% change, or 4.3% more than forecasted. The difference of 1,804 additional residents logically must be a result of migration to the area. This would indicate a migration rate for the decade of 4.3%. • SHANER APPRAISALS, INC. Market Analysis—Multifamily • 213 Downtown Salina H.D. Lee Complex • The upper floor space will be more difficult to lease and could require a somewhat discounted rental rate. • We would expect market rent would be from $8.00 to $10.00 per square foot on a net basis for the retail space. • We would expect market rent would be from $10.00 to $12.00 per square foot on a gross basis for the typical office space and from $14.00 to $16.00 per square foot on a gross basis for the executive suite office space. • It is our suggestion that there be some type of walkway, possibly cobblestone or brick pavers, throughout the property to encourage pedestrian traffic between the north and south commercial areas. • There is minimal demand for Class A office space in the City of Salina. • The City of Salina has approximately 1,000,000 square fee of existing office space. • The subject office space would be unlike conventional office buildings and would not compete directly with typical office buildings. • • It is our recommendation that a portion of the office space be utilized as an office executive suite design. • Currently the downtown area has approximately 174 existing office businesses. • SHANER APPRAISALS, INC. Market Analysis— Retail/Office • 212 Downtown Salina H.D. Lee Complex • Our recommended breakdown for office and retail in these buildings is for 75% • retail and 25% office on the first floor and 100% office usage on the second floor. • The population of the primary market area has experienced a steady growth for each of the past two decades. The population was approximately 59,760 in 2000, up from 54,935 in 1990. The 2007 forecast is 61,339. • ESRI estimates the 2007 average household income for the primary market area at $57,317. • As of 2002, the size of the subject's market area (City of Salina) was estimated to be 2,641,603 square feet, according to Progressive Urban Management Associates. Over the past several years, the market growth has been minimal. The estimated size of the subject's current trade area is estimated by the analyst to be approximately 3,000,000 square feet. • The subject market's overall retail occupancy rate was estimated to be 94.13%, according to PUMA. Although we did not conduct a market survey, there does not appear to be excessive vacancy at this time. • The lease rate ranges for retail space in the area range from $2 per square foot to III $12 per square foot with an average of approximately $7 per square foot. • The lease rate ranges for office space in the area range from $5 per square foot to $18 per square foot with an average of$8.75 per square foot. • The population is projected to increase by 1,126 people within the primary trade area between 2007 and 2012. It is also estimated that there will be 488 additional households in the primary trade area over the next five years. • The demand analysis indicates that there is demand for an additional 300,000 to 750,000+ square feet of retail space in the subject's primary market area, although the subject's immediate market contains a somewhat limited amount of properly zoned land available for development. • The leakage analysis performed in this report indicates that the City of Salina has a surplus of retail sales and is representative of a market where customers are drawn in from outside the trade area. • Based on conversations with area commercial brokers, absorption of the subject's retail/office space could take approximately 12 to 18 months with adequate pre-leasing. The first floor space should have the strongest demand. • SHANER APPRAISALS, INC. Market Analysis—Retail/Office • 211 Downtown Salina H.D. Lee Complex • sub-divided into smaller incubator type storefronts to support a market based economy. These tenant spaces are generally from 600 square feet to 3,000 square feet in size. • The downtown retail and business district is strongly affected by the presence of the Salina Regional Health Center and the City office complex, two of the largest employers in the City of Salina. • As a sub-market, the downtown area, which contains approximately 548,600 square feet of retail area, represents a 20.8% market share of the entire concentration of retail space available within the City of Salina. • No data is formally collected within the primary or secondary market areas that reflect the overall vacancy rates. • The vast majority of all retail construction work during the past five years involved interior alteration, tenant finish and small additions to existing properties. • According to the Director of Planning for the City of Salina the only major commercial construction project in consideration is Hawthorn Plaza, which will house office space in a converted school building. • • The City of Salina's Trade Pull Factor is the fourth highest of all cities in the State of Kansas. Saline County also has the fourth highest TPF