The URL can be used to link to this page

Home My WebLink About23-393 ROW - Office-625 Dallas Dr, Denton APPRAISAL REPORT SPENCER TO LOCUST - ROW - DME PROJECT PROJECT # 605307500.1365.3500 PARCEL SL 12 DALLAS DRIVE DEVELOPMENT GROUP AND COE INVESTMENTS LLC 625 DALLAS DRIVE DENTON, DENTON COUNTY, TEXAS FOR DENTON MUNICIPAL ELECTRIC 401 NORTH ELM STREET DENTON, TEXAS 76201 16910 DALLAS PARKWAY, SUITE 100 DALLAS, TEXAS 75248 23-393 16910 Dallas Parkway, Suite 100  Dallas, Texas 75248 Ofc: 214.340.5880  www.PylesWhatley.com  Appraisals@pyleswhatley.com July 25, 2023 Ms. Captoria Brown City of Denton 401 North Elm Street Denton, Texas 76201 Re: A real estate appraisal of Parcel SL 12, for a proposed permanent easement for the Spencer to Locust - ROW - DME Project, located at 625 Dallas Drive, Denton, Denton County, Texas. Dear Ms. Brown: At your request, I submit this appraisal report to estimate the market value of the above referenced property. I have made an on-site inspection of the property and considered factors pertinent to and indicative of value including the Denton area characteristics, market area data and trends, locational amenities, highest and best use, and other elements of value. This is an Appraisal Report, intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the Uniform Standards of Professional Appraisal Practice for the preparation of an Appraisal Report. As such, it presents summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser's opinion of value. Methodology and terminology used throughout the report may be found in The Appraisal of Real Estate, Fifteenth Edition, as published by the Appraisal Institute. The subject property is a tract of land totaling 93,005 square feet, improved with an office building, located along Dallas Drive. My opinions of value for the subject are effective as of July 18, 2023. The appraisal problem, as applied to the subject, is to determine the property’s market value and the total compensation due to the property owner for the proposed acquisition. “Market Value is the price which the property would bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it, taking into consideration all of the uses to which it is reasonably adaptable and for which it either is or in all reasonable probability will become available within the reasonable future.” City of Austin v. Cannizzo, 267 S.W. 2d 808 (Tex. 1954). 23-393 Page 2 Ms. Captoria Brown July 25, 2023 With reference to the preceding definition, my opinions of value are as follows: Whole Property 4,535,000$ Part Acquired in Permanent Easement 82,883$ Remainder - Before the Acquisition 4,452,117$ Remainder - After the Acquisition 4,452,117$ Damages 0$ Total Compensation 82,883$ Any personal property, fixtures, or intangible items that are not real property - are not included in the valuation – and are identified as personal property and discussed herein. The following report sets forth a description of the property along with a summary of the market data considered and the conclusions derived from such data. Your attention is directed to the general assumptions and limiting conditions on the following pages, as well as the extraordinary assumptions and hypothetical conditions. If you should have questions concerning any portion of this appraisal report, please contact our office. Respectfully submitted, PYLES WHATLEY CORPORATION Richard McBride State of Texas Certification # TX-1380335-G 23-393 SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS SPENCER TO LOCUST - ROW - DME PROJECT Parcel Owner Parcel Number Location Whole Property Land Area 2.135 acres (or 93,005 SF) Part To Be Acquired - Permanent Electric Easement 0.1510 acres (or 6,578 SF) Zoning Highest & Best Use Reasonable Exposure Time Effective Date of the Appraisal Date of Appraisal Report Whole Property 4,535,000$ Part Acquired in Permanent Easement 82,883$ Remainder - Before the Acquisition 4,452,117$ Remainder - After the Acquisition 4,452,117$ Damages 0$ Total Compensation 82,883$ Dallas Drive Development Group and Coe Investments LLC SL 12 625 Dallas Drive Denton, Texas 76205 R-7, Residential 12 months July 18, 2023 July 25, 2023 Commercial Development 23-393 TABLE OF CONTENTS LETTER OF TRANSMITTAL SUMMARY OF IMPORTANT FACTS PAGE SCOPE OF THE ASSIGNMENT ............................................................................................... 1 DEFINITION OF MARKET VALUE ........................................................................................ 7 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS .............................................. 8 EXTRAORDINARY ASSUMPTIONS & HYPOTHETICAL CONDITIONS .................... 11 REGIONAL MAP ....................................................................................................................... 12 MARKET AREA ........................................................................................................................ 13 LOCATION MAP ....................................................................................................................... 21 SUBJECT PROPERTY.............................................................................................................. 22 REAL ESTATE TAX ANALYSIS ............................................................................................ 27 AERIAL PHOTOGRAPH ......................................................................................................... 28 SUBJECT PHOTOGRAPHS .................................................................................................... 30 WHOLE PROPERTY SKETCH .............................................................................................. 36 ZONING MAP ............................................................................................................................ 37 FLOOD MAP .............................................................................................................................. 38 HIGHEST AND BEST USE ...................................................................................................... 39 LAND VALUATION .................................................................................................................. 41 COST APPROACH .................................................................................................................... 50 SALES COMPARISON APPROACH ..................................................................................... 51 INCOME CAPITALIZATION APPROACH .......................................................................... 62 RECONCILIATION – WHOLE PROPERTY VALUE ......................................................... 73 PART TO BE ACQUIRED ........................................................................................................ 75 REMAINDER BEFORE THE ACQUISITION ...................................................................... 78 REMAINDER AFTER THE ACQUISITION ......................................................................... 79 LAND VALUATION – REMAINDER AFTER ...................................................................... 81 COST APPROACH – REMAINDER AFTER ........................................................................ 82 SALES COMPARISON APPROACH – REMAINDER AFTER .......................................... 83 INCOME CAPITALIZATION APPROACH – REMAINDER AFTER .............................. 85 RECONCILIATION – REMAINDER AFTER ....................................................................... 90 SUMMARY OF COMPENSATION......................................................................................... 92 APPRAISER’S CERTIFICATE ............................................................................................... 93 APPRAISER QUALIFICATIONS ........................................................................................... 94 ADDENDA PARCEL SURVEY/FIELD NOTES TAX INFORMATION ZONING INFORMATION LETTER OF NOTICE USPS RETURN RECEIPTS 23-393 SCOPE OF THE ASSIGNMENT 1 Purpose of the Appraisal SCOPE OF THE ASSIGNMENT The purpose of this appraisal is to estimate the market value of the subject property: the whole property, part to be acquired, remainder property, and any damages to the remainder property. This is an Appraisal Report, intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of the Uniform Standards of Professional Appraisal Practice for an Appraisal Report. As such, it presents summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser's opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in the appraiser's file. The depth of discussion contained in this report is specific to the needs of the client and intended user(s) for the intended use stated below. The appraiser is not responsible for unauthorized use of this report. Client, Intended Use, and Intended User The City of Denton is the client of Pyles Whatley. The intended use of this appraisal is to assist the client in their determination of total compensation due to the property owner - the market value of the property to be acquired and any remainder damages. The intended users are the City of Denton, its officers, employees, and agents. Any other user or uses are not intended or authorized. Use of this appraisal for any other use or by another user may invalidate the findings and conclusions. The client has been notified that the appraiser has not appraised the subject property in the three years preceding the date of this report. Effective Date of the Appraisal The subject property is appraised as of July 18, 2023, the effective date, and is subject to the market influences and economic conditions, which existed on that date. The subject property was inspected on July 18, 2023. Date of the Report: July 25, 2023 Interest(s) Valued: Fee Simple Estate and Easement Estate A Fee Simple Estate is definable as absolute ownership, unencumbered by another interest or estate, and subject only to the limitations of eminent domain, escheat, police power, or taxation. An Easement Estate is defined as an interest in real property that conveys use, but not ownership, of a portion of an owner's property. 23-393 SCOPE OF THE ASSIGNMENT 2 Identification of Property The subject is located on the northeastern corner of Dallas Drive and Smith Street, in the city of Denton, in Denton County. The subject is physically addressed as 625 Dallas Drive, Denton, Texas 76205. The subject is improved with an office building. According to the information provided, the subject tract comprises 93,005 square feet (2.1351 acres). Abutting uses are single-family residential uses along the north side, a manufactured housing community along the east side, commercial uses across Smith Street along the south side, and commercial uses across Dallas Drive along the west side. The subject is currently used as an office building. The property appraised is identified as the subject property, as improved. Legal Description The subject is legally described as land located in the Alexander Hill Survey, Abstract No. 623, and being Lot 1, Block A, Dallas Hill Addition No. 1, City of Denton, Denton County, Texas. Subject History According to public records, ownership is vested in Dallas Drive Development Group and Coe Investments LLC. The property transferred to Dallas Drive Development Group and Coe Investments LLC from G. E. Adami and Teddy L. Coe on April 12, 2013, as recorded in Instrument No. 2013-46439, Deed Records of Denton County, Texas. The price and terms of the transaction are unknown. No transaction has occurred in the last five years. To my knowledge, the property is not for sale or under a purchase contract. Numerous tenants currently occupy the property; the subject leases were not available for analysis or consideration. This information is included only to satisfy the requirements of USPAP. It is not intended as a guarantee of title or chain of title. Any interested party should obtain a title search performed by a qualified title expert as needed. Inspection Information The subject property owner was contacted by certified mail. A copy of the letter and return receipt are included in the addenda of this report. The property owner received the certified letter but did not contact the appraiser. The property owner, or representative, was not present at the time of the inspection on July 18, 2023. 23-393 SCOPE OF THE ASSIGNMENT 3 Project Description The Spencer to Locust - ROW - DME Project by the city of Denton is for the expansion of overhead electrical transmission lines utilized by the Denton Municipal Electric company. The purpose is to provide additional capacity to the existing infrastructure. Permanent easements are required. The construction date has not been determined. Part To Be Acquired The City of Denton proposes to acquire a part of the subject property for the Spencer to Locust - ROW - DME Project. The proposed acquisition is comprised of a permanent electric easement. Per the enclosed parcel survey and field notes, the part to be acquired in permanent easement totals 6,578 square feet (0.1510 acres). Appraisal Problem The appraisal problem, as applied to the subject, is to determine the market value of the fee simple interest in the subject property and determine the total compensation due to the property owner for the proposed acquisition. In addressing this problem, the principles of utility, substitution, and anticipation are considered in the following valuation. Data Researched For this report, the subject market was researched for all pertinent data relating to the appraisal problem including the following: collecting and confirming data through brokers, appraisers, property owners, lessees/lessors, and others familiar with the real estate market. The information provided by these sources is deemed reliable but is not guaranteed. In addition, verifiable third-party sources were utilized including CoStar, the Multiple Listing Service (MLS) and others. Where applicable, additional market data was extracted from market reports and data circulated and purchased from, Real Estate Research Corporation, Price Waterhouse Coopers Korpacz Investor Survey, Yieldstar and others. The information provided by these sources is deemed reliable but is not guaranteed. Competency The appraiser involved in this assignment has considerable experience in appraising this property type and has adequate knowledge of the property type and location to meet the competency requirements of the Uniform Standards of Professional Appraisal Practice. In addition, other appraisers in the market would perform similar actions in the appraisal process to fulfill the scope of work in this assignment and the appraisal meets or exceeds the expectations of parties who are regularly intended users for similar assignments. 23-393 SCOPE OF THE ASSIGNMENT 4 Procedure The proposed acquisition is a significant distance from the main building improvement and does not affect the current use of the property. Furthermore, the proposed acquisition is located in existing easement areas, within the setbacks, and across the parking area along the southern boundary. For this appraisal, the subject property was inspected and the highest and best use analyzed considering the factors of physically possible, legally permissible, financially feasible, and maximally productive. The sales comparison and income capitalization approaches are applicable for appraisal purposes and are included in the valuation of the subject. The market was researched for all pertinent land sale data and improved sales and rentals relating to the valuation. These data are analyzed and adjusted using commonly accepted appraisal techniques. The subject land is valued by market comparison of similar tracts of land using the sales comparison approach. Due to the age of the building, the cost approach is not considered relevant and is not included in the analysis. The resulting value indications are reconciled to one final opinion of value of the whole property. Exposure Time Exposure time is defined as the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based on an analysis of past events assuming a competitive and open market. Considering the state of the economy, properties of the subject type, and market participants’ actions, an exposure time of 12 months is concluded for the subject property – at a value consistent with the conclusions of this report. Project Influence The subject property is appraised excluding consideration of the effect, if any, on value of the whole property and the part to be acquired caused by the proposed public improvements and excluding any non-compensable damages to the remainder property that result because of the part acquired or the public project. I conclude that the impending project has no effect on the whole property or on the comparable market data used herein. 