HomeMy WebLinkAbout23-394, KF, Easement, City of Denton (1)
APPRAISAL REPORT
SPENCER TO LOCUST - ROW - DME PROJECT
PROJECT NUMBER 605307500.1365.3500
NOT QUITE 4A PROPERTIES, LP
P.O. BOX 2531
DENTON, DENTON COUNTY, TEXAS
FOR
CITY OF DENTON
401 NORTH ELM STREET
DENTON, TEXAS 76201
16910 DALLAS PARKWAY, SUITE 100
DALLAS, TEXAS 75248
23-394
16910 Dallas Parkway, Suite 100 Dallas, Texas 75248
Ofc: 214.340.5880 www.PylesWhatley.com Appraisals@pyleswhatley.com
July 24, 2023
Ms. Captoria Brown
Senior Real Estate Specialist
City of Denton-Real Estate Division
401 North Elm Street
Denton, Texas 76201
Re: A real estate appraisal of an 2.540 acre tract of land for the Spencer to Locust – ROW- DME
project located at 1210 Duncan Street, Denton, Denton County, Texas.
Dear Ms. Brown:
At your request, we submit this appraisal report to estimate the market value of the above referenced
property. We 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 110,642 square feet, improved with four office
warehouses, located along the western line of Duncan Street. Our opinions of value for the subject are
effective as of July 16, 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).
23-394
Page 2
Ms. Captoria Brown
July 24, 2023
With reference to the preceding definition, our opinions of value are as follows:
Whole Property 4,100,000$
Part To Be Acquired in Easement 71,941$
Remainder - Before the Acquisition 4,028,059$
Remainder - After the Acquisition 3,800,000$
Damages 228,059$
Total Compensation 300,000$
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.
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,
PYLESWHATLEY CORPORATION
Richard McBride Kathleen Foley
State of Texas Certification # TX-1380335-G State of Texas Certification #TX-1380509-G
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SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS
SPENCER TO LOCUST - ROW - DME PROJECT
Parcel Owner
Location
Whole Property Land Area 2.540 acres (or 110,642 SF)
Part To Be Acquired - Permanent Utility Easement 0.5420 acres (or 23,610 SF)
Zoning
Highest & Best Use
Reasonable Exposure Time
Effective Date of the Appraisal
Date of Appraisal Report
Whole Property 4,100,000$
Part To Be Acquired in Easement 71,941$
Remainder - Before the Acquisition 4,028,059$
Remainder - After the Acquisition 3,800,000$
Damages 228,059$
Total Compensation 300,000$
Not Quite 4A Properties, LP
1210 Duncan Street
Denton, Texas 76205
LI, Light Industrial
9 to 12 months
July 16, 2023
July 24, 2023
Industrial Development
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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 .............................................................................................. 34
ZONING MAP ............................................................................................................................ 35
FLOOD MAP .............................................................................................................................. 36
HIGHEST AND BEST USE ...................................................................................................... 37
LAND VALUATION .................................................................................................................. 39
COST APPROACH .................................................................................................................... 48
SALES COMPARISON APPROACH ..................................................................................... 49
INCOME CAPITALIZATION APPROACH .......................................................................... 60
RECONCILIATION – WHOLE PROPERTY VALUE ......................................................... 71
PART TO BE ACQUIRED ........................................................................................................ 73
REMAINDER BEFORE THE ACQUISITION ...................................................................... 77
REMAINDER AFTER THE ACQUISITION ......................................................................... 78
LAND VALUATION – REMAINDER AFTER ...................................................................... 80
COST APPROACH – REMAINDER AFTER ........................................................................ 81
SALES COMPARISON APPROACH – REMAINDER AFTER .......................................... 82
INCOME CAPITALIZATION APPROACH – REMAINDER AFTER .............................. 84
RECONCILIATION – REMAINDER AFTER ....................................................................... 89
SUMMARY OF COMPENSATION......................................................................................... 91
APPRAISER’S CERTIFICATE ............................................................................................... 92
APPRAISER QUALIFICATIONS ........................................................................................... 93
ADDENDA
PARCEL SURVEY/FIELD NOTES
TAX INFORMATION
ZONING INFORMATION
LETTER OF NOTICE
USPS RETURN RECEIPTS
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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 appraisers are not responsible for unauthorized
use of this report.
Client, Intended Use, and Intended User
The City of Denton is the client of Pyles Whatley Corporation. 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 16, 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 16, 2023.
Date of the Report: July 24, 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.
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SCOPE OF THE ASSIGNMENT
2
Identification of Property
The subject is located along the western line of Duncan Street, south of Smith Street, in the city of
Denton, in Denton County. The subject is physically addressed as 1210 Duncan Street, Denton,
Texas 76205. The subject is improved with four office warehouse buildings. According to the
information provided, the subject tract comprises 110,642 square feet (2.5400 acres). Abutting uses
are single family residential development along the north side, industrial uses across Duncan Street
along the east side, office warehouse buildings along the south side, and office warehouse buildings
and vacant industrial land along the west side.
The subject is currently used as an office warehouse. The property appraised is identified as the
subject property, as improved.
Legal Description
The subject is legally described as being Lot 6R, of Lot 6R, Emily J. Fry Addition, an addition to
the City of Denton, Denton County, Texas, according to the Amending Plat thereof recorded in
Cabinet P, Page 356, Plat Records of Denton County, Texas.
Subject History
According to public records, ownership is vested in Not Quite 4A Properties, LP. The property
transferred to Not Quite 4A Properties, LP from Duncan Street Property, LLC on June 23, 2017, as
recorded in Instrument No. 2017-78933, Deed Records of Denton County, Texas. The price and
terms of the transaction are unknown. No other known transaction have occurred in the last five
years. To our 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
We contacted the subject property owner 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 16, 2023.
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SCOPE OF THE ASSIGNMENT
3
Project Description
The Spencer to Locust - ROW - EME Project by the City of Denton is for the 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 permanent easement of the subject property for the
Spencer to Locust - ROW - EME Project. The proposed acquisition is comprised of a permanent
utility easement. Per the enclosed parcel surveys and field notes, the part to be acquired in
permanent easement totals 23,610 square feet (0.5420 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 appraisers involved in this assignment have experience in appraising this property type and
have 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.
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SCOPE OF THE ASSIGNMENT
4
Procedure
The proposed acquisition will extend over the two existing structures on the north side of the
property (Buildings A and B). Although the proposed acquisition is not considered to affect the
current use of the property, it is assumed that if destruction of the two existing buildings were to
occur, the reconstruction of the buildings would be reduced in size due to the presence of the
proposed easement. Furthermore, the proposed acquisition is an extension of the existing 20-foot
easement area which traverses the property from east to west through the center of the tract.
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. Due to the age
of the buildings, the cost approach is not considered relevant and is not included in the analysis.
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. 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 9 to 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. We conclude that the impending project has no effect on the
whole property or on the comparable market data used herein.
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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)
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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, escrow 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.
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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.
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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 they are 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.
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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. We 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 we
have no direct evidence relating to this issue, We did not consider possible noncompliance with
the requirements of ADA in estimating the value of the property.
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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.
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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 Duncan 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 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.
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REGIONAL MAP
12
REGIONAL MAP
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MARKET AREA
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
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MARKET AREA
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.
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MARKET AREA
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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.