of all the 105 counties within the State of Kansas. • The Trade Pull Factor accounted for over $290,000,000 of the $950,000,000 in annual retail sales revenues in 2006. • Currently the downtown area has approximately 154 existing retail businesses. • The strongest demand is for space in the range of 800 square feet to 2,500 square feet. However, there must be one or two large anchor tenants to be built on the vacant land. • The northern portion of the site is planned for renovation of three existing 5- story buildings. Of the areas designated for retail/office development, the approximate floor area is 31,700 square feet per floor. • It is our opinion that in the retail/office portion of the development, the first floor area should be mostly retail with few office users, and the second floor will be primarily office, with few retail users. • SHANER APPRAISALS, INC. Market Analysis—RetaillOffice • 210 Downtown Salina H.D. Lee Complex • MARKET RECOMMENDATIONS — RETAIL/OFFICE General Conclusions Based on the supply and demand projections contained in the attached report, we have developed the following basic conclusions: • The recommended mix of retail and office and projected market rents are as follows: Allocation Retail 75%-100% of first floor area Office 0%-25% of first floor; 100% of second floor Rents Retail $8.00- $10.00 triple net Office $10.00- $12.00 gross • $14.00- $16.00 for executive suites • The primary market area for the regional retail center is the Salina, Kansas Micropolitan Statistical Area (CBSA). • There is adequate demand for retail development in the area. There is neighborhood retail development approximately one-half mile south of the subject site in the heart of downtown. It is our opinion that a regional development in this part of town such as the one envisioned for the subject site would be a complement to the larger community retail development. • Although downtown Salina was historically the heart of the business community, the majority of the retail base is now located in southern Salina, with the location of a regional mall, traditional strip-shop centers and big-box tenants. • The retail spaces typically consist of local retail and specialty tenants. The majority of the local retailers, including big-box tenants, newer strip-shops and the local mall are located in the area to the south of downtown, which provides closer proximity to the interstate. These tenant spaces are generally from 1,500 square feet to 5,000 square feet in size. • Within the downtown area the majority of the tenants are specialty type start-up shops and niche businesses. Many of the businesses support the strong art and humanities presence found downtown. Several of the larger spaces have been • SHANER APPRAISALS, INC. Market Analysis— Retail/Office• 209 Downtown Salina H.D. Lee Complex • Office Comparable Rental Summary 131 N. Santa Fe $7.75/SF Triple Net 4,000 SF 131 N. Santa Fe $8.25/SF Triple Net 8,000 SF 131 N. Santa Fe $9.25/SF Triple Net 7,000 SF 119 W. Iron Street $6.00/SF Net 4,500 SF 119 W. Iron Street $5.25/SF Net 4,000 SF 1220 W. Crawford $6.00/SF Triple Net 5,000 SF 300 S. 9th Street N/A N/A N/A 126 N. Santa Fe $10.05/SF Full Service N/A 128 N. Santa Fe $9.50/SF Full Service N/A 138 N. Santa Fe $10.50/SF Full Service 12,000 SF 1410 E. Iron Street $18.00/SF Gross N/A 104 W. Elm Street $5.50/SF Gross 2,550 SF • 234 N. 7°i Street $9.00/SF Gross 950 SF Average $875/SF 5 333 SF Other than the one rental of $18 per foot the comparables have a fairly tight range in terms of price per square foot and size of the rentable area. The $18 per foot rental was for a property with high tenant improvements leased to government and medical tenants. Seven of the rentals are priced between $7.75 per foot and $10.50 per foot. Another grouping shows 4 rentals between $5.25 and $6.00 per foot. The higher rents tend to be for full service leases. The majority of the leases surveyed are generally from the downtown area. The size of the average rental space is just over 5,000 square feet, which 6 of the rentals having between 4,000 and 8,000 square feet. The subject property will be new construction and of superior condition and quality to the majority of the rental space surveyed. As such, it should demand rental rates in excess of the average of $8.75 per foot. We would estimate rental rates for the office space in the subject property to be in the $10.00-$12.00 a square foot range for a net lease. The office executive suites could demand in the $14.00 to $16.00 a foot range. • SHANER APPRAISALS, INC. Market Analysis— Retail/Office • 208 Downtown Salina H.D. Lee Complex OFFICE COMPARABLE RENTALS • • • k ' , -- , 1" 06/08/2007- 300 S. 9`h Street • • SHANER APPRAISALS, INC. Market Analysis — Retail/Office • 207 Downtown Salina H.D. Lee Complex • OFFICE COMPARABLE RENTALS T yea 1 d g Oki rfi .,1?-,T -€�„ 1410 E. Iron $18.00/SF, gross,government and medical • 3 ✓ v:&: l 3 i I'll ti;. ' --;;L:::,*, ' a . . 06/08/2007 �,w � ry Irv'.. 104 W. Elm $5.50/SF, gross, 2,550 SF, 3-year • • 206 SHANER APPRAISALS, INC. Market Analysis — Retail/Office