23-393 SCOPE OF THE ASSIGNMENT 5 JURISDICTIONAL EXCEPTION The Uniform Standards of Professional Appraisal Practice (USPAP) requires that “When analyzing anticipated public or private improvements, located on or off the site, an appraiser must analyze the effect on value, if any, of such anticipated improvements to the extent they are reflected in market actions.” USPAP, Standards Rule 1-4 (f) USPAP provides that in developing a real property appraisal, an appraiser must: “determine the scope of work necessary to produce credible assignment results in accordance with the SCOPE OF WORK RULE.” USPAP, Standards Rule 1-2 (h) The USPAP Comment section of the SCOPE OF WORK RULE states in part: “Comment: The scope of work is acceptable when it meets or exceeds: • the expectations of parties who are regularly intended users for similar assignments; and • what the appraiser’s peers’ actions would be in performing the same or a similar assignment.” It is generally an accepted public policy that the appraisal of rights-of-way excludes the effect on value, if any, that a proposed public improvement may have on the whole property and the part to be acquired. The appraisal of the remainder property must include the effects of the part acquired and the public project, except elements that are considered non-compensable are excluded from the remainder analysis. In keeping with this policy, a Jurisdictional Exception is invoked – the subject property is appraised excluding the consideration of any effect on value of the whole property and the part to be acquired caused by the proposed public improvements and excludes any non-compensable damages to the remainder property that may result because of the part acquired or the public project. The impending project has no effect on the whole property or on the comparable sales used herein. City of Fort Worth v. Corbin. 504 S.W. 2d 828 (Tex. 1974) and Fuller v. State, 461 S.W. 2d 595, 598 (Tex. 1970) 23-393 SCOPE OF THE ASSIGNMENT 6 Scope of Work Pyles Whatley Corporation, through its licensed appraisers has performed all aspects of the real estate appraisal report, to include the following: - Identified the property and interests to be appraised; - Communicated with the City of Denton personnel, and as appropriate, other service providers, and landowners, regarding the appraisal assignment; - When possible, communicated with the property owner regarding the history and the condition of the subject property; - Researched public records regarding the history and the condition of the subject property; - Researched the public records for data on the subject property, including zoning, assessments, taxes, acreage, buildings and site improvements, and maps; - Performed a preliminary search of all available resources to determine market trends, influences and other significant factors pertinent to the subject properties. Inspected the subject property and subject area, and photographed the subject and relevant comparable sales and income properties; although due diligence has been exercised in inspection of the properties, the appraiser is not an expert in such matters as soils, structural engineering, hazardous waste, environmental conditions, the ADA, and other similar matters, and no warranty is given as to these elements; - Performed an analysis of the highest and best use of the subject property; - Researched and collected relevant data (improved sales, land sales, listings, and income and other market data) as present in the market area (from public and private sources) and of sufficient quality to express an opinion of value as defined in the appraisal reports; - Gathered and analyzed the market data to reach an estimate of market value for the appropriate interest in the subject, using the methodology and valuation approaches that are relevant to the assignment; - Assembled and wrote the narrative report, complete with maps, photos, and supporting addenda; - Prepared and submitted a written appraisal report of the subject property, as requested by the client; - A narrative appraisal report meets the client’s requirements. 23-393 DEFINITION OF MARKET VALUE 7 The definition of market value is: Definition of Market Value “Market Value is the price which the property would bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it, taking into consideration all of the uses to which it is reasonably adaptable and for which it either is or in all reasonable probability will become available within the reasonable future.” City of Austin v. Cannizzo, 267 S.W. 2d 808 (Tex. 1954). In this report, a market value opinion of the fee simple interest in the real property is developed. 23-393 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 8 The Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute require the appraiser to "set forth all assumptions and limiting conditions that affect the analyses, opinions, and conclusions in the report”. In compliance therewith, and to assist the reader in interpreting this report, such general assumptions and limiting conditions are set forth below. Specific assumptions, if any, are referred to in the transmittal letter and their location in the report detailed. GENERAL ASSUMPTIONS AND LIMITING CONDITIONS Title is assumed to be marketable and free and clear of all liens and encumbrances, easements, and restrictions except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management and available for its highest and best use. No opinion is intended to be expressed for legal matters or that would require specialized investigation or knowledge beyond that ordinarily employed by real estate appraisers, notwithstanding the fact that such matters may be discussed in the report. No opinion is expressed on the value of subsurface oil, gas, water, or mineral rights or whether the property is subject to surface entry for the exploration or removal of such except as expressly stated. The date of value to which the opinions expressed in this report apply is set forth in the letter of transmittal. The appraiser assumes no responsibility for economic or physical factors occurring at some later date, which may affect the opinions herein stated. The valuation is reported in dollars of U.S. currency prevailing on the date of the appraisal. Maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose unless specifically identified as such. All information and comments pertaining to this and other properties included in the report represent the personal opinion of the appraiser, formed after examination and study of the subject and other properties. While it is believed the information, estimates and analyses are correct, the appraiser does not guarantee them and assumes no liability for errors in fact, analysis or judgment. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected, or any reference to the Appraisal Institute or to the MAI or SRA designation) shall be disseminated to the public through advertising media, public relations media, sales media, or any other public means of communication without written consent and approval of the undersigned. 23-393 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 9 The appraiser is not required to give testimony or to appear in court by reason of this appraisal, unless prior arrangements have been made. The distribution of the total valuation in this report between land and improvements applies only under the existing or proposed/completed program of utilization. The separate valuations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. Certain information concerning market and operating data were obtained from others. This information is verified and checked, where possible, and is used in this appraisal only if it is believed to be accurate and correct. However, such information is not guaranteed. Opinions of value contained herein are opinions only. There is no guarantee, written or implied, that the subject property will sell for such amounts. Prospective values are based on market conditions as of the effective date of the appraisal. The appraiser is not responsible if unforeseeable events alter market conditions subsequent to the effective date of the appraisal. As a personal opinion, valuation may vary between appraisers based on the same facts. No responsibility for hidden defects or conformity to specific governmental requirements, such as fire, building and safety, earthquake, or occupancy codes can be assumed without provision of specific professional or governmental inspections. While the general conditions of the property were observed, no guarantee can be made concerning the individual components of the structures including but not limited to the heating system, plumbing, electrical services, roof, possible termite damage or building foundation, wells or septic systems. This appraiser is not qualified to make a complete physical inspection of the property. Such an inspection is beyond the scope of this report and no statements can be made concerning the adequacy or condition of these or other systems. No investigation - unless presented in other sections of this report - was made by the appraiser to determine if asbestos, fiberglass, or synthetic mineral fiber products are present in improved properties. The existence of such products, if any, would have to be determined by a qualified inspector. It is assumed that there is no asbestos, fiberglass, synthetic mineral fiber products, nor other contaminates present that would materially affect value. The Americans with Disabilities Act (ADA) became effective January 26, 1992. I have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect upon the value of the property. Since I have no direct evidence relating to this issue, I did not consider possible noncompliance with the requirements of ADA in estimating the value of the property. 23-393 GENERAL ASSUMPTIONS AND LIMITING CONDITIONS 10 No investigation - unless presented in other sections of this report - was made by the appraiser to determine if any toxic materials are present on the subject tract. The existence of such materials, if any, would have to be determined by a qualified inspector. It is assumed that no toxic materials are present that would materially affect value or development costs. A reasonable investigation was made to determine the existence of any underground storage tanks (UST) on the subject site. If USTs are present on the subject site details are provided in other sections of this report. It is assumed there are no USTs present that would materially affect value. Any personal property, fixtures, or intangible items that are not real property, that are included in the valuation- are identified as personal property and discussed herein. Due to the multiplicity of mathematical calculations used in standard appraisal practice, rounded values, e.g., rounded to whole dollars or whole units of measure such as linear feet or square feet, may result in inexact sums of components. The typical difference in such cases does not materially affect the value conclusions of this appraisal report or the total compensation due to the property owner. 23-393 EXTRAORDINARY ASSUMPTIONS/HYPOTHETICAL CONDITIONS 11 Extraordinary Assumptions/Hypothetical Conditions: The Uniform Standards of Professional Appraisal Practice require the disclosure of hypothetical conditions and extraordinary assumptions when employed in the development of an appraisal. As defined in the Uniform Standards of Professional Appraisal Practice, an extraordinary assumption is “an assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusions.” As defined in the Uniform Standards of Professional Appraisal Practice, a hypothetical condition is “a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results but is used for the purpose of analysis.” The use of these assumptions and/or conditions may have affected the assignment results. EXTRAORDINARY ASSUMPTIONS & HYPOTHETICAL CONDITIONS The subject is appraised conditioned upon the following extraordinary assumptions: The subject site is located along Dallas Drive and Smith Street. Adequate, legal access to the subject is assumed available as of the appraisal date. It is assumed that access will be continually available to the subject and the parking area during construction of the project. A complete survey of the subject is not available. A title commitment/history covering the subject was not provided. Typical easements for utilities, drainage, and access are assumed, but none that would be detrimental to the property. Due to a jurisdictional exception, the subject is appraised with the hypothetical condition that, in the remainder condition, the project is complete and in place. The above are set forth for appraisal purposes and no legal reasoning is intended. The reader should be aware that in the event any of the above proves false or improperly applied, the conclusions of this appraisal could be changed or invalidated. 23-393 REGIONAL MAP 12 REGIONAL MAP 23-393 SUBJECT VICINITY 13 A market area, as defined in The Dictionary of Real Estate Appraisal, 7th Edition, copyrighted 2022, is: MARKET AREA "The geographic region from which a majority of demand comes and in which the majority of competition is located.” When analyzing value influences, the focus is on market area. A market area is defined in terms of the market for a specific category of real estate and thus, is the area in which alternative, similar properties effectively compete with the subject property in the minds of probable, potential purchasers, and users. A market area can encompass one or multiple neighborhoods or districts. MARKET AREA INFLUENCES The subject property is located in the city of Denton, Texas, situated in the Dallas-Fort Worth metropolitan area. Area analysis and subject vicinity are presented in the following pages. Metropolitan Statistical Area (MSA) and Metropolitan Division (MD) With a population of over 7.7 million in 2021, Dallas/Fort Worth and the surrounding area is the fourth largest MSA under this classification. The DFW MSA is comprised of two Metropolitan Divisions: Dallas-Plano-Irving (or Dallas MD) on the east and Fort Worth-Arlington (or Fort Worth MD) on the west. The Dallas MD includes Collin, Dallas, Denton, Ellis, Hunt, Kaufman, and Rockwall Counties with a 2021 population of over 5.2 million. The Fort Worth MD is comprised of Johnson, Parker, Tarrant, and Wise Counties with a 2021 population of over 2.5 million. The DFW MSA has grown 19.5% since 2010, with Collin, Denton, Kaufman, and Rockwall experiencing the greatest growth. = Dallas-Fort Worth Arlington MSA Fort Worth-Arlington Metropolitan Division Dallas-Plano-Irving Metropolitan Division 23-393 SUBJECT VICINITY 14 LOCATION Denton County is located in the northern quadrant of the state of Texas, comprising the northern portion of the Dallas/Fort Worth/Arlington Metropolitan Statistical Area. The locale is approximately thirty miles northwest of the Dallas CBD and thirty miles northeast of the Fort Worth CBD, with the Dallas/Fort Worth International Airport eighteen miles south. Adjoining suburban neighborhoods are similar as to make-up and land uses. These include the suburban cities of Lewisville and Flower Mound. Properties in the area compete with other similar market areas. The accessibility and location amenities of the above-delineated general area have been significant in its development, redevelopment, and sustenance of commerce in the area. The general area is well serviced by major freeways, benefits from high intensity commercial as well as residential development, and is convenient to both the Dallas CBD and the Fort Worth CBD. Traffic Routes The traffic system is efficient and provides average access amenities to the area. Interstate Highway-35 which travels north to south, is a six-lane freeway connecting the Denton area to the cities of Dallas and Fort Worth. The other major freeway that services the neighborhood is US Highway 380 (University Drive), a six-lane undivided roadway, which is the main east-west highway through the city of Denton connecting Interstate 35, U.S. 377, and Loop 288. The primary north-south traffic route near the subject is Loop 288, a six-lane divided roadway. Additional north-south traffic routes include Teasley Lane and Dallas Drive. East to west traffic routes include Shady Oaks Drive and Morse Street. Population and Economics Denton is a larger medium sized city with a 2022 population of 148,164 people, and 25 constituent neighborhoods. Denton is the 20th largest community in Texas. The projected population for the city of Denton in 2023 is 160,564 and in 2029 is 204,000. Denton is currently growing at an average rate of 4.11% annually. The most prevalent occupations for people in the area are a mix of both white and blue collar jobs. Overall the city is a mix of professionals, sales and office workers, and service providers. Approximately 13.01% work in office and administrative support, 10.86% in sales jobs, and 10.57% in the teaching profession. The aggregate U.S. unemployment rate was 3.4% in May 2023. In comparison, the Bureau of Labor Statistics reported an unemployment rate of 4.1% for the state of Texas, 3.8% for the Dallas/Fort Worth MSA, 3.6% for Denton County, and 3.6% for the city of Denton. 