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MARKET AREA
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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.
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MARKET AREA
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AREA DEMOGRAPHICS
The following Market Profile provided by Site to Do Business provides demographic and income
data for a 1-mile, 3-mile, and 5-mile radius centered on the subject’s vicinity.
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MARKET AREA
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MARKET AREA
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MARKET AREA
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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.
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LOCATION MAP
21
LOCATION MAP
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SUBJECT PROPERTY
22
The whole subject property is improved with four office warehouse buildings, located along the
western line of Duncan Street, south of 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
110,642 square feet, or 2.5400 acres. The subject fronts the western line of Duncan Street for
approximately 295 linear feet. The subject is approximately 381 feet deep, along the southern
property line.
Subject Vicinity and Abutting Uses
The subject abuts single-family residential development along the north side, industrial uses
across Duncan Street to the east side, office warehouse buildings along the south side, and office
warehouse buildings and vacant industrial land along the west side. Types of properties located
in the subject vicinity are mostly residential with some commercial and light industrial uses along
the main arterials.
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
Duncan 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 western line of
Duncan 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 48121C0380G dated April 18, 2023, 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.
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SUBJECT PROPERTY
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Utilities/Community Services
Electricity, water, sewer, and telecommunication 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 LI, Light Industrial by the City of Denton. The LI, Light Industrial district is
intended to provide locations for a variety of light industrial and employment uses such as light
manufacturing, assembly, fabrication, warehousing and distributing, indoor and outdoor storage,
and a wide range of supporting commercial uses and activities. The LI District provides a variety
of transportation options for access including transit, bicycle, and pedestrian facilities. The
district also provides appropriate transitions to surrounding uses and lower intensity districts, and
is sensitive to the adjacent built and natural context.
Minimum lot area 5,000 square feet
Minimum lot width 50 feet
Minimum lot depth 50 feet
Front yard setback 10 feet
Side yard setback 5 feet
Rear yard setback None
Maximum building height 75 feet
Maximum building coverage 85%
Soils, Development Limitation, and Productivity
This report assumes the soils are capable of supporting 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 available for analysis. According to the parcel survey, a
20-foot electric easement traverses from east to west through the center of the tract (being within
the proposed permanent easement acquisition), a 16-foot electric easement is located along the
southern property line, a 24 -foot public access easement is located along the southern property
line, an 8-foot public utility easement is located along the eastern property line, and a 10-foot
building line is located along the northern property line. 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.
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SUBJECT PROPERTY
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Deed Restrictions
To our 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 our 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.
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SUBJECT PROPERTY
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SUBJECT IMPROVEMENTS
The land is improved with four office warehouse buildings. According to the tax card, the
buildings consist of a total of 28,500 square feet of gross building area.
Orientation
Buildings A, B, and D are rectangular in shape with building C being mostly rectangular in shape.
All four buildings are oriented toward the center drive through site.
Age, Construction and Condition
According to tax records, the buildings were constructed in 1999. The buildings are Class S, with
metal-wall construction on a concrete slab foundation. Quality is rated as average, and the
improvements appear to be in average condition.
Our opinion of the improvements' effective age is 12 years, which is less than the actual age.
According to Marshall & Swift Valuation Service, the typical economic life span for buildings of
the same construction class and design as the subject is typically 40 years. Therefore, the subject
is said to have a remaining economic life of 28 years (40 years less the effective age of 12 years).
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, building-
mounted signage, and minimal landscaping. The landscaping includes trees, shrubs, bushes,
metal edging, 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 80 striped parking spaces, which include the handicap enabled spaces. The parking
requirement for the subject improvements is one space per employee on the largest shift or one
space per 3,500 square feet of gross building area. The subject has 28,500 square feet of building
space. The number of employees is unknown, however, based on the square footage of the
buildings, the parking, access, and circulation are over parked based on the current requirements
and assumed a legal conforming condition.
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SUBJECT PROPERTY
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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 office warehouse space. 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.
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 four office warehouse buildings, with adequate frontage and access
via two curb cuts along the western line of Duncan Street. Condition of the improvements is
average. The property appears to be a legal conforming use.
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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 Denton County, 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 2023 Denton Central Appraisal District tax rates and
account information for the subject are detailed below.
City of Denton 0.560682$
Denton County 0.217543$
Denton Independent School District 1.344600$
Total 2.122825$
2023 TAX RATES (per $100)
The following table indicates the 2023 assessed value used for determination of tax liability.
Account Number Land Improvements Total
724861 442,570$ 1,357,430$ 1,800,000$
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
$1,800,000 x $0.02122825
Indicated Tax Liability
38,211= $
The assessed value equates to $1,800,000, or $63.16 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 $4.00 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.
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AERIAL PHOTOGRAPH
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Aerial Photograph
Source: Google Maps (Imagery date: October 2021)
Red line - approximate subject property boundary – appraiser’s estimate.
Yellow line - approximate location of proposed permanent utility easement – appraiser’s estimate.
SUBJECT
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AERIAL PHOTOGRAPH
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Source: Google Maps (Imagery date: October 2021)
Red line - approximate subject property boundary – appraiser’s estimate.
SUBJECT
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SUBJECT PHOTOGRAPHS
30
PHOTOGRAPHED JULY 16, 2023
Subject photographs
Looking westerly along the existing and proposed permanent utility easement
Looking northwesterly across the existing easement at Building A
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SUBJECT PHOTOGRAPHS
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Looking westerly along the center drive
Looking westerly along the center drive from the adjoining property
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SUBJECT PHOTOGRAPHS
32
Looking northeasterly across the existing easement at Building B
Looking northeasterly across the existing easement at Building A
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SUBJECT PHOTOGRAPHS
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Looking northerly along Duncan Street with the subject to the left.
Looking southerly along Duncan Street with the subject to the right.
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WHOLE PROPERTY SKETCH
34
Source: Denton CAD
Whole Property Sketch
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ZONING MAP
35
Source: City of Denton
Zoning map
SUBJECT
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FLOOD MAP
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Flood map
SUBJECT
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HIGHEST AND BEST USE
37
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 2.5400-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 western
line of Duncan Street for approximately 295 linear feet. The subject is approximately 381 feet
deep, along the southern property line. According to the enclosed flood map No. 48121C0380G,
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 LI, Light Industrial by the City of Denton. The LI,
Light Industrial district is intended to provide locations for a variety of light industrial and
employment uses such as light manufacturing, assembly, fabrication, warehousing and
distributing, indoor and outdoor storage, and a wide range of supporting commercial uses and
activities. The LI District provides a variety of transportation options for access including transit,
bicycle, and pedestrian facilities. The district also provides appropriate transitions to surrounding
uses and lower-intensity districts, and is sensitive to the adjacent built and natural context.
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 development along the north side,
industrial uses across Duncan Street along the east side, office warehouse buildings along the
south side, and office warehouse buildings and vacant industrial land 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 industrial development.
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HIGHEST AND BEST USE
38
Maximally Productive Highest & Best Use: The subject fronts the western line of Duncan
Street for approximately 295 linear feet. Duncan Street is a two-lane, undivided roadway. For
industrial 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
telecommunication 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 industrial development, as demand
emerges in the market.
HIGHEST & BEST USE AS IMPROVED
Possible Use: The improvements were built in 1999 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 warehouse use. The physical characteristics and accompanying
amenities support the continued use as such.
