<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report: November 6, 1998
- --------------------------------
(Date of earliest event reported)
Morgan Stanley Capital I Inc.
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(Exact name of registrant as specified in its charter)
Delaware 333-45467-01 13-3291626
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(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
1585 Broadway, New York, N.Y. 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 761-4000
<PAGE>
ITEM 5. OTHER EVENTS.
Attached as exhibits to this Current Report are certain property
appraisals (the "Property Appraisals") furnished to the Registrant by Cushman &
Wakefield of California, Inc. and HVS International (the "Appraisers") in
respect of the Registrant's offering of the Commercial Mortgage Pass-Through
Certificates, Series 1998-XL1 (the "Certificates").
The Certificates were offered pursuant to a Prospectus and related
Prospectus Supplement dated June 1, 1998 (together, the "Prospectus"), which
was filed with the Commission pursuant to Rule 424 under the Securities Act of
1933, as amended (the "Act"). The offer and sale contemplated by the Prospectus
of the Certificates were registered pursuant to the Act under the Registrant's
Registration Statement on Form S-3 (No. 033-45467) (the "Registration
Statement"). The Registrant hereby incorporates the Property Appraisals by
reference in the Prospectus and the Registration Statement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Item 601(a) of Regulation
S-K Exhibit No. Description
--------------- -----------
99.1 Appraisal for Wells Fargo Tower
99.2 Appraisal for Hotel Del Coronado
-2-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf of the
Registrant by the undersigned thereunto duly authorized.
MORGAN STANLEY CAPITAL I INC.
By: /s/ James E. Flaum
-----------------------------
Name: James E. Flaum
Title: Principal
Date: November 6, 1998
<PAGE>
Exhibit Index
-------------
Item 601(a) of
Regulation S-K Paper (P) or
Exhibit No. Description Electronic (E)
- ----------- ----------- --------------
99.1 Appraisal for Wells Fargo Tower E
99.2 Appraisal for Hotel Del Coronado E
<PAGE>
This CD ROM contains an electronic version of appraisals for the Mortgaged
Properties in PDF format. The appraisals for the Mortgaged Properties were
prepared prior to the date of this Prospectus Supplement. Accordingly, the
information included in such appraisals may not reflect the current economic,
competitive, market and other conditions with respect to the Mortgaged
Properties. The information contained in this CD ROM does not appear elsewhere
in paper form in this Prospectus Supplement and must be considered together
with the information contained elsewhere in this Prospectus Supplement and the
Prospectus. The information contained in this CD ROM has been filed by the
Seller with the Securities and Exchange Commission as part of a Current Report
on Form 8-K, which is incorporated by reference in this Prospectus Supplement,
and is also available through the public reference branch of the Securities and
Exchange Commission. Defined terms used in this CD ROM but not otherwise
defined therein shall have the respective meanings assigned to them in the
paper portion of the Prospectus Supplement and the Prospectus. All of the
information contained in this CD ROM is subject to the same limitations and
qualifications contained in this Prospectus Supplement and the Prospectus.
Prospective investors are strongly urged to read the paper portion of this
Prospectus Supplement and the Prospectus in its entirety prior to accessing
this CD ROM. If this CD ROM was not received in a sealed package, there can be
no assurances that it remains in its original format and should not be relied
upon for nay purpose. Prospective investors may contact Cecilia Tarrant of
Morgan Stanley & Co. Incorporated at (212) 761-6028 to receive an original copy
of the CD ROM.
<PAGE>
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COMPLETE APPRAISAL OF REAL PROPERTY
WELLS FARGO CENTER - PHASE I
333 South Grand Avenue
Los Angeles, California
- --------------------------------------------------
IN A SELF-CONTAINED REPORT
As of: February 27, 1998
Prepared For:
WELLS FARGO RETECHS
707 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90017
Prepared By:
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
Los Angeles Valuation Advisory Services
555 South Flower Street, Suite 4200
Los Angeles, California 90071
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION 1
Identification of Property 1
Property Ownership and Recent History 1
Purpose and Function of the Appraisal 1
Scope of the Appraisal 1
Date of Value and Property Inspection 1
Property Rights Appraised 1
Definitions of Value, Interest Appraised, and Other Pertinent Terms 1
Legal Description 2
REGIONAL ANALYSIS 4
Physical Boundaries 4
Demographics 4
Population 4
Income and Affordability 5
Employment 6
Services 8
Trade 9
Manufacturing 9
Transportation 10
Conclusions 11
LOCATION ANALYSIS 12
Downtown Overview 12
Neighborhood 14
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS 15
Office Market Analysis 15
DOWNTOWN LOS ANGELES OFFICE MARKET 24
Downtown Los Angeles Office Market 24
Central Business District 25
Office Demand 33
Conclusions 37
PROPERTY DESCRIPTION 39
Site Description 39
Improvements Description 41
General Description 41
Construction Detail 41
Interior Detail 42
Mechanical Detail 43
Site Improvements 43
Comments 43
REAL PROPERTY TAXES AND ASSESSMENTS 44
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
ZONING 45
HIGHEST AND BEST USE 46
VALUATION PROCESS 47
COST APPROACH 48
Methodology 48
Land Valuation 48
Cost of Improvements 53
Estimate of Accrued Depreciation 54
SALES COMPARISON APPROACH 55
Methodology 55
Analysis and Conclusions 63
INCOME APPROACH 66
Methodology 66
Potential Gross Income 66
Market Rent 69
Other Revenues 81
Operating Expenses 83
Vacancy and Collection Loss and Releasing Assumptions 87
Discounted Cash Flow Analysis 89
Derivation of Discount Rate 91
Direct Capitalization 92
Income Approach Conclusion 94
RECONCILIATION AND FINAL VALUE ESTIMATE 95
ASSUMPTIONS AND LIMITING CONDITIONS 96
CERTIFICATIONS OF APPRAISAL 98
ADDENDA 99
</TABLE>
<PAGE>
WELLS FARGO BANK
APPRAISAL REQUIREMENTS
REAL ESTATE TECHNICAL SERVICES GROUP (RETECHS)
These requirements reflect the special valuation and underwriting criteria of
Wells Fargo & Company. It is expressly assumed that, in addition to satisfying
these criteria, independent fee appraisers will scrupulously follow the
Uniform Standards of Professional Appraisal Practice (USPAP), comply with the
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and
adhere to all applicable local, state and federal regulations pertaining to
appraisal practice and procedure.
At the beginning of the appraisal (narrative) report, IMMEDIATELY FOLLOWING
YOUR TRANSMITTAL LETTER, please provide an executive summary in the SAME
FORMAT AS SHOWN BELOW (except for the property identification section, items
which do not apply to the product type may be excluded):
EXECUTIVE SUMMARY
-----------------
PROPERTY IDENTIFICATION
- -----------------------
Site Description: Two non-contiguous parcels containing 2.60 and
1.14 acres; 3.74 acres total
Improvements: 53-story office tower and retail development
constructed in 1982; total rentable area of
1,336,244 square feet
Hazardous Substances: Yes [ ] No [X]
Discussed on Page ____
Flood Zone: Discussed on Page _40_
Unusual Seismic Hazards: Yes [ ] No [X]
Discussed on Page _41_
Special ADA Considerations: Yes [ ] No [X]
Discussed on Page ____
Agricultural Preserve: Yes [ ] No [X]
Discussed on Page ____
Wetlands: Yes [ ] No [X]
Discussed on Page ____
1
<PAGE>
QUALITY ASSUREANCE CHECKLIST
FOR DCF VALUATIONS & ANALYSES
VALUE INDICATIONS
- -----------------
Appraisal Premise(s): As Is
Cost Approach Conclusion: $337,000,000
Income Approach Conclusion: $235,000,000
Sales Comparison Approach: $255,000,000
Reconciled Value (Includes
Bonded Indebtedness): $235,000,000
Land Value: Total: $30,000,000
Per SF/AC: $184.35
Value of Personal Property,
Fixtures, Intangibles Included
in Market Value Estimate: N/A
Insurable Replacement Cost(s): $250,000,000
Reasonable Exposure Period: 9 Months
Reasonable Marketing Period: 9 Months
INCOME PROPERTY ECONOMICS
- -------------------------
As Is
POTENTIAL GROSS ANNUAL INCOME: $22,333,588
Other Income: $14,285,323
Vacancy/Collection Losses: $ 1,803,274
EFFECTIVE GROSS INCOME: $34,815,637
TOTAL EXPENSES: $14,467,326
NET OPERATING INCOME: $20,348,311
Direct Capitalization Rate Used: 8.5%
Discount Rate Used: 11.0%
Terminal Capitalization Rate Used: 9.0%
Effective Market Rent/SF: $13.76 - $15.88 NNN (10 years)
Contract Rent/SF: $16.71 avg.
Current Vacancy Rate: 7.5%
Stabilized Vacancy Rate: 5.0% + Lag
Est. Absorption Period: 3 years
Concessions: 8 months free
Tenant Improvement Allowance/SF: $40 / psf
Sales Volume per SF: varies
LEASE EXPIRATIONS (CURRENT, PLUS NEXT 2 YEARS):
Year No./Tenants SF Leased %/NRA
- --------------------------------------
1998 11 45,953 3.6%
1999 5 39,691 3.2%
2
<PAGE>
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071-2418
Tel: (213) 955-5100
Fax: (213) 627-4044
March 6, 1998
Mr. Doug Nason
WELLS FARGO RETECHS
707 Wilshire Boulevard, 11th Floor
Los Angeles, CA 90017
RE: APPRAISAL OF REAL PROPERTY
WELLS FARGO CENTER - PHASE I
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA
Dear Mr. Nason:
In conformance with your request, we have completed an appraisal of the
above referenced property. The appraisal states our opinion of the property's
Market Value subject to various Assumptions and Limiting Conditions set forth
in the accompanying report. The physical inspection and analysis that form
the basis of the report have been conducted by James W. Myers, MAI, with
assistance from Miles Loo, Jr.
The accompanying report includes pertinent data secured in our
investigation, exhibits and the details of the process used to arrive at our
conclusion of value. The appraisal conforms to the Standards of Professional
Practice and the Code of Professional Ethics of the Appraisal Institute, which
incorporates the Uniform Standards of Professional Appraisal Practice (USPAP),
of the Appraisal Foundation. The appraisal has been prepared in compliance
with the requirements of Title XI of the Federal Financial Institution Reform,
Recovery and Enforcement Act of 1989 (FIRREA).
Based on the analysis and data contained in this appraisal it is our
opinion that the Market Value of the leased fee interest in the subject
property, as of February 27, 1998, was:
TWO HUNDRED THIRTY FIVE MILLION DOLLARS
---------------------------------------
$235,000,000
The above conclusion presumes an estimated exposure period of approximately
nine months.
<PAGE>
Mr Dong Nason
WELLS FARGO RETECHS
March 6, 1998
Page 2
This appraisal is invalid as an opinion of value if detached from the
report, which includes the text, exhibits and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
/s/ James W. Myers /s/ Miles Loo, Jr.
James W. Myers, MAI Miles Loo, Jr.
Senior Director Associate Appraiser
State of California License AG002662
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- -------------------------------------------------------------------------------
PROPERTY NAME: Wells Fargo Center
LOCATION: 333 South Grand Avenue
Los Angeles, California
ASSESSOR'S PARCEL NUMBER: 5149-10-24 and
5151-15-12
INTEREST APPRAISED: Leased Fee
DATE OF VALUE: February 27, 1998
DATE OF INSPECTION: February 27, 1998
OWNERSHIP: Maguire Partners - Properties Phase I
(per Assessor's records)
LAND AREA:
Development
Site: 113,080 square feet
Offsite Parking: 49,658 square feet
-------------------
Total: 162,738 square feet
(per Assessor)
ZONING: C2-4D, City of Los Angeles
HIGHEST AND BEST USE
If Vacant: Hold for future development
As Improved: Existing development
IMPROVEMENTS
Type: 53-story Class "A" office and retail
development building constructed in
1982 containing 1,336,244 (plus or
minus) rentable square feet.
Parking:
(Share in common with IBM Tower)
Onsite: Five-level (including four subterranean
levels) parking garage containing 2,014
spaces.
Offsite: Seven-level (including two subterranean
levels) parking garage containing 774
spaces.
Total: 2,788 spaces (56% Pro-Rate share for
Phase I)
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- -------------------------------------------------------------------------------
VALUE INDICATORS
Cost Approach: $337,000,000
Sales Comparison Approach: $255,000,000
Income Approach: $235,000,000
VALUE CONCLUSION: $235,000,000
INSURABLE VALUE: $250,000,000
SPECIAL ASSUMPTIONS: 1. The rentable areas used in this
appraisal are based upon areas shown in
the rent rolls and/or leases provided
for our review.
2. Please refer to the complete list of
assumptions and limiting conditions
included at the end of this report.
<PAGE>
INTRODUCTION
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IDENTIFICATION OF PROPERTY
The subject property consists of two non-contiguous parcels located at the
southwest corner of Grand Avenue and Third Street (development site) and the
southwest corner of Hill Street and Second Street (offsite parking),
containing 2.60 acres and 1.14 acres, respectively. The larger site is
improved with Phase I of Wells Fargo Center, a 53-story (no 2nd or 13th Floor)
Class "A" office and retail development constructed in 1982, containing
1,336,244 rentable square feet. The property also includes a five-level onsite
parking garage containing 2,014 spaces, and a seven-level offsite parking
garage containing 774 spaces. The parking is shared in common with Phase II of
the larger Wells Fargo Center development. The subject of this appraisal is
the Phase I component, which consists of an office tower containing 1,255,257
rentable square feet, retail and restaurant uses containing 69,139 square
feet, and 11,848 square feet of storage space. Phase II of the development,
which is known as the IBM (or "South") Tower, contains 1,062,468 rentable
square feet and is not a subject of this appraisal.
The Los Angeles County Assessor identifies the subject property as Parcel
Numbers 5149-10-24 and 5151-15-12. The street address for the Wells Fargo
Center is 333 South Grand Avenue, Los Angeles, California.
PROPERTY OWNERSHIP AND RECENT HISTORY
According to Assessor's records, and other documents, current title to the
subject property is vested in Maguire Partners - Crocker Properties Phase I, a
limited partnership, which acquired title to individual parcels as currently
improved in 1986. Details pertaining to the individual transactions have not
been disclosed. To our knowledge, no further transfers of this property have
occurred within the past three years.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of the subject
property as of February 27, 1998. The function of the appraisal is to assist
the client with a value basis for contemplated new financing. The intended
users of this appraisal include prospective lenders.
SCOPE OF THE APPRAISAL
The scope of the appraisal is to inspect the property, consider market
characteristics and trends, collect and analyze pertinent data, and develop a
conclusion about the property's market value. We have analyzed the subject
property as of the date of our inspection. All forecasts are based on facts,
conditions, and trends that exist and are known on February 27, 1998, the date
of our property inspection.
DATE OF VALUE AND PROPERTY INSPECTION
The date of value in this appraisal is February 27, 1998, which coincides
with the date of our inspection of the property.
PROPERTY RIGHTS APPRAISED
Leased Fee Interest
DEFINITIONS OF VALUE, INTEREST APPRAISED, AND OTHER PERTINENT TERMS
The Comptroller of the currency of the United States defines Market Value as
follows:
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1
<PAGE>
INTRODUCTION
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MARKET VALUE
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer
and seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in the definition is
the consummation of a sale as of a specified date and the passing of
title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Definitions of pertinent terms taken from the Dictionary of Real Estate
Appraisal, Second Edition (1989), published by the American Institute of Real
Estate Appraisers, are as follows:
LEASED FEE ESTATE
An ownership interest held by a landlord with the right of use and
occupancy conveyed by lease to others; usually consists of the right to
receive rent and the right to repossession at the termination of the
lease.
EXPOSURE TIME
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". 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 the market value on
the effective date of the appraisal. Exposure time is presumed to precede
the effective date of the appraisal.
MARKETING TIME
Marketing time is an estimate of the time that might be required to sell
a real property interest at the appraised value. Marketing time is
presumed to start on the effective date of the appraisal. Marketing time
is subsequent to the effective date of the appraisal and exposure time is
presumed to precede the effective date of the appraisal. The estimate of
marketing time uses some of the same data analyzed in the process of
estimating reasonable exposure time and it is not intended to be a
prediction of a date of sale.
LEGAL DESCRIPTION
A complete legal description of the property is contained in the Addenda. A
partial description of the property (based on Assessor's Maps) is as follows:
- -------------------------------------------------------------------------------
2
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Southern California
DEMOGRAPHIC PROFILE
<TABLE>
<CAPTION>
As of January 1998
============================================================================================================
Los Angeles Ventura San Bernardino Riverside Orange San Diego State of
Characteristic County County County County County County California
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<S> <C> <C> <C> <C> <C> <C> <C>
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Population
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2002 Projection 9,555,104 759,446 1,732,969 1,588,921 2,763,663 2,755,418 33,761,844
1997 Estimate 9,210,790 722,549 1,586,410 1,414,257 2,608,145 2,671,996 32,015,178
1990 Census 8,863,164 669,016 1,418,380 1,170,413 2,410,556 2,498,016 29,760,022
1980 Census 7,477,507 529,174 895,016 663,166 1,932,710 1,861,847 23,667,910
% Increase 1980-1990 18.5% 26.4% 58.5% 76.5% 24.7% 34.2% 25.7%
% Increase 1997-2002 3.7% 5.1% 9.2% 12.4% 6.0% 3.1% 5.5%
- ------------------------------------------------------------------------------------------------------------
Households
- ------------------------------------------------------------------------------------------------------------
2002 Projection 3,331,034 256,353 607,682 577,033 974,324 1,042,311 12,239,831
1997 Estimate 3,172,219 240,971 548,796 508,384 908,422 998,552 11,505,981
1990 Census 2,989,552 217,298 464,737 402,067 827,066 887,403 10,381,206
1980 Census 2,730,469 172,781 306,643 242,937 686,267 670,094 8,629,867
% Increase 1980-1990 9.5% 25.8% 50.6% 65.5% 20.5% 32.4% 20.3%
% Increase 1997-2002 5.0% 6.4% 10.7% 13.5% 7.3% 4.4% 6.4%
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Average Household Size
- ------------------------------------------------------------------------------------------------------------
2002 Projection 2.87 2.96 2.85 2.75 2.84 2.64 2.76
1997 Estimate 2.90 3.00 2.89 2.78 2.87 2.68 2.78
1990 Census 2.96 3.08 3.05 2.91 2.91 2.81 2.87
1980 Census 2.74 3.06 2.90 2.73 2.82 2.78 2.74
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Household Income
- ------------------------------------------------------------------------------------------------------------
Average $69,128 $79,629 $54,737 $57,407 $85,697 $63,029 $66,164
Median $45,061 $60,241 $41,689 $41,442 $61,751 $44,067 $45,514
Per Capita Income $24,190 $26,970 $19,251 $20,948 $30,106 $24,177 $24,178
- ------------------------------------------------------------------------------------------------------------
Households by Income
- ------------------------------------------------------------------------------------------------------------
1997 Estimated Population 3,172,219 240,971 548,796 508,384 908,422 998,552 11,505,981
$150,000 or more 7.6% 7.5% 3.4% 4.5% 9.5% 5.5% 6.3%
$100,000 to $149,999 8.0% 11.7% 5.4% 5.1% 12.7% 6.8% 7.8%
$ 75,000 to $ 99,999 10.0% 15.0% 8.6% 8.2% 15.0% 9.4% 10.2%
$ 50,000 to $ 74,999 19.6% 26.9% 22.5% 22.0% 24.1% 21.5% 21.0%
$ 35,000 to $ 49,999 14.9% 13.9% 18.4% 18.0% 13.3% 17.1% 15.8%
$ 25,000 to $ 34,999 11.9% 9.0% 12.5% 13.0% 9.2% 13.1% 11.9%
$ 15,000 to $ 24,999 12.0% 7.9% 12.8% 13.3% 8.0% 13.1% 12.1%
$ 5,000 to $ 14,999 12.6% 6.9% 13.6% 13.1% 6.5% 11.1% 12.2%
Under $5,000 3.5% 1.3% 2.8% 2.9% 1.7% 2.4% 2.8%
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Occupied Units 2,989,552 217,298 464,737 402,067 827,066 887,403 10,381,206
- ------------------------------------------------------------------------------------------------------------
Owner Occupied 48.2% 65.5% 63.3% 67.4% 60.1% 53.8% 55.6%
Renter Occupied 51.8% 34.5% 36.7% 32.6% 39.9% 46.2% 44.4%
1990 Avg. Persons per HH 2.91 3.02 2.97 2.85 2.87 2.69 2.79
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Education
- ------------------------------------------------------------------------------------------------------------
Bachelor Degree Only 14.5% 15.1% 9.8% 9.7% 18.7% 16.5% 15.3%
Graduate Degree 7.8% 7.9% 5.2% 4.9% 9.1% 8.8% 8.1%
============================================================================================================
Source: Equifax National Decision Systems
</TABLE>
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP]
<PAGE>
INTRODUCTION
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Lot 6, Tract No. 30780 as per map recorded in Book 912, Pages 39 to 45
inclusive of Maps, and Lot B of Parcel Map 134 Page 71, in the City of Los
Angeles, County of Los Angeles, and State of California.
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3
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
The subject property is located in downtown Los Angeles, in the central
portion of Los Angeles County, California. Los Angeles County is a densely
populated and extensively developed region which comprises one of the most
significant commerical property markets in the State of California and the
United States. Although California and the southern California region
experienced a significant economic downturn during the first several years of
this decade, the state and region are currently experiencing substantial
economic growth. The physical, locational, demographic and economic
characteristics of the region are briefly described below.
PHYSICAL BOUNDARIES
Los Angeles County is located in the southwestern portion of the State of
California, and is the commercial center of the Southern California region.
The county lies along approximately 70 miles of the Pacific Coast and extends
for nearly 70 miles from east to west and for 75 miles from north to south.
The county has a total land area of approximately 3,970 square miles, and
roughly 50 percent of the county land is comprised of mountainous terrain
which is sparsely populated and mostly undeveloped. Los Angeles County is
bordered by Ventura County to the northwest, Kern County to the north, San
Bernardino County to the east, Orange County to the south, and the Pacific
Ocean to the west. Los Angeles County has approximately 90 incorporated cities
with a total land area of 1,390 square miles or 35 percent of the total land
area within the county. The remaining 65 percent of the county land area is
unincorporated and the majority of this land area is located north of the San
Gabriel Mountains which run in an east/west direction through the middle of
the county. Los Angeles County's civic center is located in downtown Los
Angeles, which is situated at the approximate center of the region's extensive
freeway system and expanding mass transit network.
DEMOGRAPHICS
POPULATION
Los Angeles County is the largest county in the State of California in terms
of residential population. Consequently it is an important target market for
retailers and service providers. The accompanying exhibit provides an overview
of the demographic characteristics for the State of California and the six
major counties in Southern California. Los Angeles County's 1996 population of
9,255,048 residents comprised 29 percent of the statewide population and 50
percent of the residential population within the six major counties in
Southern California.
Los Angeles County experienced relatively modest population growth from
1980 to 1997 in comparison to the larger statewide population and the major
counties in Southern California. From 1990 to 1997, the county's average
population growth slowed to less than one percent per year, as compared to 1.7
percent per year on average compounded from 1980 to 1990. The relatively
slower pace of population growth in Los Angeles County over the past several
years reflects the relative maturity of the residential and commercial
development within the county. The county also experienced a downturn in
employment opportunities from approximately mid 1990 to 1994. The Northridge
earthquake of January 1994 also caused an outflow of population from the
county.
Demographic studies project the Los Angeles County population to increase
by less than one percent per year (on average compounded) from 1997 to 2002,
which lags the projected population growth for the state and the other major
counties in Southern California. The pace of
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4
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[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP]
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
population growth in the county is projected to be similar to the rate of
household formations, which suggests that average household size has
stabilized. The most significant population growth in Southern California is
expected to occur in the inland Empire counties of Riverside and San
Bernardino, due in large part to the relatively lower cost of housing in these
areas as compared to the other major counties in the region.
INCOME AND AFFORDABILITY
Los Angeles County's average and median household income and per capita
income levels are similar to the statewide figures and generally compare
favorably to the corresponding figures for most of the major counties in
Southern California. Within the Southern California region, only Orange County
and Ventura County have higher household and per capita incomes than Los
Angeles County. From 1980 to 1996, the median household income in Los Angeles
County increased at an average rate of 8.2 percent per year, prior to any
adjustment for inflation. The pace of household income growth for the county
was only 3.0 percent per year from 1990 to 1996, but is projected to increase
to an average growth rate of 5.5 percent per year from 1996 to 2001, also
prior to adjustment for inflation.
The 1996 median home price in Los Angeles County was approximately
$170,000, which represented a decrease of 5.9 percent from the January 1995
median price. A Los Angeles Times survey indicated that approximately 40
percent of the households in the county could afford the median priced home.
This "affordability index" of 40 percent has increased significantly from the
26 percent level of mid-1992, due in part to the decline in housing values in
conjunction with stabilizing income levels. Los Angeles County's affordability
index of 40 percent was towards the low end of the range exhibited by the
major counties in Southern California, which had affordability index figures
in the range of 39 percent (San Diego County) to 54 percent (Riverside/San
Bernardino Counties).
RETAIL SALES TRENDS
The Los Angeles-Long Beach metropolitan area, defined by Los Angeles County,
is the top ranked retail market in the United States according to the most
recent survey of buying power by Sales and Marketing Management Magazine. The
Los Angeles - Long Beach area's Buying Power index was ranked first among the
317 metropolitan areas included in the survey, and was the only California
metropolitan area ranked among the ten strongest retail markets. The Buying
Power Index is a weighted index that converts the survey's three basic
elements of population, effective buying income, and retail sales into a
measurement of a market's "ability to buy". The Los Angeles-Long Beach area
was ranked among the top three metropolitan markets in the country in terms of
population (1st), total effective buying income (3rd), and retail sales (2nd).
- -------------------------------------------------------------------------------
5
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
The Los Angeles area has been experiencing a gradual increase in retail
sales during recent years, as shown in the following table:
LOS ANGELES COUNTY - TOTAL TAXABLE RETAIL SALES
- -----------------------------
Year $('000,000s) % Change
- -----------------------------
1986 $41,269 ---
1987 $44,239 7.19
1988 $46,820 5.83
1989 $50,104 7.01
1990 $50,922 1.63
1991 $48,332 -5.11
1992 $48,450 0.24
1993 $47,338 -2.30
1994 $49,786 5.17
1995 $51,016 2.47
1996 $53,304 4.46
1997 $54,982 3.14
- -----------------------------
Source: California Retail
Survey 1998
Employment
The aerospace sector of the economy has continued to consolidate during the
past five years, but other areas of the Los Angeles economy, including the
entertainment industry, international trade, and the business services
segments have emerged as major sources of employment and catalysts for growth.
The increasing number of distribution channels for entertainment and
educational programming, and the growing demand for interactive media, has
created new marketing opportunities for the television, motion picture, and
computer software industries in the greater Los Angeles area. The Ports of Los
Angeles and Long Beach have solidified their position as the busiest ports in
the country in terms of annual cargo volumes, which in turn has driven
employment gains in trade-related sectors of the economy. Driven by these and
other business sectors, countywide unemployment levels have decreased
significantly from peak levels experienced during the early portion of the
1990's. The following chart illustrates the dramatic improvement in the
California and the Los Angeles County and City employment levels during the
period from 1993 through 1996.
- -------------------------------------------------------------------------------
6
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
Employment Trends
(Average Per Year)
<TABLE>
<CAPTION>
===============================================================================
1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATE OF CALIFORNIA
Labor Force 15,404,255 15,359,518 15,461,830 15,415,475 15,596,139
Employment 13,973,304 13,918,275 14,132,936 14,205,866 14,469,924
Unemployment 1,430,951 1,441,243 1,328,895 1,209,609 1,126,215
Unemployment Rate 9.30% 9.40% 8.60% 7.80% 7.20%
- -------------------------------------------------------------------------------
LOS ANGELES COUNTY
Labor Force 4,503,804 4,404,104 4,366,207 4,359,656 4,415,428
Employment 4,062,416 3,970,748 3,957,037 4,016,191 4,052,561
Unemployment 441,388 433,356 409,170 343,465 362,867
Unemployment Rate 9.80% 9.80% 9.40% 7.90% 8.20%
- -------------------------------------------------------------------------------
LOS ANGELES CITY
Labor Force 1,815,313 1,775,228 1,768,312 1,760,755 1,755,638
Employment 1,614,309 1,577,882 1,581,236 1,603,594 1,610,092
Unemployment 201,004 197,346 187,376 157,161 165,246
Unemployment Rate 11.10% 11.10% 10.60% 8.90% 9.30%
- -------------------------------------------------------------------------------
Source: California Department of Finance
</TABLE>
The chart shows that the state as well as the county and city of Los
Angeles continue to add jobs at a pace which has reduced the unemployment
levels at an impressive pace, as summarized below.
- ------------------------------------------------
Unemployment Unemployment
Average 1993 Average 1996
- ------------------------------------------------
State of California: 9.3% 7.2%
Los Angeles County: 9.8% 8.2%
City of Los Angeles: 11.1% 9.3%
- ------------------------------------------------
The unemployment rate as of December 1997 for the county was 5.8 percent,
down from 6.0 percent in the previous month. The annual unemployment data
above reflects the overall improvement in the economy in California and Los
Angeles since 1993. An analysis of the data on a monthly basis indicates the
trend in increased employment has accelerated during the 11-month period from
January, 1997 through December, 1997, except for June through August
when unemployment increased. The exhibit below summarizes unemployment data
for Los Angeles County on a monthly basis for 1996 and 1997.
- -------------------------------------------------------------------------------
7
<PAGE>
Southern California
EMPLOYMENT & UNEMPLOYMENT TRENDS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
County Name 1992 1993 1994 1995 1996 Y-T-D 1997*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATE OF CALIFORNIA
Labor Force 15,404,255 15,359,518 15,449,963 15,427,261 15,596,139 15,950,995
Employment 13,973,304 13,918,275 14,122,088 14,216,727 14,469,924 15,070,904
Unemployment 1,430,951 1,441,243 1,327,875 1,210,534 1,126,215 880,091
Unemployment Rate 9.3% 9.4% 8.6% 7.8% 7.2% 5.5%
- ---------------------------------------------------------------------------------------------
LOS ANGELES COUNTY
Labor Force 4,503,804 4,404,104 4,366,207 4,359,656 4,415,428 4,550,733
Employment 4,062,416 3,970,748 3,957,037 4,016,191 4,052,561 4,285,200
Unemployment 441,388 433,356 409,170 343,465 362,867 265,533
Unemployment Rate 9.8% 9.8% 9.4% 7.9% 8.2% 5.8%
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
UNEMPLOYMENT RATE 1992 1993 1994 1995 1996 Y-T-D 1997*
- ----------------------------------------------------------------------------
STATE OF CALIFORNIA 9.3% 9.4% 8.6% 7.8% 7.2% 5.5%
- ----------------------------------------------------------------------------
(1) LOS ANGELES COUNTY 9.8% 9.8% 9.4% 7.9% 8.2% 5.8%
- ----------------------------------------------------------------------------
Jan.- Dec. 1997 Source:
U.S. Bureau of Labor Statistics / Local Area Unemployment
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
LOS ANGELES COUNTY UNEMPLOYMENT STATISTICS
1996 VERSUS 1997
<TABLE>
<CAPTION>
==================================================================================
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 8.6% 8.7% 8.4% 8.2% 8.3% 8.4% 9.2% 8.5% 8.0% 7.7% 7.7% 7.0%
1997 7.9% 7.6% 7.2% 7.2% 6.8% 7.0% 7.6% 7.0% 6.6% 6.2% 6.0% 5.8%
Difference 0.7% 1.1% 1.2% 1.0% 1.5% 1.4% 1.6% 1.5% 1.4% 1.5% 1.7% 1.2%
- ----------------------------------------------------------------------------------
</TABLE>
The three major employment sectors in the county are 1) services; 2) trade;
and 3) manufacturing. These sectors are discussed below.
SERVICES
The services sector has experienced significant growth in terms of total
employment from 1990 to 1996 in Los Angeles County and the Southern California
region. The services sector includes entertainment, healthcare, business
services, lodging, and personal services.
Within the services sector, the entertainment industry has experienced
significant growth over the past few years, both in terms of the worldwide
demand for television/film products and the level of employment. The
entertainment industry has emerged as a growing source of high wage employment
within the Los Angeles area and has surpassed the defense industry in terms of
countywide employment. Projections made during August 1996 by the California
Employment Development Department estimated that the total countywide
employment in the motion picture industry (including movie production) was
135,600 jobs. A similar report by the California Department of Finance
estimated the entertainment industry employment figure at 172,000 positions.
The disparity in the reported entertainment employment figures provided by
these two agencies reflects the different methodologies used in collecting the
employment data. Both sources of data support the very significant growth
within this industry and its increasing role in the economic growth of Los
Angeles.
The local entertainment industry has recently been investing in new
production facilities in the Hollywood area, West Los Angeles, and the City of
Burbank, in an effort to meet the growing demand for multi-media products and
services. Such leading companies as Walt Disney Company, Warner Brothers and
NBC Studios in Burbank, MCA in Universal City, Sony Pictures in Culver City,
and DreamWorks are creating multi-media divisions which will increase the
demand for computer/high technology-oriented positions in the Los Angeles
area. The level of entertainment employment is expected to increase due to the
strong international demand for film product and the ongoing evolution of the
cable television industry.