23-393 SUBJECT VICINITY 15 The outbreak of the Coronavirus (COVID-19) had reaching effects worldwide since the onset of the pandemic beginning March 2020 in the US. While a slight setback was experienced, overall, the United States as a whole and specifically the Texas economy has seen significant economic recovery from the COVID-19 pandemic. The metropolitan area boasts a long list of national and international corporate headquarters, with many major companies relocating to DFW in the past twenty years. The availability of reasonably priced land, lower living cost for employees, favorable climate, and reasonable housing are great incentives. Education The schood district’s student population has grown by almost 28 percent since the 2007 bond election. The current estimated student population is 30,265 with a student teacher ratio of 13:1. The school district ranks in the top 20% of public schools in the state of Texas. In addition to 24 elementary schools, eight middle schools, four high schools, the district has two early childhood centers, an advance technology complex, and an alternative high school. Higher education facilities include University of North Texas, Texas Woman’s University, and North Central Texas College. University of North Texas, with a current student population of 38,081, is a public research university, with eleven colleges, two schools, and offers 38 doctoral degree programs. Texas Woman’s University, with a current student population of 15,472, is a private co- educational university with two health science center branches in Dallas and Houston. The school has a Carnegie classification as a comprehensive research and doctoral university. 23-393 SUBJECT VICINITY 16 Medical In addition to private practices, Denton County is served by numerous medical facilities which includes The Heart Hospital Baylor Denton. The center offers comprehensive surgical and interventional, noninvasive, diagnostic cardiac and vascular services, and cardiovascular rehabilitation services to Denton County and the fast-growing North Texas region. Additional facilities include Texas Health Presbyterian Hospital Denton, Medical City Denton and Select Rehabilitation Hospital-Denton. Rayzor Ranch Development Rayzor Ranch is a 410-acre master planned community located in Denton, Denton County, Texas, at the intersection of Interstate Highway 35 and State Highway 380. The development was started in 2008 and is currently still being developed as a cohesive, pedestrian friendly area inspired by historical Texas Architecture. The development includes large anchor tenants such as Walmart, and Sam’s Club, as well as, other large retail, junior anchors, specialty retailers, restaurant and financial institutions. When completed, it will be the largest super-regional retail development between Dallas, Texas and Oklahoma City, Oklahoma. TRANSPORTATION Dallas/Fort Worth International Airport The Dallas/Fort Worth International Airport, which opened January 1974 and covers more than 26.9 square miles, has had an enormous impact on the economy. There are approximately 60,000 on-airport employees and $37 billion dollars of economic activity across North Texas is attributable to the airport. DFW airport ranks third in the world, in terms of operations and tenth in terms of passengers. Twenty-six passenger airlines, 165 gates, and 7 total runways serve the airport. The Terminal Renewal and Improvement Program began in February 2011 and was completed by year-end 2021. The improvement program includes expanding security checkpoints, enhanced concessions and self-serve ticketing areas, improved parking, and implementation of green technology. Total cost is estimated at $2.69 billion over the course of the program. 23-393 SUBJECT VICINITY 17 Demographics The following Market Profile provided by the Site To Do Business provides demographic and income data for 1-mile, 3-mile, and 5-mile radii centered on the subject’s location. 23-393 SUBJECT VICINITY 18 23-393 SUBJECT VICINITY 19 23-393 SUBJECT VICINITY 20 Conclusions The transportation network in the area is good and surrounding land uses are considered to be compatible and homogenous. The subject area is in a growth phase of development and in proximity to employment centers and quality schools and services. Most developments in the immediate area were constructed in the 1970’s to 1980’s. New developments are centered around Rayzor Ranch, a 410-acre master planned community located at the intersection of Interstate Highway 35 and State Highway 380. The development was started in 2008 and is currently still being developed as a cohesive, pedestrian friendly area inspired by historical Texas Architecture. The development includes large anchor tenants such as Walmart, and Sam’s Club, as well as, other large retail, junior anchors, specialty retailers, restaurant and financial institutions. When completed, it will be the largest super-regional retail development between Dallas, Texas and Oklahoma City, Oklahoma. No noticeable nuisances or hazards are in the area and the majority of improvements are in the early to middle stages of economic life, and sufficient area services are accessible to service the community. The long-term prospects for the area and the subject property are positive. 23-393 LOCATION MAP 21 LOCATION MAP 23-393 SUBJECT PROPERTY 22 The whole subject property is improved with an office building, located on the northeastern corner of Dallas Drive and Smith Street, Denton, Denton County, Texas. Subject property SITE DATA Site/Dimensions/Frontage Based on the information available, the whole property tract is rectangular in shape, and contains 93,005 square feet, or 2.1351 acres. The subject fronts the eastern line of Dallas Drive for 287 linear feet, and the northern line of Smith Street for 359 feet. The subject is approximately 203 feet deep along the eastern property line. Subject Vicinity and Abutting Uses The subject abuts single-family residential uses along the north side, a manufactured housing community along the east side, commercial uses across Smith Street along the south side, and commercial uses across Dallas Drive along the west side. Types of properties located in the subject vicinity are mostly residential to the north with commercial and light industrial uses along the main arterials to the south. Linkages The subject is accessible to arterial linkages and the distance to employment centers, retailers, restaurants, and schools is considered within reason in the city of Denton. In terms of travel time and actual distances by road, the subject property is within community standards. Access Dallas Drive is a four-lane, undivided thoroughfare. Smith Street is a two-lane, undivided roadway. Overall, access for the neighborhood is rated as average. Access to and from the subject is average and via two curb cuts along Smith Street. Visibility and exposure of the subject are rated average. Topography/Flood Zone The topography of the tract is mostly level and at street grade, and is not problematic to development. According to FEMA flood hazard map 48121C0360G dated April 18, 2011, the subject is determined to be outside the 100-year floodplain, being within Zone 'X'. Drainage of the site appears graded. No representation is made that the site will or will not flood. A hydrological study or survey is required for confirmation of flood-designated boundaries. Wetlands No visual evidence was observed to indicate whether wetlands exist on the subject site. Wetlands, as defined by Section 404 of the Clean Water Act, are those areas that are inundated or saturated by surface or groundwater at a frequency and duration sufficient to support, and under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions. Swamps, bogs, fens, marshes, and estuaries are subject to federal environmental law. 23-393 SUBJECT PROPERTY 23 Utilities/Community Services Electricity, water, sewer, and phone services are available to the subject. Electric service and telecommunication services are available by various providers. Natural gas service is available from Atmos Energy. Water and wastewater is provided by the city of Denton. Police and fire protection are provided by the city of Denton. The property is located within the Denton Independent School District. Zoning The site is zoned R-7, Residential by the City of Denton. The R-7, Residential district is intended to provide for a wide variety of housing types on lots designed to encourage walking to neighborhood-serving retail and other amenities such as parks and school facilities. This zoning district will ensure existing neighborhood character is maintained while also contributing to a safe environment for pedestrians and bicyclists. This district can also serve to support compatibility between single-family neighborhoods and higher intensity mixed-use or nonresidential. Minimum lot area 4,000 square feet Minimum lot width 50 feet Minimum lot depth 80 feet Front yard setback 10 feet Side yard setback 5 feet Rear yard setback 10 feet Maximum building height 40 feet Maximum building coverage 65% Soils This report assumes the soils can support the structures, as numerous improvements are located within the subject area and adjoining area. A study of the development, limitations, and productivity were not completed in this appraisal report, as it is not necessary to the scope of the appraisal. Easements A complete survey of the whole site is not available for analysis. According to the parcel survey, a 10-foot building line is located along the northern boundary, a 25-foot building line is located along the southern boundary, and a 46-foot building line is located on the western boundary. An existing overhead electric line runs east to west along Smith Street, parallel to the southern line of the subject. This valuation assumes that utility and access easements typical of this property type are present and that no detrimental easement conditions exist. This should not be considered as a guaranty or warranty, however, that adverse easements do not exist. Were the property to have any easements detrimental to the subject, the opinion of value concluded herein may be invalid. 23-393 SUBJECT PROPERTY 24 Deed Restrictions To my knowledge, no deed restrictions affect or limit the use of the property; however, this should not be considered as a guaranty or warranty that no such restrictions exist. Deed restrictions are a legal matter: normally discoverable only by a title search by a title attorney. It is recommended that a title search be made if any questions regarding deed restrictions arise. Environmental Conditions To my knowledge, a Phase I Environmental Site Assessment has not been completed for the subject property as of the date of inspection. The subject is appraised predicated on the absence of detrimental environmental conditions. The conclusions of this appraisal report would be materially changed if detrimental environmental conditions affect the subject. 23-393 SUBJECT PROPERTY 25 SUBJECT IMPROVEMENTS The land is improved with an office building and associated site improvements. According to the tax records, the building consists of 26,675 square feet of gross building area. Orientation The building is rectangular in shape and oriented to Dallas Drive and Smith Street. The distance from the southernmost line of the building to the proposed permanent easement is approximately 10 feet. Age, Construction and Condition According to tax records, the building was constructed in 1985. The building is Class C, with tilt- wall construction on a concrete slab foundation. Quality is rated as average, and the improvements appear to be in average condition. My opinion of the improvements’ effective age is 30 years, which less than the actual age. No functional or economic obsolescence is noted. No items of deferred maintenance are observable. Site Improvements Site improvements are comprised of concrete parking and drives, concrete curbing, monument signage, and landscaping. The landscaping includes trees, shrubs, bushes, and grass. Overall, the improvements appear to be adequately maintained and in average condition. Quality is rated as average. No items of deferred maintenance are observable. Parking The site has an estimated 110 striped parking spaces, which include the handicap enabled spaces. The parking, access, and circulation are assumed a legal conforming condition. Occupancy and Rentals Numerous tenants occupy the property under lease agreements. Details regarding the leases are not available for analysis. Property income and expense data are not available. Functional Utility Functional utility is defined as the ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards. The subject is an office building. The improvements are functionally adequate given the architectural style, design and layout, traffic patterns, and the size and configuration of the improvements for this property type. 23-393 SUBJECT PROPERTY 26 External Obsolescence External obsolescence is considered to be the loss in value of the property resulting from an influence of negative forces not inherent with the property. It can be caused by the exertion of detrimental external forces upon the area or property itself. Specific examples are significant fluctuations in the local economy, noise from nearby expressways or airports, excessive taxes, supply and demand imbalances, special assessments or certain other governmental actions, the lack of financial liquidity in the marketplace, or the infiltration of unharmonious groups or land uses. This form of obsolescence is rarely, if ever, curable. The subject regional area is currently experiencing stable rental rates and occupancy levels. Based upon the stable market conditions within the extended area the property does not appear to suffer from external obsolescence. CONCLUSIONS The subject is improved with an office building, with adequate frontage and access via the two curb cuts along Smith Street. Condition of the improvements is average. The property appears to be a legal conforming use. 23-393 REAL ESTATE TAX ANALYSIS 27 The Texas legislature created a system of centralized appraisal districts for each Texas county so that all real estate within a given county is valued for tax purposes through a standard appraisal process. Property assessments are based on market value. Real Estate Tax Analysis In, the Denton Central Appraisal District is responsible for ad valorem tax appraisals of all real estate within the county. Based on the ad valorem tax appraisal, various tax districts levy annual taxes on property located within their respective districts. Typical taxing jurisdictions include assessments from the county, city, and school districts in which the property is located. The total ad valorem tax burden is the sum of the assessments for the various taxing authorities. The subject property is located in Denton County and falls within the taxing jurisdictions summarized in the following table. The 2022 Denton Central Appraisal District tax rates and account information for the subject are detailed below. The 2023 tax rates are not available as of the date of this report. City of Denton 0.560682$ Denton County 0.217543$ Dallas Independent School District 1.344600$ Total 2.122825$ 2022 TAX RATES (per $100) The following table indicates the 2023 assessed value used for determination of tax liability. Account Number Land Improvements Total 115616 1,116,060$ 1,483,940$ 2,600,000$ Based on the preceding assessed value and pertinent tax rates, the subject's annual tax liability is calculated as follows: Assessed Value Tax Rate/$100 $2,600,000 x $0.02122825 Indicated Tax Liability 55,193= $ The assessed value equates to $2,600,000, or $97.47 per square foot of building area, and is below the concluded market value in this appraisal. This difference is typically due to the valuation methods of the appraisal district. Additionally, the assessed land value equates to $12.00 per square foot of land area and is below the concluded market value in this appraisal. This difference is typically due to the valuation methods of the appraisal district. 