Permissible Use: The site is zoned LI, Light Industrial by the City of Denton. The LI, Light
Industrial district is intended to provide locations for a variety of light industrial and employment
uses such as light manufacturing, assembly, fabrication, warehousing and distributing, indoor
and outdoor storage, and a wide range of supporting commercial uses and activities. The LI
District provides a variety of transportation options for access including transit, bicycle, and
pedestrian facilities. The district also provides appropriate transitions to surrounding uses and
lower-intensity districts, and is sensitive to the adjacent built and natural context. Office
warehouses are allowed in this zoning district.
Feasible Use: The existing improvements have an effective age of approximately 12 years based
on the modified economic life concept. With proper maintenance, a property of this type
typically has a useful life of 40 years. Remaining economic life of the improvements is
estimated at 28 years, based on a useful life of 40 years and an effective age of 12 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 four
office warehouse buildings and is suitable for office warehouse use. Therefore, the continued
use as office warehouse represents the highest and best use of the land and improvements.
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LAND VALUATION
39
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.
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LAND VALUATION
40
LAND SALES MAP
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LAND VALUATION
41
Land Sale No. 1
Location S/s of West University Drive, W of Western Boulevard
Denton, Denton County, Texas
Legal Description
Grantor Wendell Mullins, aka W.J.O. Mullins
Grantee Ring Power Corporation
Date of Sale December 29, 2022
Record Data
Document No.2023-1051
Consideration $1,100,000
Conditions of Sale Cash (or cash equivalent) to the seller
Land Area
Acres 9.385
Square Feet 408,811
Price Per SF $2.69
Zoning LI, Light Industrial
Comments The property consists of two adjoining tracts of land located along the
southern line of West University Drive,approximately 700 feet west of
Western Boulevard.The tract has approximately 875 feet of frontage on
West University Drive.A drainage easement traverses the property from
north to south through the eastern portion of the site and is located in the
floodplain Zone "AE".
Situated in the William Bryan Survey,Abstract No.148 and being part of
Tracts 1 and 2 as conveyed to W.J.O.Mullins as recorded in Document No.
97-R0083577, Real Property Records, Denton County, Texas
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LAND VALUATION
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Land Sale No. 2
Location N/s of West University Drive between Gay Drive and Georgetown Drive
Denton, Denton County, Texas
Legal Description
Grantor M. Douglas Adkins and Lee Roy Mitchell
Grantee Denton Capital, LLC
Date of Sale January 25, 2022
Record Data
Document No.2022-12803
Consideration $1,375,000
Conditions of Sale Cash (or cash equivalent) to the seller
Land Area
Acres 6.64
Square Feet 289,238
Price Per SF $4.75
Zoning SC, Suburban Corridor
Comments The tract is irregular in shape,with mostly level terrain on the northern
portion of the property.The property has approximately 233 feet of frontage
along the western line of Georgetown Drive and approximately 255 feet along
the eastern line of Gay Drive.White the property fronts the northern line of
West Unitversity Drive (US 80)for approximately 13 feet,the property does
not have access to the roadway.A drainage easement extends along the
southern boundary and is located in the floodplain Zone "AE".According to
the grantee,the subject was purchased for the future development as a 240-
unit apartment complex.
Land situated in the Robert Beaumont Survey, Abstract Number 31, and being
the remainder of that 7.426 acre tract of land described in a deed from M.
Douglas Adkins,Trustee to M.Douglas Adkins and Lee Roy Mitchell,as
Tenants in Common,recorded under Instrument No.93-R0022220,and being
a part of the called 1.2949 acre tract of land described in a deed from Rayzor
Investments,LTD,to M.Douglas Adkins,Trustee,recorded under Instrument
No. 93-R0028817, Real Property Records, Denton County, Texas
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LAND VALUATION
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Land Sale No. 3
Location Adjacent to the northeast corner of East University Drive and Geesling Road
Denton, Denton County, Texas
Legal Description
Grantor Estate of Jackie Darrell Hopper, Deceased
Grantee YAXS, LLC
Date of Sale September 17, 2021
Record Data
Document No.2021-172463
Consideration $1,955,575
Conditions of Sale Cash to the seller
Land Area
Acres 8.98
Square Feet 391,169
Price Per SF $5.00
Zoning LI, Light Industrial
Comments This tract is located adjacent to the northeast corner of East University Drive
and Geesling Road.The tract has approximately 435 feet of frontage on East
University Drive.The broker reported an access easement exist from the
western property line to Geesling Road.A record of the this easement could
not be verified.
All that certain tract of land situated in the M.Forrest Survey,No.417,City
of Denton,Denton County,Texas,and being part of a call 9.0111 acre tract
described in a deed from John A.Hammel to Lowry Graham Kinzer and wife,
Loretta B.Kinzer recorded in County Clerk's File Number 95-R0064903,
Real Property Records of Denton, Denton County, Texas
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LAND VALUATION
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SF AC
1 S/s of West University Drive, W of Western Boulevard 408,811 9.39 $2.69 Dec-22
2 N/s of West University Drive between Gay Drive and Georgetown Drive 289,238 6.64 $4.75 Jan-22
3 Adjacent to the northeast corner of East University Drive and Geesling Road 391,169 8.98 $5.00 Sep-21
Subject 1210 Duncan Street 110,642 2.54
LAND SALES SUMMARY
Sale No. Location
Size
Price/SF
Date of
Sale
Comparable Adjustments
Adjustments to the comparable sales 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 September 2021 and December 2022. Adjustments for market
conditions are applied if property values have increased or decreased since the transaction dates.
Based on our observations and analysis, real estate has appreciated approximately 4% annually.
Each sale is adjusted accordingly.
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. Sales 1, 2, and 3 are similarly located as the
subject, requiring no adjustment.
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LAND VALUATION
45
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 Duncan Street. The sales have similar access available, requiring 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 approximately 295 feet of frontage. Sales 1 and 2 are superior in frontage as
compared to the subject and are adjusted downward 5% each. Sale 3 is similar in terms of
frontage as compared to the subject and is not adjusted.
Exposure
Exposure is the visibility of the subject to the roadways or neighboring properties. All three sales
are adjusted downward 5% for their superior exposure.
Sale No.Location Vehicle Count
1 S/s of West University Drive, W of Western Boulevard 22,900
2 N/s of West University Drive between Gay Drive and Georgetown Drive 30,600
3 Adjacent to the northeast corner of East University Drive and Geesling Road 35,200
Subject Along the western line of Duncan Street, south of Smith Street 3,300
Land Sales - Traffic Exposure
Size
The subject is 2.540 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 LI, Light Industrial, by the City of Denton. The LI, Light Industrial
district is intended to provide locations for a variety of light industrial and employment uses such
as light manufacturing, assembly, fabrication, warehousing and distributing, indoor and outdoor
storage, and a wide range of supporting commercial uses and activities. Sales 1 and 3 are zoned
LI, Light Industrial, similar to the subject and do not require adjustments. Sale 2 is zoned SC,
Suburban Corridor, allowing for a broader range of development, superior to the subject, and is
adjusted downward 5%.