A proposed major entertainment industry development in the Manhattan Beach
area marks an initial movement of the film industry to the South Bay region of
Los Angeles County. The demand for production studio space has become so
substantial in recent years that existing facilities are not sufficient for
the film industry. Constrained by limited available land in the market areas
of Los Angeles County which have traditionally attracted entertainment
companies, Shamrock Holdings (controlled by Roy Disney) recently acquired a
22.5-acre site in Manhattan Beach formerly owned by TRW. The site is located
on Rosecrans Avenue, and a new motion picture studio is planned for the
property in four phases. This incursion of the
- -------------------------------------------------------------------------------
8
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
entertainment industry into the South Bay area is expected to bring high-paying
employment opportunities to this area.
The second largest category of employment within the services sector is the
health services segment. The Los Angeles area is home to some of the most
advanced medical and medical teaching facilities in the country, including
Cedars-Sinai Medical Center, the City of Hope, and the University of Southern
California and the University of California at Los Angeles schools of
medicine. Reports by industry experts suggest that the Los Angeles area has an
excess of local hospital facilities, which has resulted in consolidation
within the industry and/or the closure of under-performing hospitals and is
expected to continue over the next few years. The impact on total employment
within the county stemming from the anticipated consolidations is showing
some decline. According to the California State Employment Development
Department health services employment in Los Angeles County totaled 259,000
jobs as of October 1997, down 0.53 percent from a year ago.
TRADE
The trade sector consists of both wholesale and retail trade. Employment
within this sector has been relatively stable over the past several years,
both in terms of total employment and as a percentage of employment within the
county.
One of the primary catalysts for growth within the trade sector has been the
growing volume of international trade. The value of imports and exports
passing through the Los Angeles Customs District, which includes the Port of
Los Angeles, the Port of Long Beach, and Los Angeles International Airport,
reached $165 billion in 1995, an increase of nearly 15 percent from 1994.
During 1994 and 1995, the Los Angeles Customs District comprised the largest
customs district in the country in terms of the dollar value of annual two-way
trade. The Ports of Los Angeles and Long Beach have benefited from
technological advancements such as larger cargo cranes and dockside rail
connections. There has also been a steady growth in trade with the countries
of the Pacific Rim. Recent economic turmoil in southeast Asia is likely to
have a negative effect on port activity.
Within the retail trade sector, total employment within the county decreased
by approximately ten percent from 1990 to 1995. The decline in retail
employment reflects the downturn in retail sales from 1990 to 1994 and the
consolidation within the retail industry by several major retailers. In
addition, new retail development has been more limited on a countywide basis
over the past few years with the exception of "big box" type retailers which
have opened new free-standing stores and/or stores in larger power centers or
community shopping centers. As discussed, Los Angeles County is a very
attractive retail market on a nationwide basis as it compares favorably to
other metropolitan areas in terms of total population, total effective buying
income, and total retail sales. The retail trade employment sector experienced
an increase in the number of jobs during the past year, with total employment
increasing from 585,100 to 589,800 (1.0%) from October 1996 to October 1997.
MANUFACTURING
Manufacturing has historically provided a strong base for the Los Angeles
area economy and the county continues to hold its position as the nation's
largest manufacturing center. However, manufacturing employment decreased by
18.8 percent from 1990 to 1995 which
- -------------------------------------------------------------------------------
9
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
largely reflected the major cutbacks within the aerospace/defense industry.
Seattle-based Boeing Company's December 1996 announcement of plans to
acquire ("merge") McDonnell Douglas Corporation, with approximately 10,000
employees in its Long Beach plant, has been generally perceived as a positive
sign for employment in Los Angeles County. McDonnell Douglas has recently
failed to be awarded a number of major contracts, while Boeing has been
successful in several recent significant commercial and defense contracts.
Boeing had recently acquired Rockwell International's aerospace subsidiary,
with approximately 14,500 employees in several plants spread from Canoga Park
in northwestern Los Angeles County to Anaheim in central Orange County. With
the addition of 27,420 McDonnell Douglas employees in California and the
former Rockwell employees, Boeing is expected to have approximately 200,000
total employees nationally and a projected $50 billion in annual revenues.
Boeing has now become Southern California's biggest employer.
Consolidations in the aerospace industry are expected to continue, and some
unofficial "speculation" suggests that Northrop Grumman, also headquartered
in Los Angeles County, must either acquire another major aerospace firm or
become a takeover target. Major defense programs currently in progress in the
Los Angeles County area include the B-2 Bomber (Northrop in Pico Rivera), the
C-17 Transport jet (McDonnell Douglas in Long Beach), and the F/A18 Fighter
aircraft (Northrop in El Segundo). Manufacturing employment has stabilized
during the past year, increasing from 651,300 to 663,000 from October 1996 to
October 1997.
One of the more important trends within the manufacturing sector has been
the recent recovery of employment within the "high tech" sector. Hughes
Electronics' Corporation and TRW have both achieved significant business gains
in the field of satellite communications which have resulted in increased
employment within the non-defense divisions of these firms. TRW has recently
completed the development and testing phases on a new communications satellite
called Odyssey, which represents the company's first venture into the
commercial satellite business. The project is expected to employ up to 1,000
people at TRW's Redondo Beach facilities as the company goes into full
production over the next few years.
TRANSPORTATION
The Los Angeles area has an extensive freeway system, an expanding mass
transit system, and several airport facilities. The Southern California
freeway network, and specifically the network in the Los Angeles area, is one
of the most extensive systems in the world. Major north/south freeways in the
county include the San Diego Freeway (I-405), the Golden State Freeway (I-5),
the Long Beach Freeway (I-710), and the San Gabriel River Freeway (I-605).
Major east/west freeways in Los Angeles County include the Pasadena Freeway
(I-210), the Ventura freeway (SH-101/SH-134), the Santa Monica Freeway (I-10),
the Pomona Freeway (SH-60), and the Artesia Freeway (SH-91).
The Metro System is a multi-modal transit system consisting of freeway
car-pool lanes, buses, light rail lines, and heavy rail lines. At the present
time, seven rail lines are in operation, including three Metro Rail commuter
lines and four Metrolink commuter lines. The Metro Rail lines which are
currently in operation include: 1) the Metro Blue Line, which extends for 22
miles from downtown Los Angeles to Long Beach; 2) the Metro Red Line, which
extends for approximately 4.4 miles from downtown Los Angeles to the
Westlake/MacArthur Park area; and
- -------------------------------------------------------------------------------
10
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
3) The Metro Green Line, which extends for approximately 20 miles from El
Segundo (near Los Angeles International Airport) eastward to Norwalk in central
Los Angeles County. The Metrolink system has commuter rail lines in operation
at the present time from downtown Los Angeles to the following areas: 1)
Moorpark in Ventura County (47 miles); 2) Lancaster/Palmdale in north Los
Angeles County (60 miles); 3) San Bernardino (57 miles); and 4) Downtown
Riverside (58 miles).
Public transportation is also available by bus service, which is provided
by the Metropolitan Transit Authority and by train service provided by AMTRAK.
Air transportation is available at several airports in the Los Angeles area.
The Los Angeles International Airport, located in the southwestern portion
of the county, handles domestic and international carriers and is one of the
five busiest airports in the world. Three smaller regional airports also
service the Los Angeles area including; 1) the Burbank-Glendale-Pasadena
Airport in the City of Burbank; 2) the Long Beach Municipal Airport in the
City of Long Beach; and 3) the Van Nuys Airport in the community of Van Nuys
in the West San Fernando Valley.
CONCLUSIONS
Los Angeles County is the primary commercial, trade, manufacturing and
service center of Southern California. The region's natural and man-made
attractions, together with a diversified and highly skilled employment base,
have a significant role in establishing Los Angeles County as the focal point
for economic activity in the western United States. The county has a
significant residential population, with household and per capita income
levels comparable or superior to the corresponding figures for the State of
California. Over the past few years, the employment base in Los Angeles County
has changed as the aerospace/defense industry has downsized while the sectors
of entertainment, healthcare, and international trade have experienced
significant new growth.
After several years of recession during the first portion of this decade,
economic activity in Los Angeles County has improved significantly. It is
likely to increase steadily over the foreseeable future. Total employment
within the county as reported by the Los Angeles County Economic Development
Corporation increased by 2.1 percent in 1996 and outpaced the nation as a
whole in terms of new job creation. Actual employment increased from 1995
to 1996 totaled 60,484 jobs, or an increase of 1.6 percent. In 1997, total
employment in Los Angeles County increased by 1.7 percent over the 1996
amount, or by 67,100 jobs. Retail sales increased in Los Angeles County by
over 3.0 percent in 1996, following a 2.5 percent increase in 1995. The
firming of home prices in Los Angeles County, after four consecutive years
of declining prices, is expected to have a favorable impact on business
activity within the county. Over the longer term, the anticipated future
expansions by the entertainment, international trade, and services sectors
are likely to increase employment opportunities within the region., The
subject property can be expected to be favorably influenced by the expanding
economy of Los Angeles County.
- -------------------------------------------------------------------------------
11
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP]
<PAGE>
Bunker Hill Weighted Average Direct Vacancy
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
<PAGE>
DOWNTOWN LOS ANGELES
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP]
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP]
<PAGE>
REGIONAL ANALYSIS
- -------------------------------------------------------------------------------
additional $10 million of the costs to shared (50% each) between the developer
and the city, and the developer will be responsible for all costs above $80
million. If developed as currently proposed the new Arena should have a
significant positive economic impact on the downtown area in general and the
South Park neighborhood in particular.
RESIDENTIAL DEVELOPMENT
The most significant residential development in downtown Los Angeles has
occurred in the Bunker Hill and South Park areas. Despite the large daytime
worker population and the costs of commuting from outlying areas, the downtown
area residential development has not benefited from a strong demand for
housing in the CBD. The Bunker Hill area contains approximately 3,000
residential units, primarily in high rise towers. The Los Angeles Community
Redevelopment Agency has made the South Park area the centerpiece of its
efforts to create a downtown housing community. Most of the existing
development in South Park has been subsidized, either by government agencies
or by related commercial development.
NEIGHBORHOOD
The Los Angeles Community Redevelopment Agency separates the downtown
Central Business District into four components: 1) Bunker Hill, which
encompasses the area bounded by the Harbor Freeway on the west, Hill Street on
the east, First Street on the north, and Fifth Street on the south; 2) the
Financial core, just south of Bunker Hill, which is bordered by Eighth Street
on the south, the Harbor Freeway on the west, and Hill Street on the east; 3)
South Park, which is bounded by Eighth Street on the north, the Harbor Freeway
on the west, the Santa Monica Freeway on the south, and Hill Street on the
east; and 4) the Central City West, which generally parallels the other
components of the Central Business District, but is situated west of the
Harbor Freeway.
As noted previously the subject is situated in the heart of the Bunker
Hill neighborhood. Bunker Hill is located in the northerly portion of the
downtown Los Angeles Central Business District. The Bunker Hill neighborhood
extends roughly from the southern boundary between Fourth and Fifth Streets to
First Street on the north, and from Hill Street on the east to the Harbor
Freeway on the west. The Bunker Hill neighborhood has been substantially
improved with Class A high-rise office and apartment developments, as well as
public uses including the Museum of Contemporary Art and the 470-room
Intercontinental Hotel. The subject's retail/restaurant component represents
the primary retail amenity in this neighborhood, and is perhaps the most
successful restaurant location in the CBD.
- -------------------------------------------------------------------------------
14
<PAGE>
LOS ANGELES COUNTY
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 1997
<TABLE>
<CAPTION>
DIRECT
NUMBER DIRECT VACANCY OVERALL
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES
<S> <C> <C> <C> <C> <C>
========================================================================================================
CENTRAL LOS ANGELES 57,532,569 274 12,373,991 21.5 13,935,802
- --------------------------------------------------------------------------------------------------------
1 Downtown Los Angeles 36,973,305 109 7,257,405 19.6% 6,563,854
2 Mid-Wilshire Comdor 13,831,210 79 3,528,486 25.5% 3,710,931
3 San Gabriel Valley 6,728,054 86 1,588,100 23.6% 1,661,017
- --------------------------------------------------------------------------------------------------------
WEST LOS ANGELES 40,290,682 316 4,664,004 11.6% 5,345,521
- --------------------------------------------------------------------------------------------------------
4 Hollywood/West Hollywood 3,874,934 45 714,395 18.4% 734,614
5 Beverly Hills/Century City 14,363,192 89 1,494,406 10.4% 1,660,353
6 Westwood/West Los Angeles 17,304,476 139 1,940,438 11.2% 2,317,420
7 Manna Area/Culver City 4,748,080 43 514,765 10.8% 633,134
- --------------------------------------------------------------------------------------------------------
SOUTH LOS ANGELES 30,635,125 251 5,368,433 17.5% 5,893,638
- --------------------------------------------------------------------------------------------------------
8 LAX/EI Segundo 13,349,719 62 2,331,914 17.5% 2,548,101
9 Torrance 7,419,275 64 1,358,557 18.3% 1,409,662
10 Long Beach 9,866,131 85 1,677,962 17.0% 1,935,675
- --------------------------------------------------------------------------------------------------------
NORTH LOS ANGELES 41,225,848 493 5,123,052 12.4% 5,974,544
- --------------------------------------------------------------------------------------------------------
11 Simi/Conejo Valley 4,932,348 96 669,294 13.6% 675,916
12 West Valley 9,267,461 105 1,488,636 16.1% 1,571,811
13 Central Valley 8,734,843 117 1,325,129 15.2% 1,588,093
14 East Valley (including Pasadena) 18,291,196 175 1,639,993 9.0% 2,138,724
========================================================================================================
TOTAL 169,684,224 1,334 27,529,480 16.2% 31,149,505
</TABLE>
<TABLE>
<CAPTION>
OVERALL NET ADSORPTION Direct
VACANCY --------------------- Wid. Avg.
Market / Submarket RATE 4TH QTR YTD 1997 Rental Rate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CENTRAL LOS ANGELES 24.2% (67,702) 137,682 $17.31
- ------------------------------------------------------------------------------------
1 Downtown Los Angeles 23.2% (45,078) (146,000) $17.94
2 Mid-Wilshire Comdor 26.8% (80,348) 407,940 $15.66
3 San Gabriel Valley 24.7% 57,724 (124,258) $17.69
- ------------------------------------------------------------------------------------
WEST LOS ANGELES 13.3% 42,280 638,639 $24.50
- ------------------------------------------------------------------------------------
4 Hollywood/West Hollywood 19.0% 13,535 (31,281) $17.19
5 Beverly Hills/Century City 11.6% 68,388 208,140 $27.67
6 Westwood/West Los Angeles 13.4% (43,366) 438,282 $26.39
7 Manna Area/Culver City 13.3% 3,723 23,498 $18.33
- ------------------------------------------------------------------------------------
SOUTH LOS ANGELES 19.2% 676,285 619,644 $17.47
- ------------------------------------------------------------------------------------
8 LAX/EI Segundo 19.1% 480,501 835,704 $16.74
9 Torrance 19.0% 131,370 (57,008) $17.11
10 Long Beach 19.6% 64,414 40,948 $18.78
- ------------------------------------------------------------------------------------
NORTH LOS ANGELES 14.5% 295,279 541,148 $21.15
- ------------------------------------------------------------------------------------
11 Simi/Conejo Valley 13.7% 3,816 (32,066) $19.93
12 West Valley 17.0% 165,286 512,198 $21.18
13 Central Valley 18.2% 36,576 (25,466) $20.13
14 East Valley (including Pasadena) 11.7% 89,601 86,482 $22.44
- ------------------------------------------------------------------------------------
TOTAL 18.4% 946,142 2,137,113 $19.28
====================================================================================
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART] [BAR GRAPH]
[BAR GRAPH]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
OFFICE MARKET ANALYSIS
LOS ANGELES COUNTY OFFICE MARKET OVERVIEW
Supply and Tenant Demand
According to Cushman & Wakefield's year-end, 1997 surveys the combined Los
Angeles County office market contained a total inventory of 169,684,224 square
feet. This figure excludes owner user, medical, and government office
buildings.
The accompanying exhibit provides a statistical overview of the office
inventory for Los Angeles County, including a breakdown by markets. The
markets included in the sectors used in this report are summarized below.
SECTOR MARKETS
- ------ -------
Los Angeles Central/Downtown: Downtown Los Angeles
Mid-Wilshire Corridor
San Gabriel Valley
Los Angeles West: Hollywood/West Hollywood
Beverly Hills/Century City
Westwood/West L.A./Santa Monica
Marina Area/Culver City
Los Angeles South Bay: El Segundo/LAX
Long Beach
Torrance
Los Angeles North: Simi/Conejo Valleys
West San Fernando Valley
Central San Fernando Valley
East San Fernando Valley/Tri-Cities
Each market within the larger markets is comprised of a series of
submarkets. Although the markets and individual office markets compete to
varying degrees on a larger scale for the Los Angeles County tenant base,
each market is characterized independently in general terms by a typical
targeted tenant or industry type. The table below presents a general overview
of the tenant base for the markets.
SECTOR TENANT BASE
- ------ -----------
Los Angeles Central/Downtown Financial
Legal
Telecommunications
Energy
Accounting
Real Estate
Government/Quasi-Government
- -------------------------------------------------------------------------------
15
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DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Los Angeles West: Legal
Accounting
Entertainment
Insurance
Real Estate
Financial Services
Advertising
Los Angeles South: Aerospace
High-Tech
Research & Development
Los Angeles North: Entertainment
Insurance
Legal
Accounting
Engineering
</TABLE>
Considerable duplication exists within the office tenant base for the Los
Angeles County office markets. However, the office markets maintain separate
identities in terms of the primary tenancies and relative prestige and
corresponding relative rental rate structures for comparable buildings within
the separate markets. Legal and accounting firms provide considerable tenant
demand within each of the markets, for example, but the type and focus of
these professional firms is directed toward the business base within the
sector. Downtown Los Angeles law and accounting firms consist primarily of
larger national or regional firms oriented toward corporations and government
for example, while westside Los Angeles firms typically are smaller and
specialize in a particular field, such as entertainment law.
Historical Office Development
The accompanying exhibit summarizes the office building construction
history in Los Angeles County during the period 1982 through 1996. The exhibit
illustrates that the substantial construction activity which occurred during
the 10-year period 1982 through 1991 declined substantially in 1992 prior to a
four-year period of virtually no new office development from 1993 through
1996.
The prolific new office development during 1982 through 1991 resulted in
fundamental shifts in the Los Angeles County office market. The most
significant changes include the exodus of major insurance companies and
corporations from the Mid-Wilshire District to more suburban locations such as
Warner Center and Glendale during the 1980s, and the movement of some
entertainment firms from Hollywood and Beverly Hills to areas such as Burbank
(North Los Angeles), Woodland Hills/Warner Center (North Los Angeles), or
Culver City and Santa Monica (West Los Angeles). These shifts have involved
relocations within the Los Angeles County marketplace, and most of the current
markets have emerged as separate, viable office locations during the past
decade. The established Los Angeles County office markets as of 1980 consisted
of downtown Los Angeles, the Mid-Wilshire sector, Pasadena, Beverly Hills,
Century City, and the Ventura Boulevard corridor in the San Fernando Valley.
Approximately 55 percent of the total existing office development in Los
Angeles County has been completed
- -------------------------------------------------------------------------------
16
<PAGE>
LOS ANGELES COUNTY
Construction History Chart of Class A and B Buildings
1982 through 1996
<TABLE>
<CAPTION>
==========================================================================
Year Central* West** North*** South Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
82 4,882,683 1,541,242 838,212 3,999,186 11,261,323
83 2,920,192 3,652,672 1,872,082 2,606,238 11,051,184
84 1,810,809 1,333,243 967,610 3,635,363 7,747,025
85 4,412,902 2,402,687 1,278,203 1,922,112 10,015,904
86 2,913,129 2,964,782 2,334,294 2,789,202 11,001,407
87 3,771,021 3,070,016 874,928 3,169,020 10,884,985
88 1,903,160 702,166 1,835,374 2,490,781 6,931,481
89 2,185,292 2,266,345 1,203,053 1,485,792 7,140,482
90 2,451,346 1,638,153 1,150,463 1,450,521 6,690,483
91 4,824,238 1,485,847 865,615 802,029 7,977,729
92 1,703,355 164,450 30,000 0 1,897,805
93 0 0 0 0 0
94 0 0 0 0 0
95 0 135,000 45,700 0 180,700
96 0 0 0 0 0
- --------------------------------------------------------------------------
Total 33,778,127 21,356,603 13,295,534 24,350,244 92,780,508
==========================================================================
Annual Avg 2,251,875 1,423,774 886,369 1,623,350
</TABLE>
* - Including Miracle Mile, Pasadena and Pasadena East
** - Excluding Miracle Mile
*** - Excluding Tri-Cities
Annual Office Building Construction Trend Line
Los Angeles County
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[GRAPH]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
of the total existing office development in Los Angeles County has been
completed during the period since 1982.
A number of the current major office markets or submarkets were
effectively created during roughly the past decade. Most of the development in
the following markets (total current supply in parenthesis) has been completed
since 1980: Warner Center (5,349,550 square feet) Burbank/Universal City
(5,970,660 square feet), Glendale (5,184,022 square feet), Brentwood
(3,254,337 square feet), Culver City/Westchester (3,643,649 square feet), and
Long Beach (7,359,198 square feet). Much of the development in the Glendale,
Burbank, Culver City, and downtown Long Beach office markets was assisted to
varying degrees by government agencies, including redevelopment agencies.
Significant assistance (political and/or financial) by government agencies
also increased the office development in previously established markets such
as downtown Los Angeles and Pasadena. Prior to about 1980 several of these
alternative office locations either did not exist or the available supply in
the market was not sufficient to represent serious competition for the
established office markets. The existence of a number of alternative office
market locations within the Los Angeles basin is a significant consideration
in analyzing historical vacancy and rental trends in the individual markets
prior to 1982 for the purpose of projecting future performance.
Future Competitive Supply
Future competitive office development in the Los Angeles County markets is
restricted by two primary factors: 1) economic conditions - the current
financial infeasibility of most new development and the absence of available
financing for office development of new office properties; and 2) political
conditions - the governmental restrictions limiting new development. Although
the economic factors limiting development, which are based on lending
restrictions and economic infeasibility under current leasing conditions and
effective rental rates, represent the primary reason for limited new
development in the recent, past and near future, the political constraints on
new development as the most significant factor limiting new competitive office
supply in a number of the markets and market for the long term.
1) ECONOMIC CONSTRAINTS
Market rental rates in most Los Angeles County submarkets are currently
below (to varying degrees) the levels required to justify new Class A office
development. The current (year-end, 1997) weighted average asking rental rate
for all direct office space availabilities in Los Angeles County is $19.28
per-square-foot annually, predominately full service gross. The individual
sectors have weighted average rental rates (asking) from $17.31 to $24.50
persquare-foot.
New construction costs for mid to high-rise office buildings vary by
market location and underlying land cost. The relative strength of the markets
in terms of tenant demand and the "spread" between the rents required support
new development and the current market rental levels in the various markets
fluctuates considerably, but virtually no new speculative office construction
occurred in Los Angeles County markets from 1992 through 1996. Construction
commenced for several speculative projects during the latter portion of 1997,
however, and additional new office development will commence in selected
stronger markets such as Santa Monica and Burbank during 1998.
- -------------------------------------------------------------------------------
17
<PAGE>
SUMMARY OF DEVELOPMENT CONSTRAINTS (POLITICAL)
LOS ANGELES AREA OFFICE MARKETS
<TABLE>
<CAPTION>
<S> <C>
LOCATION DEVELOPMENT CONTROL
Suburban North
Burbank Specific Plan
San Fernando Valley Specific Plan
Ventura Boulevard Specific Plan/Proposition U
Warner Center Specific Plan
Westside
Park Mile Specific Plan
Miracle Mile Interim Control Ordinance
Beverly Hills Restrictive Zoning
Westwood Specific Plan
Brentwood Proposition U/Specific Plan
West Los Angeles Proposition U/Traffic Control Ordinances
Santa Monica Restrictive Zoning/Specific Plan
Century City Specific Plans
</TABLE>
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
2) POLITICAL CONSTRAINTS
Other than the downtown market and the South Los Angeles market area, nearly
every sector of the City of Los Angeles and adjacent suburban cities with a
meaningful office market has implemented restrictions on new development, tied
to political factors, traffic mitigation and other infrastructure issues.
These restrictions will negatively impact the political feasibility of
significant amounts of new office construction under any future economic
office market scenario. The accompanying exhibit summarizes Los Angeles area
markets with meaningful political constraints on development currently in
place or pending. The specific plans are based on automobile "trips" (costs
associated with traffic mitigation costs) or other criteria (typically tied to
infrastructure). The political influence of the homeowner's groups, which
typically have active slow- or no-growth philosophies toward new development,
is strong and has increased considerably during the past decade.
In addition to typical zoning and planning issues, new development of
significant size and scope within specific plan areas will require substantial
additional entitlement fees to be paid prior to approval for new development.
The fees are usually based on the anticipated new traffic generated by a
proposed project, and the costs are assessed based on square footage and use.
The "prime" westside markets, including Westwood, Century City, Brentwood, and
Santa Monica have substantial fees for new development, as does the Miracle
Mile District, and the Ventura Boulevard corridor of the San Fernando Valley
(including Encino and Woodland Hills).
The most significant political constraint on new competitive office supply
in the City of Los Angeles markets has been Proposition U, which was passed in
1986 and down-zoned all Height District I properties in the City of Los
Angeles. Known also as Ordinance No. 161684, Proposition "U" amended the
zoning code for all areas of the City of Los Angeles to include height
district designations ranging from 1 to 4, with much of the city downzoned to
height district No. 1. Properties within this designation are limited to a
maximum of 3 stories or 45 feet in height. The "wave" in new high-rise
construction during the latter portion of the last decade (the 1980's) was in
part accelerated by developers and lenders who hurried high-rise office
developments through the planning and development stages before the sites were
downzoned. Properties in the downtown Los Angeles market area are not within
this height classification, but most other areas of the City have been
impacted, including West Los Angeles and the Ventura Boulevard corridor of the
San Fernando Valley. The portions of the City most directly effected by
Proposition U and the specific plans summarized on the chart are generally the
most affluent, prestigious residential areas, and office buildings in these
locations have typically commanded some of the highest rental rates in the
County. These areas also experienced some of the greatest levels of new
development during the previous decade (1980's). The concerns of the
surrounding residential communities over the increasing traffic and the
decline in the overall quality of life has led to the formation of a number of
politically influential homeowner's groups that can be described as actively
anti-development. Although there are some political and governmental controls
on future development in the downtown market area, the number of projects
currently entitled for development or "in the pipeline" for approval is
substantial, and the surrounding residential base is not as organized, active,
or apparently as influential as the more affluent communities situated in the
west and north Los Angeles County markets.
- -------------------------------------------------------------------------------
18
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
Probable Future Development Activity
As discussed above the economic and political constraints on new office
development have resulted in virtually no new office construction in Los
Angeles County markets from 1992 through 1996. The "spread" between current
market rental rates and the rents required to justify new development varies
from submarket to submarket. The highest rental rates in the county are
currently achieved in the "Tri-Cities" markets and the prime westside Los
Angeles markets. These markets are "driven" by entertainment industry tenants
whose expansion in recent years has led to lower vacancy levels and higher
rental rates. There are several prime development sites in the Glendale and
Burbank markets which are under construction or proposed for near-term
multi-tenant office development, including one speculative high-rise building
currently under construction in Glendale. Owner-user projects such as the
Dreamworks animation facility in Glendale or "redevelopment" projects such as
the former Lockheed "Skunkworks" facility in Burbank for a major entertainment
industry tenant commenced during the second half of 1996. Build-to-suit
activity for Dreamworks studios and related businesses in the Playa Vista area
of west Los Angeles may occur during the next few years if partnership and
economic issues can be resolved. Rental rates for office space in selected
westside markets such as Santa Monica are at replacement cost levels, and new
developments on entitled sites such as the Arboretum and Water Garden Phase II
in Santa Monica will commence construction in 1998. In terms of speculative
office development potential, however, market rental "spikes" will be required
before new speculative office development can occur in most other Los Angeles
County markets.
Vacancy
The landlord-direct vacancy rate for Los Angeles County office markets was
16.2 percent, based on 27,529,480 square feet available for lease at the end
of 1997. Our review of the data on a submarket by submarket basis indicates
there are isolated submarkets that experienced considerably lower direct
vacancy levels than the countywide figure, such as Universal City and the
Burbank Media District. Several markets within Los Angeles County, with the
exception of the Tri-Cities area and the westside area, have direct vacancy
rates above 15 percent, and some have current direct vacancy levels in the
range of 20 percent. The previous Los Angeles County Office Market Statistics
chart illustrates the vacancy breakdown by sector.
Excluding two small submarkets in the northwest portion of Los Angeles
County which overlap with portions of eastern Ventura County (Calabasas and
Agoura Hills), there is a direct correlation between the submarket locations
which have attracted tenants from the entertainment industry, and the
submarkets which are experiencing the lowest vacancy rates and highest rental
rates in Los Angeles County. The preferred submarket locations for
entertainment tenants and the year-end, 1997 vacancy rates are shown below.
- -------------------------------------------------------------------------------
19
<PAGE>
<TABLE>
<CAPTION>
OFFICE MARKET VACANCY TRENDS
Los Angeles County
- -----------------------------------------------------------------------------------------
INCLUDING L.A. CENTRAL / DOWNTOWN EXCLUDING L.A. CENTRAL / DOWNTOWN
VACANCY RATES VACANCY RATES
YEAR QUARTER DIRECT SUBLEASE OVERALL DIRECT SUBLEASE OVERALL
- ------------------ --------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 4th Qtr 19.0% 3.6% 22.6% 19.2% 3.3% 22.5%
1992 4th Qtr 19.4% 3.5% 22.9% 18.9% 2.7% 21.6%
1993 4th Qtr 18.8% 3.8% 22.5% 18.4% 3.0% 21.4%
1994 4th Qtr 18.7% 3.1% 21.8% 17.3% 2.3% 19.5%
1995 4th Qtr 18.7% 2.3% 21.0% 17.0% 2.4% 19.4%
1996 4th Qtr 17.4% 2.3% 19.8% 15.3% 2.2% 17.6%
1997 4th Qtr 16.2% 2.1% 18.4% 13.9% 1.8% 15.7%
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Office Market Year-end 1997 Direct Vacancy
- ------------- ----------------------------
<S> <C>
NORTH LOS ANGELES
Burbank Media District 2.8%
Universal City/Studio City 2.7%
Glendale 10.1%
WESTSIDE LOS ANGELES
Beverly Hills/Century City 10.4%
Westwood 7.5%
Santa Monica 10.3%
West Hollywood 11.4%
</TABLE>
Other markets, particularly areas situated adjacent to the most desirable
submarkets listed above have benefited directly and indirectly from the
expansion of the entertainment industry in Los Angeles County.
Including sublease availabilities the overall Los Angeles County office
market vacancy level was 18.4 percent as of year-end, 1997, which compares
with 19.8 percent as of year-end, 1996, 21.0 percent as of year-end, 1995 and
the 21.8 percent overall vacancy level at the end of 1994. The sublease
marketplace became a more important component of the overall office leasing
market during the first few years of this decade, particularly within the
downtown Los Angeles market, as the national economic recession and other
factors led to business consolidation and mergers. Many types of businesses
were affected, including major law and accounting firms, aerospace firms,
high-tech firms, energy firms, telecommunications companies, financial
services firms, insurance companies, and banks and savings and loans. The
oversupply of office space during the first portion of this decade led to
additional sublease availabilities as developers assumed existing tenant
obligations for space in other buildings prior to the termination of the
tenant's previous lease. Although sublease space was previously a secondary
competitive marketplace for short-term lease requirements or tenants with
questionable credit ratings, a few office markets in Los Angeles County
continue to have sublease markets that compete effectively with landlord
direct space, which in turn applies additional downward pressure on rents for
direct office space. As shown the exhibit, "Office Market Vacancy Trends", the
overall Los Angeles County market has experienced a slow, gradual improvement
in direct and sublease vacancy levels during the period from fourth quarter,
1991 through fourth quarter 1995.
The improvement during 1996 and 1997 was more substantial, with countywide
direct vacancy rates declining by 1.3 percent in 1996. Direct vacancy levels
declined an additional 120 basis points through 1997. The Central Los Angeles
office sector, which includes downtown Los Angeles and the Mid-Wilshire
corridor, has experienced higher vacancy levels than the remainder of the
county. As shown on the vacancy trends exhibit, when Central Los Angeles is
excluded from the analysis, the year-end 1997 direct and overall vacancy
levels are 13.9 percent and 15.5 percent, respectively, or 230 and 270 basis
points lower than the figures for the total county.
- -------------------------------------------------------------------------------
20
<PAGE>
NET OFFICE ABSORPTION VS LEASING ACTIVITY
LOS ANGELES COUNTY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Net Office Absorption Leasing Activity (SF) Net Absorption / Leasing Activity
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1990 8,258,928 18,950,547 43.6%
1991 2,713,549 18,648,618 14.6%
1992 (5,207) 16,905,261 0.0%
1993 (248,158) 17,561,649 -1.4%
1994 (997,235) 17,459,183 -5.7%
1995 275,718 18,535,438 1.5%
1996 1,533,675 15,404,462 10.0%
1997 2,137,113 16,996,393 12.6%
- --------------------------------------------------------------------------------------------
Annual Average 1,708,548 17,557,694 9.7%
- --------------------------------------------------------------------------------------------
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LINE GRAPH]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
Gross Leasing Activity
Cushman & Wakefield defines gross leasing activity as the first sum of all
completed leasing transactions including subleasing but excluding renewals.