23-393 AERIAL PHOTOGRAPH 28 Aerial Photograph Source: Denton CAD Blue line - approximate subject property boundary – appraiser’s estimate. Yellow line - approximate location of proposed permanent electric easement – appraiser’s estimate. SUBJECT 23-393 AERIAL PHOTOGRAPH 29 Source: Google Maps (Imagery date: 2022) Blue line - approximate subject property boundary – appraiser’s estimate. SUBJECT 23-393 SUBJECT PHOTOGRAPHS 30 PHOTOGRAPHED JULY 18, 2023 Subject photographs Looking easterly at proposed permanent easement from the southwestern corner of subject. Looking northeasterly at subject from proposed permanent easement on southwestern corner. 23-393 SUBJECT PHOTOGRAPHS 31 Looking easterly at proposed permanent easement area. Looking westerly along proposed permanent easement area. 23-393 SUBJECT PHOTOGRAPHS 32 Looking easterly at proposed permanent easement area. Looking northerly at subject from proposed permanent easement area. 23-393 SUBJECT PHOTOGRAPHS 33 Looking easterly at proposed permanent easement area. Looking easterly at proposed permanent easement on the eastern boundary. 23-393 SUBJECT PHOTOGRAPHS 34 Looking northerly at subject from proposed permanent easement area. Looking westerly at proposed permanent easement area. 23-393 SUBJECT PHOTOGRAPHS 35 Looking easterly along Smith Street, subject is to the left. Looking northerly along Dallas Drive, subject is to the right. 23-393 WHOLE PROPERTY SKETCH 36 Source: Denton CAD Whole Property Sketch 23-393 ZONING MAP 37 Source: City of Denton Zoning map SUBJECT 23-393 FLOOD MAP 38 Flood map SUBJECT 23-393 HIGHEST AND BEST USE 39 Four basic criteria are examined in estimating the Highest and Best Use of a property both as vacant and as improved. These are: a) Physically Possible Use - the uses to which it is physically possible to put on the site in question. b) Legally Permissible Use - the uses that are permitted by zoning and deed restrictions on the site in question. c) Financially Feasible Use - the possible and permissible uses that will produce any net return to the owner of the site. d) Maximally Productive Use - among the feasible uses, the use that will produce the highest net return on the highest present worth. The subject is a 2.1351-acre tract of land and is rectangular in shape. The size and shape of the tract is supportive of a number of potential developments. HIGHEST AND BEST USE HIGHEST & BEST USE AS IF VACANT Physically Possible Use: In arriving at an opinion of highest and best use for the subject, it is first necessary to determine if the physical characteristics of the site - such as soil conditions, topography, shape and frontage were favorable for development. Soil conditions vary throughout the area and sometimes require particular engineering. The subject fronts the eastern line of Dallas Drive for 287 linear feet, and the northern line of Smith Street for 359 feet. The subject is approximately 203 feet deep along the eastern property line. According to the enclosed flood map No. 48121C0360G, the subject is determined to be outside the 100-year floodplain, being within Zone 'X'. The site is of sufficient size, shape, and frontage to be economically adaptable to numerous uses. The size and shape of the site is adequate for development. Legally Permissible Use: The site is zoned R-7, Residential by the City of Denton. The R-7, Residential district is intended to provide for a wide variety of housing types on lots designed to encourage walking to neighborhood-serving retail and other amenities such as parks and school facilities. This zoning district will ensure existing neighborhood character is maintained while also contributing to a safe environment for pedestrians and bicyclists. This district can also serve to support compatibility between single-family neighborhoods and higher intensity mixed-use or nonresidential. Financially Feasible Use: As defined in The Dictionary of Real Estate Appraisal, Seventh Edition, is “the capability of a physically possible and legal use of property to produce a positive return to the land after considering risk and all costs to create and maintain the use”. The surrounding properties and land uses are considered for compatibility in determination of feasible use. The subject abuts single-family residential uses along the north side, a manufactured housing community along the east side, commercial uses across Smith Street along the south side, and commercial uses across Dallas Drive along the west side. Based on the land usage pattern of the surrounding area, the layout, location and frontage/visibility of the site, the most feasible use is considered to be for commercial development. 23-393 HIGHEST AND BEST USE 40 Maximally Productive Highest & Best Use: The subject fronts the eastern line of Dallas Drive for 287 linear feet, and the northern line of Smith Street for 359 feet. Dallas Drive is a four-lane, undivided thoroughfare. Smith Street is a two-lane, undivided roadway. For a commercial development, the location is considered good for appeal within the submarket. Access is rated as average and exposure of the subject is rated as average. Electricity, water, sewer, and phone services are available to the subject. Based on the foregoing and land use patterns, the highest and best use of the subject tract is for commercial development, as demand emerges in the market. HIGHEST & BEST USE AS IMPROVED Possible Use: The improvements were built in 1985, according to the Denton County Appraisal District. The improvements are of average quality and in average condition. Overall, the improvements are adequately maintained and have no deferred maintenance. The intended use of the improvements is for office building use. The physical characteristics and accompanying amenities support the continued use as such. Permissible Use: The site is zoned R-7, Residential by the City of Denton. The R-7, Residential district is intended to provide for a wide variety of housing types on lots designed to encourage walking to neighborhood-serving retail and other amenities such as parks and school facilities. This zoning district will ensure existing neighborhood character is maintained while also contributing to a safe environment for pedestrians and bicyclists. This district can also serve to support compatibility between single-family neighborhoods and higher intensity mixed-use or nonresidential. Office buildings are allowed in this zoning district. Feasible Use: The existing improvements have an effective age of approximately 30 years, based on the modified economic life concept. With proper maintenance, a property of this type typically has an economic life of 50 years. Remaining economic life of the improvements is estimated at 20 years, based on a useful life of 50 years and an effective age of 30 years, and no other use of the improvements could provide a greater return in the current market. Maximally Productive Highest & Best Use: As improved, the property is improved with an office building and is suitable for the current use. Therefore, the continued use as an office building represents the highest and best use of the land and improvements. 23-393 LAND VALUATION 41 The sales comparison method is the best method of developing an opinion of value of the subject. In this method, known sales of similar use land in the market area are compared to the subject to arrive at an indication of value. In arriving at value conclusions, the tracts are compared as to the rights conveyed, financing terms, sale conditions, market conditions, location, and physical characteristics. This approach is used to value land that is vacant or considered vacant for appraisal purposes. LAND VALUATION The market was researched for recent sales, listings, or other transactions, which would provide a valid basis for developing an opinion of the market value of the subject by comparison. After reviewing and analyzing the sales, the sales detailed on the following pages were extracted from this sample and utilized for the land valuation. 23-393 LAND VALUATION 42 LAND SALES MAP 23-393 LAND VALUATION 43 Land Sale No. 1 Location E/s of South Woodrow Lane, 0.26 mile S of McKinney Street Denton, Denton County, Texas Legal Description Lot 1,Block 1,Woodrow Multifamily Addition,an addition to the City of Denton, Denton County, Texas Grantor Terrano Realty, Inc Grantee Texas Housing Foundation Date of Sale July 1, 2022 Record Data Document No.2022-100405 Consideration $6,475,194 Conditions of Sale Cash (or cash equivalent) to the seller Land Area Acres 11.892 Square Feet 518,015 Price Per SF $12.50 Zoning SC, Suburban Corridor Comments This tract is irregularly shaped and has approximately 460 feet of frontage on South Woodrow Lane.The property was purchased for a 285-unit multi-family residential development. 23-393 LAND VALUATION 44 Land Sale No. 2 Location W/s of IH-35, 610 feet S of Schuyler Street Denton, Denton County, Texas Legal Description Lot 1,Block A,Colonial Business Park Addition,an addition to the City of Denton, Denton County, Texas Grantor Westgate Properties, LP Grantee Jignesh Patel Date of Sale February 28, 2022 Record Data Document No.2022-31472 Consideration $875,000 Conditions of Sale Cash (or cash equivalent) to the seller Land Area Acres 2.50 Square Feet 108,914 Price Per SF $8.03 Zoning HC, Highway Commercial Comments This tract is rectangularly shaped and has approximately 220 feet of frontage on the southbound Interstate Highway 35 frontage road. According to the grantee,the site was purchased for future hotel development. 23-393 LAND VALUATION 45 Land Sale No. 3 Location SE/s of Mayhill Drive, 380 feeet NE of IH-35 Denton, Denton County, Texas Legal Description Land in the M.E.P.&P.R.R.Company Survey,Abstract No.950,City of Denton, Denton County, Texas Grantor Regions Bank Grantee PWS Holdings 19, LLC Date of Sale January 6, 2021 Record Data Document No.2021-2357 Consideration $850,000 Conditions of Sale Cash to the seller Land Area Acres 1.213 Square Feet 52,840 Price Per SF $16.09 Zoning MR, Mixed Use Regional Comments This tract is mostly rectangular in shape and has approximately 245 feet of frontage on Mayhill Road.Since this transaction,this tract has been improved with a tunnell carwash facility. 23-393 LAND VALUATION 46 SF AC 1 E/s of South Woodrow Lane, 0.26 mile S of McKinney Street 518,015 11.89 $12.50 Jul-22 2 W/s of IH-35, 610 feet S of Schuyler Street 108,914 2.50 $8.03 Feb-22 3 SE/s of Mayhill Drive, 380 feeet NE of IH-35 52,840 1.21 $16.09 Jan-21 Subject 625 Dallas Drive 93,005 2.14 LAND SALES SUMMARY Sale No. Location Size Price/SF Date of Sale Comparable Adjustments Adjustments to the comparables are considered in the categories of financing terms, conditions of sale, market conditions/time, location, size, zoning, and availability of utilities and other factors. Adjustments for each factor are typically made after a comparison indicates the appropriate direction and size of each adjustment. Adjustments are based on experience and extrapolations of market indicators. EXPLANATION OF ADJUSTMENTS Property Interest Transferred Adjustments are not necessary. Financing Terms Adjustments are not necessary. Sale Conditions Adjustments for conditions of sale usually reflect the motivations of the buyer and the seller. Any sales that reflect unusual sale conditions are adjusted accordingly and the circumstances of these non-arm’s length transactions are detailed on the sale summary pages. No adjustments are warranted as each of the sales transpired with no reported uncommon sale conditions. Market Conditions The sales occurred between January 2021 and July 2022. Adjustments for market conditions are applied if property values have increased or decreased since the transaction dates. Based on my observations and analysis, commercial real estate has appreciated approximately 4% annually. Each sale is adjusted accordingly for time. Location An adjustment for location within a market area may be required when the locational characteristics of a comparable property are different from those of the property. Most comparable properties in the same market area have similar locational characteristics, but variations may exist within that area of analysis. Sale Nos. 1, 2, and 3 are similarly located as the subject, requiring no adjustment. 23-393 LAND VALUATION 47 Access Access is defined as the points, or number of points available for ingress/egress to the subject site, or ease of access to a site from major routes in the area. Sale properties are adjusted based on their inferiority/superiority as compared with the subject. The subject is accessible via two curb cuts along Smith Street. Sale Nos. 1, 2, and 3, with similar access available, require no adjustments. Frontage Frontage is the number of feet of frontage along the subject roadway or roadways. Sale properties are adjusted based on their inferiority/superiority as compared with the property. The property has 646 feet of combined frontage. Sales 2 and 3 are inferior in frontage as compared to the subject and are each adjusted +5%. Sale 1 is similar to the subject and is not adjusted. Exposure Exposure is the visibility of the subject to the roadways or neighboring properties. Sale No. 2 is adjusted +10% for inferior exposure, while Sale Nos. 1 and 3 have similar exposure to the subject, with no adjustments. Sale No.Location Vehicle Count 1 E/s of South Woodrow Lane, 0.26 mile S of McKinney Street 19,900 2 W/s of IH-35, 610 feet S of Schuyler Street 4,700 3 SE/s of Mayhill Drive, 380 feeet NE of IH-35 19,100 Subject 625 Dallas Drive 30,100 Land Sales - Traffic Exposure Size The subject is 2.135 acres. The size adjustment is based on the premise that, in general, the larger the tract, the less its selling price on a per unit basis. Recent experience with other properties indicates an approximate 5% - 15% adjustment for each doubling/halving (100%) in size. A 5% adjustment for each doubling/halving (100%) in size is utilized. Each sale is adjusted accordingly for size. Zoning The property is zoned R-7, Residential, by the City of Denton. The R-7, Residential district is intended to provide for a wide variety of housing types on lots designed to encourage walking to neighborhood-serving retail and other amenities such as parks and school facilities. This zoning district will ensure existing neighborhood character is maintained while also contributing to a safe environment for pedestrians and bicyclists. This district can also serve to support compatibility between single-family neighborhoods and higher intensity mixed-use or nonresidential. All the sales are superior as compared to the property in terms of zoning and are each adjusted +5%. 