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LAND VALUATION
46
Utilities
Electricity, water, sewer, and telecommunication services are available to the subject. Each of
the sales has water, sewer, electricity and telecommunication 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 48121C0380G, the subject is determined to be outside the 100-year
floodplain, being within Zone 'X'. The subject is traversed by an electric transmission line
through the center of the tract. Sales 1 and 2 are traversed by a drainage easement considered to
have a similar impact on development and utility to the subject and are not adjusted. Sale 3 is
relatively level land and is not impacted by transmission lines or drainage easements, is superior
to the subject, and is adjusted downward 10%.
ADJUSTMENTS
The grid below outlines the pertinent characteristics of each of the comparable sales and the
adjustments applied.
Sale No.1 2 3
No. of Acres 9.385 6.640 8.980
Size - SF 408,811 289,238 391,169
Sale Date Dec-22 Jan-22 Sep-21
Sale Price $1,100,000 $1,375,000 $1,955,575
Sale Price Per SF $2.69 $4.75 $5.00
Rights Conveyed 0%0%0%
Financing 0%0%0%
Sale Conditions 0%0%0%
Market Conditions 2%6%7%
Adjusted Price $2.74 $5.04 $5.35
Location 0%0%0%
Access 0%0%0%
Frontage -5%-5%0%
Exposure -5%-5%-5%
Size 10%8%9%
Zoning 0%-5%0%
Utilities 0%0%0%
Topography 0%0%-10%
Net Adjustment 0%-7%-6%
Adjusted Price/SF $2.74 $4.69 $5.03
LAND SALES ADJUSTMENTS
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LAND VALUATION
47
Land Value Opinion
After the adjustment process, the comparable sales range from $2.74 to $5.03 per square foot.
Based on the foregoing and giving emphasis to the high end of the range, it is our opinion that
the market data support an estimated fee simple value of $5.00 per square foot for the subject
land, with an indicated value opinion of the subject land of $518,907.
No. of Square Feet $/SF Indicated Value
103,019 x $5.00 x 100%$515,095
7,623 x $5.00 x 10%$3,812
110,642 $518,907
Total Land Area
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COST APPROACH
48
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.
COST APPROACH AS APPLICABLE TO THIS ASSIGNMENT
The subject, having an effective age of 12 years, suffers from a degree of physical depreciation.
In our 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 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.
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SALES COMPARISON APPROACH
49
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.
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SALES COMPARISON APPROACH
50
IMPROVED SALES MAP
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SALES COMPARISON APPROACH
51
Improved Sale No. 1
Location 306 West Overly Drive
Lake Dallas, Denton County, Texas
Grantor Greene Carder Properties
Grantee DDM Development, Inc.
Record Data
Date June 6, 2023
Document No.2023-58801
Consideration $3,853,000
Sale Price/SF $165.88
Conditions of Sale Cash (or cash equivalent) to the seller
Physical Description
Land Area
2.41 AC
105,067 SF
Building Coverage 22.11%
Gross Building Area 23,228 SF
Year Built 1999
Occupancy @ Sale 100%
Description Office Warehouse
Condition Average
Comments
Acres
Square Feet
This property is located adjacent to the northeast corner of
West Overly Drive and Interstate Highway 35E frontage
road.This property is an office warehouse.This property
has one loading dock,three drive-in doors,and a ceiling
height of 24 feet.The property is operated as ComCo
Systems, a manufacturing business.
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SALES COMPARISON APPROACH
52
Improved Sale No. 1 (Continued)
Total $/SF
Gross Rental Income 232,280$ 10.00$
Less:Expense Reimbursement 47,617$ 2.05$
Less:Vacancy @ 5%13,995$ 0.60$
Effective Gross Income 265,903$ 11.45$
Total Expenses 52,263$ 2.25$
Net Operating Income 213,640$ 9.20$
Source: Appraiser's estimate & broker's data
5.54%
$165.88
80.35%
Pro-Forma Operating Statement - Sale No. 1
Income Data
Units of Comparison
Overall Rate (Ro)
Sales Price/SF
NOI/EGI Ratio
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SALES COMPARISON APPROACH
53
Improved Sale No. 2
Location 708 East Hundley Drive
Lake Dallas, Denton County, Texas
Grantor Timothy Grisham and Dawn Grisham
Grantee Nedley Properties, LLC
Record Data
Date May 26, 2023
Document No.2023-58774
Consideration $1,600,000
Sale Price/SF $168.71
Conditions of Sale Cash (or cash equivalent) to the seller
Physical Description
Land Area
1.12 AC
48,787 SF
Building Coverage 19.44%
Gross Building Area 9,484 SF
Year Built 1988/2021
Occupancy @ Sale 100%
Description Industrial Warehouse
Condition Average
Comments
Acres
Square Feet
This property is located adjacent to the southeast corner of
East Hundley and Donald Lane.This property has three
industrial warehouse buildings two which were constructed
in 1988 and a larger building in 2021.The site is surrounded
by wooden fending with two gated entries.According to the
broker,the property has a total of sixteen drive in doors and
ceiling heights of 16 feet.
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SALES COMPARISON APPROACH
54
Improved Sale No. 2 (Continued)
Total $/SF
Gross Rental Income 113,808$ 12.00$
Less:Expense Reimbursement 28,452$ 3.00$
Less:Vacancy @ 5%7,113$ 0.75$
Effective Gross Income 135,147$ 14.25$
Total Expenses 29,400$ 3.10$
Net Operating Income 105,747$ 11.15$
Source: Appraiser's estimate & broker's data
6.61%
$168.71
78.25%NOI/EGI Ratio
Pro-Forma Operating Statement - Sale No. 2
Income Data
Units of Comparison
Overall Rate (Ro)
Sales Price/SF
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SALES COMPARISON APPROACH
55
Improved Sale No. 3
Location 916 South Locust Street
Denton, Denton County, Texas
Grantor Grillsap Properties, LLC
Grantee Stratton Investment Group, LLC
Record Data
Date June 22, 2022
Document No.2022-93466
Consideration $750,000
Sale Price/SF $132.23
Conditions of Sale Cash (or cash equivalent) to the seller
Physical Description
Land Area
0.23 AC
10,000 SF
Building Coverage 56.72%
Gross Building Area 5,672 SF
Year Built 1987
Occupancy @ Sale 100%
Description Office Warehouse
Condition Average
Comments
Acres
Square Feet
This property is located along the western line of South
Locust Street,approximately 175 feet south of Eagle Drive.
This property is an office warehouse.This property has one
loading dock,one drive up door,and a ceiling height of 14
feet.
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SALES COMPARISON APPROACH
56
Improved Sale No. 3 (Continued)
Total $/SF
Gross Rental Income 45,376$ 8.00$
Less:Expense Reimbursement 11,060$ 1.95$
Less:Vacancy @ 5%2,822$ 0.50$
Effective Gross Income 53,615$ 9.45$
Total Expenses 13,046$ 2.30$
Net Operating Income 40,569$ 7.15$
Source: Appraiser's estimate & broker's data
5.41%
$132.23
75.67%
Pro-Forma Operating Statement - Sale No. 3
Income Data
Units of Comparison
Overall Rate (Ro)
Sales Price/SF
NOI/EGI Ratio
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SALES COMPARISON APPROACH
57
Sale No.Address YOC Size SF Price/SF Date
1 306 West Overly Drive 23,228 $165.88 Jun-23
Lake Dallas, Denton County, Texas
2 708 East Hundley Drive 9,484 $168.71 May-23
Lake Dallas, Denton County, Texas
3 916 South Locust Street 5,672 $132.23 Jun-22
Denton, Denton County, Texas
Summary of Improved Sales
1999
1988/2021
1987
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
$132.23 to $168.71 per square foot, range in size from 5,672 square feet to 23,228 square feet,
and were constructed between 1987 and 2021.