The accompanying graph illustrates the pattern in net absorption and gross
leasing activity for the combined Los Angeles County office marketplace on a
annual basis since 1990. The leasing activity includes assumed leases and
other factors, and does not represent net absorption, which is one indication
of new demand. Over the six-year period 1990 through 1995 total leasing
activity remained fairly stable, ranging generally from 17 to 19 million
square feet. The net absorption figures fiuctuated considerably during the
same timeframe, however, ranging from nearly negative one million square feet
during 1994 to more than positive eight million square feet during 1990. The
1996 and 1997 data show substantial increases in net absorption above 1992
through 1995 figures in conjunction with a decline in total gross leasing
activity. Expressed as a percentage of total gross leasing activity, the 10.0
percent and 12.6 percent figures for net absorption/gross leasing during 1996
and 1997 suggest a return to the trend during the first two years of the
decade in which new leasing activity involved new tenants moving to the market
rather than current tenants relocating between different buildings. Since the
data excludes renewal leasing activity, the 1996 and 1997 data also suggests
the possibility that tenant renewals are occurring at a higher percentage than
during 1992 through 1995. Considered as one indication, the exhibit suggests a
positive trend toward strengthening of the county office market.
Net Absorption
Cushman & Wakefield calculates net absorption based on net change in
directly occupied office space. The chart on the accompanying page summarizes
the annual trends in net office absorption for Los Angeles County during the
period 1997. Net absorption declined sharply from 1990 to 1992, from positive
absorption of 2.3 million square feet in 1991 to negative absorption in 1992.
Following negative absorption in 1993 and 1994 county-wide net absorption
increased to 272,154 square feet during 1995 and 1,533,675 during 1996. Net
absorption increased in 1997 an additional 39 percent above 1996 figures to
2,137,113 square feet. The Los Angeles Central office markets posted
substantial negative net absorption from 1992 to 1995. Excluding Los Angeles
Central, the three remaining areas (West, North and South County), experienced
positive net absorption of 1,206,497 square feet during 1995 and 1,276,646
square feet during 1996.
The net absorption figures discussed above are based on the net change in
direct occupied office space. This calculation does not include changes in the
sublease availabilities. The year-end 1997 sublease availabilities in Los
Angeles County totaled 3,620,025 square feet, or 11.6 percent of the Los
Angeles County total available (for lease) office supply. Although several
submarkets have substantial sublease availabilities, the downtown Los Angeles
market represents the greatest single component of this supply, with
approximately 1.3 million square feet or 36 percent of the countywide sublease
space. As noted previously, however, the sublease supply has decreased
gradually from 3.6 percent at the end of fourth quarter, 1991 to 2.1 percent
at the end of 1997.
- -------------------------------------------------------------------------------
21
<PAGE>
OFFICE MARKET
Net Absorption Trends
Los Angeles County
- --------------------------------------------------
INCLUDING LOS ANGELES EXCLUDING LOS ANGELES
CENTRAL / DOWNTOWN CENTRAL / DOWNTOWN
NET ABSORPTION (SF) NET ABSORPTION (SF)
YEAR YTD YTD
- --------------------------------------------------
1991 2,713,549 1,116,297
1992 (5,207) 256,775
1993 (248,158) 255,432
1994 (997,235) 257,190
1995 275,718 1,206,497
1996 1,533,675 1,276,646
1997 2,137,113 1,999,431
- --------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
The chart below shows the cumulative oversupply of office space added to the
Los Angeles County office market since 1990.
=====================================================
SF SF SF
Year New Construction Net Absorption Oversupply
- -----------------------------------------------------
1990 6,690,483 8,258,928 (1,568,445)
1991 7,977,729 2,261,311 5,716,418
1992 1,897,805 (5,207) 1,903,012
1993 0 (248,158) 248,158
1994 0 (997,235) 997,235
1995 180,700 272,154 (91,454)
1996 0 1,533,675 (1,533,675)
1997 0 2,137,113 (2,137,113)
- -----------------------------------------------------
Totals 16,716,717 13,212,581 3,534,136
- -----------------------------------------------------
Conclusions - Los Angeles County Office Market
The commercial office real estate market in Los Angeles has experienced a
significant transformation during roughly the past 20-year period. Los
Angeles has grown from a regional (southern California) business center to a
financial center for the western United States and the international focus for
trade and financial relations with the Pacific Rim countries. The factors
influencing this transformation include global, national, and regional trends
and events.
The national and regional economic recession during the period from roughly
the third quarter, 1990 through 1993 exacerbated the oversupply conditions
established during the past decade. The historically strong net new demand for
office space declined significantly, with most office markets experiencing
flat or negative office space absorption during the past few years. Financing
for new speculative developments was virtually unavailable, but new
development continued to 1992 based upon previous construction lending
commitments. About 10 million square feet of new office supply was completed
during 1991 and 1992.
Several submarkets in Los Angeles County office market provided initial
signs of recovery during 1993 and 1994, and have continued to tighten during
1995 through 1997, particularly the Tri-Cities and prime westside markets. The
level of office building investment activity increased substantially during
the past 24 months in Los Angeles County. Most submarkets experienced
declining direct and overall vacancy rates during 1994 through 1997. Gross
leasing activity remained stable on a countywide basis, and all markets
experienced positive absorption during 1997. On a submarket by submarket basis
many individual markets appear to be steadily improving and are currently
experiencing strong absorption, occupancy levels and value increases.
There is a fundamental relationship between the growth in employment and the
demand for office space. Considered in conjunction with the task of new
development in recent years, the steady recovery in the employment market
since 1994 in Los Angeles County has corresponded directly to decreasing
office vacancy rates, as illustrated in the following chart.
- -------------------------------------------------------------------------------
22
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
Los Angeles County
Employment & Office Vacancy Trends
===============================================================================
Year % Employment Change Change in Office Vacancy Rate*
- -------------------------------------------------------------------------------
1994-95 +1.49% -10 basis points (18.7% to 18.6%)
1995-96 +0.91% -130 basis points (18.6% to 17.3%)
1996-3rd Qtr. 1997 +3.69% -60 basis points (17.4% to 16.8%)
===============================================================================
*Direct Vacancy
As shown in previous charts, the Los Angeles County office market,
particularly when the Central sector is isolated from the remainder of the
county, appears positioned for a continued, stable improvement in occupancy
levels. Modest to strong absorption levels combined with minimal new
construction has resulted in a gradual decline in vacancy levels over the past
four years. Including all markets the direct vacancy level in the country has
declined from 19.4 percent as of year-end 1992 to 16.2 percent as of year-end
1997. The employment growth in several markets, particularly the entertainment
industry (including the film and recording industries), has enabled several
submarkets to outperform the county as a whole during the past several years.
The submarkets which have most directly benefited from the growth of the
entertainment industry include Burbank and Glendale in the North Los Angeles
sector, and the westside markets of Beverly Hills, Century City, Santa Monica,
West Los Angeles, and Culver City. The office locations adjacent to these
submarkets and Class "B" buildings in these submarkets have benefited from
"overflow" demand from entertainment industry tenants, and have also attracted
tenants from other businesses who have been driven from Class A buildings in
the prime submarkets by higher rental rates.
- -------------------------------------------------------------------------------
23
<PAGE>
Los Angeles Central
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 1997
<TABLE>
<CAPTION>
Direct Overall
Number Direct Vacancy Overall Vacancy Net Abserption
Market / Submarket Inventory of Bldgs Availabilities Rate Availabilities Rate 4th Qtr
===================================================================================================================================
DOWNTOWN LOS ANGELES 35,873,305 109 7,257,405 19.6% 8,563,854 23.2% (45,078)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 CBD/Financial District 29,601,872 65 5,552,911 18.9% 6,774,959 22.9% (22,753)
2 South Park 746,272 4 128,323 17.2% 128,323 17.2% (3,199)
3 Central City East 3,355,913 19 750,625 22.4% 750,825 22.4% 19,740
4 Little Tokyo/Chinatown 481,218 6 86,059 17.9% 86,059 17.9% 12,986
5 Central City West 2,788,030 15 709,267 25.4% 823,688 29.5% (51,852)
- -----------------------------------------------------------------------------------------------------------------------------------
MID-WILSHIRE CORRIDOR 13,831,210 79 3,528,486 25.5% 3,710,831 26.8% (80,348)
- -----------------------------------------------------------------------------------------------------------------------------------
6 Mid-Wilshire 8,075,518 47 2,301,150 28.5% 2,370,973 29.4% (170,520)
7 Park Mile 1,079,452 11 214,138 19.8% 216,723 20.1% 51,565
8 Miracle Mile 4,676,240 21 1,013,198 21.7% 1,123,235 24.0% 38,607
- -----------------------------------------------------------------------------------------------------------------------------------
SAN GABRIEL VALLEY 6,728,054 86 1,588,100 23.6% 1,661,017 24.7% 57,724
- -----------------------------------------------------------------------------------------------------------------------------------
9 Arcadia/Monrovia/W. Covina/Covina 1,756,147 29 371,996 21.2% 371,995 21.2% 15,920
10 El Monte 766,983 11 286,526 37.4% 286,526 37.4% (10,738)
11 Alhambra / Monterey Park 1,753,296 12 371,762 21.2% 381,879 21.8% 6,892
12 City of Industry/Diamond Bar 1,530,822 20 286,016 18.7% 305,816 20.0% 51,937
13 City of Commerce 920,806 14 271,800 29.5% 314,800 34.2% (6,286)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 57,532,569 274 12,373,991 21.5% 13,935,802 24.2% (67,702)
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Direct
Net Abserption Wtd. Avg.
Market / Submarket YTD 1997 Rental Rate
===============================================================================
DOWNTOWN LOS ANGELES (146,000) $17.84
- -------------------------------------------------------------------------------
<S> <C> <C>
1 CBD/Financial District 114,018 $18.84
2 South Park (336) $14.64
3 Central City East (100,802) $13.80
4 Little Tokyo/Chinatown 5,836 $16.56
5 Central City West (164,716) $15.96
- -------------------------------------------------------------------------------
MID-WILSHIRE CORRIDOR 407,940 $15.86
- -------------------------------------------------------------------------------
6 Mid-Wilshire 198,204 $13.56
7 Park Mile 71,706 $15.12
8 Miracle Mile 138,030 $21.24
- -------------------------------------------------------------------------------
SAN GABRIEL VALLEY (124,258) $17.69
- -------------------------------------------------------------------------------
9 Arcadia/Monrovia/W. Covina/Covina (21,818) $17.04
10 El Monte (182,980) $16.32
11 Alhambra / Monterey Park 156,316 $17.40
12 City of Industry/Diamond Bar 7,035 $19.44
13 City of Commerce (82,811) $18.60
- -------------------------------------------------------------------------------
TOTAL 137,682 $17.31
===============================================================================
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART] [BAR GRAPH]
[BAR GRAPH]
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
DOWNTOWN LOS ANGELES OFFICE MARKET
COMPETITIVE SUPPLY - OVERVIEW
The subject property is located in the Central Business District of the
downtown Los Angeles office market, which is comprised of five distinct
submarkets: 1) The Central Business District (CBD), which includes the
Financial District, Bunker Hill and the Wilshire Corridor; 2) South Park;
3) Central City East; 4) Little Tokyo/Chinatown; and 5) Central City West.
These submarkets are distinguished by location, access, market perception and
tenant mix, improvement quality, and rental rate structure.
The most significant component of the downtown office supply is concentrated
in the CBD. This district is bordered by the Harbor Freeway (Interstate 110)
on the west, Ninth Street on the south, Second Street on the north, and Hill
Street to the east. The CBD comprises 80 percent of the existing inventory in
the downtown market, and represents the greatest concentration of office space
within the greater Los Angeles area. The South Park and Central City West
submarkets are secondary competitive submarkets, particularly as the potential
location for future competitive office development. The Central City East
submarket, which was the original downtown Los Angeles CBD, consists of older,
non-competitive buildings and government offices, and the Little
Tokyo/Chinatown market areas currently consist of smaller, specialty office
submarkets that offer very minimal competition for tenants in the CBD. An
emerging office location in the northeasterly portion of downtown Los Angeles
is Union Station (controlled by Catellus), which competed successfully for two
major build-to-suit office development with CBD sites during the past three
years.
According to Cushman & Wakefield's year end 1997 survey, the CBD submarket
contained a total rentable office area of 29,601,872 square feet in 65
buildings. The direct vacancy rate was 18.9 percent, and the overall vacancy
rate was 22.9 percent based on 6,774,959 square feet of available office space
(including both direct and sublease space).
The direct vacancy level has remained stable while overall vacancy rates for
all space within the CBD office market have improved from year end 1992, when
the direct and overall vacancy rates were 20.4 and 27.3 percent, respectively.
Year-end 1996 vacancy levels in the CBD were 20.5 percent (direct) and 23.9
percent (overall).
Historical Office Development
The accompanying chart summarizes the historical construction history for
the downtown Los Angeles office market (CBD). The market has been developed in
cycles. The Central Business District for downtown Los Angeles was originally
concentrated along Spring Street, which is located in the current Central City
East submarket. The current Central Business District has been developed since
1967 during four primary construction cycles:
1) 1966-1970 - 10 buildings totaling approximately 2.4 million square
feet were developed, including the Union Bank Building (445 South
Figueroa Street, 40 stories, 600,000 square feet) and the AT&T Center
(611 W. Sixth Street, 42 stories, 715,000 square feet). No new
development occurred during the next two years;
- -------------------------------------------------------------------------------
24
<PAGE>
CONSTRUCTION HISTORY CHART
Downtown Los Angeles
Central Business District
CONSTRUCTION HISTORY
Number
of Bidgs Rentable Office
Year Compieted Area (SF)
1907 1 32,000
1922 1 142,000
1923 1 196,073
1924 1 360,000
1926 2 319,908
1928 3 304,082
1931 1 224,000
1935 1 410,940
1955 1 163,000
1956 1 110,394
1958 1 166,000
1960 1 326,000
1963 1 95,000
1966 2 638,393
1967 2 889,293
1968 1 143,000
1969 1 715,483
1970 0 0
1971 0 0
1972 4 2,329,608
1973 4 2,017,305
1974 1 344,707
1975 1 1,324,228
1976 0 0
1977 0 0
1978 0 0
1979 2 617,000
1980 0 0
1981 1 285,493
1982 6 3,493,287
1983 2 1,056,800
1984 0 0
1985 4 2,558,920
1986 2 538,498
1987 3 846,116
1988 2 867,000
1989 1 1,300,000
1990 1 934,000
1991 6 3,723,694
1992 2 1,703,355
1993 0 0
1994 0 0
1995 0 0
1996 0 0
- --------------------------------------
Totals 63 29,175,557
- --------------------------------------
Pre-1960 22 5,235,546
1970-1979 12 6,632,848
1980-1989 21 10,946,114
1990-1996 8 6,361,049
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
2) 1972-1975 - 10 new buildings totaling approximately 6.0 million square
feet were completed, including ARCO Plaza (515-555 South Flower Street,
52 stories, two buildings with a combined rentable area of approximately
2.0 million square feet), First Interstate Tower (707 Wilshire Boulevard,
62 stories, about 1.0 million square feet), and Security Pacific Plaza
(333 South Hope Street, 55 stories, 1.3 million square feet). The
significant amount of new construction and the national economic
recession during this period resulted in very limited development (2
buildings totaling 617,000 square feet) from 1976 through 1980;
3) 1981-1985 - 10 new buildings with a combined area of 4.8 million
square feet were completed, including Citicorp Center Phase I (725 South
Figueroa Street, 41 stories, 900,000 square feet), Wells Fargo Center
(333-355 South Grand Avenue, 2 buildings totaling 2.2 million square
feet), 444 South Flower Street (previously the Wells Fargo Building, 48
stories, 900,000 square feet), One California Plaza (300 South Grand
Avenue, 42 stories, 900,000 square feet), and 400 South Hope Street (26
stories, 660,000 square feet). The majority of this new office supply was
developed in the subject's Bunker Hill market area;
4) 1989-1992 - Although several new developments were completed from 1986
through 1988, the most significant construction boom in the downtown
market occurred during the three-year period 1989-1992. Nine new
buildings totaling nearly 7.7 million square feet were completed,
including First Interstate World Center (633 West Fifth Street, 73
stories, 1.3 million square feet), Southern California Gas Center (555
West Fifth Street, 52 stories, 1.2 million square feet), Sanwa Bank Plaza
(601 South Figueroa Street, 52 stories, 900,000 square feet), Citicorp
Center Phase II (777 South Figueroa Street, 52 stories, 1 million square
feet), and the California Plaza II (52 stories, 1.3 million square feet).
A number of older buildings were also renovated during this period.
Although there are a number of entitled or proposed sites for new office
supply, no new development has occurred in the CBD since 1992. A significant
build-to-suit office project was completed in 1996 and a second is currently
under construction on the Union Station property northeast of downtown Los
Angeles, however. The completed development is the MTA headquarters
(Metropolitan Transportation Authority), a 600,000 square-foot office tower,
and the current development involves a 12-story, 540,000 square-foot
headquarters development for MWD (Metropolitan Water District). These
quasi-public agencies have (or will) relocated from other downtown locations,
and have selected the Union Station area in part because this site is the
"hub" for all regional public transportation facilities.
CENTRAL BUSINESS DISTRICT
Primary Competitive Supply-Office Development
Office development in the CBD is concentrated in three primary areas: 1)
Bunker Hill, which is bordered by Fifth Street (south), Second Street (north),
Grand Avenue (east) and Flower Street (west); 2) the Figueroa Street Corridor
in the Financial District; and 3) other Financial District locations including
primarily the Wilshire Corridor, Flower Street, and Sixth Street. The primary
competitive office buildings in downtown Los Angeles are located in the three
areas summarized above. The charts and narrative discussion on the following
pages
- -------------------------------------------------------------------------------
25
<PAGE>
<TABLE>
<CAPTION>
COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 1st Qtr 1998
- ---------------------------------------------------------------------------------------------------------------------------
Building Information Overall
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availablity
No. Location Storles (SF) Area (SF) Built Floor(s) Dlrect Sublease (SF)
- ---------------------------------------------------------------------------------------------------------------------------
Bunker Hill Office Buildings
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
B-1 The Gas Company Tower 52 1,200,000 23,077 1991 4 - 8 72,686 0
555 West Sth Street 30 - 50 96,555 0 Total
169,241 0 169,241
- ---------------------------------------------------------------------------------------------------------------------------
B-2 One Bunker Hill 13 224,000 17,231 1931 6 0 2,740
601 West Sth Street 2 - 10 40,641 0 Total
40,641 2,740 43,381
- ---------------------------------------------------------------------------------------------------------------------------
B-3 Library Tower / FIB World Ctr 73 1,380,085 18,631 1989 .16,64 & 72 0 68,309
633 West 5th Street 14 - 67 137,410 0 Total
137,410 68,309 205,719
- ---------------------------------------------------------------------------------------------------------------------------
B-4 444 Plaza 48 893,979 18,625 1982 Gmd - 47 0 161,779
444 South Flower Street 37 & 38 16,673 0 Total
16,673 161,779 178,852
- ---------------------------------------------------------------------------------------------------------------------------
B-5 One California Plaza 42 936,864 22,306 1985 12 & 26 0 32,401
300 South Grand Avenue Gmd 10 - 38 96,351 0 Total
96,351 32,401 128,752
- ---------------------------------------------------------------------------------------------------------------------------
B-6 Wells Fargo Center - North 54 1,255,257 23,246 1982 22-41 & 53 0 125,536
333 South Grand Avenue 4 - 42 93,640 0 Total
93,640 125,536 219,176
- ---------------------------------------------------------------------------------------------------------------------------
B-7 Two California Plaza 52 1,277,801 24,573 1992 22 0 20,013
350 South Grand Avenue 15 - 39 134,969 0 Total
134,969 20,013 154,932
- ---------------------------------------------------------------------------------------------------------------------------
B-8 Wells Fargo Center - South 45 1,012,000 22,489 1983 Ground 0 0
355 South Grand Avenue 18 - 42 207,503 0 Total
207,503 0 207,503
- ---------------------------------------------------------------------------------------------------------------------------
B-9 Arco Center 55 1,359,934 24,726 1974 24 - 31 0 52,220
333 South Hope Street 11 - 20 140,523 0 Total
140,523 52,220 192,743
- ---------------------------------------------------------------------------------------------------------------------------
B-10 400 S. Hope Street Building 26 651,756 25,452 1982 Ground 0 0
400 South Hope Street 3 - 26 85,051 0 Total
85,051 0 85,051
Market Totals 480 10,181,677 22,134 1,122,202 462,998 1,585,.200
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Quoted Direct Overall
Item Building Name / Annual Rent Lease Occupancy Occupancy
No. Location PSF PSF Type Ratio Ratio
- -------------------------------------------------------------------------------------
Bunker Hill Office Buildings
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B-1 The Gas Company Tower $8.00 - $12.00 NNN 85.9% 85.9%
555 West Sth Street $8.00 - $12.00 NNN
- -------------------------------------------------------------------------------------
B-2 One Bunker Hill $10.80 - $10.80 FSG 81.9% 80.6%
601 West Sth Street $12.00 - $18.00 FSG
- -------------------------------------------------------------------------------------
B-3 Library Tower / FIB World Ctr $5.00 - $22.00 NNN/FSG 89.9% 84.9%
633 West 5th Street $8.00 - $12.00 NNN
- -------------------------------------------------------------------------------------
B-4 444 Plaza $15.00 - $18.00 FSG 98.1% 80.0%
444 South Flower Street $18.00 - $18.00 FSG
- -------------------------------------------------------------------------------------
B-5 One California Plaza $10.00 - $10.00 Negol 89.7% 86.3%
300 South Grand Avenue $8.00 - $15.00 NNN
- -------------------------------------------------------------------------------------
B-6 Wells Fargo Center - North $11.00 - $16.00 FSG 92.5% 82.5%
333 South Grand Avenue $8.00 - $12.00 NNN
- -------------------------------------------------------------------------------------
B-7 Two California Plaza $18.00 - $18.00 FSG 89.4% 87.9%
350 South Grand Avenue $13.00 - $18.00 NNN
- -------------------------------------------------------------------------------------
B-8 Wells Fargo Center - South --- - --- --- 79.5% 79.5%
355 South Grand Avenue $8.00 - $12.00 NNN
- -------------------------------------------------------------------------------------
B-9 Arco Center $9.00 - $22.00 FSG 89.7% 85.8%
333 South Hope Street $15.00 - $20.00 FSG
- -------------------------------------------------------------------------------------
B-10 400 S. Hope Street Building --- - --- --- 87.1% 87.1%
400 South Hope Street $22.00 - $22.00 FSG
Market Totals 89.0% 84.4%
- -------------------------------------------------------------------------------------
</TABLE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[BAR GRAPH]
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
provide an overview of the primary competitive office properties in and
adjacent to the Central Business District.
BUNKER HILL
The competitive office buildings in the Bunker Hill neighborhood are
summarized on the chart on the accompanying page. Bunker Hill includes 10
buildings with a total rentable area of approximately 10,181,677 square feet.
The existing inventory includes some of the newest office product in the
downtown market, including Two California Plaza (1.3 million square feet)
which was completed in 1992, and the Southern California Gas Company Center
building (1.2 million square feet) which was completed in 1991. The 71-story
First Interstate World Center (now Library Tower) is the tallest building in
the western United States, and was developed by Maguire Thomas Partners as
part of the Library Square Project (which also includes the Southern
California Gas Company tower).
Bunker Hill consists primarily of high quality Class A buildings, and this
submarket has a direct occupancy level of 89 percent and an overall occupancy
rate of 84.4 percent, including sublease space. Major tenants within this
submarket include major financial institutions, accounting firms, and law
firms. The following tenants have long term leases on more than 150,000 square
feet of space within this submarket: 1) Southern California Gas Company; 2)
Jones, Day, Reavis & Pogue (law firm); 3) Wells Fargo Bank; 4) Pacific
Enterprises; 5) Arthur Andersen (accounting); 6) Latham & Watkins (law firm);
and 7) Gibson, Dunn & Crutcher (law firm). Arco signed a 15-year lease for
about 200,000 square feet (and building signage) in 333 South Hope Street
during 1996, and relocated this space requirement from its prior location at
1055 W. Seventh Street, just west of the CBD across the Harbor Freeway. The
current lease commitment in this building extends to January, 1999, but Arco
relocated to its new Bunker Hill. premises during the second quarter, 1997.
Despite the high quality of the tenancy in the Bunker Hill submarket,
several buildings in this neighborhood were significantly impacted by tenant
consolidations and relocations during the first several years of this decade.
The recent occupancy by Arco follows several years of uncertainty relating to
the 333 South Hope premises following the loss through a bank merger of the
previous anchor tenant (Security Pacific).
The merger of Bank of America and Security Pacific National Bank in 1992
resulted in the consolidation of the merged bank's operation at Bank of
America Tower at 555 South Flower Street and Beaudry I. As a result, the
former Security Pacific National Bank headquarters space (690,000 square feet)
at 333 South Hope Street became available on a direct lease basis during the
first half of 1994. This building was the first major Bunker Hill office
development and is still the largest building in downtown Los Angeles. As
noted above, Arco recently committed to lease the former Security Pacific
premises, although the tenant's lease at the current Arco Center does not
expire until 1999. Other major consolidations which previously affected Bunker
Hill office property occupancy levels include IBM and the Wells Fargo/1st
Interstate merger. IBM leased approximately 600,000 square feet of space in
333 South Grand Avenue (the IBM building), but marketed their premises for
sublease during the past several years. A February, 1995 lease transaction
with the Los Angeles Unified School District (LAUSD) was negotiated for
approximately 280,000 square feet of the IBM space. The lease includes floors
3 through 11, and floors 15 and 19 for a term of 7 years. The lease was
structured as a combination of
- -------------------------------------------------------------------------------
26
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
sublease (through the remaining term of the IBM lease in October, 1998) and
landlord direct lease. At First Interstate World Center/Library Tower, the
merger of Wells Fargo and 1st Interstate, which has substantial premises in
downtown buildings, added considerable sublease space to the downtown market
during the fourth quarter, 1996. Most of this space has been subleased during
1997, including the former 1st Interstate ground floor bank branch to City
National Bank. Arthur Andersen leases approximately 200,000 square feet in this
building, but has an early termination option (with penalties) in 1999. The
tenant and landlord have been negotiating a new extension/renewal agreement
which would reduce the premises to about 150,000 square feet and extend the
lease for roughly ten years. Library Tower currently has about 68,000 square
feet available for sublease including the bank's premises.
Several significant leases were negotiated for space in Bunker Hill
buildings during 1996, including the Arco lease for about 200,000 square feet
in 333 South Hope. Mellon Bank signed a lease during third quarter, 1996 for
approximately 60,000 square feet in 400 South Hope Street, with a commencement
during first quarter, 1997. The building is now named for the tenant. Aames
Financial signed a lease for about 175,000 square feet in California Plaza
II, and Morgan Lewis et al signed a lease for about 75,000 square feet in Cal
Plaza I. Aames has recently experienced financial difficulties, however, and
was reportedly considering subleasing this new premises. The combined impact
of three large new tenants to this market since the beginning of 1995 (LAUSD,
Aames, and Arco) resulted in tighter market conditions for Bunker Hill
buildings during 1997. Oaktree Capital signed a 75,000 square-foot lease in
March, 1998 to relocate to Wells Fargo Center on Bunker Hill from its current
premises in 550 South Hope Street. The tenant is expanding from a current size
of about 15,000 square feet. Other smaller but significant lease transactions
in Bunker Hill buildings during the past year have included Hill, Farrer &
Burrill (30,000 square feet in Cal Plaza I), McKinsey & Company (25,000 square
feet in 400 South Hope Street), and the Los Angeles Unified School District
(25,000 square-foot expansion in IBM Tower). Citicorp recently committed to a
new lease for about 60,000 square feet of space in 444 South Flower Street
following the expiration of their current lease in 2000 at 725 South Figueroa
Street. As discussed previously the Metropolitan Water District is developing
a new headquarters property adjacent to Union Station, and is expected to
vacate its 395,000 square-foot premises in California Plaza II at lease
expiration in 1999.
FIGUEROA CORRIDOR
The competitive office buildings within the Figueroa Corridor area are
summarized on the chart on the accompanying page. Figueroa Corridor includes
15 buildings with a combined rentable area of approximately seven million
square feet. This submarket encompasses a relatively large geographic area and
includes properties at both the northern and southern boundaries of the
downtown office market. With the exception of the 777 Tower building, the
buildings in this submarket generally contain less than one million square
feet of rentable area. Figueroa Corridor experienced significant new
development over the first two years of this decade, with nearly 3.4 million
square feet of rentable area delivered to this submarket from 1990 to 1992, or
approximately 50 percent of the current inventory of office space. The most
recently completed building is 801 South Figueroa Street, which was completed
in mid 1992. This property sold during 1996 (refer to Sales Comparison
Approach), and is to be included in a pending portfolio acquisition.
- -------------------------------------------------------------------------------
27
<PAGE>
<TABLE>
<CAPTION>
COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 1st Qtr 1998
Building Information Overall
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availability
No. Location Storles (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Figueroa Street Corridor
F-1 Figueroa Plaza - Phasa I 16 307,556 19,715 1985 Ground 0 0
201 North Figueroa Street 2 - 14 46,422 0 Total
46,422 0 48,422
F-2 Figueroa Plaza - Phasa II 16 307,556 19,715 1991 Ground 0 0
221 North Figueroa Street 0 0 0 Total
0 0 0
F-3 The Park 3 243,000 81,000 1979 Ground 26,346 0
201-281 South Figueroa Street 2 - 4 123,065 0 Total
149,433 0 149,433
F-4 Sheraton Grande Office Building 4 44,800 11,200 1983 Mezz 4,295 0
345 South Figueroa Street 3 6,112 0 Total
12,407 0 12,407
F-5 Los Angeles World Trade Ctr 10 349,600 34,960 1974 Ground 0 0
350 South Figueroa Street 1 - 7 109,158 0 Total
109,158 0 109,166
F-6 Union Bank Plaza 40 507,822 15,196 1957 24 & 33 0 32,063
445 South Figueroa Street 22 - 37 65,479 0 Total
65,479 32,063 97,542
F-7 Manulife Plaza 20 392,626 19,631 1982 Ground 0 0
515 South Figueroa Street 3 - 21 47,743 0 Total
47,743 0 47,743
F-8 Sanwa Bank Plaza 52 934,000 17,962 1990 43 & 44 0 11,336
601 South Figueroa Street 13 - 38 32,951 0 Total
32,951 11,336 44,267
F-9 Home Savings Tower 24 259,549 10,815 1988 12 & 19 0 16,619
660 South Figueroa Street 7 - 20 50,188 0 Total
50,188 16,619 68,807
F-10 Citicorp Center 41 895,058 21,831 1985 2 - 23 0 170,768
725 South Figueroa Street 15 - 39 138,777 0 Total
138,777 170,768 309,545
F-11 777 Tower 52 1,004,000 19,308 1991 5,29,34&35 0 16,993
777 South Figueroa Street 3 - 50 71,395 0 Total
71,395 18,993 88,368
F-12 800 S. Figueroa St. Building 12 122,002 10,167 1982 Ground 4,857 0
800 South Figueroa Street 6 - 12 81,180 0 Total
86,037 0 86,037
F-13 801 Tower 24 435,832 18,160 1992 4 - 8 0 33,680
801 South Figueroa Street Grnd - 10 41,831 0 Total
41,831 33,680 75,511
F-14 865 S. Figueroa Tower 35 674,132 19,261 1991 27 & 33 0 13,871
865 South Figueroa Street 1 - 33 52,043 0 Total
52,043 13,871 85,914
F-15 888 International Tower 21 412,000 19,619 1985 Ground 0 0
888 South Figueroa Street 2 - 21 145,189 0 Total
146,189 0 146,183
Market Totals 369 6,939,833 18,932 1,050,061 295,330 1,345,381
</TABLE>
<TABLE>
<CAPTION>
Quoted Direct Overall
Item Building Name / Annual Rent Lease Occupancy Occupancy
No. Location PSF PSF Type Ratio Ratio
<S> <C> <C> <C> <C> <C> <C>
Figueroa Street Corridor
F-1 Figueroa Plaza - Phasa I --- - --- --- 84.9% 84.9%
201 North Figueroa Street $18.00 - $18.00 FSG
F-2 Figueroa Plaza - Phasa II --- - --- --- 100.0% 100.0%
221 North Figueroa Street --- - --- ---
F-3 The Park $15.00 - $15.00 FSG 38.5% 38.5%
201-281 South Figueroa Street $15.00 - $15.00 FSG
F-4 Sheraton Grande Office Building $12.00 - $18.00 FSG 72.3% 72.3%
345 South Figueroa Street $12.00 - $18.00 FSG
F-5 Los Angeles World Trade Ctr --- - --- --- 68.8% 68.8%
350 South Figueroa Street $13.00 - $14.50 FSG
F-6 Union Bank Plaza $18.00 - $24.00 FSG/NNN 89.2% 84.0%
445 South Figueroa Street $18.00 - $24.00 FSG
F-7 Manulife Plaza --- - --- --- 87.8% 87.8%
515 South Figueroa Street $23.00 - $23.00 FSG
F-8 Sarwa Bank Plaza $12.50 - $17.00 NNN/FSG 96.5% 95.3%
601 South Figueroa Street $15.00 - $25.00 NNN
F-9 Home Savings Tower $12.50 - Negot. NNN 80.7% 74.3%
660 South Figueroa Street $17.00 - $20.00 FSG
F-10 Citicorp Center $12.00 - $18.00 NNN/FSG 84.5% 65.4%
725 South Figueroa Street $12.00 - $12.00 NNN
F-11 777 Tower $12.00 - $25.00 FSG 92.9% 91.2%
777 South Figueroa Street $14.00 - $18.00 NNN
F-12 800 S. Figueroa St. Building $14.00 - $16.00 FSG 29.5% 29.5%
800 South Figueroa Street $14.00 - $16.00 FSG
F-13 801 Tower $8.00 - $18.56 FSG 90.4% 82.7%
801 South Figueroa Street $22.00 - $25.00 FSG
F-14 865 S. Figueroa Tower $12.00 - $22.00 FSG 92.3% 90.2%
865 South Figueroa Street $14.00 - $16.00 NNN
F-15 888 International Tower $0.00 - $0.00 FSG 64.5% 64.5%
888 South Figueroa Street $18.00 - $18.00 FSG
Market Totals 85.0% 80.8%
</TABLE>
[Graph omitted]
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
Figueroa Corridor buildings have a combined occupancy rate of 80.8 percent,
including sublease availabilities. On a landlord direct basis the buildings
have an occupancy level of 85.0 percent. Major tenants within this submarket
include domestic and foreign financial institutions, law firms, and investment
banking firms. Several insurance firms have also located to new buildings in
this corridor during the past few years. The larger tenants within the
Figueroa Corridor include: 1) Union Bank of California; 2) Home Savings;
3) Sanwa Bank; 4) Citicorp; 5) Trust Company of the West (investment services);
6) Mitsui Manufacturer's Bank; 7) Pilsbury, Madison and Sutro (law firm);
8) Graham & James (law firm); 9) KMPG Peat Marwick (accounting); 10) AIG
(insurance); 11) Marsh McClennan (insurance); and 12) Jardine/Alexander &
Alexander (insurance).