23-393 LAND VALUATION 48 Utilities Electricity, water, sewer, and phone services are available to the subject. Each of the sales has water, sewer, electricity and phone service available to the respective sites and is not adjusted. Topography The terrain is characterized as mostly level and drainage is considered adequate. According to FEMA flood hazard map 48121C0360G, the subject is determined to be outside the 100-year floodplain, being within Zone 'X'. Each of the comparable sales is located outside of designated flood area, warranting no adjustments. ADJUSTMENTS The grid below outlines the pertinent characteristics of each of the comparables and the adjustments applied. Sale No.1 2 3 No. of Acres 11.892 2.500 1.213 Size - SF 518,015 108,914 52,840 Sale Date Jul-22 Feb-22 Jan-21 Sale Price $6,475,194 $875,000 $850,000 Sale Price Per SF $12.50 $8.03 $16.09 Rights Conveyed 0%0%0% Financing 0%0%0% Sale Conditions 0%0%0% Market Conditions 4%6%10% Adjusted Price/SF $13.00 $8.51 $17.70 Location 0%0%0% Access 0%0%0% Frontage 0%5%5% Exposure 0%10%0% Size 13%1%-4% Zoning -5%-5%-5% Utilities 0%0%0% Topography 0%0%0% Net Adjustment 8%11%-4% Adjusted Price/SF $14.04 $9.45 $16.99 LAND SALES ADJUSTMENTS 23-393 LAND VALUATION 49 Land Value Opinion After the adjustment process, the comparables range from $9.45 to $16.99 per square foot, with an average of $13.49 per square foot and a median of $14.04 per square foot. Based on the foregoing and giving emphasis to Sale No. 1, it is my opinion that the market data support an estimated fee simple value of $14.00 per square foot for the subject land, with an indicated value opinion of the subject land of $1,302,070. No. of Square Feet $/SF Indicated Value 93,005 x $14.00 =$1,302,070 Total Land Area 23-393 COST APPROACH 50 The purpose of the cost approach is to develop an opinion of the cost to construct a reproduction of, or replacement for, the existing structure and then deduct all accrued depreciation in the property being appraised from the cost new of the reproduction or replacement structure. When the value of the land and an entrepreneurial profit, if appropriate, are added to this figure, the result is an indication of the value of the fee simple interest in the property. COST APPROACH When applicable, the cost approach reflects market thinking by recognizing that market participants relate value to cost. Investors tend to judge the value of an existing structure by considering the prices and rents of similar buildings and the cost to create a new building with optimal physical and functional utility. Investors adjust the prices they are willing to pay by estimating the costs to bring an existing structure up to the level of physical and functional utility they desire. The cost approach is based on the estimated replacement cost of the improvements less depreciation from all causes, to which is added the market value of the land based on comparable sales. COST APPROACH AS APPLICABLE TO THIS ASSIGNMENT The subject, having an effective age of 30 years, suffers from a degree of physical depreciation. In my experience, buildings of this age will have been rehabilitated from time to time, but not necessarily in a comprehensive manner. The subject appears to be in fair to average condition having been adequately maintained which is the basis for the reduced effective age. Different areas of the improvement spaces typically exhibit different degrees of condition and quality. The cost approach would likely be the least reliable approach to value due to the speculative cost and depreciation estimates on the existing improvements. Moreover, the cost approach to value of real estate with existing improvements of the subject's age is not typically a reliable indicator of market value when considering the use, and the degree of perceived depreciation applied to the structure. The subjective nature of concluding depreciation to the structure in this instance outweighs the construction elements of the cost approach with regard to an overall valuation. Thus, the cost approach is not used in this assignment. 23-393 SALES COMPARISON APPROACH 51 The sales comparison approach is a method of estimating market value whereby a property is compared with similar properties that have sold recently. One premise of the sales comparison approach is that the market will determine a price for the property being appraised in the same manner that it determines the price of comparable, competitive properties. The principle of substitution is basic in this approach as it implies that a prudent person will not pay more for a property than an acceptable alternative available in the market. SALES COMPARISON APPROACH The steps of the sales comparison approach are outlined as follows: (a) Research the market to obtain information about sales, listings, and offerings of properties similar to the subject property. (b) Ascertain the nature of the conditions of sale, including the price, terms, motivating forces, and its bona fide nature. (c) Determine relevant units of comparison, price per unit or sales price per square foot and develop a comparative analysis for each unit. (d) Compare each of the comparable properties' important attributes to the corresponding ones of the property being appraised, under the general categories of time, location, physical characteristics, and conditions of sale. Consider all dissimilarities and their probable effect on the price of each sale property to derive individual market indications for the property being appraised. (e) Formulate, in light of the comparison thus made, an opinion of the relative value of the subject property as a whole, or where appropriate, by applicable units, compared with each of the similar properties. In the sales comparison approach, the property appraised is compared with known prices paid for similar properties in the open market. Typically, for most properties, the most common units of comparison used are the overall price paid per unit, and sales price per square foot. The following summary information on improved sales judged to be comparable to the property appraised is included herein, establishing the probable value of the subject property by the sales comparison approach. 23-393 SALES COMPARISON APPROACH 52 IMPROVED SALES MAP 23-393 SALES COMPARISON APPROACH 53 Improved Sale No. 1 Location 5500 West Plano Parkway Plano, Collin County, Texas Grantor Hacienda Care V, LP Grantee Peacock Point, LLC Record Data Date January 26, 2023 Document No. Consideration $5,875,000 Sale Price/SF $155.77 Conditions of Sale Cash (or cash equivalent) to the seller Physical Description Land Area 2.29 AC 99,535 SF Building Coverage 37.89% Gross Building Area 37,716 SF Year Built 1999 Occupancy @ Sale 100% Description Two-story Office building Condition Average Comments Acres Square Feet This property is located along the southern line of West Plano Parkway at Winding Hollow Lane.This property is an average quality two-story office building.The building is occupied by Preferred Care Medical. 23-393 SALES COMPARISON APPROACH 54 Improved Sale No. 1 (Continued) Total $/SF Gross Rental Income 678,888$ 18.00$ Less:Expense Reimbursement 75,432$ 2.00$ Less:Vacancy @ 5%37,716$ 1.00$ Effective Gross Income 716,604$ 19.00$ Total Expenses 188,580$ 5.00$ Net Operating Income 528,024$ 14.00$ Source: Appraiser's estimate & broker's data 8.99% $155.77 73.68% Pro-Forma Operating Statement - Sale No. 1 Income Data Units of Comparison Overall Rate (Ro) Sales Price/SF NOI/EGI Ratio 23-393 SALES COMPARISON APPROACH 55 Improved Sale No. 2 Location 870 South Denton Tap Road Coppell, Dallas County, Texas Grantor Grantee Chivan, LLC Record Data Date August 10, 2021 Document No.202100244380 Consideration $2,800,000 Sale Price/SF $246.80 Conditions of Sale Cash (or cash equivalent) to the seller Physical Description Land Area 1.30 AC 56,628 SF Building Coverage 20.03% Gross Building Area 11,345 SF Year Built 2005 Occupancy @ Sale 89% Description Multi-tenant Office Building Condition Average Comments Acres Square Feet This property is located along the eastern line of South Denton Tap Road,north of Belt Line Road.This property is an average quality multi-tenant office building.This property was occupied by five tenants at the time of sale. John J. Matteucci Trust, Leroy W. Cheda Trust, and Apollaro Investments LLC 23-393 SALES COMPARISON APPROACH 56 Improved Sale No. 2 (Continued) Total $/SF Gross Rental Income 238,245$ 21.00$ Less:Expense Reimbursement 36,871$ 3.25$ Less:Vacancy @ 10%27,512$ 2.43$ Effective Gross Income 247,605$ 21.83$ Total Expenses 57,860$ 5.10$ Net Operating Income 189,745$ 16.73$ Source: Appraiser's estimate & broker's data 6.78% $246.80 76.63% Pro-Forma Operating Statement - Sale No. 2 Income Data Units of Comparison Overall Rate (Ro) Sales Price/SF NOI/EGI Ratio 23-393 SALES COMPARISON APPROACH 57 Improved Sale No. 3 Location 1301 Municipal Way Grapevine, Tarrant County, Texas Grantor 300 Arbrook, LP Grantee Flatley GRAT, Ltd. Record Data Date July 30, 2021 Document No.D221219777 Consideration $7,600,000 Sale Price/SF $249.34 Conditions of Sale Cash (or cash equivalent) to the seller Physical Description Land Area 1.72 AC 74,923 SF Building Coverage 40.68% Gross Building Area 30,480 SF Year Built 2008 Occupancy @ Sale 100% Description Two-story Office building Condition Good Comments Acres Square Feet This property is located on the southeast corner of Municipal Way and Hanover Road.This property is a good quality two- story office building.The building was occupied by seven tenants at the time of sale. 23-393 SALES COMPARISON APPROACH 58 Improved Sale No. 3 (Continued) Total $/SF Gross Rental Income 640,080$ 21.00$ Less:Expense Reimbursement 80,772$ 2.65$ Less:Vacancy @ 5%36,043$ 1.18$ Effective Gross Income 684,809$ 22.47$ Total Expenses 134,112$ 4.40$ Net Operating Income 550,697$ 18.07$ Source: Appraiser's estimate & broker's data 7.25% $249.34 80.42% Pro-Forma Operating Statement - Sale No. 3 Income Data Units of Comparison Overall Rate (Ro) Sales Price/SF NOI/EGI Ratio 23-393 SALES COMPARISON APPROACH 59 Sale No.Address YOC Size SF Price/SF Date 1 5500 West Plano Parkway 37,716 $155.77 Jan-23 Plano, Collin County, Texas 2 870 South Denton Tap Road 11,345 $246.80 Aug-21 Coppell, Dallas County, Texas 3 1301 Municipal Way 30,480 $249.34 Jul-21 Grapevine, Tarrant County, Texas Summary of Improved Sales 1999 2005 2008 The sales in the sample were selected from a larger group as being most similar in overall physical characteristics as compared to the subject. The sale sample ranges in price from $155.77 to $249.34 per square foot, range in size from 11,345 square feet to 37,716 square feet, and were constructed between 1999 and 2008. Comparable Adjustments Adjustments to the comparables are considered in the categories of financing terms, conditions of sale, market conditions/time, location, size, zoning, and availability of utilities and other factors. Adjustments for each factor are typically made after a comparison indicates the appropriate direction and size of each adjustment. Adjustments are based on experience and extrapolations of market indicators. EXPLANATION OF ADJUSTMENTS Rights Conveyed The rights conveyed of the sales represent fee simple ownership for each of the comparable sales, resulting in no required adjustment. Financing The sales were purchased with cash, or third-party financing which do not require adjustments. Sale Conditions Sale condition adjustments account for factors such as buyer or seller motivation, which affect the purchase price. The sales were evaluated and no adjustments for sale conditions are considered necessary for Sale Nos. 1, 2, and 3. Market Conditions The sales were transacted from July 2021 to January 2023. Adjustments for market conditions are applied if property values have increased or decreased since the transaction dates. Based on my observations and analysis, commercial real estate has appreciated approximately 4% annually. The sales are adjusted accordingly for time. 23-393 SALES COMPARISON APPROACH 60 Location The subject is located on the northeastern corner of Dallas Drive and Smith Street, in the city of Denton, Denton County. The sales are similarly located as the subject and do not require adjustments for location. Physical Characteristics Physical aspects are considered for each sale, and include size, age, condition, and quality. Access Access is defined as the points, or number of points available for ingress/egress to the subject site or ease of access to the site from abutting roadways. Sale properties are adjusted based on their inferiority/superiority as compared with the subject. Sales 1, 2, and 3 are similar in access as compared to the subject and adjustments are not warranted. Size The subject is comprises 26,675 square feet of total building area. The sales range in size from 11,345 square feet to 37,716 square feet. The size adjustment is based on the premise that, in general, the larger the building, the less its selling price on a per unit basis. Typically, a 5%- 15% adjustment for size compared to the subject is appropriate. Sales 1 and 3 are similar to the subject and are not adjusted. Sale 2 is superior (smaller) as compared to the subject and is adjusted -5% for size. Age The subject was built in 1985. Sale 1 was built in 1999, Sale 2 in 2005, and Sale 3 in 2008. The subject’s effective age is estimated at 30 years, with significant remaining economic life. Inadequate market data are available for an analysis to isolate precise factors for perceived differences in effective age. However, effective age, in addition to the actual age of structures, is considered an important consideration from a buyer standpoint. The adjustment is calculated at 1% for every 5 years difference of effective age. Condition The improvements are in average condition. All the sales are considered similar to the subject in condition and receive no adjustments. Quality Due to the varying construction designs and conditions of the comparables, a degree of subjectivity is likewise required in comparing the construction quality of the sale properties to the subject. Inherent in this adjustment is recognition of the aesthetic appeal and finish of each property. The subject is of average quality construction. Sales 1 and 2 are similar in quality as compared to the subject and are not adjusted. Sale 3 is superior to the subject in quality and is adjusted -5%. 