Comparable Adjustments
Adjustments to the comparable sales 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 Sales 1, 2, and 3.
Market Conditions
The sales were transacted from June 2022 to June 2023. Adjustments for market conditions
are applied if property values have increased or decreased since the transaction dates. Based
on our observations and analysis, real estate has appreciated approximately 4% annually. The
sales are adjusted accordingly.
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SALES COMPARISON APPROACH
58
Location
The subject is located along the western line of Duncan Street, south of Smith Street, in the city
of Denton, Denton County. The sales are similar in location to 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. The sales are similar in access as
compared to the subject, with no adjustment.
Size
The subject comprises 28,500 square feet of total building area. The sales range in size from
5,672 square feet to 23,228 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. A factor of approximately
5% is used. The sales are adjusted 0%, -10%, and -10%, respectively for size.
Age
The subject was built in 1999. Sale No. 1 was built in 1999, Sale No. 2 in 1988 and 2021, and
Sale No. 3 in 1987. The subject’s effective age is estimated at 12 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 3 years difference of effective age. The sales are
adjusted 0%, -2%, and +1% respectively.
Condition
The improvements are in average condition. All three sales are similar to the subject in
condition and receive no adjustment.
Quality
Due to the varying construction designs and quality of the comparable sales, 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. Sale 1 is masonry construction, superior
to the subject in quality and is adjusted downward 10%. Sales 2 and 3 are similar in quality as
compared to the subject and are not adjusted.
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SALES COMPARISON APPROACH
59
The following grid summarizes the adjustment process.
Sale No.1 2 3
Year Built 1999 1988/2021 1987
Size SF 23,228 9,484 5,672
Sale Date Jun-23 May-23 Jun-22
Sale Price $3,853,000 $1,600,000 $750,000
Sale Price Per SF $165.88 $168.71 $132.23
Rights Conveyed -0--0--0-
Financing -0--0--0-
Sale Conditions -0--0--0-
Immediate Expenditures -0--0--0-
Market Conditions -0-1%4%
Adjusted Price/SF $165.88 $170.39 $137.52
Location -0--0--0-
Access -0--0--0-
Size -0--10%-10%
Age -0--2%1%
Condition -0--0--0-
Quality -10%-0--0-
Net Adjustment -10%-12%-9%
Adjusted Price/SF $149.29 $149.94 $125.14
IMPROVED SALES ADJUSTMENTS
CONCLUSIONS
In the square foot analysis, the adjusted sales range from $125.14 to $149.94 per square foot.
Sale 3 is the closest in location to the subject and required the least amount of net adjustments
and is given greater emphasis in the final value estimate. Given the size, quality, condition, and
location of the subject, a unit value of $140.00 per square foot is supported by the sale data.
This equates to an indicated value of $3,990,000 .
Size SF $/SF Indicated Value
28,500 x $140.00 =$3,990,000
$3,990,000
VALUE INDICATED BY THE SALES PRICE PER
SQUARE FOOT - WHOLE
Value by Sales Comparison
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INCOME CAPITALIZATION APPROACH
60
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.
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INCOME CAPITALIZATION APPROACH
61
RENTALS MAP
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INCOME CAPITALIZATION APPROACH
62
RENTAL NO. 1
Address 1026 Shady Oaks Drive
Denton, Denton County, Texas
Year of Construction 1989
Rentable Building Area 12,000 SF
Occupancy 100%
Rental Rate Per SF $5.10
Lease Terms Triple net; 2-year term
Comments This property is located along the southern line of Shady Oaks
Drive,approximately 700 feet east of Teasley Lane.This property
is an office warehouse building.The rental rate for 3,500 square
feet is $5.10 per square foot,on triple net bases,with a 2 year
term beginning in February 2022.
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INCOME CAPITALIZATION APPROACH
63
RENTAL NO. 2
Address 1700 Shady Oaks Drive
Denton, Denton County, Texas
Year of Construction 1953
Rentable Building Area 39,338 SF
Occupancy 80%
Rental Rate Per SF $8.00
Lease Terms Triple net 3-year term
Comments This property is located along the southern line of Shady Oaks
Drive,approximately 300 feet west of Colorado Boulevard.This
property is an office warehouse building located in an industrial
development with a total of four buildings.The remaining three
buildings were constructed in 1984.The rental rate for 5,000
square feet is $8.00 per square foot,on triple net basis,with 3-year
term beginning in March 2022.
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INCOME CAPITALIZATION APPROACH
64
RENTAL NO. 3
Address 4127 Mesa Drive
Denton, Denton County, Texas
Year of Construction 1996
Rentable Building Area 6,500 SF
Occupancy 100%
Rental Rate Per SF $10.00
Lease Terms Triple net; 5-years 2-month-term
Comments This property is located along the western line of Mesa Drive,
approximately 900 feet north of West University Drive.This
property is a single-tenant office warehouse building.The rental
rate is $10.00 per square foot,on triple net basis,with 5-year 2-
month term beginning in July 2018.
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INCOME CAPITALIZATION APPROACH
65
Rental No. Name/Location Rent/SF Lease Basis YOC Rentable Area
1 1026 Shady Oaks Drive
Denton, Denton County, Texas
2 1700 Shady Oaks Drive
Denton, Denton County, Texas
3 4127 Mesa Drive
Denton, Denton County, Texas
RENTAL SURVEY
$5.10 Triple net 1989 12,000 SF
$8.00 Triple net 1953 39,338 SF
$10.00 Triple net 1996 6,500 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 6,500 square feet to 39,339 square feet. The lease rates
of the survey range from $5.10 to $10.00 per square foot on a triple net basis, and are
representative of market.
For the purpose for this analysis, we conclude the subject leases on a triple net lease basis. That
is, the operator/tenant is responsible for operating expenses, including pro rata shares of taxes,
insurance, and maintenance. Based on this lease arrangement, the only expense to an owner
would be 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, careful consideration of
data and inspecting each comparable property, the data support a market rental rate of $10.00 per
square foot, on a triple net 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
$285,000 per year, or $10.00 per square foot, with the consideration of the subject use.
Reimbursements
Under a triple net lease arrangement, the tenant is responsible for operating expenses.
Reimbursements for taxes, insurance, and maintenance are estimated at $60,211 for the office
warehouse.
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.
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INCOME CAPITALIZATION APPROACH
66
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 5%.
The subject is currently 100% 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 5%, which equates to $17,261, or $0.61 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 triple net lease basis. That is, the operator/tenant is responsible for
operating expenses, including pro rata shares of taxes, insurance, and maintenance. Based on
this lease arrangement, the only expense to an owner would be a management fee and any
structural maintenance charges.
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 $38,211, or $1.34 per square foot. This expense is reimbursed. 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 $0.42 per square foot. This expense is reimbursed. The basis of
this expense is market estimates and data.
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 $16,398 ($0.58 per square foot).
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INCOME CAPITALIZATION APPROACH
67
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 $10,000, or $0.35
per square foot. This expense is reimbursed. The basis of this expense is market estimates and
data.