Citicorp leases about 180,000 square feet in 725 South Figueroa Street
(Citicorp Phase I), and its current lease expires in 2000. The tenant has
negotiated a new lease, and will vacate this building prior to the end of the
current term, and relocate in a downsized premises (about 60,000 square feet)
to 444 South Flower Street (refer to Bunker Hill submarket). The building is
to be renamed after the bank.
As discussed in the Sales Comparison Approach, this property sold during
1997. In addition to the Citicorp premises, two other major tenants in this
building have lease expirations during 2000: KPMG Peat Marwick (160,000 square
feet) and Pillsbury Madison Sutro (120,000 square feet). KPMG was involved in
a pending merger with Ernst & Young during the latter portion of 1997, but the
merger was not completed. Each of these accounting firms were negotiating for
new premises prior to the merger, including a major lease at Wells Fargo
Center, but the negotiations were delayed.
Citicorp Phase II (777 South Figueroa) had lost two major long-term law firm
tenants in recent years through default: Baker & McKenzie, which leased a
120,000 square-foot premises for a 15-year term commencing 1991 (tenant
vacated during in 1995), and Adams Duque Hazeltine, which leased an 83,000
square-foot premises for a 15-year term commencing 1991 (tenant vacated
following bankruptcy during fourth quarter, 1996). Despite the loss of these
tenants, the building is currently 92.9 percent leased on a direct basis, due
in part to the expansion of its existing tenant base. Johnson & Higgins merged
with Marsh McLennan, the major tenant in 777 Figueroa. The tenant relocated
its Century City premises (former Johnson & Higgins space) to the downtown
market, expanding by 75,000 square feet in 777 Figueroa. Paine Webber singed a
lease for the top two floors of this building during 1997, relocating from
the adjacent 725 Figueroa tower.
The insurance industry has provided several significant new tenants in
recent years to the downtown market. Chubb Insurance is a major tenant in 801
Tower, and Alexander & Alexander relocated to this building from Pasadena in
1996 following a merger. Other tenant demand for buildings in this corridor
during the past year included Arter & Hadden (60,000 square feet in 725
Figueroa) and American Custom (40,000 square feet in 801 Tower). The City of
Los Angeles leased 160,000 square feet in Figueroa Plaza, a two-building
development located in the northerly end of the downtown market (items F-1 and
F-2) during 1997. This property is a Class A development but is in a secondary
location near the Civic Center.
- -------------------------------------------------------------------------------
28
<PAGE>
[Unkeyable page - WELLS055.TIF]
<PAGE>
[Unkeyable page - WELLS056.TIF]
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
OTHER MAJOR DOWNTOWN BUILDINGS
The "Other Major Downtown Buildings" are summarized on the chart on the
accompanying page. These 15 buildings range in size from 95,000 to 1,009,529
square feet, and include some of the earliest major class A office
developments in the downtown Los Angeles office market. The ARCO Plaza North
and South Towers, completed in 1972, represent one of the first major
high-rise office developments in Los Angeles. The project contains over
2 million square feet of rentable office area and approximately 225,000 square
feet of subterranean retail space. The north tower serves as the corporate
headquarters for Atlantic Richfield Company (ARCO), and the south tower is the
regional headquarters location for Bank of America.
These 15 buildings total approximately 6.1 million square feet and have a
combined occupancy rate of 73.6 percent, including sublease availabilities.
Major tenants include diversified holding companies, financial institutions,
and telecommunication companies. The larger tenants in these buildings
include: 1) Atlantic Richfield Company (ARCO); 2) Bank of America; 3) Bank of
California; 4) Brobeck, Phleger, & Harrison (law firm); 5) MCI Communications;
and 6) Ernst & Young (accounting/consulting). The most recently completed
building among this subgroup is the 550 South Hope Street property, which was
acquired by Equity Office in 1997.
WILSHIRE CORRIDOR
The competitive buildings along the Wilshire Corridor area (including
adjacent streets) are summarized on the chart on the accompanying page. This
submarket consists of 12 buildings with a combined rentable area of
approximately 4.3 million square feet. The buildings along the Wilshire
Corridor are generally smaller and older than the competitive office product
situated in the Bunker Hill, Figueroa Corridor, and adjacent areas. The
Wilshire Corridor buildings have an average rentable area of about 350,000
square feet and an average age of approximately 25 years. With the exception
of 707 Wilshire Boulevard, none of the buildings along this corridor has a
rentable area in excess of 600,000 square feet.
The 12 buildings total about 4.3 million square feet, and have a combined
occupancy rate of 75.1 percent, including sublease availabilities. The
buildings within this subgroup include both Class A and B properties, and the
lower quality properties have experienced downward pressures on rents over the
past few years. Major tenants within this submarket include domestic and
foreign financial institutions, diversified holding companies, communication
companies, and accounting firms. The larger tenants within this submarket
include: 1) First Interstate/Wells Fargo Bank; 2) Bank of America (formerly
Security Pacific National Bank); 3) Los Angeles Community College District; 4)
Deloitte & Touche (accounting firm).
The Wilshire Corridor buildings suffered a significant loss of their former
tenant base during the latter portion of the 1980's to the newer office
buildings in the downtown area. Several of the former major tenants of the
Wilshire Corridor buildings, including Dai-Ichi Kangyo Bank, Tokai Bank, Sanwa
Bank, The Industrial Bank of Japan, and First Interstate Bank, have relocated
all or a major portion of their operation to new facilities in the Bunker Hill
area or along the Figueroa Corridor. The Wells Fargo buyout of 1st Interstate
may also have a negative impact on occupancy levels. First Interstate/Wells
Fargo leases 420,000 square feet in 707
- -------------------------------------------------------------------------------
29
<PAGE>
Downtown Los Angeles
Central Business District
GROSS LEASING ACTIVITY
Year Gross SF Leased
1990 3,106,278
1991 2,270,943
1992 2,440,763
1993 2,132,823
1994 2,520,125
1995 2,307,655
1996 2,471,206
1997 2,068,957
[Graph omitted]
Gross Leasing Activity Chart
<PAGE>
[Unkeyable page - WELLS059.TIF]
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
Wilshire Boulevard (1st Interstate Tower) for a term expiring February,
1999. 1st Interstate/Wells is also a 50 percent owner of this building,
however, which may impact the renewal for this tenant. Several owners of
buildings in this submarket have undertaken renovation programs to enhance the
marketability of the space in their respective properties. The owners of the
811 Wilshire Building completed an extensive renovation program in 1991, which
included the installation of a new fire safety/sprinkler system, a voice
command center, and a more modern building facade. The building was
subsequently acquired through foreclosure and was sold in January, 1995. The
building is reportedly being re-marketed for sale during 4th quarter, 1997.
The 770 Wilshire Building was recently renovated with the installation of
improved building systems, new fire/life safety systems, and a remodeled
lobby. The One Wilshire Building has become a communications tenant property,
with several switching stations and fiber-optic companies.
Other nearby Class "B" buildings have been marketing space for lease to
telecommunications tenants due to the overflow demand from One Wilshire, the
nearby cabling infrastructure, and the higher rental rates for this category
of tenant.
Two recent acquisitions by Goodwin Gaw of long-vacant buildings along or
adjacent to this corridor may effectively create a new "renovated" supply in
the CBD. This firm had previously acquired 818 West 7th Street in 1996, and
has leased significant portions of the largely vacant building during 1997.
Goodwin Gaw acquired the 400,000 square-foot 612 South Flower Street property
in 1997 from the lender, Bank of Nova Scotia. The building has been vacant for
seven years, and requires substantial capital investment prior to occupancy.
The buyer has been marketing the property for lease to major tenants, and is
reportedly one of three buildings considered for the Deloitte & Touche
requirement (200,000 square feet).
CENTRAL CITY WEST - BUILDINGS LOCATED WEST OF THE HARBOR (I-110) FREEWAY
The five competitive buildings located west of the Harbor (I-110) Freeway
are summarized on the chart on the accompanying page. This submarket consists
of five buildings with a combined rentable area of approximately 2.2 million
square feet. With the exception of ARCO Center, the buildings located west of
the Harbor Freeway are generally of lesser quality than the newer Class A
office properties in the other downtown submarkets. These buildings are not
included in the CBD office supply of 29,601,872 square feet referenced
previously. The buildings in this submarket are considered to be locationally
inferior to the competitive Class A office buildings in the core downtown
areas, and compete on a costs basis with otherwise similar CBD office
buildings.
The buildings located west of the Harbor Freeway have a current combined
direct occupancy rate of 79.8 percent, or 61.8 percent, including sublease
availabilities. Two large sublease availabilities, including former Arco and
First Interstate premises, contribute to more than 400,000 square feet of
sublease availabilities in this submarket. The buildings within this subgroup
include Class A and B space, although the properties generally have excellent
visibility from the freeway. Major tenants within this submarket include
financial institutions, diversified holding companies, and financial services
firms. The larger tenants within this submarket include: 1) Bank of America;
2) ARCO; 3) The Pacific Stock Exchange; 4) The Department of Water and Power,
and 5) 1st Interstate/Wells Fargo. As noted previously, ARCO signed a lease to
relocate to 333 South Hope, and vacated its current 265,000 square-foot
- -------------------------------------------------------------------------------
30
<PAGE>
OFFICE BUILDING VACANCY SURVEY
Central Business District of Downtown Los Angeles
Rental and Occupancy Survey as of 1st Qtr 1998
<TABLE>
<CAPTION>
Vacancy Ratios
No. of Inventory Available (SF) --------------------------------
Submarket Buildings Square Feet Direct Sublease Overall Direct Sublease Overall
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(B) Bunker Hill 10 10,181,677 1,122,202 462,998 1,585,200 11.0% 4.5% 15.6%
(O) Other Buildings 15 6,100,085 1,540,784 71,809 1,612,593 25.3% 1.2% 26.4%
(F) Figueroa Corridor 15 6,989,533 1,050,061 295,330 1,345,391 15.0% 4.2% 19.2%
(W) Wilshire Corridor 12 4,257,708 877,205 149,131 1,026,336 20.6% 3.5% 24.1%
(H) West of Harbor Fwy 5 2,173,595 439,353 389,979 829,332 20.2% 17.9% 38.2%
TOTAL 57 29,702,598 5,029,605 1,369,247 6,398,852 16.9% 4.6% 21.5%
</TABLE>
[Graph omitted]
[Graph omitted]
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
premises in ARCO Center, which expires in 1999. Wells Fargo/1st Interstate
vacated its operations headquarters located at 1055 West 7th Street and has
leased 300,000 square feet of the property for Prudential healthcare offices.
This property (not included on the summary) contains 380,000 square feet of
rentable area in nine above-ground floors, and an additional 340,000 square
feet in three below-grade levels.
ARCO Center is considered to be the highest quality of the existing
office properties located west of the freeway. The Wilshire Finance Building
transferred ownership in November, 1993 and remains vacant. The
triangular-shaped office tower is situated on top of a 15-level parking
structure, which provides for excellent visibility from the freeway. Bank of
America, which assumed control of Beaudry Center I following the merger with
Security Pacific National Bank, has consolidated much of the bank's regional
back office and computer-related space requirements at this location. First
Interstate/Wells Fargo is expected to vacate its premises in Wilshire Bixel
at the end of the current term and is currently offering nearly 100,000 square
feet for sublease in this building. This property (Wilshire Bixel) has been
marketed for sale for about six months, and sold to Kennedy Wilson in March,
1998. The new ownership plans to achieve an $18 per-square-foot full service
gross rental rates for the Wells Fargo space expected to be vacated at the end
of 1998.
VACANCY
The 57 properties summarized on the previous charts have a combined
rentable area of approximately 29.7 million square feet, and represent the
primary competitive downtown office building marketplace. The inventory is
summarized on the accompanying page. The direct and overall (including
sublease availabilities) vacancy rates of 16.9 percent and 21.5 percent for
the summarized competitive properties summarized above are consistent with the
overall CBD market. The chart on the accompanying page provides an historical
overview of the trends in overall vacancy levels and office supply since 1980.
Although the occupied office area has increased by 95 percent from 11,701,336
square feet in 1980 to 22,826,913 square feet at the end of 1997, the total
office inventory has increased by 148 percent during the same period. As shown
on the chart the vacancy level peaked at 26.9 percent at the end of 1992,
stabilized during 1993, and has improved to 23.7 percent as of the end of
1995, 23.9 percent as of 1996, and 22.9 percent year-end 1997. The former 1st
Interstate/Wells Fargo space placed on the sublease and direct market during
4th quarter, 1996 and the former Arco Premises is reflected in increased
vacancy levels at year-end 1996.
Vacancy Segmentation by Building Class
The year-end 1997 breakdown of inventory by the quality of supply
(Classes A, B, and C) in the CBD is summarized below.
<TABLE>
<CAPTION>
Vacancy Rate
-----------------
Building Quality/Class No. of Buildings Inventory (SF) Direct Overall
- ---------------------- ---------------- -------------- ------ -------
<S> <C> <C> <C> <C>
Class A 39 24,832,582 15.7% 20.5%
Class B 19 3,965,539 34.9% 35.1%
Class C 7 803,751 36.1% 36.1%
-- ---------- ----- -----
Totals 65 29,601,872 18.9% 22.9%
</TABLE>
The chart shows that the Class A supply in the downtown market has a
significantly lower vacancy level both on a landlord direct and overall basis
than the total market. The year-
- -------------------------------------------------------------------------------
31
<PAGE>
DOWNTOWN LOS ANGELES
Central Business District
HISTORICAL OVERALL VACANCY TRENDS
(Including Direct & Sublease)
<TABLE>
<CAPTION>
End of Total Total Percent of
Year Inventory SF Available SF Total Inventory
- ------ ------------ ------------ ---------------
<S> <C> <C> <C>
1980 11,940,138 238,802 2.0%
1981 12,099,501 120,995 1.0%
1982 14,041,452 1,236,730 8.8%
1983 16,319,586 1,974,669 12.1%
1984 16,319,586 2,023,628 12.4%
1985 18,158,950 3,087,021 17.0%
1986 18,996,948 2,811,548 14.8%
1987 21,197,396 2,454,438 11.6%
1988 21,526,197 2,550,677 11.8%
1989 23,452,439 2,755,899 11.8%
1990 23,697,139 2,739,340 11.6%
1991 27,696,701 5,256,947 19.0%
1992 29,175,557 7,839,557 26.9%
1993 29,166,557 7,584,770 26.0%
1994 29,159,714 7,595,884 26.0%
1995 29,242,986 6,921,289 23.7%
1996 29,578,469 7,062,011 23.9%
1997 29,601,872 6,774,959 22.9%
</TABLE>
<PAGE>
end 1997 direct and overall vacancy rates of 15.6 percent and 20.5 percent,
respectively for the Class A buildings was 8.2 percent (direct) and 2.4
percent (overall) below the CBD vacancy levels for all classes of inventory.
Contiguous Space
The accompanying exhibit summarizes the current and near-term supply of
contiguous "blocks" of office space in excess of 50,000 square feet in the
downtown market. The availabilities are presented in descending order of size.
Four of the five largest blocks (Items 1, 3, and 5) are not currently available
for occupancy, but are expected to become available during 1999. Of these 24
blocks of space, 10 are in buildings rated Class "A" in terms of quality.
Three of the availabilities are located in buildings (10, 12, and 22)
controlled by Shuwa Corporation, which is generally acknowledged in the market
to be experiencing cash flow issues which prevent the landlord from offering
tenant allowances or other concessions.
The chart below summarizes the scheduled lease expirations in Class A
building for tenants over 100,000 square feet in size through the year 2000.
<TABLE>
<CAPTION>
Rounded
Building Tenant Area (SF) Expiration Comments
- -------- ------ -------- ---------- --------
<S> <C> <C> <C> <C>
Library Tower Arthur
Andersen 200,000 11/99 Cancellation Option - with
penalty; negotiating new lease
for 150,000 SF
Library Tower 1st Interstate/ 150,000 2005 - Offered for sublease - significant
Wells Fargo currently portions subleased
available
Wells Fargo
Center-South IBM 200,000 12/98 Most space has been subleased
- Landlord negotiating with
Deloitte and with KPMG for this
space
Citlcorp
Phase I (3) tenants
Citicorp, 180,000 11/2000 Signed lease to relocate to 444
South Flower
KPMG Peat, 160,000 05/2000 "In the market" for alternative
downtown space - merger
with Ernst & Young called off
Pilsbury, et al 120,000 11/2000
Cal Plaza II MWD 350,000 10/99 Developing new headquarters
- Landlord in discussions with
Deloitte
1st Interstate 1st Interstate/ 420,000 02/99 Partial ownership in building
Tower Wells Fargo
707 Wilshire
</TABLE>
- -------------------------------------------------------------------------------
32
<PAGE>
CONTIGUOUS SPACE AVAILABLE OVER 50,000 SF
Downtown Los Angeles
<TABLE>
<CAPTION>
LARGEST
TOTAL CONTIGUOUS
BUILDING CLASS BUILDING SF BLOCK
-------- ----- ----------- ----------
<S> <C> <C> <C> <C>
1 612 South Flower Street C 400,000 400,000
2 Two California Plaza A 1,277,801 400,000
3 707 Wilshire Boulevard B 1,028,000 300,000
4 1100 Wilshire Boulevard B 275,700 275,700
5 1055 W. 7th Street A 625,000 247,761
6 800 South Hope Street C 245,000 245,000
7 811 Wilshire Boulevard B 326,000 200,000
8 617 West 7th Street C 200,000 164,681
9 Citicorp Center A 902,500 153,083
10 ARCO Plaza - South Tower A 1,009,529 148,258
11 California First Bank Building C 110,394 110,394
12 801 South Grand Building B 447,218 105,726
13 Wilshire Bixel B 278,187 98,876
14 TransAmerica Center Tower B 510,742 87,000
15 Biltmore Court B 257,318 75,000
16 888 South Figueroa Street B 412,000 74,000
17 Wells Fargo Center South A 1,012,000 74,000
18 Wells Fargo Center North A 1,221,334 73,250
19 Gas Company Tower A 1,200,000 62,196
20 Wells Fargo Center South A 1,012,000 61,991
21 Library Tower A 1,300,000 58,556
22 ARCO Plaza - North Tower A 1,009,529 51,400
23 818 W. 7th Street B 360,000 50,691
24 800 South Figueroa Street B 122,002 50,568
----------- ----------
15,542,254 3,568,131
</TABLE>
COMMENTS
1 New owner plans major renovation and is currently marketing the building to
large tenants.
2 MTA lease expires 2/99. Building is marketing space to large users.
3 Wells Fargo's (First Interstate Bank) lease expires in 2/99, some space has
already been sublet, about 300,000 square feet will come to market. Wells
Fargo may stay in 150,000 sq. ft.
4
5 ARCO to vacate in 1999.
6
7
8
9 Citicorp Space lease expires 9/00. Building and Citicorp looking for large
user.
10
11 Vacated, class "C" building.
12
13 First Interstate Bank lease expires 12/98.
14
15
16
17 IBM space. Current lease for 115,000 total. Expires 12/98. IBM looking for
40,000-50,000 square feet.
18
19
20
21
22
23
24
<PAGE>
DOWNTOWN LOS ANGELES
1997 OFFICE LEASING ACTIVITY
25,000 SF and Greater
<TABLE>
<CAPTION>
Type of
Total Trans-
Tenant Building SF Building Name action Term
------ ----------- ------------- ------ ----
<S> <C> <C> <C> <C> <C>
1 Prudential 300,000 1055 West 7th New 10 yrs
2 City of Los Angeles 118,000 Figueroa Plaza Expansion 7.5 yrs
3 City of Los Angeles 158,000 Figueroa Plaza Renewal 7.5 yrs
4 Marsh McLennan 75,000 777 Tower Renewal and 10 yrs
expansion
5 MTA 65,000 818 West 7th Renewal and 5 yrs
expansion
6 Arter & Hadden 60,000 725 S. Figueroa New 7 yrs
7 Citibank 60,000 444 S. Flower New 15 yrs
8 American Custom 38,000 801 Tower New 6.5 yrs
9 U.S. Trustees 33,000 Figueroa Plaza Renewal N/A
10 Paine Webber 34,000 777 Tower (Floors 51 and 52) New 10
11 Hill, Farrer & Burrill 31,000 Cal Plaza I New 10 yrs
12 McKinsey & Co. 26,000 400 S. Hope Expansion N/A
13 Capital Group 26,000 ARCO Center Expansion N/A
14 Arco 25,000 ARCO Plaza Expansion N/A
15 LA Unified School Dist. 25,000 Wells Fargo Center Expansion N/A
---------
1,074,000
</TABLE>
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
These lease expirations represent both competitive space and tenant
possibilities for the other Class A buildings. There are several Class "B"
buildings with large contiguous availabilities, including the recently sold,
renovated 818 West 7th Street, a well-located, 1925-built 12-story 380,000
square-foot building. This building was the former headquarters property
for the MTA, and is currently being marketed for lease, targeting large
(possibly government) tenants. Two vacant office buildings of substantial size
located in the Central City West market area may also compete on a cost basis
for larger tenants. These buildings include 1200 West 7th Street. This
property has been the operations headquarters for 1st Interstate Bank, and was
vacated due to the merger with Wells Fargo. The property consists of nine
floors above ground totaling 380,000 square feet, and three below-grade levels
totaling 340,000 square feet. The property has been placed on the market for
sale or lease, and a Prudential healthcare organization committed to lease
approximately 300,000 square feet during second quarter, 1997. Bank of America
has reportedly committed to lease much of the remainder of the building for
back-office use. A second property, 1100 Wilshire Boulevard, is 37 stories
(including parking levels), contains approximately 275,000 square feet, and
has been predominately vacant since completion in 1986. The offshore landlord
has historically been somewhat unresponsive and unrealistic in negotiating
lease transactions, and the property is currently vacant, with much of the
space in a "shell" condition. The landlord had negotiated a major lease for
about 200,000 square feet with MWD during the first portion of this decade,
but subsequent litigation issues resulted in the loss of the tenant (although
portions of the space had been improved) to Cal Plaza II. With the signing of
several major tenants for Class A space in the downtown market during the past
year, contiguous "blocks" of space 60,000 square feet and greater are quite
limited. Major new tenants to the market during 1996 include Aames Financial,
and Alexander & Alexander. Leasing activity in the downtown market during 1997
included 15 transactions involving tenants with size requirements of at least
25,000 square feet. These lease transactions totaled approximately 1,075,000
square feet, and are summarized on the accompanying exhibit.
OFFICE DEMAND
Net Absorption
The accompanying chart summarizes the historical net office absorption for
the Central Business District during the past 14 years. The annual net
absorption levels ranged from (419,208) square feet in 1994, to 1,750,587
square feet in 1989. As indicated on the chart the average annual net
absorption during the past 14 years is 591,952 square feet. The most
significant recent positive net absorption levels occurred during 1993, when
absorption totaled 612,577 square feet. The 1993 net absorption was partially
attributable to the relocation to downtown from mid-Wilshire district office
buildings of AIG Insurance (104,000 square feet) and Marsh McLennan
(approximately 100,000 square feet) to 777 S. Figueroa Street. The substantial
negative absorption during 1994 and 1995 reflects, to a large degree, the
change in direct and sublease availabilities from substantial Security
Pacific/B of A lease expirations in two Bunker Hill buildings. The resulting
re-categorization as available space impacted net absorption calculations,
which exclude sublease space.
Tenant demand for office space is directly related to the growth or
consolidation of the employment base in the competitive market. Fluctuations
in gross net leasing activity during periods of employment growth can also be
impacted by limited new development demand. The growth in the Los Angeles
population during the past 20 years and corresponding employment
- -------------------------------------------------------------------------------
33
<PAGE>
DOWNTOWN LOS ANGELES
Central Business District
NET ABSORPTION TRENDS
(* - Excludes Sublease Absorption)
End of Square Feet Total Net Absorption/
Year of Net Absorption* Inventory SF Total Inventory
------ ------------------ ------------ ---------------
1983 1,567,194 16,319,586 9.6%
1984 (48,958) 16,319,586 -0.3%
1985 775,971 18,158,950 4.3%
1986 113,471 18,996,948 0.6%
1987 1,208,942 21,197,396 5.7%
1988 357,615 21,526,197 1.7%
1989 1,750,587 23,452,439 7.5%
1990 613,658 23,697,139 2.6%
1991 1,456,674 27,696,701 5.3%
1992 559,130 29,175,557 1.9%
1993 612,577 29,166,557 2.1%
1994 (419,208) 29,159,714 -1.4%
1995 (403,097) 29,242,986 -1.4%
1996 142,771 29,578,489 0.5%
1997 114,018 29,601,872 0.4%
Total 1983-1997 8,401,345 363,290,117 0.4%
Annual Average 560,090 24,219,341 2.3%
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
growth, particularly in the services sector, has historically created periods
of pent-up demand which resulted in "spikes" in the downtown absorption
levels during or following completion of significant new office supply. Based
on the accompanying data this trend apparently continued through 1991
according to net absorption estimated discussed above. The characteristics of
the sublease marketplace discussed previously have offset much of the apparent
net gain in the tenant base, however.
Cushman & Wakefield has historically calculated net absorption based upon
the change in directly leased space. The available sublease data covering the
period 1987 through 1996 indicates the following estimated pattern in the net
change in total leased space, or the net growth in the actual tenant base in
the Central Business District.
Growth in
Tenant
Year Base (SF)
- ---- ---------
1988 5,329
1989 1,750,587
1990 608,605
1991 582,966
1992 428,745
1993 322,957
1994 (1,983)
1995 406,022
1996 94,537
1997 310,455
---------
Total 4,508,220
Annual Avg. 450,822
The 450,822 square-foot annual average growth in the tenant base during the
10-year period 1988-1997 compares with the average annual net absorption of
478,472 square feet during the same period. The higher net absorption figures
in comparison with the actual growth in the tenant base do not consider the
impact of the significant lease assumptions by developers of new buildings
during 1991-1993 in particular. The re-categorization and absorption of
sublease availabilities during 1994 and 1995 represents a tenant base increase
which offsets the negative net office absorption described previously.
Gross Leasing Activity
The chart on the accompanying page summarizes the total leasing activity for
the Central Business District since 1990. The data includes all new direct and
sublease activity, but excludes renewals. The leasing pattern in the CBD
exhibits a similar relationship between net demand and total leasing as the
overall Los Angeles County trend discussed previously. The chart below
compares the net office absorption and net growth in the tenant base with the
gross leasing activity during the most recent eight-year period.
- -------------------------------------------------------------------------------
34
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF GROSS LEASING
-----------------
SF Net SF Market SF Net Market
Year Absorption Growth Gross Leasing Absorb. Growth
- ---- ---------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
1990 613,658 608,605 3,106,278 20% 20%
1991 1,456,674 582,966 2,270,943 64% 17%
1992 559,130 428,745 2,440,763 23% 18%
1993 612,577 322,957 2,132,823 29% 15%
1994 (419,208) (1,983) 2,520,125 (17%) (0%)
1995 (403,097) 406,022 2,307,655 (17%) 18%
1996 142,771 94,537 2,471,206 6% 4%
1997 114,018 310,455 2,068,957 6% 15%
8-year Average 334,565 344,038 2,414,843 14% 14%
</TABLE>
The net absorption data for some years (1991 in particular) was artificially
high due largely to the increased trend in lease assumptions by landlords in
order to capture tenants. As noted previously the re-categorization and
absorption of sublease space during 1994 and 1995 resulted in "calculated"
negative absorption considerably that was more substantial than the actual
decline in market demand.
The difference in the net absorption and net growth in the CBD since 1988 is
calculated below.
Year SF Net Absorption SF Tenant Growth SF Difference
---- ----------------- ---------------- -------------
1988 357,615 5,329 352,286
1989 1,750,587 1,750,587 0
1990 613,658 608,605 5,053
1991 1,456,674 582,966 873,708
1992 559,130 428,745 130,385
1993 612,577 322,957 289,620
1994 (419,208) (1,983) (417,225)
1995 (403,097) 406,022 (809,119)
1996 142,771 94,537 48,234
1997 114,018 310,455 (196,437)
Totals 4,784,725 4,508,220 276,505
10-year Average: 478,472 450,822 27,650
Most of the total difference between net absorption and actual tenant growth
occurred during 1991-1992. More than 5.4 million square feet of new office
development was completed during this period, or roughly five times the growth
in the tenant base during the same period (one million square feet). As shown,
the growth in tenant demand is overstated during the
- -------------------------------------------------------------------------------
35
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
period 1991-1993 due to lease buyouts and sublease increases, while the
apparent negative absorption during 1994-1995 understates the tenant demand
because much of the growth involved sublease space. The tenant growth during
1997 also involved a substantial percentage of sublease space.
Downtown Tenant Base
The exhibits on the following pages provide a general overview of the
components of the downtown Los Angeles employment base for office workers. The
graphs include the estimated employment breakdown by the number of firms and
by the number of employees. The largest components of the downtown office base
in terms of total number of employees are law firms and business services
(such as accounting/management consulting) firms. Lending institutions are
also a major employment sector for office workers. Tenant demand from this
sector in particular continues to decline due to consolidations in the banking
industry. The mergers of Bank of America/Security Pacific followed by 1st
Interstate/Wells Fargo have eliminated the two major Los Angeles based banks
and added substantial new supply to the downtown market. Other significant
employment sectors include transportation, communications and utilities,
insurance companies, securities firms, and real estate firms.
Insurance tenants have provided a significant component of new demand for
CBD office buildings during the past several years. This tenant category has
been attracted to the CBD market either because of increasing rental rates in
surrounding suburban markets such as westside Los Angeles, Glendale, or
Pasadena, or to "escape" the less desirable Mid-Wilshire market to the west of
downtown. Major insurance relocations to the downtown market in recent years
have included Chubb (relocated from the Miracle Mile), Alexander & Alexander
(relocated from Pasadena following a merger - each in 801 Figueroa), and AIG
and Marsh McLennan (each relocated from mid-Wilshire to 777 Figueroa). A
Prudential healthcare insurance group leased approximately 250,000 square feet
in the former 1st Interstate operations headquarters during the second
quarter, 1997 for "back" office requirements. Marsh McLennan and Johnson &
Higgins have recently merged, and the Johnson & Higgins Century City office
relocated to downtown Los Angeles. The Farmer's Insurance law division (40,000
SF) will relocate to downtown Los Angeles during 1998. Accounting firms have
historically provided significant demand for downtown office space, but recent
and pending mergers, in conjunction with downsizing at these firms, has
resulted in "net" demand loss in recent years.
Government and other public agency tenants also represent a significant
tenant demand base in the downtown market area, including the CBD, Civic
Center, and Central City East submarkets of downtown Los Angeles. The chart
below summarizes the public agency office uses (both owned and leased) in the
downtown market area. Several pending and recent leases will result in changes
(additions) to the inventory figures below.