23-393 SALES COMPARISON APPROACH 61 The following grid summarizes the adjustment process. Sale No.1 2 3 Year Built 1999 2005 2008 Size SF 37,716 11,345 30,480 Sale Date Jan-23 Aug-21 Jul-21 Sale Price $5,875,000 $2,800,000 $7,600,000 Sale Price Per SF $155.77 $246.80 $249.34 Rights Conveyed -0--0--0- Financing -0--0--0- Sale Conditions -0--0--0- Immediate Expenditures -0--0--0- Market Conditions 2%8%8% Adjusted Price/SF $158.88 $266.55 $269.29 Location -0--0--0- Access -0--0--0- Size -0--5%-0- Age -2%-3%-4% Condition -0--0--0- Quality -0--0--5% Net Adjustment -2%-8%-9% Adjusted Price/SF $155.70 $245.23 $245.05 IMPROVED SALES ADJUSTMENTS CONCLUSIONS In the square foot analysis, the adjusted sales range from $155.70 to $245.23 per square foot, with an adjusted mean of $215.33 per square foot. Given the size, quality, condition, and location of the subject a unit value of $170.00 per square foot is supported by the sale data. This equates to an indicated value of $4,535,000. Size SF $/SF Indicated Value 26,675 x $170.00 =$4,534,750 $4,535,000 VALUE INDICATED BY THE SALES PRICE PER SQUARE FOOT - WHOLE Value by Sales Comparison 23-393 INCOME CAPITALIZATION APPROACH 62 The premise of the income capitalization approach is that an indication of value can be derived by capitalizing the net income a property will produce - under prudent management - at an appropriate rate which reflects the current market conditions, trends, and investor requirements. The approach is based on the principle of anticipation of future benefits, foremost of which is the stream of annual net income for a holding period plus a capital sum at the end of that period. The mechanism by which these benefits are translated to value i.e., present worth, is the capitalization process. INCOME CAPITALIZATION APPROACH The income capitalization approach consists of the following steps: Market Analysis: Research the market to determine relevant income parameters i.e., rental rate, vacancy rates, absorption trends, escalations, allowances, and other factors. Estimate of Operations: Estimate potential gross income. Then, deduct a vacancy and collection loss allowance to derive effective gross income. Finally, estimate and deduct expenses of operation to derive net operating income. Capitalization: Select an applicable capitalization method and technique. Develop the appropriate rate or rates and capitalize the net operating income or income stream to derive an indication of value. As described above, the analysis of the market includes thorough research of the market to determine relevant income parameters i.e., rental rate, vacancy rates, absorption trends, escalations, allowances, and other factors. A summary of competing properties in the subject area is also included the following pages. 23-393 INCOME CAPITALIZATION APPROACH 63 RENTALS MAP 23-393 INCOME CAPITALIZATION APPROACH 64 RENTAL NO. 1 Address 1512 East McKinney Street Denton, Texas 76209 Year of Construction 2000 Rentable Building Area 6,600 SF Occupancy 77% Rental Rate Per SF $21.00 Lease Terms Plus Electric; 3 to 5-year terms Comments This property is located along the southern line of East McKinney Street,west of Woodrow Lane.This property is an average quality multi-tenant office building.The rental rate for the most recently signed lease is $21.00 per square foot,on a plus electric lease basis, for a 1,500 square foot space (starting February 2023). 23-393 INCOME CAPITALIZATION APPROACH 65 RENTAL NO. 2 Address 535 South Locust Street Denton, Texas 76201 Year of Construction 1969 Rentable Building Area 2,247 SF Occupancy 100% Rental Rate Per SF $17.00 Lease Terms Triple net 3-year term Comments This property is located on the southeastern corner of South Locust Street and Highland Streeet.This property is an average quality office building.The rental rate for the building is $17.00 per square foot,on triple net basis,with a 3-year term (starting July 2022). 23-393 INCOME CAPITALIZATION APPROACH 66 RENTAL NO. 3 Address 400 South Carroll Boulevard Denton, Texas 76201 Year of Construction 1980 Rentable Building Area 4,800 SF Occupancy 50% Rental Rate Per SF $18.00 Lease Terms Modified Gross; 1-year term Comments This property is located along the western line of South Carroll Boulevard at Stroud Street.This property is an average quality office building.The rental rate for a 2,400 square foot space is $18.00 per square foot,on modified gross lease basis,with a 1- year term (starting January 2023). 23-393 INCOME CAPITALIZATION APPROACH 67 Rental No. Name/Location Rent/SF Lease Basis YOC Rentable Area 1 1512 East McKinney Street Denton, Texas 76209 2 535 South Locust Street Denton, Texas 76201 3 400 South Carroll Boulevard Denton, Texas 76201 RENTAL SURVEY $21.00 Plus Electric 2000 6,600 SF $17.00 Triple net 1969 2,247 SF $18.00 Modified Gross 1980 4,800 SF The properties in the survey are similar to the subject and are comparable in design, construction, and use. The facilities range in size from 2,247 square feet to 6,600 square feet. The lease rates of the survey range from $17.00 to $21.00 per square foot on a triple net, modified gross, or plus electric bases, and are representative of market. For the purpose for this analysis, I conclude the subject would lease on a modified gross lease basis. That is, the operator/tenant is responsible for some of the operating expenses, including a pro rata share of the taxes and their individual utilities and maintenance. Based on this lease arrangement, the only expense to an owner would be insurance, a management fee, and any structural maintenance charges. Each of the comparable rents varies in location and quality and differs in size as compared with the subject. Market Rent and Gross Rental Income Analysis In estimating the appropriate market rental rate for the subject, all the comparables were considered. According to CoStar data, the subject is currently offered for lease at $18.00 per square foot. Considering the location of the subject, the quality of finish, and comparison to each comparable property, the data support an average market rental rate of $18.00 per square foot, on a modified gross lease basis. This estimate recognizes the location, construction, size, quality, and condition of the subject as compared with competing properties in the local market. Potential Gross Income Based on the estimated market rate, the potential gross income of the subject property is $480,150 per year or $18.00 per square foot. Reimbursements Under a modified gross lease arrangement, the reimbursed taxes equates to $55,193 annually or $2.07 per square foot. Vacancy & Collection Loss According to the Dictionary of Real Estate Appraisal, vacancy and collection (credit) loss is defined as an allowance for reductions in potential income attributable to vacancies, tenant turnover, and non-payment of rent. The portion referring to vacancy is typically derived from market sources such as the market conditions of competing properties and the competitive market. The collection loss is a reflection of the type of tenants within the market or subject. 23-393 INCOME CAPITALIZATION APPROACH 68 In order to estimate anticipated vacancy and credit loss for the subject, relevant market data sources have been researched, and the operating expenses and comparable properties have been analyzed. A survey of local management companies and rental properties show that there is a wide range of vacancy rates in the area, which vary from 0% to 50%, with an average of approximately 10%. The subject is currently 90% occupied. Therefore, a reasonable market vacancy and credit loss rate for the subject is estimated at 10%, which equates to $53,534 annually or $2.01 per square foot. OPERATING EXPENSES The following annual expense summary is estimated based on operations of similar properties in the subject market. Expenses include both fixed and variable expenses. Fixed expenses include ad valorem property taxes and property insurance. Variable expenses include management/administrative and maintenance/repair costs. Typical leases on properties of this type are structured on a modified gross or plus electric lease basis. Where actual operating statements were not available for analysis, estimates are applied in the expense estimates for the subject property. EXPENSES Real Estate Taxes Real estate taxes (as detailed previously in the tax analysis portion of the subject property section) are estimated at $55,193, or $2.07 per square foot. The basis of this expense is the county appraisal district. Fire & Extended Coverage Insurance Based on information from third party reports, the typical fire, extended coverage, and liability policy is estimated at $12,000 annually or $0.45 per square foot. Common Area Maintenance The basis of this expense is market estimates and data. The annual maintenance is estimated at $20,000 or $0.75 per square foot. Management Fees Includes general management, supervision, professional fees, legal fees, printing, keys and locks, sign expenses, and purchasing, etc. Management fees in this market range between 3% and 8% of effective gross income. Based on the market estimates and data, we utilize a 5% management fee based on market estimates, which equates to $24,090 ($0.90 per square foot). 23-393 INCOME CAPITALIZATION APPROACH 69 Structural Maintenance/Repairs This category covers all normal annual maintenance and repair costs to the structure. This expense includes such items as exterior repairs and roof repairs, as well as maintenance of the interior and its equipment, including HVAC units, plumbing and electrical. Based on information from third party reports, repairs and maintenance are estimated at $8,000 annually or $0.30 per square foot. Reserves Reserves are an appropriation from the income of the real estate that is allocated to deferred or anticipated contingencies, such as maintenance. This expense is estimated at $7,000 annually or $0.26 per square foot. Utilities Utilities are individually metered for each space and paid directly by the tenants. Expense Summary Based on the foregoing, the expenses are estimated at $4.73 per square foot or $126,283 per year. 23-393 INCOME CAPITALIZATION APPROACH 70 The following table represents the stabilized pro forma operating statement for the subject property. Rentable Building Area: 26,675 SF Total $/SF Gross Rental Income 480,150$ 18.00$ Expense Reimbursements 55,193$ 2.07$ Total Potential Income 535,343$ 20.07$ Less: Vacancy @ 10%53,534$ 2.01$ Effective Gross Income 481,809$ 18.06$ Less: Expenses Reimbursed Real Estate Taxes X 55,193$ 2.07$ Insurance 12,000$ 0.45$ Common Area Maintenance 20,000$ 0.75$ Management Fees (5% of EGI)24,090$ 0.90$ Structural Maintenance/Repairs 8,000$ 0.30$ Reserves 7,000$ 0.26$ Total Expenses 126,283$ 4.73$ Net Operating Income 355,526$ 13.33$ Net Income/Effective Gross Income Ratio 73.79% INCOME AND EXPENSE SUMMARY CAPITALIZATION Two methods of developing rates for direct capitalization are illustrated below. First is the market capitalization rate. This is an overall rate exhibited in the market and is the ratio between the total net operating income (NOI) produced by the property and the sales price from the property. Generally, the overall rate is extracted from the transactions of similar type properties. Second is the band of investment method. This method considers the financial components, or bands, of debt and equity capital required to support the investment. Market Extracted - Capitalization Rates In the sales comparison approach, the sales of similar properties are detailed. These sales included actual or estimated pro forma income and expense information that allowed the extraction of capitalization rates from cash equivalent figures. In the sales comparison approach, the pro-forma data indicate overall capitalization rates ranging from 6.78% to 8.99%. Sale No.Name/Location OAR 1 5500 West Plano Parkway 8.99% 2 870 South Denton Tap Road 6.78% 3 1301 Municipal Way 7.25% Summary of Improved Sales 23-393 INCOME CAPITALIZATION APPROACH 71 The overall rate developed by the band of investment method is based on (1) the capitalization rate for debt, called the mortgage constant, and (2) the rate of return required on equity, called the equity capitalization rate. For the subject, a 25-year amortization period is used covering 70% of the value at 7.50% interest, and considering the characteristics of the subject, an equity return of 7.00%. Using the band of investment method, the overall rate is developed as follows: Amortization Period 25 years Mortgage Constant (Rm) Loan-to-Value Ratio 70% Equity Component 30% Interest Rate (i)7.50% Equity Dividend Rate (Re)7.00% % Total Value Return Required Loan 0.700 x 0.08868 (mortgage constant)=0.06208 Equity 0.300 x 0.07000 (equity dividend rate)=0.02100 Overall Rate 0.08308 Rounded 8.30% -0.088679 Secondary data sources are noted regarding overall rates. Real Estate Research Corporation (RERC) conducts a quarterly survey of major knowledgeable real estate participants. This survey tracks target rates of return (discount rates) and capitalization rates for predominately investment-grade properties. The specific criteria for suburban office properties are most applicable to the subject. The RERC survey indicates a going-in capitalization rate of 7.7%, for investment grade office properties. 23-393 INCOME CAPITALIZATION APPROACH 72 In addition to the RERC survey, the Realtyrates.com Market Survey shows average operating data and investment data. The Realtyrates.com survey indicates target rates in the range of 5.59% to 11.87%, with an average of 9.23%. An overall capitalization rate of 8.00% is judged to be appropriate for the subject. The net operating income is capitalized using an overall rate of 8.00%, and results in a value indication of $4,444,075 ($355,526 ÷0.0800). Based on the foregoing, the income capitalization approach supports a market value of $4,444,000, rounded. $355,526 =0.0800 Value Indicated By Direct Capitalization $4,444,075 Final Value by Direct Capitalization $4,444,000 Net Operating Income Capitalization Rate 23-393 RECONCILIATION – WHOLE PROPERTY VALUE 73 In the preceding sections of this report, the area data and trends, location amenities, highest and best use, and other elements of value are discussed. The market was researched for comparable data and market trends. In the final analysis, considering the approaches to value, each approach is analyzed in terms of the quantity and quality of the data used in each approach and applicability to estimate a reliable value. Summary of Approaches Cost Approach N/A Sales Comparison Approach $4,535,000 Income Capitalization Approach $4,444,000 RECONCILIATION – WHOLE PROPERTY VALUE Sufficient sales of tracts of land with similar utility are available to arrive at an opinion of value of the land by market comparison. The sales used are adjusted to reflect current market conditions and differences in physical characteristics. Land Value estimate at $14.00 per square foot $1,302,070 Cost Approach Due to the subject age, the cost approach is not as reliable as the sales comparison and income capitalization approaches because of the amount of estimated depreciation. As such, the cost approach is not utilized in this appraisal. Sales Comparison Approach The price per square foot is used in the sales comparison approach to provide an indication of value for the subject. These transactions are considered to reflect the behavior of typical market participants. Although the sales were somewhat different in age, size, and use, they provide reasonable value indications of the subject, after adjustment for these various differences. The value range produced by this approach is a reasonable indicator based on the best available market data. Income Capitalization Approach The direct capitalization method is used in the income capitalization approach to develop an indication of market value. Operating expenses are estimated based primarily on actual data from other projects, subject historical records (if available), and data extracted from the tax rolls. The income capitalization approach is the best approach to determine market value when the real estate market recognizes the value of a property based on the income it produces. The comparables used are representative of market and provided a good indicator of the potential of the subject property. 