Reserves
Reserves are an appropriation from the income of the real estate that is allocated to deferred or
anticipated contingencies, such as maintenance. The basis of this expense is market estimates
and data. This expense is estimated at $5,000, or $0.18 per square foot.
Utilities
The utilities are paid directly to the service provider by the tenant and not included in this pro
forma analysis.
Expense Summary
Based on the foregoing, the expenses are estimated at $2.86 per square foot, or $81,609 per year.
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INCOME CAPITALIZATION APPROACH
68
The following table represents the stabilized pro forma operating statement for the subject
property.
Rentable Building Area: 28,500 SF
Total $/SF
Gross Rental Income 285,000$ 10.00$
Expense Reimbursements 60,211$ 2.11$
Total Potential Income 345,211$ 12.11$
Less: Vacancy @ 5%17,261$ 0.61$
Effective Gross Income 327,950$ 11.51$
Less: Expenses Reimbursed
Real Estate Taxes X 38,211$ 1.34$
Insurance X 12,000$ 0.42$
Management Fees (5% of EGI)16,398$ 0.58$
Structural Maintenance/Repairs X 10,000$ 0.35$
Reserves 5,000$ 0.18$
Total Expenses 81,609$ 2.86$
Net Operating Income 246,341$ 8.65$
Net Income/Effective Gross Income Ratio 75.12%
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 Rate
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 us to
extract capitalization rates from cash equivalent figures. In the sales comparison approach, the
pro-forma data indicate overall capitalization rates ranging from 5.4% to 6.2%.
Sale No.Name/Location OAR
1 306 West Overly Drive 5.5%
2 708 East Hundley Drive 6.6%
3 916 South Locust Street 5.4%
Summary of Improved Sales
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INCOME CAPITALIZATION APPROACH
69
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 6.25% interest, and considering the characteristics of the subject, an equity
return of 9.00%. 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)6.25%
Equity Dividend Rate (Re)9.00%
% Total Value Return Required
Loan 0.700 x 0.07916 (mortgage constant)=0.05541
Equity 0.300 x 0.09000 (equity dividend rate)=0.02700
Overall Rate 0.08241
Rounded 8.24%
-0.079160
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 industrial warehouse properties are most
applicable to the subject. The RERC survey indicates a going-in capitalization rate of 6.4%, for
investment grade warehouse industrial properties.
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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
5.49% to 11.32%, with an average of 8.43%.
An overall capitalization rate of 6.00% is judged to be appropriate for the subject. The net
operating income is capitalized using an overall rate of 6.00%, and results in a value indication
of $4,105,000 ($246,341 ÷ 0.0600). Based on the foregoing, the income capitalization approach
supports a market value of $4,105,000.
Net Operating Income $246,341
Capitalization Rate 0.0600
Value Indicated By Direct Capitalization $4,105,683
Final Value by Direct Capitalization $4,105,000
=
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RECONCILIATION – WHOLE PROPERTY VALUE
71
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 $3,990,000
Income Capitalization Approach $4,105,000
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 $5.00 per square foot $518,907
Cost Approach
The estimated costs are compared with the Marshall Valuation Service Cost Manual. Additionally,
a review of cost manuals, conversations with local building contractors and developers, and the
appraiser’s experience in valuing similar properties readily support these costs.
The cost approach is most applicable when a property is new or proposed and when the
development represents the highest and best use of the site. The effective age of the improvements
is estimated at 12 years. Overall, the cost approach is not a reliable valuation method for this
analysis.
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.
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RECONCILIATION – WHOLE PROPERTY VALUE
72
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.
CONCLUSION
In conclusion, the sales comparison and income capitalization approaches are the most 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, our final opinion of the market value of the subject in the whole property condition is
as follows:
Whole Property (Market Value) $4,100,000
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PART TO BE ACQUIRED
73
Part To Be Acquired
Part to be acquired
The proposed part to be acquired is in permanent utility easement estate. Per the enclosed parcel
survey and field notes, the part to be acquired in permanent easement totals 23,610 square feet or
0.5420 acres. The total easement area incorporates an existing utility easement and a proposed
permanent easement area. The existing easement area comprises 7,623 square feet or 0.175 acres
resulting in a net area of 15,987 square feet or 0.367 acres of proposed permanent easement. The
easement will be used for the expansion of an existing overhead electric transmission line.
The permanent utility easement is 380.88 feet in length along northern boundary, and 62 feet wide.
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 other-unrelated
entities of subject ownership. It is assumed that the City of Denton 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, concrete
curbing, and a portion of Buildings A and B. The new easement line bisects the southern portion of
Buildings A and B, and the area has been estimated at 1,500 square feet. 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.
Quantity
1,500 SF
Improvements Located in Permanent Easement
Parcel 1 - Spencer to Locust - ROW - EME Project
Denton, Denton County Texas
Improvements
Building Area
Landscaping
Highest and Best Use
The part to be acquired is a small 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.
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PART TO BE ACQUIRED
74
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PART TO BE ACQUIRED
75
The proposed acquisition extends through land that includes site and building 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 and damages to the remainder.
Valuation of the Permanent Easement Acquisition
The part to be acquired in easement estate is a permanent utility easement. The permanent utility
easement taking will result in an encumbrance of 21.3% of the subject (23,610 square feet ÷
110,642 square feet = 0.213).
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 $5.00 per square foot. The
value of the easement land immediately before the imposition of the permanent utility easement
equates to $83,747 for a total of 23,610 square feet.
Fee Simple Value Permanent Utility Easement 15,987 SF x $5.00 x 100%=79,935$
Value of Area within Existing Easement 7,623 SF x $5.00 x 10%=3,812$
23,610 SF 83,747$
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 utility easement, it is our 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 parking and driveway area of the subject and
extends over the southern portions of Buildings A and B.
Immediately after the imposition of the easement, the value of the land within the existing utility
easement is considered to be no more than 10% of the fee simple value of the land. The resulting
value of the permanent utility easement is calculated as follows:
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PART TO BE ACQUIRED
76
Fee Simple Value Permanent Utility Easement 15,987 SF x $5.00 x 100%=79,935$
Value of Area within Existing Easement 7,623 SF x $5.00 x 10%=3,812$
23,610 SF 83,747$
Less:
Value after imposition of Permanent Easement 15,987 SF x $5.00 x 10%=7,994$
Value after imposition of Permanent Easement 7,623 SF x $5.00 x 10%=3,812$
23,610 SF 11,806$
Easement Value 71,941$
In our opinion, the total value of the part to be acquired in easement estate is $71,941.
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REMAINDER BEFORE THE ACQUISITION
77
Remainder Before the Acquisition
The indicated value of the remainder before the taking is derived by deducting the projected
value of the take from the value of the whole property. The calculation is as follows:
REMAINDER BEFORE THE ACQUISITION
Opinion of value - whole property 4,100,000$
Opinion of value - taking 71,941$
Opinion of value - remainder before the taking 4,028,059$
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REMAINDER AFTER THE ACQUISITION
78
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, however, an estimated 1,500
square feet of building area is affected. This area, if damaged, could not be reconstructed due to
the existence of the new easement line. In the remainder after, the subject has 80 parking spaces,
with 22 of the spaces being partially encumbered by the permanent utility easement; this area is
encumbered by an existing utility easement and does not change the use of this area from
parking.