- -------------------------------------------------------------------------------
36
<PAGE>
Downtown Los Angeles
TOTAL NUMBER OF EMPLOYEES
Zip Code Areas: 90013. 90014, 90017 and 90071
<TABLE>
<CAPTION>
Number of Employees
Industry Type Sector Employees by %
- ------------- ------ --------- --------
<S> <C> <C> <C>
Services Legal Services 18,373 17.0%
Manufacturing Manufacturing 12,766 11.8%
Services Business Services 12,359 11.4%
Wholesale Trade Wholesale Trade 9,823 9.1%
Transportation, Communications, Public Utility Transportation, Communications, Public Utility 8,304 7.7%
Finance - Insurance - Real Estate Banks, Savings & Lending Institutions 7,058 6.5%
Services Other Services 5,259 4.9%
Finance - Insurance - Real Estate Real Estate - Trust - Holding Companies 4,808 4.4%
Retail Trade Eating & Drinking Places 4,667 4.3%
Services Health Services 3,794 3.5%
Services Hotels & Lodging 3,003 2.8%
Retail Trade Miscellaneous Retail Stores 2,827 2.6%
Finance - Insurance - Real Estate Securities Brokers & Investors 2,818 2.6%
Finance - Insurance - Real Estate Insurance Carriers & Agencies 2,267 2.1%
Services Personal Services 1,908 1.8%
Services Social Services 1,354 1.2%
Retail Trade Apparel & Accessory Stores 1,197 1.1%
Services Education Services 1,188 1.1%
Government Government 1,069 1.0%
Retail Trade Food Stores 822 0.8%
Construction Construction 819 0.8%
Retail Trade Furniture / Home Furnishings 627 0.6%
Retail Trade General Merchandise Stores 557 0.5%
Services Motion Picture & Amusement 452 0.4%
Retail Trade Auto Dealers & Gas Stations 77 0.1%
Retail Trade Home Improvement Stores 69 0.1%
Agriculture Agriculture 60 0.1%
Mining Mining 57 0.1%
108,382 100.0%
</TABLE>
[Graph omitted]
Number of Employees per Industry Type
Source: Equifax National Decision Systems
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
User SF Leased SF Owned SF Total
---- --------- ---------- ---------
City of Los Angeles 1,748,985 2,432,368 4,181,353
Department of Transportation (CalTrans) --- 297,320 297,320
Little Tokyo Service Center 34,321 --- 34,321
Federal Government 246,050 1,772,756 2,018,806
LAUSD 250,000 2,250,533 2,500,533
County of Los Angeles 227,402 2,619,254 2,846,656
MTA --- 1,327,603 1,327,603
MWD* 440,091 440,091 440,091
State of California --- 970,045 970,045
US Postal Service --- 871,200 871,200
--------- ---------- ----------
Totals 2,946,849 12,541,170 15,487,928
*A new headquarters development is currently under construction in the Union
Station neighborhood (Catellus)
The City of Los Angeles represents the largest public agency tenant from a
leasing perspective in the downtown market area. Although the city recently
(1st quarter, 1997) negotiated a 280,000 square-foot renewal/expansion lease
for space in the Class A Figueroa Plaza (201-221 North Figueroa Street),
recent planning documents indicate the city and other government tenants plan
to consolidate in office space east of the CBD, within the "Historic Core"
neighborhood. As noted previously the Metropolitan Water District (MWD) and
the Metropolitan Transportation Authority (MTA) are locating in new
headquarters office buildings in the northeasterly portion of downtown Los
Angeles, adjacent to Union Station (the hub of the regional transportation
network). The MTA also recently leased (renewal/expansion) an additional
65,000 square feet in a rehabilitated CBD building, however (818 West 7th
Street). Other recent government tenants in CBD office locations include the
INS (80,000 SF in 606 Olive Street), Housing and Urban Development (HUD), with
55,000 square feet in AT&T Center, and the Los Angeles Unified School District
(LAUSD), with 280,000 square feet in the Class A IBM tower on Bunker Hill.
Conclusions
The Central Business District office market has experienced a slow, gradual
improvement in vacancy rates during the period since 1992. Modest absorption
levels combined with the absence of new development since 1991 has resulted in
a decline in the overall vacancy rates from 26.9 percent as of year-end 1992
to 22.9 percent as of year-end 1996. The Class "A" tier of the market
experiences measurably lower vacancy rates in comparison with the overall
market supply, however. The Class A direct vacancy rate of 15.7 percent
as of year-end 1997 compares with the 18.9 percent vacancy rate for the
overall CBD market during the same timeframe. The 10 "premier" Class A
properties in the market have a current direct vacancy of just under 10
percent. The upper tier of the market also has few larger (in the 100,000
square-foot size range) contiguous blocks of space currently available, or
scheduled to be available during the next three years.
Although new tenant demand, particularly from insurance firms, has generated
positive absorption and resulted in reduced direct vacancy rates,
consolidations in the banking industry,
- -------------------------------------------------------------------------------
37
<PAGE>
DOWNTOWN LOS ANGELES OFFICE MARKET
- -------------------------------------------------------------------------------
particularly Bank of America/Security Pacific and Wells Fargo/1st Interstate,
has offset portions of the new demand. These four institutions each maintained
substantial premises in the CBD market, including multiple locations. Although
some new financial institutions, such as Mellon Bank in late 1996 continue to
enter the Los Angeles market, the downsizing of Citicorp at the end of its
current term at 725 Figueroa in 2000, and several other less significant
downsizings for other banks in the market suggest the banking industry will not
represent a "growth" component of the downtown tenant base in the near future.
The continued tightening of the suburban Los Angeles office markets is expected
to generate tenant movement to downtown due to increasing rental rates and the
absence of available space. The expansion of the entertainment industry in the
most desirable suburban markets such as Burbank, Glendale, Westwood, Santa
Monica, Beverly Hills, and other areas has resulted in rental "spikes" during
the past 18 months which have forced more cost sensitive tenants to consider
alternative locations, such as the downtown market. The Los Angeles CBD is
expected to continue to "lag" the more desirable suburban markets, but
nonetheless continues to experience stable, continued improvement. The
continued economic recovery in Los Angeles, and in southern California in
general, suggests this trend will continue. There is currently a substantial
"spread" between market rental rates and "replacement cost" rents in the CBD.
This factor, considered with the improving economy and tightening surrounding
suburban office markets, suggests there is significant potential for rental
increases in the CBD market, particularly for Class A space, during the next
few years.
- -------------------------------------------------------------------------------
38
<PAGE>
<TABLE>
<CAPTION>
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
<S> <C>
SITE DESCRIPTION
APN 5151-15-12 (DEVELOPMENT SITE)
Location: Southwest corner of Grand Avenue and Third
Street
333 South Grand Avenue
Los Angeles, California
Shape: Rectangular
Area: 113,080 (plus or minus) square feet;
2.60 acres (our calculations based on
Assessor's map).
Frontage: 321 (plus or minus) feet along northeast
boundary fronting Third Street; 60 (plus or
minus) feet along northwest and southeast
boundary fronting Hope Street and Grand Avenue
(respectively.)
Topography: Generally level pad, with steep downward southerly
slope to Fifth Street.
APN 5149-10-24 (OFFSITE PARKING)
Location: Southwest corner of Hill Street and Second Street
235 South Hill Street
Los Angeles, California
Shape: Rectangular
Area: 49,658 (plus or minus) square feet;
1.14 acres (per Assessor's map).
Frontage: 273 (plus or minus) feet along southeast
boundary fronting Hill Street; 155 (plus or
minus) feet along northeast boundary fronting
Second Street.
Topography: Generally level.
BOTH PARCELS
Street Improvements: SECOND STREET AND THIRD STREET are west-bound
one-way 80- to 100-foot wide (at the subject
location) roadways with four traffic lanes, fully
improved with asphaltic pavement, concrete curbs,
gutters and sidewalks, and streetlighting. Third
and Second Streets are signalized at both the
</TABLE>
- -------------------------------------------------------------------------------
39
<PAGE>
[Map omitted]
PLAT MAP
<PAGE>
<TABLE>
<CAPTION>
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
<S> <C>
Grand Avenue and Hope Street intersections.
Curbside parking is prohibited at the subject
location.
GRAND AVENUE, HOPE STREET AND HILL STREET are
northeast/southwest 84- to 90-foot wide (at the
subject location) roadways with four traffic lanes,
fully improved with asphaltic pavement, concrete
curbs, gutters and sidewalks and streetlighting.
Soil Conditions: We were not provided with a soils report covering
the subject property. We assume, however, that
the soils load bearing capacity is sufficient to
support the existing structures. We observed no
evidence to the contrary during our physical
inspection of the property. The tract's drainage
appears to be adequate.
Utilities: All normal utilities are available to the subject
property.
Access: As improved, vehicular access (ingress/egress) to
the Wells Fargo Center parking garage is available
from Hope Street, and access to the offsite garage
is available from Second Street.
Land Use Restrictions: We reviewed a recent preliminary title report
covering the subject property prepared by
Commonwealth Title Insurance Company dated
July 28, 1997. The report referenced street
easements, covenants and agreements, a
reciprocal easement, a deed of trust, and various
unrecorded leases.
The reciprocal easement referenced in the title
report pertains to an agreement between Phase I
(the subject Wells Fargo Center) and Phase II (the
IBM tower) developments, which include reciprocal
access rights over the properties and between the
common parking areas. There do not appear to be
any easements or conditions that would adversely
affect the utility of the site.
Flood Zone: According to Flood Data Systems, Inc., the subject
is located within Flood Hazard Zone C (an area of
minimal flooding), Community Panel No. 060137
- -------------------------------------------------------------------------------
40
</TABLE>
<PAGE>
[Map omitted]
PLAT MAP
<PAGE>
<TABLE>
<CAPTION>
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
<S> <C>
0064C, effective 12/2/80, and does not require
flood hazard insurance.
Seismic Hazard: The subject site is not located in a Special Study
Zone as established by the Alquist-Priolo
Geological Hazards Act.
Comments: The subject parcels have prime locations in the
heart of the Los Angeles Central Business District,
and are considered to be equal or superior to other
commercial sites in the immediate area.
</TABLE>
IMPROVEMENTS DESCRIPTION
The subject improvements consist of a 53-story Class "A" office and retail
development constructed in 1982, containing a rentable area of 1,336,244 (plus
or minus) square feet, in addition to a five-level onsite and seven-level
offsite partially subterranean parking garage containing a total of 2,788
spaces. The parking facilities are shared in common by the subject Phase I
development and the Phase II IBM Office Tower (not a subject of this appraisal).
The following improvements description is based upon our physical inspection of
the property together with information provided by the ownership and the client.
The rentable building area is based upon information derived from the leases
and/or the rent rolls.
GENERAL DESCRIPTION
Year Built: 1982
Architect: Skidmore, Owings & Merrill
Building Height: 53 stories (no 2nd or 13th Floor)
Building Area:
Rentable SF
-----------
Office Tower: 1,255,257
Storage: 11,848
Retail: 69,139
----------
Total: 1,336,244
Parking: 2,014 spaces in five-level (including four
subterranean levels) onsite parking garage, and
774 spaces in seven-level (including two
subterranean levels,) offsite parking garage: 2,788
total spaces. These parking garages are shared in
common with Phase II of the Wells Fargo Center
development.
CONSTRUCTION DETAIL
STRUCTURE: Fireproofed structural steel reinforced by a steel
monent frame.
- -------------------------------------------------------------------------------
41
<PAGE>
WELLS FARGO CENTER
PLAZA LEVEL
[Map omitted]
<PAGE>
PROPERTY DESCRIPTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Foundation: Steel reinforced concrete with cast-in-place
concrete footings bolted to concrete pads.
Exterior Walls: Red granite with curtain wall.
Floors: Steel reinforced metal deck with lightweight
concrete.
Roof: Steel reinforced metal deck covered with concrete;
includes emergency helipad.
Fire Protection: Fully fire sprinklered, in addition to smoke
detection, heat sensors, smoke containment and
alarm system.
INTERIOR DETAIL
Layout: The subject improvements were designed as
Phase I of a multi-tenant office retail development,
with a landscaped retail plaza and atrium extending
between the subject and Phase II (IBM Tower.)
The ground level serves as the main lobby to the
office tower including an elevator lobby and
security console. The office suites are contained
on levels 2 through 54. Each office level includes
an elevator lobby, common area corridors and
men's and women's restrooms.
Typical Office Finishes: Painted drywall partitioning, good quality
commercial carpeting over floors, and suspended
acoustical tile ceilings with recessed fluorescent
light fixtures.
Restrooms: One men's and one women's restroom on each
office level, including. Finishes include ceramic tile
floors and wainscoting, painted drywall walls and
ceilings, incandescent lighting and granite
countertops.
- -------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
PROPERTY DESCRIPTION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
MECHANICAL DETAIL
Heating and Cooling: System consists of variable air volume central
system provided through a not and cold chilled
water loop system with individual heat pumps. The
central plant serves both the subject development
(Phase I) and the adjoining IBM Tower
development (Phase II.)
Electrical Service: 5,000 amp 277/480 volt three phase four wire
system.
Elevator Service: A total of 33 elevators serve the subject
development, including 24 passenger elevators
service the office levels, two office freight elevators,
two garage shuttle elevators, four plaza/atrium
elevators and one plaza/atrium freight elevator.
The plaza/atrium also includes two escalators
providing access between Hope Street and the first
and second plaza levels.
</TABLE>
SITE IMPROVEMENTS
The street frontages adjoining Wells Fargo Center include attractively
landscaped planter areas. The development also features an extensively
landscaped enclosed atrium plaza with granite accents extending between the
Wells Fargo (Phase I) and IBM (Phase II) Towers.
COMMENTS
The subject improvements are considered to be in excellent condition. Our
inspection revealed no evidence of deferred maintenance, and the building's
layout is considered to be functionally adequate and well suited for its
current use. The property is recognized as a premiere office property in Los
Angeles County.
- -------------------------------------------------------------------------------
43
<PAGE>
REAL PROPERTY TAXES AND ASSESSMENTS
- -------------------------------------------------------------------------------
The subject property is located within the City of Los Angeles and the
County of Los Angeles, and is taxed by these governing bodies. Under the
provisions of Proposition 13, properties are assessed based on their market
value as of March 1, 1975. This valuation may increase only two percent per
year until such time as the property is sold, substantial new construction
takes place, or the use of the property is changed. Under the foregoing
circumstances, the property may be reassessed to its market value.
Assessor's Parcel No.: 5149-10-24 and 5151-15-12
Assessed Value (1997-98):
10/24 15/12 Total
Land: $ 1,220,000 $ 18,400,000 $ 19,620,000
Improvements: 9,440,000 203,200,000 212,640,000
----------- ------------ ------------
Total: $10,660,000 $221,600,000 $232,260,000
Current Taxes $122,970 $2,496,065 $2,619,035
- -------------------------------------------------------------------------------
44
<PAGE>
ZONING
- -------------------------------------------------------------------------------
The subject parcels are zoned for commercial development, C2-4D in
accordance with zoning regulations of the City of Los Angeles. This commercial
zone designation provides for a wide range of office, retail and service
commercial development, with no minimum site area requirement and no maximum
height limit. Both sites are designated as Height District 4, in which the
maximum building area is equal to 13 times the buildable area of the lot. The
D designation, however, is a development restriction limiting the density to 6
times the buildable area of the lot.
The subject property has been developed in accordance with an Owner
Participation Agreement between the Los Angeles Redevelopment Agency and
Maguire Partners - Crocker Properties Phase I, and represents a legal
non-conforming use.
- -------------------------------------------------------------------------------
45
<PAGE>
HIGHEST AND BEST USE
- -------------------------------------------------------------------------------
According to the Dictionary of Real Estate Appraisal, Second Edition (1989),
a publication of the American Institute of Real Estate Appraisers, the highest
and best use is defined as:
1. The reasonable and probable use that supports the highest present
value of vacant land or improved property, as defined, as of the date
of the appraisal.
2. The reasonably probable and legal use of land or sites as though
vacant, found to be physically possible, appropriately supported,
financially feasible, and that results in the highest present land
value.
3. The most profitable use.
We evaluated the site's highest and best use in it's current condition and
as if vacant. The highest and best use must meet four criteria. The use must
be (1) physically possible, (2) legally permissible, (3) financially feasible,
and (4) maximally productive.
The subject consists of two commercially zoned sites located in a prime
downtown Bunker Hill location in downtown Los Angeles. Considered as if vacant
the sites are legally suitable for new development of approximately 860,000
square feet. Considering the current office and commercial marketplace in the
downtown area and the corresponding rental rates, a new speculative commercial
development is not currently economically feasible. The highest and best use
for the property considered as if vacant is to hold the sites until market
conditions improve sufficiently to warrant new office and/or commercial/retail
development in conformance with current zoning and planning requirements. An
interim highest and best use for the site, if vacant, is for surface parking.
As improved the subject represents a significant Class A development, and is
a legal, non-conforming use in terms of density (as set forth in the Zoning
section). Although the investment and leasing markets do not justify new
construction in this location, the current improvements add considerable value
to the site. We concluded the existing development represents the highest and
best use for the property as currently improved.
- -------------------------------------------------------------------------------
46
<PAGE>
VALUATION PROCESS
- -------------------------------------------------------------------------------
Appraisers typically use three approaches in valuing real property: the Cost
Approach, the Income Approach, and the Sales Comparison Approach. The type and
age of the property and the quantity and quality of data affect the
applicability of each approach in a specific appraisal situation.
The principle of substitution that forms the basis for the Cost Approach
holds that "no prudent person will pay more for a property than the amount
with which he can obtain, by purchase of a site and construction of a
building, a property of equal desirability and utility."
The Cost Approach has historically been a reasonably reliable indicator of
value for new, legally conforming office buildings in the Los Angeles market
area. It is not particularly relevant in the traditional sense for this
appraisal, however. External, or economic conditions have rendered the
indication from this approach essentially meaningless. This situation has
delayed the timeframe for new construction to such a degree that the principle
of substitution, which is based on the price an investor would pay to acquire
a site and construct a building of similar utility without undue delay, is no
longer a possible scenario. The investors in this type of property report that
a basic criterion for evaluating a potential purchase is that the price paid
must be below the estimated replacement cost of the property. The basis for
this criterion is the perception that new development is economically
infeasible at current rental rates and vacancy levels. The profit component,
which is the incentive for new development, at the minimum has been removed
from the market. We have included a Cost Approach in this appraisal to
demonstrate the current relationship between market value and cost for CBD
office buildings in the Los Angeles market.
The Sales Comparison Approach involved a search for recent sales of
comparable improved properties and an analysis of the data as it relates to
the subject property. Our sales search properties in the immediate subject
market as well as the greater Southern California area.
In the Income Approach we estimated the subject's capacity to produce income
through an analysis of the defined office market. An estimated value for the
subject property was derived through a computerized Discounted Cash Flow
Analysis and Direct Capitalization.
We concluded the appraisal process by reviewing each of the applicable
approaches to value. We considered the type and reliability of data and the
applicability of each approach. Finally, we reconciled the approaches and
estimated the final value.
- -------------------------------------------------------------------------------
47
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
METHODOLOGY
This approach to value consists of an analysis of the physical value of the
property. The principle of substitution, which forms the underlying rationale
of this approach, holds that "no prudent person will pay more for a property
than the amount with which he can obtain, by purchase of a site and
construction of a building, without undue delay, a property of equal
desirability and utility."
In the Cost Approach, the following five steps are typically followed to
reach an estimate of value:
1. Estimate underlying land value as if vacant;
2. Estimate replacement cost new or reproduction cost new of the
improvements.
3. Estimate accrued depreciation, if any, caused by physical, functional
and/or external sources;
4. Deduct accrued depreciation from the cost new of the improvements to
arrive at a depreciated cost estimate; and
5. Add the land value to the depreciated cost estimate of the
improvements to arrive at a value indication.
LAND VALUATION
Considered as if vacant the subject property consists of two parcels
containing a combined land area of 3.74 acres, or approximately 162,738 square
feet. The commercial zoning designation permits development density (or FAR)
of 6.0:1 times the area of the site, although the subject site is developed to
a density of approximately 8.2:1 based on the rentable area of 1,336,244
square feet. The additional density for the subject development is based on
agreements between the developer and the City of Los Angeles, and the current
subject development is a legal, conforming use.
There have been very few transactions involving development parcels in the
downtown Los Angeles market during this decade. Rental rates for office space
in this market are not sufficient to economically justify new construction,
which has eliminated the development component of the land investment market.
The investment market for properties similar to the subject (considered as if
vacant) has consisted primarily of land speculators and parking operators, who
typically acquire the properties for an alternative use (rather than an office
project), at least as an extended interim use. The permitted development
density (FAR) of a parcel has not necessarily been an important consideration
in the current environment, particularly for buyers who plan alternative, less
intensive developments than are permitted by zoning or entitlements.
We considered two methods of analysis within this Sales Comparison Approach
in estimating a value for the subject property. The methods are briefly
described below.
- -------------------------------------------------------------------------------
48
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
"METHOD ONE" is based on a traditional Sales Comparison Approach, which
compares the subject with current market data, including closed sales and
listings. In an active investment marketplace this method is usually most
appropriate for estimating the market value of a parcel of land. We
analyzed relatively recent sales activity involving essentially vacant or
underimproved parcels in the downtown Los Angeles market area. We
estimated a per-square-foot conclusion for the site area for the subject
site based on the most recent market activity.
"METHOD TWO" represents an alternative analysis within the Sales
Comparison Approach based on a long-term "hold" scenario. This method
effectively discounts the value of the property for the time required
prior to a recovery in the office development market in downtown Los
Angeles. We discounted a prospective future value under a "Stabilized"
market scenario which assumes feasible development, with the "reversion"
based on a range in FAR values quantified from historical and sale data
which occurred during the most recent period of development in the
downtown market (1987-1990). This analysis provides an indication of the
property value assuming the current ownership or a land speculator is
willing to hold the site vacant until demand levels increase sufficiently
to warrant developing the site in accordance with the subject office
development. The concluded range in FAR prices will be applied to the
8.2:1 FAR currently developed on the subject property.
Method One- Direct Sales Comparison
The most widely used and market-oriented units of comparison for vacant land
parcels in the subject's market are the sales price per-square-foot of land
area and the price per FAR, or square foot of permitted development on the
parcel. The comparable data has been analyzed on these comparison bases. The
exhibit on the accompanying page summarizes the terms of four closed sales and
a current escrow involving essentially vacant or underimproved parcels located
in downtown Los Angeles neighborhoods. The data is discussed below.
ITEM L-1 is the September, 1997 sale of two non-contiguous parcels under
single ownership located on Flower Street in the downtown Central Business
District. The parcels are located along the east side of Flower Street
extending the full block from Wilshire Boulevard to Sixth Street (612 S.
Flower), and at the northwest corner of Flower Street and Eighth Street (757
South Flower Street), about two blocks to the south of 612 South Flower
Street. The parcels are located about six blocks south of the subject, and are
improved as follows:
612 South Flower: Improved with a 1948-built, 13-story vacated office
building containing 425,000 rentable square feet;
757 South Flower: Improved with a 6-story over basement parking garage
built in 1948 containing 535 spaces.
The 612 South Flower Street building has been vacant for approximately six
years. The 757 South Flower parking garage was originally developed to provide
parking for the office building at 612 South Flower, but has been used for
third-party parking since the office building was vacated during the early
portion of this decade. The selling entity in this transaction was related to
the former lender on the property, the Bank of Nova Scotia, who acquired fee
interest
- -------------------------------------------------------------------------------
49
<PAGE>
COMPARABLE LAND DATA
DOWNTOWN LOS ANGELES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LAND AEA SALES PRICE
ITEM SALE --------------------- --------------------------------------------------------
NO. LOCATION / APN DATE ACRES SQUARE FEET ZONING FAR TOTAL LAND PSF FAR/RSF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
L-1 612 and 757 S. 9/97 1.09 47,310 C2-4D 6.0:1 $14,600,000 $210.44 $34.35
Flower St. 0.51 22,070 by (Improved as
Los Angeles, CA 1.59 69,380 zoning; Property) developed
6144-05-27 and 29
6144-10-09 10.0:1
as developed
- -----------------------------------------------------------------------------------------------------------------------------------
L-2 Watt Development Recent 5.89 256,839 C4-U6 6.0:1 $11,800,000 $45.94 $7.66
Site 7th & Bixel Escrow (3 parcels Asking
Street "As Is")
Los Angeles, CA
5143-04-1 through 8, 6.48 $9,000,000 $35.04 $5.84
900 & 5143-06-1 (Development 282,266 Approximate contract
through 12 Agreement) escrow price $31.88 $5.31
- -----------------------------------------------------------------------------------------------------------------------------------
L-3 N/side Temple St. 12/96 5.53 240,890 C2-4 6.0:1 $10,850,000 $45.04 $7.51
between Hill St,
Grand Ave.
Los Angeles, CA
5161-4-901
- -----------------------------------------------------------------------------------------------------------------------------------
L-4 800 N. Alameda 5/96 4.26 185,390 M3-2 2.9:1 $13,650,000 $73.63 $25.28
Ave. @ Caesar
Chavez
Los Angeles, CA
(Union Station
- MWD site)
5147-23-28
- -----------------------------------------------------------------------------------------------------------------------------------
L-5 N/S 8th Street, 03/96 2.76 120,210 C4 6.0:1 $8,800,000 $73.20 $12.20
Grand to Olive
Los Angeles, CA
(Pacific Atlas)
5144-12-42
- -----------------------------------------------------------------------------------------------------------------------------------
Subject 333 S. Grand Ave -- 2.60 113,080 C2-42 -- -- -- --
235 S. Hill St. 1.14 49,658
Los Angeles, CA ---- -------
5151-15-12 3.74 162,738
5149-10-24
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCE SECTOR
Office Employment Distribution for Downtown Los Angeles
<TABLE>
<CAPTION>
# OF EMP/
TYPE OF BUSINESS # OF BUS # OF EMP BUS
- ---------------- -------- -------- ----------
<S> <C> <C> <C>
Banks, Savings & Lending Institutions 224 7,058 31.5
Securities Brokers & Investors 120 2,818 23.5
Insurance Carriers & Agencies 59 2,267 38.4
Real Estate - Trust - Holding Companies 298 4,808 16.1
--- ------ ----
TOTALS 701 16,951 24.2
=== ====== ====
</TABLE>
Distribution by Business
[Graph omitted]
Distribution by Employee
[Graph omitted]
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
in the property through foreclosure during 1991. The former ownership
(Charter-Hendrix) had purchased the property in July, 1988 for $81 million and
planned to demolish the improvements to construct a new Class A high-rise
building. The 612 South Flower Street component of the site enjoys a prime CBD
location, and the former ownership hoped to gain approvals for a project of up
to 13:1 FAR. The site is zoned for 6.0:1 FAR if vacant, but if the existing
office improvements (425,000 square feet) were demolished a new building of
the same density, or about 10:1 FAR could be redeveloped on the property. The
existing office improvements cannot be legally occupied without considerable
capital work due to code issues. The property is not fire sprinklered,
contains asbestos, and is not to code with access requirements. Secondary
reports indicated approximately $25 million (or nearly $60 per-square-foot)
would be required to prepare the property for occupancy. The layout of the
improvements is also not consistent with current market standards.
The property had been marketed for sale intermittently since the lender
acquired the asset in 1991 at asking prices originally set at about $50
million, declining to approximately $15 million during the most recent
marketing effort during 1996-97. The basis for the marketing effort has been
focused on the value of the underlying land. The property sold in September,
1997 to Goodwin Gaw/Kennedy Wilson, who have also acquired two other downtown
properties during the past year. The buyer reportedly plans to renovate the
612 South Flower Street improvements and lease the property to third-party
tenants. The $14,600,000 sales price equaled $34.35 per-square-foot of
existing rentable area (excluding the 757 South Flower Street parking
facilities), or $210.44 per-square-foot of total gross site area for the two
parcels. The indicated price per FAR equaled $35.07 assuming a 6.0:1 FAR over
the total area of the two parcels, or $34.35 per FAR as currently improved.
The seller is carrying a first trust deed for $11.9 million at Libor plus 185
basis points for an undetermined period.
ITEM L-2 summarizes a marketing effort and recent contract to purchase the
former "Watt City Center" site, which is located adjacent to the west side of
the Harbor Freeway (I-110), in the "Center City West" specific plan area. The
property consists of three non-contiguous land parcels located along or
adjacent to the western boundary of the Harbor Freeway, generally bounded by
the freeway, Eighth Street, Seventh Street, and Bixel. The property was
approved under the terms of a development agreement with the City of Los
Angeles (January, 1990) for a phased office complex totaling about 1.7 million
square feet of rentable area, of an FAR of 6.0:1. The total site area for this
approved development including street dedications and vacations is
approximately 6.48 acres. As shown on the accompanying Summary chart the "as
is" site area is about 5.89 acres.
The property has been marketed for sale for approximately two years by the
current ownership and former lender (an entity related to Swiss Bank) at an
asking price of $11,800,000, or about $46 per-square-foot of land area "as
is". The property was acquired by the previous ownership in 1988 for
approximately $50 million.
The property was recently under contract at a confidential price of
approximately $9,000,000 (cash). The buyer is a parking operator/land
speculator, who planned to continue an interim surface parking lot operation.
The permitted FAR for the property is 6.0:1 (by zoning), and the development
agreement expired in the year 2000. The buyer does not plan to pursue to
development agreement, however, and the density (or FAR) was reported not to
be
- -------------------------------------------------------------------------------
50
<PAGE>
[Map omitted]
<TABLE>
<CAPTION>
<S> <C>
1 I-1: 550 S. Hope St., Los Angeles, 90071, 634 E4
2 I-2: 725 S. Figueroa St., Los Angeles, 90017, 634 E4
3 I-3: 350 S. Grand Ave., Los Angeles, 90071, 634 F4
4 I-4: 801 S. Figueroa St, Los Angeles, 90017, 634 E4
5 I-5: 201 & 221 N. Figueroa St., Los Angeles, 90012, 634 F3
Subject: 333 S. Grand Av, Los Angeles, 90071, 634 F4
</TABLE>
<PAGE>
[Map omitted]
<TABLE>
<CAPTION>
<S> <C>
6 I-6: 2121 Avenue Of The Stars, Century City, 90067, 632 E3
7 I-7: 11766 Wilshire Blvd, West Los Angeles, 90025, 631 J5
8 I-8: 2029 & 2049 E. Century Park, Century City, 90067, 632 E3
</TABLE>
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
an issue for the buyer. Specific development requirements with the city could
not be resolved, however, and the contract to purchase is no longer active.
The per-square-foot land price for the transaction equaled about $35, and the
implied price per FAR (based on permitted 6.0:1) was about $5.85.
ITEM L-3 summarizes the December, 1996 acquisition by the Archdiocese of Los
Angeles of a site for a new cathedral, to be developed on a parcel purchased
from the County of Los Angeles. The property is located just north of the Los
Angeles Civic Center neighborhood north of the CBD, on a 5.53-acre (net)
parcel with extensive frontage along three streets and the Hollywood Freeway
(SH 101). The property is entitled for 6.0:1 FAR, but the permitted density
was not a relevant consideration for the proposed cathedral development. The
purchase price of $10,850,000 (cash) was based on appraisals performed for the
two parties, and equaled $45.04 per-square-foot of land area. The implied
price per FAR was $7.51.
ITEM L-4 is the May, 1996 sale of a portion of the larger Union Station site
for a new Metropolitan Water District headquarters development. The 4.26-acre
parcel was sold by Catellus and included mutually beneficial non-exclusive
reciprocal easement rights affecting the larger parcel. A new 12-story,
540,000 square-foot headquarters project is currently under construction. The
cash sales price of $13,650,000 equaled $73.63 per-square-foot of land area
and $25.28 per FAR for the new project.
ITEM L-5 is the March, 1996 sale of a 2.76-acre site located at the north
side of 8th Street, extending from Olive Street to Grand Avenue, approximately
one-half mile south of the subject. This property comprises a portion of the
"USA Pacific Atlas" assemblage (the remainder extending to 7th Street)
acquired in the late 1980's at an average price of approximately $500
per-square-foot, for a mixed-use development. The buyer is a speculator who
reportedly intends to hold the site for future resale or development.
The preceding data included four closed sales and a recent escrow involving
vacant or underimproved parcels ranging in size from 1.59 to 5.89 acres (based
on the "as is" area for L-2). The sales prices ranged from approximately $35
to $210 per-square-foot based on land area, and from $5.84 to $34.25 per FAR
based on development densities ranging from 2.9 to 10.0 times the area of the
sites. The highest prices per FAR correspond to a partially improved property
(L-1) and to property purchased for a planned build-to-suit development (L-4),
with the lowest development density. Prior to other considerations the price
per FAR generally increases for less dense developments, although the price
per-square-foot of land area increases with the increase in development
density.