23-393 RECONCILIATION – WHOLE PROPERTY VALUE 74 CONCLUSION In conclusion, the sales comparison and income capitalization approaches to value provide a good basis for valuation due to quality and quantity of available data. The sales comparison and income capitalization approaches are reliable indicators due to both the quality and quantity of the available sale data and current rental market data and provide a good basis for valuation. Based on the above considerations for the subject property, my final opinion of the market value of the subject in the whole property condition is as follows: Whole Property (Market Value) $4,535,000 23-393 PART TO BE ACQUIRED 75 Part To Be Acquired Part to be acquired The proposed part to be acquired is in permanent easement estate. Per the enclosed parcel survey and field notes, the part to be acquired in permanent easement totals 6,578 square feet or 0.1510 acres. The easement will be used for the expansion of overhead electric transmission lines. The permanent easement is 376.30 feet in length along the northern line, with depths of 18.10 feet on the eastern boundary, and 25.99 feet on the western boundary. Also situated in and/or proximate to the acquisition area are utility lines and appurtenances, such as utility equipment, signs, and markers. These items are assumed the property of others-unrelated entities of subject ownership. It is assumed that the Denton Municipal Electric will negotiate the successful movement of these items where necessary, and without burden to the subject owner. Landowner improvements situated in the proposed easement area include concrete paving and curbing, monument signage, and landscaping. Items that appear to be the property of others (other than the subject owner) are not considered in the valuation of the subject. The city of Denton or its contractors will restore any site improvements in the permanent easement to as good or better condition upon completion of construction. Therefore, the site improvements are excluded. Highest and Best Use The part to be acquired is a small and narrow parcel and would not be developed as a separate property. Its highest and best use is as part of the whole property. Since the area to be acquired is not an economic unit, a value estimate cannot be supported by a direct comparison with comparable data in the market. As a result, the proposed acquisition is valued as a part of the whole property. 23-393 PART TO BE ACQUIRED 76 23-393 PART TO BE ACQUIRED 77 The proposed acquisition extends through land that includes site improvements. The city of Denton or its contractors will restore any site improvements in the permanent easement to as good or better condition upon completion of construction. The compensation due the property owner for the part acquired is comprised of land value only. Valuation of the Permanent Easement Acquisition The part to be acquired in easement estate is a permanent electric easement. The permanent electric easement taking will result in an encumbrance of 7.1% of the subject (6,578 square feet ÷ 93,005 square feet = 0.071). The proposed easement is not considered to be an economic unit within itself, due to the small size and shape, and the highest and best use of the parcel is considered as a part of the whole property. The whole property land value is previously established at $14.00 per square foot. The value of the easement land immediately before the imposition of the permanent electric easement equates to $92,092 for a total of 6,578 square feet. Fee Simple Value Permanent Utility Easement 6,578 SF x $14.00 x 100%=92,092$ After the imposition of the easement, the land in the easement areas is restricted. The property owner can continue to use the land but cannot use the easement land in any manner that will prevent or interfere with the grantee’s uses or rights and cannot construct any building or other structure within the easement area, and cannot change the grade, remove dirt from the surface of the easement or impound water over the easement without the prior approval of the grantee. The easement holder may cut all trees from the easement area. The property owner is relinquishing certain rights in perpetuity to the easement holder. The property owner still incurs certain obligations within the area of the easement including the cost to maintain the surface and payment of ad valorem taxes. Limited market data are available that demonstrate the value of these rights. For the land encumbered by the permanent electric easement, it is my opinion that the property owner is giving rights to the easement holder that equate to 90% of the fee simple value of the land. The proposed permanent utility easement traverses the southern parking and driveway area of the subject. Immediately after the imposition of the easement, the value of the land within the permanent easement is considered to be no more than 10% of the fee simple value of the land. The resulting value of the permanent electric easement is calculated as follows: Fee Simple Value Permanent Utility Easement 6,578 SF x $14.00 x 100%=92,092$ Less: Value after imposition of Permanent Easement 6,578 SF x $14.00 x 10%=9,209$ Easement Value 82,883$ In my opinion, the total value of the part to be acquired in easement estate is $82,883. 23-393 REMAINDER BEFORE THE ACQUISITION 78 Remainder Before the Acquisition The indicated value of the remainder before the taking is derived by deducting the projected value of the take from the value of the whole property. The calculation is as follows: REMAINDER BEFORE THE ACQUISITION Opinion of value - whole property 4,535,000$ Opinion of value - taking 82,883$ Opinion of value - remainder before the taking 4,452,117$ 23-393 REMAINDER AFTER THE ACQUISITION 79 Remainder After the Acquisition The remainder after the acquisition is valued by a separate analysis of the property addressing physical characteristics, highest and best use, utility, and marketability. After the acquisition, no building improvements are removed or reduced. In the remainder after, the subject has 110 parking spaces, with 15 of the spaces being partially encumbered by the permanent easement; the use of this area will continue as parking in the remainder. The remainder after the acquisition is similar to the whole property, but with a small area encumbered by the permanent easement. The remainder land area is 93,005 square feet, including the permanent electric easement (6,578 square feet). The easement is situated in an area that includes some parking spaces, setbacks, or landscaping areas. The highest and best use of the remainder land continues use as an office building. While the taking does not diminish the remainder’s potential, it will result in an encumbrance of approximately 7.1% of the whole property land area (6,578 square feet ÷ 93,005 square feet = 0.071). The distance from the building to the permanent easement is approximately 10 feet on southern side of the building. As if complete and in place, the road project improvements are a general enhancement in the neighborhood and are not judged to enhance a specific property. Highest & Best Use – As if Vacant In the remainder condition, the subject property is encumbered by a permanent electric easement along the southern portion of the property. The subject fronts 287 feet along the eastern line of Dallas Drive, and 359 feet along the northern line of Smith Street. The subject is approximately 203 feet deep along the eastern property line. According to the enclosed flood map No. 48121C0360G, the subject is determined to be outside the 100-year floodplain, being within Zone 'X'. The site is of sufficient size, shape, and frontage to be economically adaptable to numerous uses. Permissible Use: The site is zoned R-7, Residential by the City of Denton. The R-7, Residential district is intended to provide for a wide variety of housing types on lots designed to encourage walking to neighborhood-serving retail and other amenities such as parks and school facilities. This zoning district will ensure existing neighborhood character is maintained while also contributing to a safe environment for pedestrians and bicyclists. This district can also serve to support compatibility between single-family neighborhoods and higher intensity mixed-use or nonresidential. Feasible Use: The surrounding properties and land uses are considered for compatibility in determination of feasible use. The subject abuts single-family residential uses along the north side, a manufactured housing community along the east side, commercial uses across Smith Street along the south side, and commercial uses across Dallas Drive along the west side. Based on the land usage pattern of the surrounding area, the layout, location and frontage/visibility of the site, the most feasible use is considered to be for commercial development. 23-393 REMAINDER AFTER THE ACQUISITION 80 Maximally Productive Highest & Best Use: For a commercial development, the location is considered good for appeal within the submarket. Access is rated as average and exposure of the subject is rated as average. Electricity, water, sewer, and phone services are available to the subject. Based on the foregoing and land use patterns, the highest and best use of the subject is for commercial development, as demand emerges in the market. HIGHEST & BEST USE AS IMPROVED Possible Use: The improvements were built in 1985, according to the Denton County Appraisal District. The improvements are of average quality and in average condition. Overall, the improvements are adequately maintained and have no deferred maintenance. The intended use of the improvements is for office building use. The physical characteristics and accompanying amenities support the continued use as such. Permissible Use: The site is zoned R-7, Residential by the City of Denton. The R-7, Residential district is intended to provide for a wide variety of housing types on lots designed to encourage walking to neighborhood-serving retail and other amenities such as parks and school facilities. This zoning district will ensure existing neighborhood character is maintained while also contributing to a safe environment for pedestrians and bicyclists. This district can also serve to support compatibility between single-family neighborhoods and higher intensity mixed-use or nonresidential. Office buildings are allowed in this zoning district. Feasible Use: The existing improvements have an effective age of approximately 30 years, based on the modified economic life concept. With proper maintenance, a property of this type typically has an economic life of 50 years. Remaining economic life of the improvements is estimated at 20 years, based on an economic life of 50 years and an effective age of 30 years, and no other use of the improvements could provide a greater return in the current market. Maximally Productive Highest & Best Use: As improved, the property is improved with an office building and is suitable for office building use. Therefore, the continued use as an office building represents the highest and best use of the land and improvements. 23-393 LAND VALUATION - REMAINDER AFTER 81 LAND VALUATION – REMAINDER AFTER Sale No.1 2 3 No. of Acres 11.892 2.500 1.213 Size - SF 518,015 108,914 52,840 Sale Date Jul-22 Feb-22 Jan-21 Sale Price $6,475,194 $875,000 $850,000 Sale Price Per SF $12.50 $8.03 $16.09 Rights Conveyed 0%0%0% Financing 0%0%0% Sale Conditions 0%0%0% Market Conditions 4%6%10% Adjusted Price $13.00 $8.51 $17.70 Location 0%0%0% Access 0%0%0% Frontage 0%5%5% Exposure 0%10%0% Size 13%1%-4% Zoning -5%-5%-5% Utilities 0%0%0% Topography 0%0%0% Net Adjustment 8%11%-4% Adjusted Price/SF $14.04 $9.45 $16.99 LAND SALES ADJUSTMENTS - REMAINDER Remainder After Value The adjusted land sales in the remainder after range from $9.45 to $16.99 per square foot, with an adjusted mean of $13.49 per square foot. Considering the adjusted sales, the remainder land is valued at $14.00 per square foot. In the remainder after, after the imposition of the easement, the area encumbered by the permanent easement, is valued at 10% of the fee simple value (10% of $92,092) or $9,209. The value of the remainder land after the acquisition is $1,219,187, including the permanent easement. Land Within Permanent Easement 6,578 SF x $14.00 x 10%=9,209$ Unencumbered Land 86,427 SF x $14.00 x 100%=1,209,978$ Total 93,005 SF 1,219,187$ 23-393 COST APPROACH - REMAINDER AFTER 82 The purpose of the cost approach is to develop an opinion of the cost to construct a reproduction of, or replacement for, the existing structure and then deduct all accrued depreciation in the property being appraised from the cost new of the reproduction or replacement structure. When the value of the land and an entrepreneurial profit, if appropriate, are added to this figure, the result is an indication of the value of the fee simple interest in the property. COST APPROACH – REMAINDER AFTER When applicable, the cost approach reflects market thinking by recognizing that market participants relate value to cost. Investors tend to judge the value of an existing structure by considering the prices and rents of similar buildings and the cost to create a new building with optimal physical and functional utility. Investors adjust the prices they are willing to pay by estimating the costs to bring an existing structure up to the level of physical and functional utility they desire. The cost approach is based on the estimated replacement cost of the improvements less depreciation from all causes, to which is added the market value of the land based on comparable sales. COST APPROACH AS APPLICABLE TO THIS ASSIGNMENT The subject, having an effective age of 30 years, suffers from a degree of physical depreciation. In my experience, buildings of this age will have been rehabilitated from time to time, but not necessarily in a comprehensive manner. The subject appears to be in fair to average condition having been adequately maintained which is the basis for the reduced effective age. Different areas of the improvement spaces typically exhibit different degrees of condition and quality. The cost approach would likely be the least reliable approach to value due to the speculative cost and depreciation estimates on the existing improvements. Moreover, the cost approach to value of real estate with existing improvements of the subject's age is not typically a reliable indicator of market value when considering the use, and the degree of perceived depreciation applied to the structure. The subjective nature of concluding depreciation to the structure in this instance outweighs the construction elements of the cost approach with regard to an overall valuation. Thus, the cost approach is not used in this assignment. 23-393 SALES COMPARISON APPROACH - REMAINDER AFTER 83 The sales comparison approach is a method of estimating market value whereby a property is compared with similar properties that have sold recently. One premise of the sales comparison approach is that the market will determine a price for the property being appraised in the same manner that it determines the price of comparable, competitive properties. The principle of substitution is basic in this approach as it implies that a prudent person will not pay more for a property than an acceptable alternative available in the market. SALES COMPARISON APPROACH – REMAINDER AFTER The steps of the sales comparison approach are outlined as follows: (a) Research the market to obtain information about sales, listings, and offerings of properties similar to the subject property. (b) Ascertain the nature of the conditions of sale, including the price, terms, motivating forces, and its bona fide nature. (c) Determine relevant units of comparison, price per unit or sales price per square foot and develop a comparative analysis for each unit. (d) Compare each of the comparable properties' important attributes to the corresponding ones of the property being appraised, under the general categories of time, location, physical characteristics, and conditions of sale. Consider all dissimilarities and their probable effect on the price of each sale property to derive individual market indications for the property being appraised. (e) Formulate, in light of the comparison thus made, an opinion of the relative value of the subject property as a whole, or where appropriate, by applicable units, compared with each of the similar properties. In the sales comparison approach, the property appraised is compared with known prices paid for similar properties in the open market. Typically, for most properties, the most common units of comparison used are the overall price paid per unit, and sales price per square foot. The same improved sales used in the whole property valuation are used for the sales comparison approach in the remainder after. 