The remainder after the taking is the same as the whole property, but with a small area
encumbered by the easement. The remainder land area is 110,642 square feet, or 2.540 acres,
including the part acquired in the permanent utility easement (23,610 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 is continued use as an office warehouse. While the
acquisition does not diminish the remainder’s potential, it will result in an encumbrance of
approximately 21.3% of the whole property land area (23,610 square feet ÷ 110,642 square feet =
0.213). The total easement area incorporates an existing utility easement and a proposed permanent
easement area. The existing easement area comprises 7,623 square feet or 0.175 acres resulting in a
net area of 15,987 square feet or 0.367 acres of proposed permanent easement. The distance from
Buildings A and B to the permanent easement is 0 feet on southern side of the these two buildings.
As if complete and in place, the 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 utility easement
through the center portion of the property. The subject fronts approximately 295 feet along the
western line of Duncan Street. The subject is approximately 381 feet deep, along the southern
property line. According to the enclosed flood map No. 48121C0380G, 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 LI, Light Industrial by the City of Denton. The LI, Light
Industrial district is intended to provide locations for a variety of light industrial and employment
uses such as light manufacturing, assembly, fabrication, warehousing and distributing, indoor
and outdoor storage, and a wide range of supporting commercial uses and activities. The LI
District provides a variety of transportation options for access including transit, bicycle, and
pedestrian facilities. The district also provides appropriate transitions to surrounding uses and
lower-intensity districts, and is sensitive to the adjacent built and natural context.
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REMAINDER AFTER THE ACQUISITION
79
Feasible Use: The surrounding properties and land uses are considered for compatibility in
determination of feasible use. The subject abuts single family residential development along the
north side, industrial uses across Duncan Street along the east side, office warehouse buildings
along the south side, and office warehouse buildings and vacant industrial land 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 industrial
development.
Maximally Productive Highest & Best Use: For industrial 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 telecommunication 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 industrial development, as demand emerges in the market.
HIGHEST & BEST USE AS IMPROVED
Possible Use: The improvements were built in 1999 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 warehouse use. The physical characteristics and accompanying
amenities support the continued use as such.
Permissible Use: The site is zoned LI, Light Industrial by the City of Denton. The LI, Light
Industrial district is intended to provide locations for a variety of light industrial and employment
uses such as light manufacturing, assembly, fabrication, warehousing and distributing, indoor
and outdoor storage, and a wide range of supporting commercial uses and activities. The LI
District provides a variety of transportation options for access including transit, bicycle, and
pedestrian facilities. The district also provides appropriate transitions to surrounding uses and
lower-intensity districts, and is sensitive to the adjacent built and natural context. Office
warehouses are allowed in this zoning district.
Feasible Use: The existing improvements have an effective age of approximately 12 years,
based on the modified economic life concept. With proper maintenance, a property of this type
typically has a useful life of 40 years. Remaining economic life of the improvements is
estimated at 28 years, based on a useful life of 40 years and an effective age of 12 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 office
warehouse and is suitable for office warehouse use. Therefore, the continued use as office
warehouse represents the highest and best use of the land and improvements.
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LAND VALUATION - REMAINDER AFTER
80
LAND VALUATION – REMAINDER AFTER
Sale No.1 2 3
No. of Acres 9.385 6.640 8.980
Size - SF 408,811 289,238 391,169
Sale Date Dec-22 Jan-22 Sep-21
Sale Price $1,100,000 $1,375,000 $1,955,575
Sale Price Per SF $2.69 $4.75 $5.00
Rights Conveyed 0%0%0%
Financing 0%0%0%
Sale Conditions 0%0%0%
Market Conditions 2%6%7%
Adjusted Price $2.74 $5.04 $5.35
Location 0%0%0%
Access 0%0%0%
Frontage -5%-5%0%
Exposure -5%-5%-5%
Size 10%7%9%
Zoning 0%-5%0%
Utilities 0%0%0%
Topography 0%0%-10%
Net Adjustment 0%-8%-6%
Adjusted Price/SF $2.74 $4.64 $5.03
LAND SALES ADJUSTMENTS - REMAINDER
Remainder After Value
The adjusted land sales in the remainder after range from $2.74 to $5.03 per square foot.
Considering the adjusted sales, the remainder land is valued at $5.00 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 $118,050) or $11,806. The value of the
remainder land after the acquisition is $446,966, including the permanent easement.
Land Within Permanent Easement 15,987 SF x $5.00 x 10%=7,994$
Land Within Existing Easement 7,623 SF x $5.00 x 10%=3,812$
Unencumbered Land 87,032 SF x $5.00 x 100%=435,160$
Total 110,642 SF 446,966$
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COST APPROACH - REMAINDER AFTER
81
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.
COST APPROACH AS APPLICABLE TO THIS ASSIGNMENT
The subject, having an effective age of 12 years, suffers from a degree of physical depreciation.
In our 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 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.
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SALES COMPARISON APPROACH - REMAINDER AFTER
82
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.
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SALES COMPARISON APPROACH - REMAINDER AFTER
83
The following grid summarizes the adjustment process.
Sale No.1 2 3
Year Built 1999 1988/2021 1987
Size SF 23,228 9,484 5,672
Sale Date Jun-23 May-23 Jun-22
Sale Price $3,853,000 $1,600,000 $750,000
Sale Price Per SF $165.88 $168.71 $132.23
Rights Conveyed -0--0--0-
Financing -0--0--0-
Sale Conditions -0--0--0-
Immediate Expenditures -0--0--0-
Market Conditions -0-1%4%
Adjusted Price/SF $165.88 $170.39 $137.52
Location -0--0--0-
Access -0--0--0-
Size -0--10%-10%
Age -0--2%1%
Condition -0--0--0-
Quality -10%-0--0-
Net Adjustment -10%-12%-9%
Adjusted Price/SF $149.29 $149.94 $125.14
IMPROVED SALES ADJUSTMENTS
CONCLUSIONS
In the square foot analysis, the adjusted sales range from $125.14 to $149.94 per square foot.
Given the size, quality, condition, and location of the subject a unit value of $140.00 per square
foot is supported by the sale data. This equates to an indicated value of $3,780,000, rounded.
Size SF $/SF Indicated Value
27,000 x $140.00 =$3,780,000
$3,780,000
VALUE INDICATED BY THE SALES PRICE PER
SQUARE FOOT - REMAINDER
Value by Sales Comparison
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INCOME APPROACH - REMAINDER AFTER
84
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 1026 Shady Oaks Drive
Denton, Denton County, Texas
2 1700 Shady Oaks Drive
Denton, Denton County, Texas
3 4127 Mesa Drive
Denton, Denton County, Texas
$10.00 Triple net 1996 6,500 SF
$8.00 Triple net 1953 39,338 SF
RENTAL SURVEY
$5.10 Triple net 1989 12,000 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 6,500 square feet to 39,338 square feet. The lease rates
of the survey range from $5.10 to $10.00 per square foot on a triple net basis, and are
representative of market.
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INCOME APPROACH - REMAINDER AFTER
85
For the purpose for this analysis, we conclude the subject leases on a triple net lease basis. That
is, the operator/tenant is responsible for operating expenses, including pro rata shares of taxes,
insurance, and maintenance. Based on this lease arrangement, the only expense to an owner
would be 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, careful consideration of
data and inspecting each comparable property, the data support a market rental rate of $10.00 per
square foot, on a triple net 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
$270,000 per year or $10.00 per square foot, with the consideration of the subject use.