The subject property is quite superior in terms of location to all the data
excluding L-1, which we estimate is slightly inferior to the subject. Item
L-2, which has the lowest per-square-foot price based on land area and FAR, is
considerably inferior in terms of its less desirable location west of the
Harbor Freeway. The comparable data and the subject parcels as if vacant would
generate interim income as surface parking lots, although the subject's prime
location would result in more significant parking revenues than the remaining
data. The parking structure improvements on one of the parcels involved in L-1
generates more substantial parking income than a surface lot, however, and the
existing structure on this parcel could
- -------------------------------------------------------------------------------
51
<PAGE>
SUMMARY OF HISTORICAL DOWNTOWN LOS ANGELES LAND SALES
<TABLE>
<CAPTION>
SIZE ($) ($)(1) ($) ADJUSTED
COMP. SALE ($) GROSS AREA ZONING PRICE/GROSS SF PRICE/ ADJUSTED PRICE/NET SF
NO. LOCATION DATE SALE PRICE NET AREA FAR PRICE/NET SF FAR SALE PRICE PRICE/FAR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 NEC, NWC & SWC of Temple 1/88 31,385,000 182,566 C2-4 171,91 29.76 31,385,000 178.57
Temple St. & Fremont Ave. 175,757 6:1 176.57 29.76
2 NEC 4th & Bixel St. 9/90 7,650,000 49,717 C2-4 153.87 25.65 7,650,000 153.87
49,717 6:1 153.87 25.65
3 N/S 4th St, W/O Boylston 6/88 1,750,000 17,400 C2-2 100.57 16.76 1,750,000 100.57
St. 17,400 6:1 100.57 16.76
4 NWC 5th & Bixel St. 1/89 2,000,000 32,450 C2-2 61.63 10.27 2,000,000 61.63
32,450 6:1 61.63 10.27
5 Four blks generally 12/88 205,000,000 549,012 C2-2 373.40 62.23 160,000,000 291.43
bounded by 6th St., 4th St., 549,012 6:1 373.40 48.57
110 Freeway & Bixel St.
6 S/S Seventh St., both sldes 5/88 59,000,000 282,286 C2-2 209.01 34.83 59,000,000 209.01
of Bixel St. 282,286 6:1 209.01 34.83
7 SEC 6th St. & Harbor Fwy. 10/87 to 66,925,000 181,977 C2-4 367.77 61.29 96,083,920 406.69(2)
4/91 181,977 6:1 367.77 69.11
8 NWC Flgueroa & 8th Sts. 4th Qtr. 75,000,000(3) -- C5-4 -- 85.24 75,000,000 1,720.01
1987 87,209 20.17:1 1,720.01 85.24
9 NWC Flower & 9th Sts. 9/88 34,000,000 60,090 C5-4 565.??2 96.92 34,000,000 581.51
58,468 6:1 581.51 96.92
10 Block bounded by 8th, 10/87 76,680,000 192,636 C5-4 396.06 69.00 63,952,000 345.28
9th, Flower & Hope Sts. 185,220 6:1 413.99 57.55
11A 723 S. Flower St. 11/87 9,750,000 14,639 C2-4 663.03 111.00 9,750,000 663.03
14,639 6:1 663.03 111.00
11B 737 S. Flower St. 9/88 8,500,000 9,138 C2-4 930.18 155.03 8,636,000 945.06
9,138 6:1 930.18 157.51
11C 729 S. Flower St. 11/88 3,750,000 4,570 C2-4 820.57 136.76 4,214,000 922.10
4,570 6:1 820.57 153.68
11D 745 S. Flower St. 1/89 14,100,000 12,182 C2-4 1,157.45 192.91 14,175,000 1,163.60
12,182 6:1 1,157.45 193.93
11E 710 S. Flgueroa St. 4/89 4,750,000 10,047 C2-4 472.7?? 78.80 4,750,000 472.78
10,047 6:1 472.7?? 78.80
Average 11B-11D 25,890 27,025,000 1,043.84
173.97
12 Half block bounded by 1/88 48,400,000 95,154 C5-4 508.65 89.01 48,421,700 534.32
8th St., Grand Ave. & 90,623 6:1 534.08 89.05
Olive St.
13 550 S. Hope St. 3/88 24,097,251 39,990 C5-4 602.58 100.43 39,173,589 979.58
39,990 6:1 602.58 75.35(4)
14A W/S Olive St. N/O 5th St. 6/88 10,370,000 20,244 C2-4 512.25 85.38 10,380,000 512.76
20,244 6:1 512.25 85.46
14B NWC Olive St. & 5th St. 10/87 3,300,000 10,122 C5-4 326.02 75.16 4,540,000 620.39
7,318 6:1 450.93 103.40
Average 14A-14B 27,562 14,910,000 540.96
90.16
</TABLE>
(1) Adjusted for demolition costs, cash equivalency, leaseback income,
relocation of tenants.
(2) Adjusted to 8.5:1 and considers street vacations.
(3) 50% interest only.
(4) Adjusted to 13:1
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
reduce development costs for a future office project on the main parcel
included in this transaction. Excluding the potential value attributed by the
buyer to the existing improvements, item L-1 is the most similar data item to
the subject overall. This property has similar potential development density,
has a similar CBD location, and two separate parcels were included in the
transaction. Although the main parcel is improved with a 50-year old office
building, these improvements were not considered to add quantifiable value to
the property for most prospective investors. Deducting an estimated $5,000
depreciated cost per space for the 535-space parking garage on the 757 South
Flower Street component of the property results in an "adjusted" price of
$11,925,000 assuming no value to the 612 South Flower Street improvements.
The resulting adjusted prices equal about $172 per-square-foot of land area
and $28 per FAR as currently entitled.
While it is difficult to quantify a precise per-square-foot land (or FAR)
value for the subject under current market conditions, the data provide
general support for a conclusion in the range from about $150 to $175
per-square-foot of land area, and from about $25 to $35 per FAR. These ranges
provide the following value indications for the subject parcels:
Range PSF Land
$150 PSF x 162,738 SF = $24,410,700
$175 PSF x 162,738 SF = $28,479,150
Rounded Range: $24,500,000 - $28,500,000
Range PSF FAR
$25 PSF x 1,336,244 SF = $33,406,100
$30 PSF x 1,336,244 SF = $40,087,320
Rounded Range: $33,500,000 - $40,000,000
The indications of value for the subject land range from $24,500,000 to
$40,000,000, with the lower end of the range based on per-square-foot of land
area comparison. The subject's higher density will result in a higher price
per-square-foot of land area assuming a Class A high-rise office building is
planned for the site. Most of the recent land sale activity has involved
alternative uses, however, and the buyers have not planned projects which
require additional FAR. We concluded near the middle of the bracketed range,
or $30,000,000 for the subject site as if vacant. This conclusion equals
$184.35 per-square-foot of land area and $22.45 per FAR.
Method Two- Historical Land Sales - Long Term Hold
In order to "test" the reasonableness of the land value estimate
concluded above based on direct sales comparison we analyzed the property by
projecting a future recovery in the market and a corresponding increase in
demand for downtown office development land. We analyzed historical data
involving land in the downtown market which was acquired for the
- -------------------------------------------------------------------------------
52
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
development of major Class A office or mixed-use commercial projects. The
accompanying exhibit summarizes historical commercial land sales in this market
which occurred during the most recent period of active development, 1987
through 1990. The summary chart includes 14 data items (including multiple
transactions relating to assemblages) involving acquisitions of commercial
development properties in the downtown market from October, 1987 through April,
1991. As shown on the chart, following adjustment from demolition costs, cash
equivalency, leaseback income, and/or relocation costs related to the existing
tenants at the time of sale, the historical land sales provide price
indications in the range of $62 to $1,720 per-square-foot of land area. The
weighted average of the price indications is approximately $398 per-square-foot
of land area. The prices per FAR following these adjustments range from $10 to
$174, with most of the FAR data in a tighter range from about $50 to $100.
A new Class A high-rise office development is not economically feasible
at current market rental rates. We estimated an "as is" value for the subject
as a development site by discounting a "stabilized" value for the property
assuming market recovery results in feasible new office development occurs
within a recovery period timeframe of about five years. The prospective future
FAR price is based on a range from $50 to $75 based on the historical land
data, and the discounted "As Is" value was estimated based on a discount rate
from 15 to 20 percent annually. The FAR price range was not inflated over
time, and the carrying costs associated with real estate taxes were assumed to
be offset by surface parking revenues. The chart below summarizes the rounded
value indications based on these assumptions:
5-Year Holding Period
Discounted Land Value Summary
Discount Rate
Price/FAR 15% 20%
$ 50 $33,000,000 $27,000,000
$ 75 $50,000,000 $40,000,000
The range in "as is" value indications for the subject land based on the
recovery and discounting assumptions summarized above range from $27 million
to $50 million under a five-year recovery timeframe. This range compares with
the conclusion of $30 million based on "Method One", which relied upon the
available recent sales activity involving downtown land. The alternative value
indications under the "Method Two" analysis are generally higher than the
indication provided by the more recent sales, but provide general support for
the estimated value conclusion of $30 million.
We relied primarily on the available recent sales data involving downtown
Los Angeles commercial land data, which was supported as reasonable under an
alternative "long-term hold" scenario, and concluded the subject parcels have
a land value of $30,000,000.
Cost of Improvements
The subject improvements were evaluated in terms of type of construction,
design, and building materials to arrive at an estimate of replacement cost.
Our estimate of the replacement costs new of the subject improvements is based
on a review of the current market
- -------------------------------------------------------------------------------
53
<PAGE>
COST APPROACH SUMMARY
<TABLE>
<CAPTION>
<S> <C>
Direct Construction Costs
1,336,244 SF 55-story $253,886,360
(Office Building @ $190 PSF1
1,415 Spaces in 2 Subterranean/Above Grade
Parking Structures @ $15,000/space2 x 56%
(Pro Rata) allocation to Phase I $ 23,419,200
(Site Improvements (estimated @ $50 site area) 8,100,000
------------
Total $285,405,560
Indirect Construction Costs
(Leasing Commissions3 $ 14,030,000
Miscellaneous entitlement costs
estimated @ $20/FAR 26,724,880
------------
Total Indirect Costs $ 40,754,880
Total Construction Costs $326,160,440
Less: Physical Depreciation @ 6% (19,569,626)
------------
Subtotal $306,590,814
Add: Land Value 30,000,000
Indicated Value by Cost Approach $336,590,814
Rounded $337,000,000
</TABLE>
1 Excellent Class "A" Office Building including adjustments for height,
sprinklers, current and local costs (Section 15, Page 18)
2 Good Class "A" Parking Structure including adjustments for height,
subterranean levels, sprinklers, current and local costs (Section 14,
Page 33)
3 10-year lease x $14.00 NNN average effective rent x 7.5%
<PAGE>
COST APPROACH
- -------------------------------------------------------------------------------
standards reported in Marshall Valuation Services Cost Publication. A number
of indirect costs, including construction loan points, architecture and
engineering fees, normal site preparation, contractor's overhead and profit,
and fire and liability insurance are included within this publication's costs
estimates. We also included an estimated $20 per-square-foot of rentable area
to consider various entitlement fees and offsite improvement costs and
concessions which may be required by the City of Los Angeles.
ESTIMATE OF ACCRUED DEPRECIATION
Accrued depreciation is the difference between the cost new of the
improvements and the current value of those improvements measured as of the
date of the appraisal. Depreciation includes loss in value from three basic
categories: physical deterioration, functional obsolescence, and external
obsolescence.
Physical deterioration is the loss in value caused by deterioration or
impairment of condition as a result of normal wear and tear, and the actual
aging of the physical components. It may be curable or incurable.
Functional obsolescence is the adverse effect on value resulting from
defects in design that impair utility. It can be caused by changes over the
years that have made some aspects of the structure, material, or design
obsolete by current standards.
External obsolescence is the adverse effect on value resulting from
influences such as changing property or land use patterns or adverse economic
climates.
Depreciation Conclusions
The subject is about 15 years old. Information published by the Marshall
Valuation Service indicates that the typical economic life expectancy of
buildings similar to the subject is 60 years. According to the age-life tables
included in this publication, the building is six percent depreciated from
physical uses.
COST APPROACH CONCLUSION
A summary of the Cost Approach is presented on the facing page. No
developer's profit was added to the analysis. The indicated value by this
approach is $337,000,000.
INSURABLE VALUE
We calculated insurable value by applying a factor of 0.9 to the direct
costs for the subject office tower and parking garage, as shown on the Cost
Approach Summary chart. Site improvements were excluded from the calculations.
Direct Construction Costs: $277,305,560
x .9
Insurable Value: $249,575,004
------------
Rounded: $250,000,000
- -------------------------------------------------------------------------------
54
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
METHODOLOGY
In the Sales Comparison Approach, we estimated the value of the subject by
comparing it with similar, recently sold properties in the surrounding or
competing area. Inherent in this approach is the principle of substitution,
which holds that when a property is replaceable in the market, its value tends
to be set at the cost of acquiring an equally desirable substitute property,
assuming that no costly delay is encountered in making the substitution.
By analyzing sales that qualify as arms-length transactions between willing
and knowledgeable buyers and sellers, we can identify value and price
trends. The properties must be comparable to the subject in physical,
locational, and economic characteristics. The basic steps of this approach
are:
1. Research recent, relevant property sales and current offerings
throughout the competitive area;
2. Select and analyze those properties considered most similar to the
subject, giving consideration to the time of sale, any change in
economic conditions which may have occurred since the date of sale,
and other physical, functional or locational factors;
3. Reducing the sales price to common units of comparison, such as price
per square foot of building area;
4. Make appropriate adjustments between the comparable properties and
the property appraised;
5. Identify sales which include favorable financing and calculate the
cash equivalent price;
6. Interpret the adjusted sales data and draw a logical value
conclusion.
The most widely-used and market-oriented units of comparison for office
buildings are the sales price per square foot of building area. All comparable
sales have been analyzed on this basis.
Cushman & Wakefield tracks office building transactions in Los Angeles
County involving sales or arm's length "creative" acquisitions of properties
in excess of 50,000 square feet. The table below summarizes the activity in
this category during the past four years.
- -------------------------------------------------------------------------------
55
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
LOS ANGELES COUNTY OFFICE BUILDING TRANSACTIONS
GREATER THAN 50,000 SF
No. of Aggregate Average
Year Transactions Sales Price Price/Sale
- ---- ------------ ----------- ----------
1993 35 $ 480 million $13.7 million
1994 38 $ 305 million $ 8.0 million
1995 49 $ 910 million $18.6 million
1996 105 $1,753 million $16.7 million
1997 100 $2,528 million $25.3 million
The sales activity during each year included a wide cross section of
buildings in terms of quality, size, tenancy, and market location. The pace
and average pricing for transactions during 1996 and 1997 demonstrates a
substantial increase above the three prior years, which accurately reflects
the growth in the number of well-capitalized investors interested in Los
Angeles County office product.
A number of factors influence the "global" trends suggested by the data
summarized above, including the quality of the asset and the market location.
The chart below provides additional detail, based on market location, for the
1997 sales data.
No. of Average Price
Market Sales Total SF/Avg. SF Aggregate Sales Price Per Sale/PSF
- ------------ ---------------- --------------------- -------------
Downtown 12 2,773,858/ $ 268,852,000 $22,404,333/
231,155 $96.92
Westside 36 7,955,555/ $1,635,920,000 $45,442,222/
220,988 $205.63
Tri-Cities 10 1,360,953/ $ 191,550,000 $19,155,000/
136,095 $140.75
San Fernando Valley 17 1,793,852/ $ 211,000,000 $12,411,765/
105,521 $117.62
San Gabriel Valley 5 541,966/ $ 29,690,000 $5,938,000/
108,393 $54.78
Mid-Wilshire/
Hollywood 5 1,165,998/ $ 56,115,000 $11,223,000/
233,200 $48.13
South Bay 15 2,340,675/ $ 135,140,000 $9,009,333/
156,045 $57.74
Totals 100 17,932,857 $2,528,267,000 $25,282,620
179,329 $140.99
- -------------------------------------------------------------------------------
56
<PAGE>
SUMMARY OF COMPARABLE CLASS A OFFICE BUILDING INVESTMENT ACTIVITY
<TABLE>
<CAPTION>
Improvements Sales Price
------------------------------ -----------------------
Item Property Name/ Market Date of Year No. of Occ.
No. Location Sale Built Stories Rentable Area at Sale Total PSF
- ----- -------------- ----------- -------- ----- ------- ------------- ------- --------- ----------
Downtown Los Angeles
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 550 S. Hope St. Los Angeles 09/97 1991 27 566,434 86% $99,500,000 $175.66
Los Angeles, CA CBD
- ------------------------------------------------------------------------------------------------------------------------------------
I-2 Citicorp Plaza Phase I Los Angeles 03/97 1985 41 895,058 88% $131,500,000 $146.92
725 S. Figueroa St. CBD (office component)
Los Angeles, CA
- ------------------------------------------------------------------------------------------------------------------------------------
I-3 Cal Plaza II Los Angeles 07/96 1992 52 Office 1,277,620 69% or 83% $100,000,000 $75.20
350 S. Grand Ave. CBD Retail 52,189 Including (leasehold)
---------
Los Angeles, CA 1,329,809 Aames Lease $121,500,000 $91.37
adj. to fee
- ------------------------------------------------------------------------------------------------------------------------------------
I-4 801 Tower Los Angeles 03/96 1992 24 435,832 87% $61,100,000 $140.19
801 S. Figueroa St. CBD
Los Angeles, CA
- ------------------------------------------------------------------------------------------------------------------------------------
I-5 Figueroa Plaza I & II Los Angeles Pending 1986 16 304,476 91% $38,000,000 $124.81
201 & 221 N. Figueroa St. CBD 03/98 1991 16 304,741 100% 38,000,000 124.70
------- --- ----------- -------
Los Angeles, CA 609,217 95% $76,000,000 $124.75
Asking Price
$76,200,000 $125.08
Contract Price
Suburban Los Angeles
I-6 Fox Plaza Century City 11/97 1987 34 710,767 91% $253,000,000 $355.95
2121 Ave. of the Stars
Los Angeles, CA
- ------------------------------------------------------------------------------------------------------------------------------------
I-7 Landmark II Brentwood 11/97 1990 17 373,045 97% $128,000,000 $313.69
11766 Wilshire Blvd. 35,000*
-------
Los Angeles, CA 408,045
*supermarket
- ------------------------------------------------------------------------------------------------------------------------------------
I-8 Century Plaza Towers Century City 04/97 1975 44 2,282,380 94% $450,000,000 $197.16
2029-2048 Century Park (2 allocated
East Towers) excluding
Los Angeles, CA leased fee
(Century City)
- ------------------------------------------------------------------------------------------------------------------------------------
Subj. Wells Fargo Center Los Angeles -- 1982 0 1,336,244 87% -- --
333 South Grand Avenue CBD
Los Angeles, CA
</TABLE>
<TABLE>
<CAPTION>
Market Statistics*
-----------------------------------
Item Market SF Vacancy Vacancy NOI
No. OAR (millions) 1996 1997 PSF
- ---- --- ---------- ------- ------- ----
Downtown Los Angeles
<S> <C> <C> <C> <C> <C>
I-1 8.8% 29.6 20.5% 18.9% $15.45
- ------------------------------------------------------------
I-2 12.5% 29.6 20.5% 18.9% $18.36
@
88% occ.
- ------------------------------------------------------------
I-3 8.0% 29.6 20.5% 18.9% $6.02
@
69%
- ------------------------------------------------------------
I-4 9.5% 29.6 20.5% 18.9% $13.32
prior to costs
- ------------------------------------------------------------
I-5 6.9% 29.6 20.5% 18.9%
10.1%
-----
8.5% $10.60
8.5% $10.60
Suburban Los Angeles
I-6 7.8% 8.9 10.3% 9.0% $29.83
- ------------------------------------------------------------
I-7 7.5% 3.2 9.7% 11.1% $23.65
- ------------------------------------------------------------
I-8 8.5% 8.9 10.3% 9.0% $16.76
- ------------------------------------------------------------
Subj. 29.6 20.5% 18.9% $15.23
</TABLE>
* Year-end
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
The specific market conditions, including vacancy rates and supply, as well
as the quality of the available properties in a particular market will
influence the global indications from the data.
The subject is a substantially leased Class A office tower located in the
Los Angeles Central Business District (CBD). The investment market for office
properties in the southern California region has become increasingly more
active during approximately the past two years as the economy has gradually
and consistently emerged from the recession. The most active component of the
investment market during the past two years has involved suburban office
buildings, which is consistent with trends on a national basis. Continued
economic recovery has led to improvement in CBD vacancy levels during 1996 and
1997, which, considered in conjunction with increasing pricing and the
narrowing "spread" between replacement cost and current values for suburban
office assets, has led to renewed investment interest in downtown, or CBD
office properties nationally.
The investment market for a property of the subject's quality includes a
range in prospective buyers including REIT's and other Wall-Street backed
funds, offshore buyers, and a number of well-capitalized institutional buyers
or their advisors. We selected four transactions and a pending sale involving
Class A office buildings in downtown Los Angeles for comparison with the
subject. We also included three sales involving major Class A office assets in
suburban Los Angeles markets. The data is summarized on the accompanying
exhibit and discussed below. The summary exhibit includes property and
purchase price detail, as well as pertinent statistics for the submarket
locations for each property, including the market size (total square feet) and
year-end 1996 and 1997 direct vacancy rates.
A pending portfolio acquisition expected to be completed during April, 1998
will include a Class A Los Angeles CBD office building. The Indonesian - based
Sinarmis is marketing six properties through its United States affiliate the
Octagon Group. The properties are located in California and Texas, and the
aggregate sales price is expected to be in the range of $280 million. The
properties include 801 Tower in downtown Los Angeles, which the seller
acquired in March, 1996 for $61,100,000, or a rounded $140 per-square-foot
(refer to I-4 below). Other assets in the portfolio include the Pasadena
Hilton Hotel and Office Tower in Pasadena, and four properties in Texas: Twin
Tower, a 450,000 square-foot office building in Dallas; the Atrium at Collin
Ridge, a 234,000 square-foot office building in the Dallas Suburb of Plano;
the Melrose Hotel in Dallas, and 1301 Fannin, a 786,000 square-foot office
building in Houston. The current contracted buyer is expected to "retail"
several of the properties following the portfolio acquisition, hoping to
recognize a premium above the portfolio pricing. The buyer's allocations of
value between the assets is not yet known, and it is possible the 801 Tower
property will be offered for sale on an individual basis during 1998.
The sales data we analyzed is discussed below.
ITEM I-1 is the September, 1997 purchase by Equity Office of 550 South Hope
Street, a Class A office property in the Los Angeles CBD market. The property,
completed in 1991, was a joint venture development involving Koll and
Obayashi, and was one of the most recent office developments in the downtown
market. The 27-story building is located about three blocks south of the
subject, adjacent to the Central Library. This location is less desirable than
the
- -------------------------------------------------------------------------------
57
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
subject within the CBD, and the building also has "impaired" views to the
east from some floors since the project abuts the adjacent AT&T Center. The
property is 86 percent leased, with major tenants including the Bank of
California (38,000 SF expiring 1999), Nippon Credit Bank (25,000 SF expiring
2001), the law firms of Brobeck, Phleger & Harrison (88,000 SF expiring 2007)
and Howrey & Simon (64,000 SF expiring 1998), and the Canadian and Malaysian
Consulates. The building was completed during the initial portion of the
serious recession, and the landlord experienced a number of challenges during
the absorption period, including the exercise of cancellation options by the
original anchor tenant, Bank of California. Although more recent leasing
activity has been negotiated at substantially lower rates, typically in the
$5.00 to $10.00 per-square-foot NNN annual range, the largest tenant (Brobeck,
Phleger, et al) has a current contract rental rate of $20.00 per-square-foot
annually, NNN, with periodic fixed increases to $34.00 NNN over the term
(expiring in 2007).
The property was marketed for sale for about six months, and was acquired by
Equity Office (Sam Zell's REIT) for $99.5 million, or about $176 per-square-
foot of rentable area. There were reportedly three other offers at or about the
same pricing from Blackstone, Trizec/Hahn, and Pacific Eagle. Equity Office was
also the buyer for Cal Plaza II (Item I-3), and Trizec/Hahn was the buyer for
Citicorp Plaza I (I-2). Based on the projected 1998 net operating income
(including lease-up), the implied overall capitalization rate for this sale is
8.8 percent.
ITEM I-2 is the March, 1997 sale of the Class A office tower and retail
center known as Citicorp Plaza Phase I. The property includes a 41-story,
895,058 square-foot office building and the adjacent Seventh Street Market
Place, a 332,924 square-foot shopping center. The project is the first phase
of a three-phase mixed use development which includes a second existing office
tower (777 South Figueroa Street) and an adjacent multi-level parking garage,
as well as the "pad" for a future office tower ("Phase III"). The seller, an
entity related to Prudential and the lender (Teacher's Insurance) marketed the
property for sale at an asking price of $150 million. The allocated pricing
for the retail component of the property based on the seller's memorandum was
only $200,000. The minimal value allocated to this component is attributable
to the higher expense allocations to the retail tenants and the circumstances
surrounding the anchor tenant lease agreements with Robinsons May and
Bullocks.
The Phase I tower was developed in 1985. The property was 88 percent leased
at sale, with major tenants including Citicorp (182,000 square feet expiring
in 2000), KPMG Peat Marwick (160,000 square feet expiring in 2000), and
Pillsbury, Madison & Sutro (120,000 square feet expiring in 2000). The current
rental rates for several of the tenants are above market levels, and the
pending expiration of roughly 55 percent of the total building area in 2000
suggests an uneven cash flow may occur for an investor. The estimated 12.5
percent overall capitalization rate based on the asking price and current
income in place at 88 percent occupancy is accordingly fairly high relative to
other transactions.
The office component of this property is a Class "A" asset within the
downtown market in terms of its location, its current tenant roster, and the
quality of the improvements. The association of the office tower with the
adjacent retail center resulted in a discount from the allocated pricing for
the office tower component. The pending loss of the anchor tenant Bullocks
triggered a side agreement with the other anchor, Robinsons May, which was
expected to result in a significant payment by the landlord to this tenant. It
is also possible the
- -------------------------------------------------------------------------------
58
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
center may lose the second anchor as well in the foreseeable future. The
uncertainty of the anchor tenant situation and the anticipated payments
resulted in a net negative price allocated to the retail center. The office
component of the property was acquired for an allocated price of $131,500,000,
or about $147 per-square-foot of rentable area. The implied overall
capitalization rate at this pricing was 12.5 percent.
ITEM I-3 is the July, 1996 purchase of California Plaza II, a 52-story class
A office building and related plaza level retail development located at the
easterly extent of the Bunker Hill district of downtown Los Angeles just east
across Grand Avenue from the subject. The project was completed in 1992, and
contains a total rentable area of 1,329,809 square feet, including 1,277,620
square feet of office space and 52,189 square feet of retail space. The
property is part of the larger mixed-use project California Plaza, which also
includes another office tower, the Museum of Contemporary Art, the
Intercontinental Hotel, and Museum Tower, a high-rise residential project.
California Plaza II is situated on a 3.6-acre ground leased parcel. The ground
lease has a term of 99 years, and an annual base ground rent of $1.5 million.
The lease also includes a participation for the CRA (lessor), but the
developer receives a preferred return on equity which suggests there will be
no participation for the foreseeable future. The base rental is flat for 20
years, and the subsequent increase is based on a formula (minimum 30 percent
increase).
The property was 69 percent leased at the time of sale, although the
existing tenant base and executed leases for future tenants will alter the
leasing profile for the next several years. Approximately 20 percent of the
building was in a "raw" condition. The major tenant in the building is the
Metropolitan Water District (MWD), with about 395,000 square feet expiring in
1999. This tenant will vacate in order to relocate to its new headquarters,
currently under construction in the Union Station area. Coopers & Lybrand
leases approximately 160,000 square feet to 2007 (several floors have been
subleased). Other significant tenancies include Hughes, Hubbard & Reed (36,500
square feet), Merrill Lynch (52,000 square feet), and the Industrial Bank of
Japan (42,000 square feet including expansion space). A major lease was signed
prior to sale with Aames Financial for about 175,000 square feet for a 15-year
lease. The tenant will not take occupancy until 1997, but the costs associated
with this lease, including tenant improvements and other concessions, are to
be absorbed by the seller. Other leases negotiated but not in place at close
included Fried, Frank, Harris, et al, (20,000 square feet), Nossaman, and
Guthner, Knox, et al (30,000 square feet). As noted on the summary chart, the
69 percent occupancy level at sale increases to 83 percent including the
Aames lease.
The property had been under contract for nearly two years prior to the July,
1996 closing. The buyer, Equity Office Properties (related to Sam Zell),
acquired the property for $100 million from the selling entities, a consortium
of lenders led by Citibank. The seller had previously acquired the property
through foreclosure from the developer Metropolitan Structures. The sales
price equaled about $75 per-square-foot of total rentable area including the
retail space at Plaza level. The retail component of the property has
significant vacancies and does not contribute value on a "pro rata" share. The
$100 million sales price excluding the retail space equaled $78.27
per-square-foot based on office area only (1,277,620 square feet). We
estimated an "adjustment" for the leasehold interest by capitalizing the
scheduled base ground rent payment of $1.5 million annually at 7.0 percent to
consider the impact of the ground rent expense and the more limited number of
investors who would be interested in acquiring a
- -------------------------------------------------------------------------------
59
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
ground leased asset. The indicated "adjusted" fee price is $121,500,000
(rounded), or $95 per-square-foot of office area only.
Based on the projected first year net operating income of approximately
$8,000,000 from tenants in place at sale the implied overall rate for the
leasehold interest was 8.0 percent. The transaction was structured with a cash
downpayment of $45 million to a new $55 million loan carried by the seller for
a 7-year term (25-year amortization) at Libor plus 200 basis points.
ITEM I-4 is the March, 1996 sale of "801 Tower", a 24-story, excellent
quality, polished granite-clad office building completed in 1992. The sales
price of $61,100,000 represented a discount of more than 50 percent to the
construction costs.
The property was marketed for sale in a "sealed bid" format for
approximately four months, and the price of $61,100,000 represents a five
percent premium above the next closest bidder. There were three "finalists"
between approximately $56 and $61 million. The buyer was an Indonesian group,
and the other "finalists" in the bidding included one of the tenants in the
building and a domestic pension fund advisor. As noted previously, this asset
is included in a pending portfolio purchase expected to close in April, 1998.
The property was approximately 87 percent leased overall, including a recent
expansion of about 25,000 square feet for "A&A" (Alexander & Alexander),
currently located in Pasadena, who merged with Jardine Insurance, one of the
major tenants in this building. Major tenants include the law firm Graham &
James (110,000 square feet, expiring in 2007), Chubb Insurance (71,000 square
feet, expiring in 2008), the law firm Sedgwick Detert (48,000 square feet
expiring in 2009), and Jardine Insurance (38,000 square feet plus a 25,000
square-foot expansion, expiring in 2004). The rollover profile for the
building is quite favorable, with 75 percent of the total area leased to
tenants with expiration dates in 2004 or after. Based on our estimate of
"static" income in place from existing tenants, the overall capitalization
rate is about 9.5 percent excluding costs associated with lease takeovers,
free rent, and remaining tenant improvements for the leased but not yet
occupied space.
The sales price of $61,100,000 equals $140.19 per-square-foot of rentable
area. The sale closed in March, 1996, which also corresponds to the end of the
fiscal year for the selling entity.
ITEM I-5 is the marketing effort and current contract to purchase Figueroa
Plaza I and II, a two-building class A office development located in the
northwesterly portion of the downtown Los Angeles market. This location is
somewhat "isolated" from the remainder of the multi-tenant Class A market, and
is generally incorporated within the Civic Center submarket of downtown Los
Angeles. This location has in part led to major tenancy by government
agencies.
The property consists of two 16-story office towers containing a combined
rentable area of 609,217 square feet, built over a four-level subterranean
garage containing 1,250 spaces (2.0/1,000 SF), which is a superior onsite
parking ratio to most other Class A office properties in the downtown market.
The property is 95 percent leased overall, and major tenants include: 1) the
City of Los Angeles (285,670 square feet in both buildings expiring in 2005,
although there is a cancellation option in 2001); 2) the County of Los Angeles
(the district attorney), with
- -------------------------------------------------------------------------------
60
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
58,970 square feet expiring in November, 1998; and the law firm Lewis D'Amato,
et al, with 98,285 square feet expiring in April, 2006. The City lease was
signed during 1997 at an annual rental rate of $13.00 per-square-foot, full
service gross on an "as is" basis.
The property was "selectively" marketed to a limited number of qualified
investors at an "unofficial" suggested pricing of $76,000,000, as shown on the
summary chart. This figure equals an implied $124.75 per-square-foot, and
provides an implied overall capitalization rate indication of 8.5 percent
based on the projected first year (1998) net income before tenant improvements
and leasing commissions. Initial bids were due December 12, 1997. The
assumptions contained in the seller's cash flow model include market rental
rates for the office space ranging from $15.00 to $18.00 per-square-foot
annually (full service), with annual CPI increases over a 10-year term. Rental
growth is projected at 10% for 2 years, 8 percent for 2 years, 6 percent, 5
percent, and then 3 percent (the CPI assumption) during years 8 through 10.
Tenant improvements are assumed at $5 to $15 per-square-foot for new tenants.
The implied IRR at the asking price, with a 9.0 percent reversion
capitalization rate, is approximately 16 percent based on the seller's
projections.
The property was initially under contract to the "successful" bidder,
Starwood, during January, 1998 for a price of $77,000,000. The transaction was
not completed, however, and a second buyer (Insignia) currently has the
property under contract at a reported price of $76.2 million, or a rounded
$125 per-square-foot. The buyer's underwriting assumptions reportedly include
an initial market rent of $16.20 per-square-foot, full service gross,
increasing to $21.00 per-square-foot by 2001, an annual increase of 9.0
percent over three years. The relatively lower per-square-foot pricing for
this asset relative to other CBD sales considers the property's peripheral
location, corresponding lower rental rates, and the City's $13.00
per-square-foot gross rental rate for a significant percentage of the total
area.
Item I-6 through I-8 involve sales of major Class A office buildings in
suburban Los Angeles markets.
ITEM I-6 summarizes the November, 1997 purchase of Fox Plaza, a
trophy-caliber 34-story office tower located in the Century City submarket in
westside Los Angeles. The property was marketed for sale for approximately six
months, with no "official" asking price, although the generally acknowledged
pricing reported for the ownership was in the range of $300 million, or about
$422 per-square-foot of rentable area.