23-393 SALES COMPARISON APPROACH - REMAINDER AFTER 84 The following grid summarizes the adjustment process. Sale No.1 2 3 Year Built 1999 2005 2008 Size SF 37,716 11,345 30,480 Sale Date Jan-23 Aug-21 Jul-21 Sale Price $5,875,000 $2,800,000 $7,600,000 Sale Price Per SF $155.77 $246.80 $249.34 Rights Conveyed -0--0--0- Financing -0--0--0- Sale Conditions -0--0--0- Immediate Expenditures -0--0--0- Market Conditions 2%8%8% Adjusted Price/SF $158.88 $266.55 $269.29 Location -0--0--0- Access -0--0--0- Size -0--5%-0- Age -2%-3%-4% Condition -0--0--0- Quality -0--0--5% Net Adjustment -2%-8%-9% Adjusted Price/SF $155.70 $245.23 $245.05 IMPROVED SALES ADJUSTMENTS CONCLUSIONS In the square foot analysis, the adjusted sales range from $155.70 to $245.23 per square foot, with an adjusted mean of $215.33 per square foot. Given the size, quality, condition, and location of the subject a unit value of $170.00 per square foot is supported by the sale data. This equates to an indicated value of $4,535,000, rounded. Size SF $/SF Indicated Value 26,675 x $170.00 =$4,534,750 $4,535,000 VALUE INDICATED BY THE SALES PRICE PER SQUARE FOOT - REMAINDER Value by Sales Comparison 23-393 INCOME APPROACH - REMAINDER AFTER 85 The premise of the income capitalization approach is that an indication of value can be derived by capitalizing the net income a property will produce - under prudent management - at an appropriate rate which reflects the current market conditions, trends, and investor requirements. The approach is based on the principle of anticipation of future benefits, foremost of which is the stream of annual net income for a holding period plus a capital sum at the end of that period. The mechanism by which these benefits are translated to value i.e., present worth, is the capitalization process. INCOME CAPITALIZATION APPROACH – REMAINDER AFTER The income capitalization approach consists of the following steps: Market Analysis: Research the market to determine relevant income parameters i.e., rental rate, vacancy rates, absorption trends, escalations, allowances, and other factors. Estimate of Operations: Estimate potential gross income. Then, deduct a vacancy and collection loss allowance to derive effective gross income. Finally, estimate and deduct expenses of operation to derive net operating income. Capitalization: Select an applicable capitalization method and technique. Develop the appropriate rate or rates and capitalize the net operating income or income stream to derive an indication of value. As described above, the analysis of the market includes thorough research of the market to determine relevant income parameters i.e., rental rate, vacancy rates, absorption trends, escalations, allowances, and other factors. A summary of competing properties in the subject area is summarized in the following table. Rental No. Name/Location Rent/SF Lease Basis YOC Rentable Area 1 1512 East McKinney Street Denton, Texas 76209 2 535 South Locust Street Denton, Texas 76201 3 400 South Carroll Boulevard Denton, Texas 76201 RENTAL SURVEY $21.00 Plus Electric 2000 6,600 SF $17.00 Triple net 1969 2,247 SF $18.00 Modified Gross 1980 4,800 SF The properties in the survey are similar to the subject and are comparable in design, construction, and use. The facilities range in size from 2,247 square feet to 6,600 square feet. The lease rates of the survey range from $17.00 to $21.00 per square foot on a triple net, modified gross, or plus electric bases, and are representative of market. 23-393 INCOME APPROACH - REMAINDER AFTER 86 For the purpose for this analysis, I conclude the subject would lease on a modified gross lease basis. That is, the operator/tenant is responsible for some of the operating expenses, including pro rata shares of taxes and their individual utilities and maintenance. Based on this lease arrangement, the only expense to an owner would be insurance, a management fee, and any structural maintenance charges. Each of the comparable rents varies in location and quality and differs in size as compared with the subject. Market Rent and Gross Rental Income Analysis In estimating the appropriate market rental rate for the subject, all the comparables were considered. Considering the location of the subject, the quality of finish, consideration of the data and each comparable property, the data support an average market rental rate of $18.00 per square foot, on a modified gross lease basis. This estimate recognizes the location, construction, size, quality, and condition of the subject as compared with competing properties in the local market. Potential Gross Income Based on the estimated market rate, the potential gross income of the subject property is $480,150 per year or $18.00 per square foot. Reimbursements Under a modified gross lease arrangement, the tenant is responsible for a pro-rata share of the taxes. Reimbursements for taxes are estimated at $55,193 for the office building. Vacancy & Collection Loss According to the Dictionary of Real Estate Appraisal, vacancy and collection (credit) loss is defined as an allowance for reductions in potential income attributable to vacancies, tenant turnover, and non-payment of rent. The portion referring to vacancy is typically derived from market sources such as the market conditions of competing properties and the competitive market. The collection loss is a reflection of the type of tenants within the market or subject. In order to estimate anticipated vacancy and credit loss for the subject, relevant market data sources have been researched, and the operating expenses and comparable properties have been analyzed. A survey of local management companies and rental properties show that there is a wide range of vacancy rates in the area, which vary from 0% to 50%, with an average of approximately 10%. The subject is currently 90% occupied. Given the subject’s size, current/potential tenancy, market occupancy rates, and location, a reasonable market vacancy and credit loss rate for the subject is estimated at 10%, which equates to $53,534 or $2.01 per square foot. 23-393 INCOME APPROACH - REMAINDER AFTER 87 OPERATING EXPENSES The following annual expense summary is estimated based on operations of similar properties in the subject market. Expenses include both fixed and variable expenses. Fixed expenses include ad valorem property taxes and property insurance. Variable expenses include management/administrative and maintenance/repair costs. Typical leases on properties of this type are structured on a modified gross or plus electric lease basis lease basis. Where actual operating statements were not available for analysis, estimates are applied in the expense estimates for the subject property. EXPENSES Real Estate Taxes Real estate taxes (as detailed previously in the tax analysis portion of the subject property section) are estimated at $55,193 or $2.07 per square foot. The basis of this expense is the county appraisal district. Fire & Extended Coverage Insurance Based on information from third party reports, the estimated typical fire, extended coverage, and liability policy is $12,000 or $0.45 per square foot. Common Area Maintenance The basis of this expense is market estimates and data. The annual maintenance is estimated at $20,000 or $0.75 per square foot. Management Fees Includes general management, supervision, professional fees, legal fees, printing, keys and locks, sign expenses, and purchasing, etc. Management fees in this market range between 3% and 8% of effective gross income. Based on the market estimates and data, we utilize a 5% management fee based on market estimates, which equates to $24,090 ($0.90 per square foot). Maintenance/Repairs This category covers all normal annual maintenance and repair costs to the structure. This expense includes such items as exterior repairs and roof repairs, as well as maintenance of the interior and its equipment, including HVAC units, elevators, plumbing and electrical. Based on information from third party reports, repairs and maintenance are estimated at $8,000 or $0.30 per square foot. 23-393 INCOME APPROACH - REMAINDER AFTER 88 Reserves Reserves are an appropriation from the income of the real estate that is allocated to deferred or anticipated contingencies, such as maintenance. This expense is estimated at $7,000 or $0.26 per square foot. Utilities Utilities are individually metered for each space and paid directly by the tenants. Expense Summary Based on the foregoing, the expenses are estimated at $4.73 per square foot or $126,283 per year. The following table represents the stabilized pro forma operating statement for the subject property. Rentable Building Area: 26,675 SF Total $/SF Gross Rental Income 480,150$ 18.00$ Expense Reimbursements 55,193$ 2.07$ Total Potential Income 535,343$ 20.07$ Less: Vacancy @ 10%53,534$ 2.01$ Effective Gross Income 481,809$ 18.06$ Less: Expenses Reimbursed Real Estate Taxes X 55,193$ 2.07$ Insurance 12,000$ 0.45$ Common Area Maintenance 20,000$ 0.75$ Management Fees (5% of EGI)24,090$ 0.90$ Structural Maintenance/Repairs 8,000$ 0.30$ Reserves 7,000$ 0.26$ Total Expenses 126,283$ 4.73$ Net Operating Income 355,526$ 13.33$ Net Income/Effective Gross Income Ratio 73.79% INCOME AND EXPENSE SUMMARY 23-393 INCOME APPROACH - REMAINDER AFTER 89 An overall capitalization rate of 8.00% is judged to be appropriate for the subject. The net operating income is capitalized using an overall rate of 8.00%, and results in a value indication of $4,444,075 ($355,526 ÷ 0.0800). Based on the foregoing, the income capitalization approach supports a market value of $4,444,000, rounded. Net Operating Income $355,526 Capitalization Rate 0.0800 Value Indicated By Direct Capitalization $4,444,075 Final Value by Direct Capitalization $4,444,000 = 23-393 RECONCILIATION - REMAINDER AFTER 90 In the preceding sections of this report, the area data and trends, location amenities, highest and best use, and other elements of value are discussed. The market was researched for comparable data and market trends. In the final analysis, considering the approaches to value, each approach is analyzed in terms of the quantity and quality of the data used in each approach and applicability to estimate a reliable value. Summary of Approaches Cost Approach N/A Sales Comparison Approach $4,535,000 Income Capitalization Approach $4,444,000 RECONCILIATION – REMAINDER AFTER Sufficient sales of tracts of land with similar utility are available to arrive at an opinion of value of the land by market comparison. The sales used are adjusted to reflect current market conditions and differences in physical characteristics. Land Value estimate at $14.00 per square foot $1,219,187 Cost Approach Due to the subject age, the cost approach is not as reliable as the sales comparison and income capitalization approaches because of the amount of estimated depreciation. As such, the cost approach is not utilized in this appraisal. Sales Comparison Approach The price per square foot is used in the sales comparison approach to provide an indication of value for the subject. These transactions are considered to reflect the behavior of typical market participants. Although the sales were somewhat different in age, size, and use, they provide reasonable value indications of the subject, after adjustment for these various differences. The value range produced by this approach is a reasonable indicator based on the best available market data. Income Capitalization Approach The direct capitalization method is used in the income capitalization approach to develop an indication of market value. Operating expenses are estimated based primarily on actual data from other projects, subject historical records (if available), and data extracted from the tax rolls. The income capitalization approach is the best approach to determine market value when the real estate market recognizes the value of a property based on the income it produces. The comparables used are representative of market and provided a good indicator of the potential of the subject property. 23-393 RECONCILIATION - REMAINDER AFTER 91 CONCLUSION In conclusion, the sales comparison and income capitalization approaches to value provide a good basis for valuation due to quality and quantity of available data. The sales comparison and income capitalization approaches are reliable indicators due to both the quality and quantity of the available sale data and current rental market data and provide a good basis for valuation. Based on the above considerations for the subject property, my final opinion of the market value of the subject in the reminder property condition is as follows: Remainder Property (Market Value) $4,452,117 23-393 SUMMARY OF COMPENSATION 92 SUMMARY OF COMPENSATION The total compensation consists of the value of the part acquired in permanent easement estate. Damages to the remainder are not supported. Cost To Cure Within the acquisition area, the property is improved with concrete paving and drives, a monument sign, and landscaping. The city of Denton or its contractors will restore any site improvements in the permanent easement to as good or better condition upon completion of construction. Therefore, there are not any costs to cure. TOTAL COMPENSATION The total compensation due to the landowner for the part acquired is $82,883. Whole Property 4,535,000$ Part Acquired in Permanent Easement 82,883$ Remainder - Before the Acquisition 4,452,117$ Remainder - After the Acquisition 4,452,117$ Damages 0$ Total Compensation 82,883$ 23-393 APPRAISER’S CERTIFICATE 93 The undersigned do hereby certify that, except as otherwise noted in this appraisal report: APPRAISER’S CERTIFICATE I have no present or contemplated future interest in the real estate that is the subject of this appraisal report. I have no personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. To the best of my knowledge and belief, the statements of fact contained in this appraisal report, upon which analyses, opinions and conclusions expressed herein are based, are true and correct. This appraisal report sets forth all of the assumptions and limiting conditions (imposed by the terms of the assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. These are my personal, impartial, unbiased professional analyses, opinions, and conclusions. This appraisal report has been made in conformity with the Uniform Standards of Professional Appraisal Practice. I certify that, to the best of my knowledge and belief, the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute and in conformity with the rules of the Texas Real Estate Commission. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. The Appraisal Institute conducts a program of continuing education for its members. As of the date of this report, Richard McBride has completed the Standards and Ethics Education Requirements for Practicing Affiliates of the Appraisal Institute.. I have performed no services as an appraiser, or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. No one provided real property appraisal assistance to the person signing this certification. I certify that I personally inspected the property appraised. PYLES WHATLEY CORPORATION Richard McBride State of Texas Certification #TX-1380335-G 23-393 APPRAISER QUALIFICATIONS 94 APPRAISER QUALIFICATIONS RICHARD C. MCBRIDE Appraisal assignments include retail centers, existing and proposed office buildings, commercial and industrial properties, and multi-family residential. Additional consulting assignments include condemnation and right-of-way work, and other various consulting assignments. Experience  Appraiser with Pyles Whatley Corporation since 2007; Partner in the company since 2018  Over fifteen years’ experience in appraising various real property interests in Texas and Oklahoma Education  Numerous Appraisal Courses offered by the Appraisal Institute  Right-of-way courses offered by the International Right of Way Association  Richland College o Engineering o General studies Professional  Texas Appraiser Licensing and Certification Board o Certified General Real Estate Appraiser #TX-1380335-G  Appraisal Institute o Practicing Affiliate  International Right of Way Association, Chapter 36, Member 23-393 95 ADDENDA 23-393 96 PARCEL SURVEY/FIELD NOTES 23-393 97 23-393 98 TAX INFORMATION 23-393 99 TAX INFORMATION – Continued 23-393 100 ZONING INFORMATION 23-393 101 ZONING INFORMATION – Continued 23-393 102 23-393 LETTER OF NOTICE 23-393 USPS CERTIFIED/RETURN RECEIPTS 23-393