Reimbursements
Under a triple net lease arrangement, the tenant is responsible for all operating expenses.
Reimbursements for taxes, insurance, management fees, and maintenance are estimated at $59,711
for the office warehouse.
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 5%.
The subject is currently 100% 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 5%, which equates to $16,486 or $0.61 per square foot.
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INCOME APPROACH - REMAINDER AFTER
86
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 triple net lease basis. That is, the operator/tenant is responsible for
operating expenses, including pro rata shares of taxes, insurance, and maintenance. Based on
this lease arrangement, the only expense to an owner would be a management fee and any
structural maintenance charges.
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 $38,211 or $1.42 per square foot. This expense is reimbursed. 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 $11,500 or $0.43 per square foot. This expense is reimbursed. The basis of this
expense is market estimates and data.
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 $15,661 ($0.58 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 $10,000 or $0.37 per square foot. This
expense is reimbursed. The basis of this expense is market estimates and data.
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INCOME APPROACH - REMAINDER AFTER
87
Reserves
Reserves are an appropriation from the income of the real estate that is allocated to deferred or
anticipated contingencies, such as maintenance. The basis of this expense is market estimates
and data. This expense is estimated at $5,000 or $0.19 per square foot.
Utilities
The utilities are paid directly to the service provider by the tenant and not included in this pro
forma analysis.
Expense Summary
Based on the foregoing, the expenses are estimated at $2.98 per square foot or $80,372 per year.
The following table represents the stabilized pro forma operating statement for the subject
property.
Rentable Building Area: 27,000 SF
Total $/SF
Gross Rental Income 270,000$ 10.00$
Expense Reimbursements 59,711$ 2.22$
Total Potential Income 329,711$ 12.22$
Less: Vacancy @ 5%16,486$ 0.61$
Effective Gross Income 313,225$ 11.60$
Less: Expenses Reimbursed
Real Estate Taxes X 38,211$ 1.42$
Insurance X 11,500$ 0.43$
Management Fees (5% of EGI)15,661$ 0.58$
Structural Maintenance/Repairs X 10,000$ 0.37$
Reserves 5,000$ 0.19$
Total Expenses 80,372$ 2.98$
Net Operating Income 232,853$ 8.62$
Net Income/Effective Gross Income Ratio 74.34%
INCOME AND EXPENSE SUMMARY
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INCOME APPROACH - REMAINDER AFTER
88
An overall capitalization rate of 6.00% is judged to be appropriate for the subject. The net
operating income is capitalized using an overall rate of 6.00%, and results in a value indication
of $3,880,883 ($232,853 ÷ 0.0600). Based on the foregoing, the income capitalization approach
supports a market value of $3,880,000, rounded.
Net Operating Income $232,853
Capitalization Rate 0.0600
Value Indicated By Direct Capitalization $3,880,883
Final Value by Direct Capitalization $3,880,000
=
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RECONCILIATION - REMAINDER AFTER
89
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 $3,780,000
Income Capitalization Approach $3,880,000
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 $5.00 per square foot $446,966
Cost Approach
The estimated costs are compared with the Marshall Valuation Service Cost Manual. Additionally,
a review of cost manuals, conversations with local building contractors and developers, and the
appraiser’s experience in valuing similar properties readily support these costs.
The cost approach is most applicable when a property is new or proposed and when the
development represents the highest and best use of the site. The effective age of the improvements
is estimated at 22 years. Overall, the cost approach is not a reliable valuation method for this
analysis.
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.
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RECONCILIATION - REMAINDER AFTER
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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.
CONCLUSION
In conclusion, the cost approach is a supporting valuation approach, due to the age of the
improvements, which represent the highest and best use of the site. The sales comparison and
income capitalization approaches are the most 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, our final opinion of the
market value of the subject in the reminder property condition is as follows:
Remainder Property (Market Value) $3,800,000
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SUMMARY OF COMPENSATION
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SUMMARY OF COMPENSATION
The total compensation consists of the value of the part acquired in permanent easement estate
and damages to the remainder.
Damages to the remainder result from the area of the Buildings A and B which would not be
permitted for reconstruction. This area is estimated at 1,500 square feet. The total building area
of 28,500 square feet is utilized in the before condition with a total building area of 27,000
square feet calculated in the remainder building area.
Cost To Cure
Within the acquisition area, the property is improved with concrete curbing, concrete paving and
drives, 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 $300,000.
Whole Property 4,100,000$
Part To Be Acquired in Easement 71,941$
Remainder - Before the Acquisition 4,028,059$
Remainder - After the Acquisition 3,800,000$
Damages 228,059$
Total Compensation 300,000$
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APPRAISER’S CERTIFICATE
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The undersigned do hereby certify that, except as otherwise noted in this appraisal report:
APPRAISER’S CERTIFICATE
We have no present or contemplated future interest in the real estate that is the subject of this
appraisal report. We have no personal interest or bias with respect to the subject matter of this
appraisal report or the parties involved. Our engagement in this assignment was not contingent
upon developing or reporting predetermined results. Our 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 our 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 our assignment or by the undersigned) affecting the analyses, opinions, and conclusions
contained in this report. These are our personal, impartial, unbiased professional analyses,
opinions, and conclusions.
This appraisal report has been made in conformity with the Uniform Standards of Professional
Appraisal Practice. We certify that, to the best of our 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..
The Appraisal Institute conducts a program of continuing education for its members. As of the
date of this report, Kathleen Foley has completed the Standards and Ethics Education
Requirements for Practicing Affiliates of the Appraisal Institute.
We 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. We certify that Richard McBride and Kathleen Foley personally inspected the
property appraised.
PYLES WHATLEY CORPORATION
Richard McBride Kathleen Foley
State of Texas Certification #TX-1380335-G State of Texas Certification #TX-1380509-G
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APPRAISER QUALIFICATIONS
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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
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APPRAISER QUALIFICATIONS
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KATHLEEN A. FOLEY
Appraisal assignments include retail centers, office buildings, commercial and industrial properties, land
development, multi-family residential, right-of-way, and easements.
Experience
Independent appraiser 1996-present
Las Vegas Appraisal, Inc, 1993-1996
Education
Numerous Appraisal Courses offered by the Appraisal Institute Right-of-way courses offered by the International Right of Way Association
University of Nevada, Las Vegas
Bachelor of Science-Finance
Professional
Texas Appraiser Licensing and Certification Board
Certified General Real Estate Appraiser #TX 1380509-G
Nevada Real Estate Division
Certified General Real Estate Appraiser NV# A.0002152-CG
Appraisal Institute
Practicing Affiliate
International Right of Way Association
Chapter 36 - Member
Texas Real Estate Commission
Real Estate Broker #TX 696961
Nevada Real Estate Division
Broker Salesperson NV# BS.0034463
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ADDENDA
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PARCEL SURVEY/FIELD NOTES
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TAX INFORMATION
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TAX INFORMATION – Continued
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ZONING INFORMATION
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ZONING INFORMATION – Continued
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LETTER OF NOTICE
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USPS CERTIFIED/RETURN RECEIPTS
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