This property is recognized as one of the top tier Class A buildings in
southern California. The building is located adjacent to the 20th Century Fox
studio lot, and Fox has been a major tenant in the property for the past
decade. The major tenants in the building currently include 20th Century Fox
(290,000 SF expiring 6/2001), Jeffer, Mangels, et al (85,000 SF expiring
7/2002), Christensen, White, et al (65,000 SF expiring 2/2002), and Donaldson,
Lufkin & Jenrette (63,000 SF expiring 2/2007). Other significant tenants
include Marvin Davis Corporation, Crystal Cruises, and Univisa. The building
achieves, with one competitive property in the Century City market, the
highest rental rates of any office building in southern California. Excluding
Fox, which has a contract rental rate of about $27 per-square-foot annually,
FSG, nearly all other tenants pay rental rates in the $36 to $48
per-square-foot annual range.
- -------------------------------------------------------------------------------
61
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
The Century City market had a second quarter, 1997 direct vacancy rate of
10.6 percent, with an inventory of approximately 8.85 million square feet. The
asset was acquired by Marvin Davis, the original developer of the property and
a major tenant in the building, for a reported price of $253 million, or
approximately $356 per-square-foot. The implied overall capitalization rate at
this pricing is 7.8 percent.
ITEM I-7 is the November, 1997 purchase of the premier Class A office
building in the Brentwood submarket of westside Los Angeles. This property,
known as "Landmark II" was developed in 1990, and is one of the last high-rise
office buildings to be completed in the prestigious westside market area. As a
condition of the development agreement, the developer was required to include
a supermarket within the project, and a 35,000 square-foot "Von's Pavilion" is
part of the project, as a separate free-standing building and parking lot
located just south of the 17-story office tower. As shown on the summary
chart, the office tower contains 373,045 square feet of rentable area and was
97 percent leased at sale. Including the Vons, which is leased for a 20-year
primary term, the property contains a total rentable area of 408,045 square
feet.
This excellent quality office development has polished granite exterior
walls, and the tenant roster includes advertising agencies, foreign
consulates, law firms, and publishing firms. The major tenants in the
building include Time (publishing), with 46,500 square feet, Ogilvie & Mather
(advertising), with 61,000 square feet, Direct Broadcasting (advertising
placement), with 25,500 square feet, Selman & Brietman (law), with 34,700
square feet, and the British, Hungarian, Netherlands, Romanian, Swiss, and
Croatian consulates. As noted previously the office component of the property
is 97 percent leased. The projected first-year net operating income is
approximately $9,650,000, or $23.65 per rentable square foot.
The property was marketed for sale since late August, 1997, with no
"official" asking price. The initial bids on the property were submitted
during early October, 1997, and the successful bidder was Douglas Emmett
Realty, a major investment advisor (primarily on behalf of pension funds) in
the westside and other Los Angeles area markets. The pricing for the property
was $128,000,000, or about $314 per-square-foot of rentable area.
The implied overall capitalization rate based on the 1998 budgeted net
income and the $128 million pricing equals 7.5 percent. The IRR at this
pricing, based on the seller's projections of market rent and rental growth is
between 10.5 and 11.0 percent. Assumptions incorporated within these
projections include estimated market rental rates ranging from $30 to $34
per-square-foot annually, FSG, for the office space, and market rental growth
of 8.0 percent annually for the first three years of the analysis, 6.0 percent
for year 4, and 4.0 percent annually through the remainder of the 10-year
projection period. These rental growth projections compare with the CPI
assumption of 3.0 percent applied to the expenses.
ITEM I-8 is the April, 1997 sale of Century Plaza Towers, a two-tower,
2,282,381 square-foot office development located in the heart of the Century
City office market, in westside Los Angeles. This landmark development was
constructed over a six-level subterranean parking garage containing 6,170
spaces, and covers a full block site totaling 12.04 acres. The property was
marketed for sale commencing first quarter, 1996 by a Citibank-led consortium
of lenders (a 50 percent ownership interest) in conjunction with a Prudential
ownership of the remaining 50
- -------------------------------------------------------------------------------
62
<PAGE>
ROLLOVER PROFILE
COMPARABLE INVESTMENT DATA
Los Angeles Office Building Data
<TABLE>
<CAPTION>
Item % Leased % Rollover % Rollover Total % Total Vacancy & Rounded
No. @ Sale Years 1-3 Years 4-5 Years 1-5 5-Year Rollover % Price PSF
---- -------- ---------- ---------- --------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
I-1 86% 14% 21% 35% 49% $177
550 S. Hope
- ----------------------------------------------------------------------------------------------
I-2 85% 9% 66% 75% 90% $146
Citicorp Phase I
725 S. Figueroa
(Office Component)
- ----------------------------------------------------------------------------------------------
I-3 69% 31% 0 31% 48% $91
Cal-Plaza II* +14% Fee
---
83% Adjusted
- ----------------------------------------------------------------------------------------------
I-4 87% 2% 2% 4% 17% $140
801 Tower
- ----------------------------------------------------------------------------------------------
I-5 95% 17% 54% 71% 76% $125
Figueroa Plaza Contract
- ----------------------------------------------------------------------------------------------
I-6 91% 46% 24% 70% 79% $356
Fox Plaza
- ----------------------------------------------------------------------------------------------
I-7 97% 52% 31% 83% 86% $314
Landmark II
- ----------------------------------------------------------------------------------------------
I-8 94% 31% 18% 49% 55% $197
Century Plaza
Towers
- ----------------------------------------------------------------------------------------------
Subject 93% 8% 23% 31% 38% --
(Office)
</TABLE>
* Adjusted for Aames lease at seller's cost.
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
percent interest. The property acquired includes the fee interest in the two
44-story triangular-shaped office towers with a combined rentable area of
2,252,657 square feet, an additional 29,724 square feet of below-grade retail
space, and the parking garage, as well as an air rights leased fee interest in
the ABC Entertainment Center complex. This component of the development
contains approximately 583,000 square feet of office, retail, and
entertainment uses, and is the west coast headquarters for the American
Broadcasting Company (ABC), as well as the Shubert Theater. The air rights
leasehold ownership pays approximately $1.5 million annually (net) to the fee
ownership in base rent and percentage rental.
The total purchase price for the property was approximately $480,000,000, of
which the buyer allocated a reported $450,000,000 to the fee component of the
property. The transaction involved an extended escrow period of roughly nine
months, and the market conditions and property-specific performance improved
during the escrow period. The property was approximately 85 percent leased
prior to escrow, and was about 94 percent leased as of the closing date. The
property was acquired by JP Morgan on behalf of the General Motors and AT&T
pension funds. Other offers were received from Equity Office, Douglas Emmett,
and Pacific Eagle Holdings.
A number of the leases were structured at "below" market rates at the
time of sale. The estimated overall capitalization rate based on project
first-year net operating income (excluding the ABC Entertainment Center lease
payments) was 8.5 percent. The reported IRR was 10.5 percent.
Analysis and Conclusions
The preceding data included seven sales and a current escrow involving Class
A office buildings in Los Angeles markets. Five of the data items involved
downtown Los Angeles properties, and we included three additional items
involving major Class A assets in suburban Los Angeles. The eight transactions
occurred during the period from March, 1996 through a current contract (March,
1998), and six of the items involve data since March, 1997. The per-square-foot
pricing covered a substantial range, from (rounded) $75 for the leasehold
interest in California Plaza II (item I-3) to $356 for Fox Plaza (I-5).
Excluding the leasehold sale (I-3) the per-square-foot pricing ranged from
approximately $140 (I-4) to $356 (I-5).
The Los Angeles CBD data designated as I-1 through I-4 involves Class A
office buildings which compete directly with the subject for tenants. The
subject is superior in terms of overall quality to each of these properties,
and the less favorable ownership position for I-3 would eliminate the property
from consideration for a number of buyers. The subject is substantially
superior in terms of specific submarket location within downtown Los Angeles
in comparison to I-5.
The market locations for Items I-6 through I-8 are superior to the
subject's CBD location. The subject is substantially superior to I-8 in terms
of construction quality and condition, however. Items I-6 and I-7 are similar
trophy caliber properties In terms of quality, but benefit from superior
Century City and Brentwood market locations.
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63
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
The exhibit on the accompanying page "Rollover Profile - Comparable Sales
Data" summarizes the lease rollover profile for existing tenants at sale for
the eight comparable CBD and suburban Los Angeles Class A office buildings and
the subject.
Investors in leased office properties evaluate the current occupancy level
and the rollover profile (or the timing for the scheduled lease expirations)
for the existing tenants. The anticipated costs and risk associated with new
and renewal leasing, including costs and vacancy loss, will impact the cash
flow and the property value. If current contract rental levels are
substantially above or below the buyer's estimate of market rent, the lease
expiration schedule can represent either an erosion or "upside" in comparison
to current rental income.
The chart includes the occupancy levels at sale as well as the lease
expirations (expressed as a percentage of the total rentable area) during the
first three years and the first five years following purchase. The "Total
Vacancy & 5-year Rollover %" column represents the total leasing exposure an
investor will anticipate during the 5-year period following acquisition
including the current vacant space. This comparison considers both the
characteristics of the current occupancy of the property as well as the impact
of pending lease expirations during the near term.
The subject is similar or superior to all the data excluding I-4 in terms of
leasing exposure. Although 801 Tower (I-4) enjoys a stable leasing profile
with minimal lease rollover for the near-term, the leases in the building are
generally at or near market, while several of the subject leases, including
all the major tenant leases, are to varying degrees above current market
rents. The higher contract rental rates and general creditworthiness of the
subject's major tenants will result in a higher per-square-foot price than for
an otherwise similar asset leased at market rents.
The subject's favorable rollover profile coincides with contract rental
rates which are generally similar to current market levels, including a net
income of $15.23 per-square-foot annually. The subject is superior overall to
each of the CBD data items due to its quality and location. We concluded the
subject would command a per-square-foot price above the range shown by the Los
Angeles CBD transactions.
The investment market for office properties in the subject's asset category
has improved during the past 12 months. The sale of 550 South Hope Street
(I-1) at a price of $176 per-square-foot compares with considerably lower
pricing for the three other Class A assets in the downtown market (I-2
through I-4). The location for this sale property is inferior to the other
buildings, and the quality of construction ranges from similar to slightly
inferior. Based on the range supported by the comparable data we concluded the
subject would trade at a price above the other CBD Los Angeles properties, or
above $176 per-square-foot, and below the indications from I-6 through I-8,
superior suburban Los Angeles assets (from $197 to $356 per-square-foot). We
estimated a per-square-foot conclusion of approximately $190 per-square-foot
for the subject. This $190 per-square-foot conclusion provides the following
indication of value for the property:
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64
<PAGE>
SALES COMPARISON APPROACH
- -------------------------------------------------------------------------------
1,336,244 SF x $190 PSF = $253,886,360
Rounded: = $255,000,000
- -------------------------------------------------------------------------------
65
<PAGE>
Tenant Overview
OFFICE COMPONENT
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
Occupied Minimum
Suite Tenant's Name Area (SF) Rent/PSF
- -----------------------------------------------------------------------
OFFICE TENANTS
5400 City Club 16,690 $18.00
5300 Sumitomo 25,324 $35.00
4200 ING Financial Svcs 20,863 $16.10
4100 Donovan Leisure 24,887 $25.00
4075 Robert Bender 1,374 $6.00
4070 Citibank 5,009 $10.50
4055 A1 Tech Enterprise 1,603 $5.00
4050 Pansky & Markle 2,868 $20.00
4040 Jeanie Lee Law 1,000 $5.00
4000 Computer Generated 11,004 $8.00
3700 Barton Klugman 14,129 $10.00
3680 Ford & Harrison 5,134 $6.33
3600 Zimmer Gunsul 9,493 $7.88
3570 Thai Farmers 4,708 $33.65
3560 Lexicon Communicat 2,469 $5.00
3550 Charter Auto Parks 2,127 $21.16
3535 David Ross & Assoc 3,009 $12.00
3500 Russell Reynolds 4,801 $5.00
3040 Banco Di Napoli 2,418 $18.80
3030 Boyt Co. 2,295 $5.00
3010 Cigna 7,410 $7.00
3000 Jones Lang Wootton 6,993 $14.08
2200 Credit Suisse 24,145 $5.00
2100 Zevnik Horton 24,145 $7.53
2050 Dvlpmnt Specialist 3,011 $3.00
2040 Office Lt Governor 6,685 $10.59
2020 Shaco, Inc. 4,469 $3.00
2008 Barnes, McGhee 3,497 $3.00
2000 Bovitz & Spitzer 2,780 $3.00
2000 LA Reprographics 2,175 $5.00
1900 Goldman, Sachs 24,145 $12.00
1880 Daniel Wier 2,167 $5.50
MAJOR TENANTS
- -----------------------------------------------------------------------
4300-4900 Gibson Dunn 175,180 $19.94
3900 224,954 SF 24,887 $19.50
3800 24,887 $33.75
2300-2400 Kidder Peabody 44,986 $22.85
3200 Payden & Rygel 24,491 $23.30
3150 48,982 SF 12,368 $3.00
3100 12,123 $8.00
5100-5200 Smith Barney 50,648 $38.00
3580 Thel Mamn 5,263 $32.50
3300-3400 53,884 SF 48,621 $21.28
5400 Walls Fargo 8,634 $18.00
5000 199,935 SF (Office space) 25,324 $21.50
5700-1100 236,009 SF (Total excl. plaza sp) 165,977 $14.00
401-403 WFB - Elev., Phone, etc. 1,043 $17.14
300 WFB - Plza & Mezz 35,031 $29.39
659,463 SQFT
1870 Wlknsn & Undrhill 1,080 $3.50
1800 Goldman, Sachs 11,232 $12.00
1770 McGraw-Hill Co. 4,114 $5.00
1710 Doc Repository 4,133 $5.50
1700 Dresdner Bank 13,138 $8.00
1680 Peterson Ross 2,214 $23.00
1650 Peterson Ross 3,043 $23.30
1600 Peterson Ross 18,888 $30.00
1580 Jeff Dominic Price 591 $7.50
1570 Marks Murase 8,403 $6.00
1560 Parker Mulcahy 4,156 $9.75
1555 La Florence, Inc. 1,205 $5.00
1525 Wheat, First Sec. 1,384 $5.00
1500 O'Brien Partners 4,123 $10.00
1485 Progressive Legal 8,313 $15.65
1450 Delta Asset Mgmt 7,460 $6.00
1400 Bridge Mrkt Data 5,500 $5.50
680 Isadore's 660 $18.18
660 Fire Life Safety 2,260 $30.00
650A Nan Nan Xu 2,260 $4.00
600 Business Acct Solu 3,688 $6.00
600 Chang Hwa Bank 14,200 $18.00
470 City Club 2,795 $18.00
400 Century Reprographics 4,806 $13.00
- -----------------------------------------------------------------------
402,473 SQFT
Occupied Minimum
Suite Tenant's Name Area (SF) Rent/PSF
- -----------------------------------------------------------------------
STORAGE & M-T-M TENANTS
- -----------------------------------------------------------------------
5501 Wells Fargo (storage) 4,184 $16.62
4060 Trefry, Will 1,216 $6.00
4004 Jonathan Evans (storage) 206 $18.00
3590 Johnnie Johnsn 1,288 $4.00
3020 Jones Lang 5,375 $12.00
2910 Office of Ch. 13 6,424 $19.20
2000 Citibank (storage) 273 $18.00
1800 Goldman, Sachs (storage) 350 $15.00
1565 Prgsve Legal 2,258 $10.63
1480 Jones Lang (storage) 55 $15.00
601 Devlpmnt Specialst (storage) 415 $15.00
600-S RR Donnelley (storage) 293 $18.00
480 LA Mstr Chorale 5,309 $3.91
430 Human Rights 1,296 $10.90
410 Hanley-McCartn 1,122 $4.28
400 ABM Janitorial (storage) 209 $0.00
400 USI Security (storage) 209 $0.00
- -----------------------------------------------------------------------
30,482 SQFT
402,473 Office Tenants 32.0% Office Tenants
659,463 Major Tenants 52.4% Major Tenants
30,482 Storage & MTM 2.4% Storage & MTM
- --------------------------------------------------
1,092,418 Occupied SF 85.7% Occupancy Ratio
167,023 Vacant SF 13.3% Vacancy Ratio
- --------------------------------------------------
1,259,441 TOTAL SF 100.0% TOTAL SF
OFFICE TENANT SUMMARY
High rent (psf) $35.00
Low rent (psf) $3.00
- ---------------------------------
Weighted average (psf) $13.99
- ---------------------------------
Largest area (sf) 25,324
Smallest area (sf) 591
- ---------------------------------
Average area (sf) 7,187
- ---------------------------------
Total Occupied Area (sf) 402,473
- ---------------------------------
MAJOR TENANT SUMMARY
High rent (psf) $38.00
Low rent (psf) $3.00
- ---------------------------------
Weighted average (psf) $20.85
- ---------------------------------
Largest area (sf) 175,180
Smallest area (sf) 1,043
- ---------------------------------
Average area (sf) 43,964
- ---------------------------------
Total Occupied Area (sf) 659,463
<PAGE>
Tenant Overview
RETAIL COMPONENT
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
Occupled Minimum
Suite Tenant's Name Area (SF) Rent/PSF
- ---------------------------------------------------
R-350 Stepps 8,723 $23.54
R-100 Wells Fargo (Museum) 11,815 $25.25
R-50 Legal Source 2,046 $18.00
R-33 UPS 570 $30.86
R-32 CA Pizza Kitchen 4,700 $24.00
R-26 Robeks Juice 515 $80.00
R-25 Rocky Mtn Choc 523 $25.00
R-23 Crisp 255 $50.00
R-19 Pasqua 878 $60.14
R-17 Mrs. Fields 781 $35.00
R-15 McDonald's 4,036 $15.50
R-13 Kachina 5,900 $28.28
R-10 Court Cafteria 13,668 $38.79
R-09 Russells 3,070 $15.85
R-07 Taipan 5,168 $20.90
R-06 La Petite 1,432 $32.00
R-05 Flower Patch 710 $35.15
R-03 Federal Express 570 $58.60
R-02 Sloan's 807 $38.00
RETAIL TENANT SUMMARY *
High rent (psf) $80.00
Low rent (psf) $15.50
- --------------------------------
Weighted average (psf) $28.25
- --------------------------------
Largest area (sf) 13,668
Smallest area (sf) 255
- --------------------------------
Average area (sf) 3,482
- --------------------------------
Wells Fargo (ATM) 32
CA Sesquicentennia 1,290
Fountain Court 1,650
- --------------------------------
Total Occupied Area (sf) 69,139
- --------------------------------
* Excluding Suite R-ATM, Suite R-51 and Suite R-30
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
METHODOLOGY
The Income Approach is a method of converting the anticipated economic
benefits of owning property into a value estimate through capitalization. The
principle of "anticipation" underlies this approach in that investors
recognize the relationship between an asset's income and its value. In order
to value the anticipated economic benefits of a particular property, potential
income and expenses must be estimated, and the most appropriate capitalization
method must be selected.
The two most common methods of converting net income into value are direct
capitalization and discounted cash-flow analysis. In direct capitalization,
net operating income is divided by an overall rate extracted from market
sales to indicate a value. In the discounted cashflow method, anticipated
future net income streams and a reversionary value are discounted to an
estimate of net present value at a chosen yield rate (internal rate of
return).
In our opinion both the direct capitalization and the discounted cash flow
are appropriate methods for estimating the value of subject property. We
accordingly have used both methods within the Income Approach.
Potential Gross Income
SUBJECT OCCUPANCY PROFILE
We reviewed copies of rent roll and supplemental tenant information, as well
as the lease documents for the subject tenants. The tenant exhibits on the
accompanying pages were prepared by Cushman & Wakefield from the documents
provided for our review. The exhibits include a rent roll, stacking plan,
tenant overview, major tenant overview, and a lease expiration summary. As
shown on the exhibits the property has a combined rentable area of 1,336,244
square feet, as summarized below.
The occupancy figures are presented both excluding and including Oaktree
Capital, a major tenant lease agreement signed in March, 1998 and scheduled
for initial occupancy in April, 1999.
Total Area Leased Area (SF) Occupancy
Component (RSF) Current W/ Oaktree Current W/ Oaktree
- -----------------------------------------------------------------------
Office: 1,255,257 1,088,234 1,160,516 86.7% 92.5%
Retail: 69,139 69,139 N/A 100.0% N/A
Storage: 11,848 11,848 NA 100.0% N/A
- -----------------------------------------------------------------------
Totals: 1,336,244 1,169,221 1,241,502 87.5% 92.9%
Excluding storage space the property has a total rentable area of 1,324,396
square feet.
The two "Tenant Overview" exhibits summarize the current tenants leasing
less than 40,000 square feet and the six subject tenants leasing in excess of
40,000 square feet of rentable area. The chart below summarizes the current
tenant status.
- -------------------------------------------------------------------------------
66
<PAGE>
CUSHVAN &
WAKEFIELD
Rent Roll
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Lease Dates Minimum Adjust Annual Base
Suite Tenant's Name Vacant Occupied Begin Ending Term (mos) Rent/PSF Date Rent Stop
- ------------------------------------------------------------------------------------------------------------------
OFFICE TENANTS
- ------------------------------------------------------------------------------------------------------------------
Floors 54-43
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5400 Bunker Hill Club (Club) 16,690 Jun-82 Jul-98 194 $21.00 $350,490 NNN
(renewal) Aug-98 Jul-08 120 $11.00 $183,590 NNN
$13.50 Aug-01 $225,315
$16.50 Aug-05 $275,385
5400 WELLS FARGO 8,634 Jun-82 Feb-13 369 $18.00 $155,412 $4.25
5300 Sumitomo Bank 25,324 Sep-87 Aug-02 180 $35.00 $886,340 $7.25
[logo]
5200 SMITHBARNEY 25,324 Nov-87 Oct-02 180 $38.00 $962,312 $7.70
5100 Smith Barney 25,324 Nov-87 Oct-02 180 $38.00 $962,312 $7.70
5000 Wells Fargo 25,324 Jun-82 Feb-13 369 $21.50 $544,466 $4.25
4900 Gibson Dunn 25,324 Nov-12 Nov-12 361 $19.94 $504,961 $4.25
4800 GD&C 25,324 Nov-82 Nov-12 361 $19.94 $504,961 $4.25
4700 25,324 Nov-82 Nov-12 361 $19.94 $504,961 $4.25
4600 25,324 Nov-82 Nov-12 361 $19.94 $504,961 $4.25
4500 24,505 Nov-82 Nov-12 361 $19.94 $488,630 $4.25
4400 24,505 Nov-82 Nov-12 361 $19.94 $488,630 $4.25
4300 24,874 Nov-82 Nov-12 361 $19.94 $457,264 $4.25
- ------------------------------------------------------------------------------------------------------------------
Sub-Total: 0 301,800 301,800 Sub-Total SF for Firs 43-54
Floors 42-23
- ------------------------------------------------------------------------------------------------------------------
4200 Vacant 4,024
4200 ING Financial Svcs 20,863 Jan-97 Jan-07 121 $16.10 $335,894 NNN
4100 Donovan Leisure 24,887 Oct-82 Nov-99 206 $25.00 $622,175 NNN
4000 Computer Generated 11,004 Apr-97 Nov-03 80 $8.00 $88,032 NNN
$16.00 Apr-99 $176,064
4000 Vacant 607
4004 Jonathan Evans 206 Feb-98 Dec-98 M-T-M $18.00 $3,706 Gross
4040 Jeanie Lee Law 1,000 Feb-98 Oct-03 69 $5.00 $5,004 NNN
4050 Pansky & Markle 2,868 Oct-91 Sep-98 84 $20.00 $57,360 NNN
4055 Al-Tech Enterprise 1,603 Apr-97 Mar-00 36 $5.00 $8,015 NNN
4060 Trefry, Will 1,216 Jan-92 Dec-98 M-T-M $6.00 $7,296 NNN
4070 Citibank 5,009 Jul-92 Nov-03 137 $10.50 $52,595 NNN
[logo]
4075 Robert Bender 1,374 Apr-94 Apr-98 49 $6.00 $8,244 NNN
3900 Gibson Dunn 24,887 Dec-91 Nov-12 252 $19.50 $485,297 $4.25
3800 Gibson Dunn 24,887 Dec-91 Nov-12 252 $33.75 $839,936 $4.25
3700 Barton Klugman 14,129 Sep-97 Oct-02 62 $10.00 $141,290 NNN
3700 Vacant 10,758
3600 Zimmer Gunsul 9,493 Jun-94 Aug-01 87 $7.88 $74,805 NNN
$9.35 Jun-99 $88,760
3600 Vacant 951
3600 Vacant 5,462
3600 Vacant 3,635
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Lease Dates Minimum Adjust Annual Base
Suite Tenant's Name Vacant Occupied Begin Ending Term (mos) Rent/PSF Date Rent Stop
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3680 Ford & Harrison 5,134 Nov-92 May-02 115 $6.33 $32,498 NNN
3500 Russell Reynolds 4,801 Aug-95 Aug-01 73 $5.00 $24,005 NNN
3535 David Ross & Assoc 3,009 Jun-92 Feb-98 69 $12.00 $36,108 NNN
3550 Charter Auto Parks 2,127 Aug-91 Feb-99 91 $21.16 $45,007 None
3560 Lexicon Communicat 2,469 Feb-94 Jan-99 60 $5.00 $12,345 NNN
3570 Thai Farmers 4,708 Jun-89 Apr-99 119 $33.65 $158,424 $4.85
3580 Thelen Marrin 5,263 Nov-90 Nov-02 145 $32.50 $171,048 NNN
THELEN
MARRIN
JOHNSON &
BRIDGES LLP
ATTORNEYS AT LAW
3590 Johnnie Johnsn 1,288 Sep-95 Dec-98 M-T-M $4.00 $5,152 NNN
3500 Vacant 472
3400 Thelen Marrin 24,137 Dec-82 Nov-02 240 $21.28 $513,635 $4.25
3300 Thelen Marrin 24,484 Dec-82 Nov-02 240 $21.28 $521,020 $4.25
3200 Payden & Rygel 24,491 Sep-92 Sep-04 145 $23.30 $570,640 NNN
[logo]
3150 Payden & Rygel 12,368 Jan-97 Sep-04 93 $3.00 $37,104 NNN
3100 Payden & Rygel 12,123 Apr-98 Sep-04 78 $8.00 $96,984 NNN
3000 Jones Lang Wootton 6,993 Jun-97 Jan-02 56 $14.08 $98,461 NNN
[logo]
3010 Cigna 7,410 Mar-97 Feb-03 72 $7.00 $51,870 NNN
3020 Jones Lang 5,375 Feb-97 Dec-98 M-T-M $12.00 $64,500 NNN
3030 Boyt Co. 2,295 Oct-93 Sep-98 60 $5.00 $11,475 NNN
3040 Banco Di Napoli 2,418 Nov-92 Oct-02 120 $18.80 $45,458 NNN
2910 Office of Ch. 13 (MTM) 6,424 Jan-98 Dec-98 M-T-M $19.20 $123,341 Gross
$24.00 Feb-98 $154,176
$60.00 Apr-98 $385,440
2950 Vacant 18,067
29-2800 Oaktree Capital (48.982 SF) new lease Apr-99 Mar-09 120 $15.50 $759,221 NNN
2800 Vacant 24,491
2700 Vacant 24,491
2700 Oaktree Capital (24.491 SF) new lease Apr-99 Mar-09 120 $0.00 $0 NNN
$15.50 Jun-01 $759,221
2600 Vacant 24,491
2500 Vacant 24,271
2400 Kidder Peabody 20,977 Sep-91 Aug-01 120 $22.85 $479,324 NNN
PaineWebber
2400 Vacant 2,692
2300 Kidder Peabody 24,009 Sep-91 Aug-01 120 $22.85 $548,606 NNN
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total: 144,412 345,729 490,141 Sub-Total SF for Flrs 23-42
Floors 22-4
- ----------------------------------------------------------------------------------------------------------------------------
2200 Credit Suisse 24,145 Dec-84 Dec-04 241 $5.00 $120,725 NNN
2100 Zevnik Horton 24,145 Jul-96 Jun-03 84 $7.53 $181,800 NNN
$8.78 Jul-98 $212,100
$10.10 Jul-99 $243,864
2000 Citibank (storage) 273 Oct-95 Sep-25 M-T-M $18.00 $4,914 None
2000 Bovitz & Spitzer 2,780 Jun-95 May-98 36 $3.00 $8,340 NNN
2000 LA Reprographics 2,175 Dec-96 Nov-98 24 $5.00 $10,875 NNN
2008 Barnes, McGhee 3,497 Jun-95 Aug-00 63 $3.00 $10,491 NNN
2020 Shaco, Inc. 4,469 Jun-95 Aug-00 63 $3.00 $13,407 NNN
2040 Offce Lt Governor 6,685 Apr-96 Aug-98 29 $10.59 $70,794 None
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Lease Dates Minimum Adjust Annual Base
Suite Tenant's Name Vacant Occupied Begin Ending Term (mos) Rent/PSF Date Rent Stop
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2050 Dvlpmnt Specialist 3,011 Jun-95 May-00 60 $3.00 $9,033 NNN
1900 Goldman, Sachs 24,145 Feb-95 Jan-01 72 $12.00 $289,740 NNN
1800 Vacant 2,940
1800 Goldman, Sachs 11,232 Feb-95 Jan-01 72 $12.00 $134,784 NNN
1800 Goldman, Sachs (storage) 350 Jun-87 Jan-01 164 $15.00 $5,250 NNN
1810 Vacant 1,819
1815 Vacant 1,738
1820 Vacant 2,819
1870 Wlknsn & Undrhill 1,080 Oct-91 Sep-01 120 $3.50 $3,780 NNN
1880 Daniel Wier 2,167 Feb-98 Jan-02 48 $5.50 $11,916 NNN
1700 Vacant 2,760
1700 Dresdner Bank 13,138 Sep-96 Nov-07 135 $8.00 $105,104 NNN
$10.00 Dec-99 $131,380
$11.00 Dec-00 $144,518
$12.00 Dec-02 $157,656
$14.00 Dec-03 $183,932
$15.00 Dec-06 $197,070
1710 Doc Repository 4,133 Jul-97 Dec-01 54 $5.50 $22,732 NNN
1770 McGraw-Hill Co. 4,114 Oct-95 Sep-00 60 $5.00 $20,570 NNN
The McGraw-Hill Companies
1600 Peterson Ross 18,888 Oct-86 Sep-01 180 $30.00 $566,640 $6.70
1650 Peterson Ross 3,043 Oct-93 Sep-01 96 $23.30 $70,902 NNN
1680 Peterson Ross 2,214 Jun-89 Sep-01 148 $23.00 $50,922 NNN
1565 Prgsve Lgl (MTM) 2,258 Sep-97 Dec-98 M-T-M $10.63 $24,003 None
1500 O'Brien Partners 4,123 Dec-93 Dec-01 97 $10.00 $41,230 NNN
$15.00 Dec-98 $61,845
1525 Wheat, First Sec. 1,384 Mar-95 Sep-00 67 $5.00 $6,920 NNN
1555 La Florence, Inc. 1,205 Jun-95 Sep-00 64 $5.00 $6,025 NNN
1570 Marks Murase 8,403 Sep-86 Aug-98 144 $6.00 $50,418 NNN
1580 Jeff Dominic Price 591 Sep-97 Sep-98 13 $7.50 $4,433 NNN
1590 Vacant 1,719
1560 Parker Mulcahy 4,156 Dec-97 Nov-03 72 $9.75 $40,521 NNN
$10.00 Dec-01 $41,560
1485 Progressive Legal 8,313 Apr-95 Mar-98 36 $15.65 $130,098 None
1480 Jones Lang (storage) 55 Dec-93 Nov-23 M-T-M $15.00 $825 None
1400 Vacant 1,889
1400 Bridge Mrkt Data 5,500 Mar-94 Feb-99 60 $5.50 $30,250 NNN
1450 Delta Asset Mgmt 7,460 Sep-91 Aug-98 84 $6.00 $44,760 NNN
1200 Wells Fargo 23,681 Jun-82 Feb-13 369 $14.00 $331,534 $4.25
1100 Wells Fargo 23,716 Jun-82 Feb-13 369 $14.00 $332,024 $4.25
1000 Wells Fargo 23,716 Jun-82 Feb-13 369 $14.00 $332,024 $4.25
900 Wells Fargo 23,716 Jun-82 Feb-13 369 $14.00 $332,024 $4.25
800 Wells Fargo 23,716 Jun-82 Feb-13 369 $14.00 $332,024 $4.25
700 Wells Fargo 23,716 Jun-82 Feb-13 369 $14.00 $332,024 $4.25
600 Business Acct Solu 3,688 Jul-97 Aug-03 74 $6.00 $22,128 NNN
600 Chang Hwa Bank 14,200 Sep-90 Jul-06 191 $18.00 $255,600 NNN
601 Dvlpmnt Spcialst (storage) 415 Jun-97 May-27 M-T-M $15.00 $6,225 None
650A Nan Nan Xu 2,260 Oct-96 Dec-02 75 $4.00 $9,040 NNN
$5.00 Jan-99 $11,300
$7.00 Jan-00 $15,820
$8.50 Jan-01 $19,210
$10.00 Jan-02 $22,600
660 Fire Life Safety 2,260 Feb-91 Jan-01 120 $30.00 $67,800 NNN
680 Isadore's 660 Sep-90 Sep-00 121 $18.18 $11,999 None
600-S RR Donnelley (storage) 293 Mar-94 Feb-24 M-T-M $18.00 $5,274 None
500 Wells Fargo 23,716 Jun-82 Feb-13 369 $14.00 $332,024 $4.25
400 Vacant 3,780
400 Vacant 3,147
400 Century Reprographics 4,806 Jun-98 May-03 60 $13.00 $62,478 NNN
400 ABM Janitorial (storage) 209 Jan-98 Dec-27 M-T-M $0.00 $0 None
400 USI Security (storage) 209 Jan-98 Dec-27 M-T-M $0.00 $0 None
401 WFB - Phone Room 406 Jan-85 Feb-13 338 $17.14 $6,959 NNN
402 WFB - Elevator 573 Jan-85 Feb-13 338 $17.14 $9,821 NNN
403 WFB - Dumb Waiter 64 Jan-85 Feb-13 338 $17.14 $1,097 NNN
410 Hanley-McCartn MTM 1,122 Jan-94 Dec-98 60 $4.28 $4,802 None
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Lease Dates Minimum Adjust Annual Base
Suite Tenant's Name Vacant Occupled Begin Ending Term (mos) Rent/PSF Date Rent Stop
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
430 Human Rights (MTM) 1,296 Apr-96 Dec-98 M-T-M $10.90 $14,126 None
470 Bunker Hill Club (Office) 2,795 Jun-92 Jul-98 74 $18.00 $50,310 NNN
Aug-98 Jul-08 120 $6.00 $16,770 NNN
$10.00 Aug-03 $27,950
480 LA Mstr Chrie MTM 5,309 Apr-93 Dec-98 69 $3.91 $20,758 None
- ----------------------------------------------------------------------------------------------------------------------------
Sub-Total: 22,611 405,674 428,285 Sub-Total SF for Flrs 4-22
Mezzanine & Plaza
- ----------------------------------------------------------------------------------------------------------------------------
300 WFB - Plza & Mezz 35,031 Oct-82 Feb-13 365 $29.39 $1,029,561 $4.25
- ----------------------------------------------------------------------------------------------------------------------------
Total Office (SF): 167,023 1,088,234 1,255,257 Total NRA 86.7% Occupancy
STORAGE TENANTS
Roof Level
- ----------------------------------------------------------------------------------------------------------------------------
5501 Walls Fargo 4,184 Mar-83 Feb-13 360 $16.82 $70,375 $5.05
$21.42 Mar-00 $89,640
$25.45 Mar-05 $106,464
$30.22 Mar-10 $126,446
Parking Level
- ----------------------------------------------------------------------------------------------------------------------------
PL-507 MP Devlop Ltd. 187 Jun-88 May-18 360 $26.00 $4,862 None
Maguire
Partners
PL-510 MP Devlop Ltd. 335 Jun-88 Dec-98 127 $26.00 $8,710 None
PL-417 ESUSA 195 Jun-90 Dec-98 103 $24.53 $4,783 None
PL-418 MP Devlop Ltd. 480 Jun-88 Dec-98 127 $26.00 $12,480 None
PL-420 MP Devlop Ltd. 738 Jun-88 Dec-98 127 $26.00 $19,188 None
PL-300 MP Devlop Ltd. 157 Jun-88 Dec-98 127 $26.00 $4,082 None
PL-316 MP Devlop Ltd. 658 Jun-88 Dec-98 127 $26.00 $17,108 None
PL-320 Robeks Juice 300 May-98 Apr-03 60 $15.00 $4,500 None
PL-330 Century Parking 999 Jun-89 Dec-98 115 $28.26 $28,232 None
PL-332 Century Parking 210 Jun-89 Dec-98 115 $0.00 $0 None
PL-332 Valet Car Wash 70 Jan-98 Dec-98 12 $0.00 $0 None
PL-343 Court Cafeteria 200 Jan-98 Dec-98 12 $24.00 $4,800 None
PL-224 Wells Fargo 508 Mar-83 Feb-13 360 $13.57 $6,894 $5.05
PL-122 Wells Fargo 1,170 Mar-83 Feb-13 360 $15.01 $17,562 $5.05
PL-124 MP Devlop Ltd. 602 Jun-88 Dec-98 127 $26.00 $15,652 None
PL-125 Legal Source 541 Dec-93 Nov-98 60 $0.00 $0 None
PL-136 MP Devlop Ltd. 314 Jun-88 Dec-98 127 $26.00 $8,164 None
- ----------------------------------------------------------------------------------------------------------------------------
Total Storage (SF): 0 11,848 11,848 Total NRA 100.0% Occupancy
RETAIL TENANTS
1st and 2nd Level
- ----------------------------------------------------------------------------------------------------------------------------
R-350 Stepps 8,723 Jan-86 Jan-00 169 $23.54 $205,339 $5.20
R-100 Wells Fargo (Museum) 11,815 Oct-83 Feb-13 353 $25.25 $298,329 $4.25
[Photo omitted]
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue * Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Lease Dates Minimum Adjust Annual Base
Suite Tenant's Name Vacant Occupled Begin Ending Term (mos) Rent/PSF Date Rent Stop
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R-51 CA Sesquicentennia 1,290 Jul-97 Jun-96 12 $0.00 $0 NNN
R-50 Legal Source 2,046 Dec-93 Nov-98 60 $18.00 $36,828 NNN
R-33 UPS 570 Jun-89 Dec-98 115 $30.86 $17,590 NNN
[logo]
R-32 CA Pizza Kitchen 4,700 Jul-89 Jun-04 180 $31.20 $146,640 NNN
$35.20 $165,440
R-30 Fourtain Court 1,650 Dec-87 Nov-17 M-T-M $0.00 $0 NNN
R-26 Robeks Juice 515 May-98 Apr-03 60 $80.00 $41,200 NNN
R-25 Rocky Mtn Choc 523 Mar-98 Dec-98 10 $25.00 $13,075 NNN
R-23 Crisp 255 Mar-88 Feb-98 120 $50.00 $12,750 NNN
R-19 Pasqua 878 May-87 Apr-07 240 $60.14 $52,803 $5.20
R-17 Mrs. Fields 781 Jan-87 Dec-06 240 $35.00 $27,335 $5.20
R-15 McDonald's 4,036 Feb-86 Jul-06 246 $15.50 $62,558 NNN
[logo]
R-13 Kachina 5,900 Feb-92 Feb-07 181 $28.28 $166,852 NNN
$32.28 Feb-98 $190,452
R-10 Court Cafteria 13,668 Jan-84 Jan-99 181 $38.79 $530,182 $3.15
R-09 Russells 3,070 Aug-86 Aug-01 181 $15.85 $48,660 NNN
R-07 Taipan 5,168 Oct-84 Sep-00 192 $20.90 $108,011 NNN
$22.06 Oct-98 $114,006
$23.22 Oct-99 $120,001
R-06 La Petite 1,432 Nov-97 Oct-02 60 $32.00 $45,824 NNN
$34.00 Nov-98 $48,688
$36.00 Nov-99 $51,552
$38.00 Nov-00 $54,416
$40.00 Nov-01 $57,280
R-05 Flower Patch 710 Jan-84 Dec-98 180 $35.15 $24,957 NNN
R-03 Federal Express 570 Jan-94 Dec-98 60 $58.60 $33,402 NNN
[logo]
R-02 Sloan's 807 Jan-84 Dec-98 180 $38.00 $30,666 $5.05
R-ATM Wells Fargo (ATM) 32 Jun-88 Jul-99 134 $300.00 $9,600 NNN
- ----------------------------------------------------------------------------------------------------------------------------
Total Retail (SF): 0 69,139 69,139 Total NRA 100.0% Occupancy
- ----------------------------------------------------------------------------------------------------------------------------
Total Building (SF): 167,023 1,169,221 1,336,244 Total NRA 87.5% Occupancy
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
WELLS FARGO
[Photo omitted] [Photo omitted] [Photo omitted]
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Annual PSF
Property Component Weighted Avg. Rent Predominant Expense Basis
- -------------------------------------------------------------------------------
Office- Major Tenants $20.85 Full Service and NNN
Office -Smaller Tenants $13.99 NNN
Retail Tenants $28.25 NNN
Major Tenants
Six subject tenants lease a combined rentable area of 659,463 square feet,
or 49.4 percent of the total rentable area. The major tenants include a bank,
two law firms and three financial services/brokerage firms. These six major
tenants are summarized below.
Current Ann.
Tenant SF Leased PSF Rent Expiration % of Total
- -------------------------------------------------------------------------------
Wells Fargo 236,009 $14.00-29.39 2013 17.7%
Gibson, Dunn 224,954 $19.50-33.75 2012 16.8%
Thelen Marrin 53,884 $21.28-38.00 2002 4.0%
Smith Barney 50,648 $38.00 2002 3.8%
Payden & Rygel 48,982 $3.00-23.30 2004 3.7%
Kidder/Paine Webber 44,986 $22.85 2001 3.4%
- -------------------------------------------------------------------------------
Total 659,463
Paine Webber is marketing its space for sublease. Sumitomo Bank, which
leases 24,324 square feet on the 53rd floor is also marketing portions of its
premises for sublease. Thelen Marrin has previously subleased portions of its
premises.
A new lease to Oaktree Capital was signed during March, 1998 for the 28 and
29th floors (48,892 square feet), as well as a commitment for "hold" space
encompassing the entire 27th floor (24,492 square feet). The total premises
for this new tenant will be 72,282 square feet, with a commencement date of
April, 1999.
Wells Fargo and Gibson, Dunn & Crutcher are the two largest tenants, with
a combined 460,963 square feet of rentable area, or about 35 percent of the
total building. Pertinent issues relating to these tenancies are briefly
discussed below.
WELLS FARGO is the largest tenant, and controls an interest in the
property through its acquisition of Crocker Bank. Wells Fargo also has
significant leasehold premises in two other CBD office buildings through
its acquisition of 1st Interstate Bank. These premises include
approximately 160,000 square feet of space in Library Tower at 633 West
5th Street (formerly "1st Interstate World Center"). The lease in this
building expires in 2005, and Wells Fargo has subleased much of the
space, and has effectively vacated this location (although the tenant
remains obligated for the lease payments). Wells Fargo also leases
420,000 square feet to 1999 in the 1st Interstate Tower building at 707
Wilshire Boulevard. Wells Fargo also has a 50 percent interest in this
building. It is generally acknowledged that the bank does not require
the entire premises in both the subject building and 707 Wilshire
Boulevard. Wells Fargo has an ownership interest in each property, but
the subject lease has a substantially longer term (2013 versus 1999).
- -------------------------------------------------------------------------------
67
<PAGE>
<TABLE>
<CAPTION>
Stacking Plan
WELLS FARGO CENTER
333 South Grand Avenue - Downtown Los Angeles
Square Feet Total Occupancy
Floor Tenant's Name Suite Vacant Occupied Floor (SF) Ratio (%)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 Wells Fargo 5501 4,184 (storage)
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 4,184 4,184 100.0%
- ---------------------------------------------------------------------------------
54 City Club 5400 16,690
Wells Fargo 5400 8,634
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
53 Sumitomo 5300 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
52 Smith Barney 5200 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
51 Smith Bamey 5100 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
50 Wells Fargo 5000 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
49 Gibson Dunn 4900 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
48 Gibson Dunn 4800 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
47 Gibson Dunn 4700 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
46 Gibson Dunn 4600 25,324
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 25,324 25,324 100.0%
- ---------------------------------------------------------------------------------
45 Gibson Dunn 4500 24,505
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,505 24,505 100.0%
- ---------------------------------------------------------------------------------
44 Gibson Dunn 4400 24,505
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,505 24,505 100.0%
- ---------------------------------------------------------------------------------
43 Gibson Dunn 4300 24,874
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,874 24,874 100.0%
- ---------------------------------------------------------------------------------
42 Vacant 4200 4,024
ING Financial Svcs 4200 20,863
- ---------------------------------------------------------------------------------
Sub-Total (SF): 4,024 20,863 24,887 83.8%
- ---------------------------------------------------------------------------------
41 Donovan Leisure 4100 24,887
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,887 24,887 100.0%
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue - Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Total Occupancy
Floor Tenant's Name Suite Vacant Occupied Floor (SF) Ratio (%)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
40 Computer Generated 4000 11,004
Jonathan Evans (MTM) 4004 206 (storage)
Vacant 4000 607
Jeanie Lee Law 4040 1,000
Pansky & Markle 4050 2,868
Al-Tech Enterprise 4055 1,603
Trefry, Will (MTM) 4060 1,216
Citibank 4070 5,009
Robert Bender 4075 1,374
- ---------------------------------------------------------------------------------
Sub-Total (SF): 607 24,280 24,887 97.6%
- ---------------------------------------------------------------------------------
39 Gibson Dunn 3900 24,887
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,887 24,887 100.0%
- ---------------------------------------------------------------------------------
38 Gibson Dunn 3800 24,887
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,887 24,887 100.0%
- ---------------------------------------------------------------------------------
37 Barton Klugman 3700 14,129
- ---------------------------------------------------------------------------------
Vacant 3700 10,758
- ---------------------------------------------------------------------------------
Sub-Total (SF): 10,758 14,129 24,887 56.8%
36 Zimmer Gunsul 3600 9,493
Vacant 3600 951
Vacant 3600 5,462
Vacant 3600 3,635
Ford & Harrison 3680 5,134
- ---------------------------------------------------------------------------------
Sub-Total (SF): 10,048 14,627 24,675 59.3%
- ---------------------------------------------------------------------------------
35 Russell Reynolds 3500 4,801
David Ross & Assoc 3535 3,009
Charter Auto Parks 3550 2,127
Lexicon Communicat 3560 2,469
Thai Farmers 3570 4,708
Thelen Marrin 3580 5,263
Johnnie Johnsn MTM 3590 1,288
Vacant 3500 472
- ---------------------------------------------------------------------------------
Sub-Total (SF): 472 23,665 24,137 98.0%
- ---------------------------------------------------------------------------------
34 Thelen Marrin 3400 24,137
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,137 24,137 100.0%
- ---------------------------------------------------------------------------------
33 Thelen Marrin 3300 24,484
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,484 24,484 100.0%
- ---------------------------------------------------------------------------------
32 Payden & Rygel 3200 24,491
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,491 24,491 100.0%
- ---------------------------------------------------------------------------------
31 Payden & Rygel 3150 12,368
Payden & Rygel 3100 12,123
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,491 24,491 100.0%
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue - Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Total Occupancy
Floor Tenant's Name Suite Vacant Occupied Floor (SF) Ratio (%)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30 Jones Lang Wootton 3000 6,993
Cigna 3010 7,410
Jones Lang (MTM) 3020 5,375
Boyt Co. 3030 2,295
Banco Di Napoli 3040 2,418
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,491 24,491 100.0%
- ---------------------------------------------------------------------------------
29 Office of Ch. 13 (MTM) 2910 6,424
Vacant 2950 18,067
- ---------------------------------------------------------------------------------
Sub-Total (SF): 18,067 6,424 24,491 26.2%
- ---------------------------------------------------------------------------------
28 Vacant 2800 24,491
- ---------------------------------------------------------------------------------
Sub-Total (SF): 24,491 0 24,491 0.0%
- ---------------------------------------------------------------------------------
27 Vacant 2700 24,491
- ---------------------------------------------------------------------------------
Sub-Total (SF): 24,491 0 24,491 0.0%
- ---------------------------------------------------------------------------------
26 Vacant 2600 24,491
- ---------------------------------------------------------------------------------
Sub-Total (SF): 24,491 0 24,491 0.0%
- ---------------------------------------------------------------------------------
25 Vacant 2500 24,271
- ---------------------------------------------------------------------------------
Sub-Total (SF): 24,271 0 24,271 0.0%
- ---------------------------------------------------------------------------------
24 Kidder Peabody 2400 20,977
Vacant 2400 2,692
- ---------------------------------------------------------------------------------
Sub-Total (SF): 2,692 20,977 23,669 88.6%
- ---------------------------------------------------------------------------------
23 Kidder Peabody 2300 24,009
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,009 24,009 100.0%
- ---------------------------------------------------------------------------------
22 Credit Suisse 2200 24,145
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,145 24,145 100.0%
- ---------------------------------------------------------------------------------
21 Zevnik Horton 2100 24,145
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,145 24,145 100.0%
- ---------------------------------------------------------------------------------
20 Citibank (MTM) 2000 273 (storage)
Bovitz & Spitzer 2000 2,780
LA Reprographics 2000 2,175
Barnes, McGhee 2008 3,497
Shaco, Inc. 2020 4,469
Offce Lt Governor 2040 6,685
Dvlpmnt Specialist 2050 3,011
Sub-Total (SF): 0 22,890 22,890 100.0%
19 Goldman, Sachs 1900 24,145
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,145 24,145 100.0%
- ---------------------------------------------------------------------------------
18 Vacant 1800 2,940
Goldman, Sachs 1800 11,232
Goldman, Sachs 1800 350 (storage)
</TABLE>
WELLS FARGO CENTER
333 South Grand Avenue - Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Total Occupancy
Floor Tenant's Name Suite Vacant Occupied Floor (SF) Ratio (%)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vacant 1810 1,819
Vacant 1815 1,738
Vacant 1820 2,819
Wlknsn & Undrhill 1870 1,080
Daniel Wier 1880 2,167
- ---------------------------------------------------------------------------------
Sub-Total (SF): 9,316 14,829 24,145 61.4%
- ---------------------------------------------------------------------------------
17 Vacant 1700 2,760
Dresdner Bank 1700 13,138
Doc Repository 1710 4,133
McGraw-Hill Co. 1770 4,114
- ---------------------------------------------------------------------------------
Sub-Total (SF): 2,760 21,385 24,145 88.6%
- ---------------------------------------------------------------------------------
16 Peterson Ross 1600 18,888
Peterson Ross 1650 3,043
Peterson Ross 1680 2,214
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 24,145 24,145 100.0%
- ---------------------------------------------------------------------------------
15 Prgsve Lgl (MTM) 1565 2,258
O'Brien Partners 1500 4,123
Wheat, First Sec. 1525 1,384
La Florence, Inc. 1555 1,205
Marks Murase 1570 8,403
Jeff Dominic Price 1580 591
Parker Mulcahy 1560 4,156
Vacant 1590 1,719
- ---------------------------------------------------------------------------------
Sub-Total (SF): 1,719 22,120 23,839 92.8%
- ---------------------------------------------------------------------------------
14 Progressive Legal 1485 8,313
Jones Lang (MTM) 1480 55 (storage)
Vacant 1400 1,889
Bridge Mrkt Data 1400 5,500
Delta Asset Mgmt 1450 7,460
- ---------------------------------------------------------------------------------
Sub-Total (SF): 1,889 21,328 23,217 91.9%
- ---------------------------------------------------------------------------------
12 Wells Fargo 1200 23,681
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,681 23,681 100.0%
- ---------------------------------------------------------------------------------
11 Wells Fargo 1100 23,716
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,716 23,716 100.0%
- ---------------------------------------------------------------------------------
10 Wells Fargo 1000 23,716
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,716 23,716 100.0%
- ---------------------------------------------------------------------------------
9 Wells Fargo 900 23,716
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,716 23,716 100.0%
- ---------------------------------------------------------------------------------
8 Wells Fargo 800 23,716
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,716 23,716 100.0%
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue - Downtown Los Angeles
<TABLE>
<CAPTION>
Square Feet Total Occupancy
Floor Tenant's Name Suite Vacant Occupied Floor (SF) Ratio (%)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 Wells Fargo 700 23,716
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,716 23,716 100.0%
- ---------------------------------------------------------------------------------
6 Business Acct Solu 600 3,688
Chang Hwa Bank 600 14,200
Devlpmnt Specialst (MTM) 601 415 (storage)
Nan Nan Xu 650A 2,260
Fire Life Safety 660 2,260
Isadore's 680 660
RR Donnelley (MTM) 600-S 293 (storage)
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 23,776 23,776 100.0%
- ---------------------------------------------------------------------------------
5 Wells Fargo 500 23,716
Sub-Total (SF): 0 23,716 23,716 100.0%
4 Vacant 400 3,780
Vacant 400 3,147
Century Reprographics 400 4,806
ABM Janitorial (MTM) 400 209 (storage)
USI Security (MTM) 400 209 (storage)
WFB - Phone Room 401 406
WFB - Elevator 402 573
WFB - Dumb Waiter 403 64
Hanley-McCartn MTM 410 1,122
Human Rights (MTM) 430 1,296
City Club 470 2,795
LA Mstr Chrle MTM 480 5,309
- ---------------------------------------------------------------------------------
Sub-Total (SF): 6,927 16,789 23,716 70.8%
- ---------------------------------------------------------------------------------
3 Wells Fargo Mezz 23,394
Wells Fargo Plaza 11,637
- ---------------------------------------------------------------------------------
Sub-Total (SF): 0 35,031 35,031 100.0%
- ---------------------------------------------------------------------------------
Wells Fargo Center o Office Tower Rent Roll
STACKING PLAN Vacant Occupied Total SF
Totals (SF): 167,023 1,092,418 1,259,441
</TABLE>
[Graph omitted]
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
The lease for this tenant includes a clause which adjusts the rent to
reflect "any increase in the cost of living" on the 11th, 16th, 21st, and
26th anniversaries. The adjustments are limited, however: "..the maximum
amount to which the basic rent may be increased...shall be the amount
which, together with [the passthroughs above a $4.25 PSF expense
stop]..is equal to the fair market value rental as of the Adjustment
Date". The landlord did not increase the rental rate as permitted as of
the 1992 and 1997 (11th and 16th anniversaries) adjustment dates because
current rent and reimbursements exceeded the landlord's estimate of
market rent. We note that market rent as defined in the lease can be
interpreted differently by opposing parties, and market rent could well
be determined to include deductions for tenant improvements amortized
over the term of the lease. Based on our analysis of the current and
projected market rental rates over the term of the holding period, the
contract rent and reimbursements exceed market rent, and we projected the
current rent to remain "flat" over the term of the lease.
GIBSON, DUNN & CRUTCHER, LLP was founded in 1890, and has 15 offices
worldwide, including Los Angeles (the founding office), Century City, New
York, Washington D.C., Dallas, and Denver. The firm includes specialty
practice groups in Antitrust and Trade regulation, Environmental law,
Securities litigation, and international trade and customs law. Gibson,
Dunn & Crutcher also has an interest in the property. This tenant has a
similar CPI/market rental adjustment clause as Wells Fargo each five
years, and the current rent and expense reimbursements will continue to
exceed market rental rates over the holding period, based on our
projections. We accordingly modeled the rental for this tenant "flat" for
the remainder of the lease.
Rollover Profile
The accompanying chart details the lease expiration schedule for the current
subject tenants. The annual rollover profile for the office component of the
property is summarized below.
Year SF Expiring % of Total *
- -------------------------------
1998 45,953 3.6%
1999 39,691 3.2%
2000 19,943 1.6%
2001 130,748 10.4%
2002 162,957 12.9%
2003 61,218 4.9%
2004 73,127 5.8%
2005 0 0%
2006 14,200 1.1%
2007 34,001 2.7%
2008 19,485 1.5%
2009 73,473 5.8%
2010 0 0.0%
2011 0 0.0%
2012 224,954 17.9%
2013 240,193 19.1%
*Office tower area including roof area
- -------------------------------------------------------------------------------
68
<PAGE>
Rollover Exposure
OFFICE COMPONENT
WELLS FARGO CENTER
333 South Grand Avenue Downtown Los Angeles
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Rollover Occupied Percentage Expiry Cumulative Rollover
Year Tenant's Name Suite Area (SF) of Building Date SQFT Percent
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 David Ross & Assoc 3535 3,009 0.2% Feb-98 3,009 0.2%
Progressive Legal 1485 8,313 0.7% Mar-98 11,322 0.9%
Robert Bender 4075 1,374 0.1% Apr-98 12,696 1.0%
Bovitz & Spitzer 2000 2,780 0.2% May-98 15,476 1.2%
Delta Asset Mgmt 1450 7,460 0.6% Aug-98 22,936 1.8%
Marks Murase 1570 8,403 0.7% Aug-98 31,339 2.5%
Office Lt Governor 2040 6,685 0.5% Aug-98 38,024 3.0%
Jeff Dominic Price 1580 591 0.0% Sep-98 38,615 3.1%
Boyt Co. 3030 2,295 0.2% Sep-98 40,910 3.2%
Pansky & Markle 4050 2,868 0.2% Sep-98 43,778 3.5%
LA Reprographics 2000 2,175 0.2% Nov-98 45,953 3.6%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 45,953 3.6% 45,953 3.6%
- ------------------------------------------------------------------------------------------------------------
1999 Lexicon Communicat 3560 2,469 0.2% Jan-99 48,422 3.8%
Bridge Mrkt Data 1400 5,500 0.4% Feb-99 53,922 4.3%
Charter Auto Parks 3550 2,127 0.2% Feb-99 56,049 4.5%
Thai Farmers 3570 4,708 0.4% Apr-99 60,757 4.8%
Donovan Leisure 4100 24,887 2.0% Nov-99 85,644 6.8%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 39,691 3.2% 85,644 6.8%
- ------------------------------------------------------------------------------------------------------------
2000 Al-Tech Enterprise 4055 1,603 0.1% Mar-00 87,247 6.9%
Dvlpmnt Specialist 2050 3,011 0.2% May-00 90,258 7.2%
Barnes, McGhee 2008 3,497 0.3% Aug-00 93,755 7.4%
Shaco, Inc. 2020 4,469 0.4% Aug-00 98,224 7.8%
Isadore's 680 660 0.1% Sep-00 98,884 7.9%
Wheat, First Sec. 1525 1,384 0.1% Sep-00 100,268 8.0%
La Florence, Inc. 1555 1,205 0.1% Sep-00 101,473 8.1%
McGraw-Hill Co. 1770 4,114 0.3% Sep-00 105,587 8.4%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 19,943 1.6% 105,587 8.4%
- ------------------------------------------------------------------------------------------------------------
2001 Fire Life Safety 660 2,260 0.2% Jan-01 107,847 8.6%
Goldman, Sachs 18-1900 35,377 2.8% Jan-01 143,224 11.4%
Goldman, Sachs (storage) 1800 350 0.0% Jan-01 143,574 11.4%
Kidder Peabody 23-2400 44,986 3.6% Aug-01 188,560 15.0%
Russell Reynolds 3500 4,801 0.4% Aug-01 193,361 15.4%
Zimmer Gunsul 3600 9,493 0.8% Aug-01 202,854 16.1%
Peterson Ross 1600 24,145 1.9% Sep-01 226,999 18.0%
Wlknsn & Undrhill 1870 1,080 0.1% Sep-01 228,079 18.1%
O'Brien Partners 1500 4,123 0.3% Dec-01 232,202 18.4%
Doc Repository 1710 4,133 0.3% Dec-01 236,335 18.8%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 130,748 10.4% 236,335 18.8%
- ------------------------------------------------------------------------------------------------------------
2002 Daniel Wier 1880 2,167 0.2% Jan-02 238,502 18.9%
Jones Lang Wootton 3000 6,993 0.6% Jan-02 245,495 19.5%
Ford & Harrison 3680 5,134 0.4% May-02 250,629 19.9%
Sumitomo Bank 5300 25,324 2.0% Aug-02 275,953 21.9%
Banco Di Napoli 3040 2,418 0.2% Oct-02 278,371 22.1%
Barton Klugman 3700 14,129 1.1% Oct-02 292,500 23.2%
Smith Barney 51-5200 50,648 4.0% Oct-02 343,148 27.2%
Thelen Marrin 33-3580 53,884 4.3% Nov-02 397,032 31.5%
Nan Nan Xu 650A 2,260 0.2% Dec-02 399,292 31.7%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 162,957 12.9% 399,292 31.7%
- ------------------------------------------------------------------------------------------------------------
2003 Cigna 3010 7,410 0.6% Feb-03 406,702 32.3%
Century Reprographics 400 4,806 0.4% May-03 411,508 32.7%
Zevnik Horton 2100 24,145 1.9% Jun-03 435,653 34.6%
Business Acct Solu 600 3,688 0.3% Aug-03 415,196 33.0%
Jeanie Lee Law 4040 1,000 0.1% Oct-03 416,196 33.0%
Parker Mulcahy 1560 4,156 0.3% Nov-03 420,352 33.4%
Computer Generated 4000 11,004 0.9% Nov-03 431,356 34.2%
Cltibank 4070 5,009 0.4% Nov-03 436,365 34.6%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 61,218 4.9% 460,510 36.6%
- ------------------------------------------------------------------------------------------------------------
2004 Payden & Rygel 31-3200 48,982 3.9% Sep-04 509,492 40.5%
</TABLE>
<PAGE>
WELLS FARGO CENTER
333 South Grand Avenue Downtown Los Angeles
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Rollover Occupied Percentage Expiry Cumulative Rollover
Year Tenant's Name Suite Area (SF) of Building Date SQFT Percent
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Credit Suisse 2200 24,145 1.9% Dec-04 533,637 42.4%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 73,127 5.8% 533,637 42.4%
- ------------------------------------------------------------------------------------------------------------
2006 Chang Hwa Bank 600 14,200 Jul-06 547,837 43.5%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 14,200 1.1% 547,837 43.5%
- ------------------------------------------------------------------------------------------------------------
2007 ING Financial Svcs 4200 20,863 1.7% Jan-07 568,700 45.2%
Dresdner Bank 1700 13,138 1.0% Nov-07 581,838 46.2%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 34,001 2.7% 581,838 46.2%
- ------------------------------------------------------------------------------------------------------------
2008 Bunker Hill City Club (club) 5400 16,690 1.3% Jul-08 598,528 47.5%
Bunker Hill City Club (office) 470 2,795 0.2% Jul-08 601,323 47.7%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 19,485 1.5% 601,323 47.7%
- ------------------------------------------------------------------------------------------------------------
2009 Oaktree Capital (new lease)* 28-2900 48,982 3.9% Mar-09 N/A N/A
Oaktree Capital (new lease)* 2700 24,491 1.9% Mar-09 N/A N/A
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 73,473 5.8%
- ------------------------------------------------------------------------------------------------------------
2012 Gibson Dunn 38-4900 224,954 17.9% Nov-12 826,277 65.6%
------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 224,954 17.9% 826,277 65.6%
- ------------------------------------------------------------------------------------------------------------
2013 Wells Fargo All + Roof 240,193 19.1% Feb-13 1,066,470 84.7%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 240,193 19.1% 1,066,470 84.7%
- ------------------------------------------------------------------------------------------------------------
MTM/ Hanley-McCartn 410 1,122 0.1% Dec-98 1,067,592 84.8%
Storage Human Rights 430 1,296 0.1% Dec-98 1,068,888 84.9%
LA Mstr Chrle 480 5,309 0.4% Dec-98 1,074,197 85.3%
Prgsve Lgl 1565 2,258 0.2% Dec-98 1,076,455 85.5%
Office of Ch. 13 2910 6,424 0.5% Dec-98 1,082,879 86.0%
Jones Lang 3020 5,375 0.4% Dec-98 1,088,254 86.4%
Johnnie Johnsn 3590 1,288 0.1% Dec-98 1,089,542 86.5%
Jonathan Evans 4004 206 0.0% Dec-98 1,089,748 86.5%
Trefry, Will 4060 1,216 0.1% Dec-98 1,090,964 86.6%
Jones Lang (storage) 1480 55 0.0% Nov-23 1,091,019 86.6%
RR Donnelley (storage) 600-S 293 0.0% Feb-24 1,091,312 86.7%
Citibank (storage) 2000 273 0.0% Sep-25 1,091,585 86.7%
Dvlpmnt Spcialst (storage) 601 415 0.0% May-27 1,092,000 86.7%
ABM Janitorial (storage) 400 209 0.0% Dec-27 1,092,209 86.7%
USI Security (storage) 400 209 0.0% Dec-27 1,092,418 86.7%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 25,948 2.1% 1,092,418 86.7%
- ------------------------------------------------------------------------------------------------------------
VACANT SPACE 167,023 13.3% 1,259,441 100.0%
- ------------------------------------------------------------------------------------------------------------
Sub-Total (SF): 167,023 13.3% 1,259,441 100.0%
- ------------------------------------------------------------------------------------------------------------
Total Building NRA (SF):* 1,259,441 Cumulative Rollover: 100.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[Graph omitted]
* Square footage does not include Oaktree Capital
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
The two largest tenants, who lease a combined 37 percent of the total office
area, have remaining lease terms to 2012 and 2013, or about 15 years from the
date of value. The duration of these leases results in a relatively favorable
lease rollover profile for the property. The "flat" rental terms for these
tenants limit the income "upside" for this component of the property over the
holding period, however.
Available Space
There is currently 93,640 square feet of space available on a
landlord-direct basis (excluding the leased Oaktree space), or 7.5 percent of
the total office area. The quoted rental rates for the available office space
range from $8.00 to $12.00 per-square-foot annually, NNN. These rates are "as
is" rents, and tenant allowances, leasing commissions, and other concessions
are "amortized" over the term of the lease. The projected per-square-foot
expenses for NNN charges (as of 1998) are quoted by the landlord at $10.43.
The indicated full service gross adjusted quoted rental rate range is from
$18.43 to $22.43 per-square-foot annually, prior to amortized concessions.
MARKET RENT
We based market rent estimates for the subject on our investigations of the
competitive buildings in the market, a comparison with quoted rental rates and
signed leases for a cross section of competitive properties, and discussions
with brokers active in the downtown leasing market. The rental and occupancy
surveys included in the Market Analysis section provided an overview of
current availabilities and quoted rental rates for office buildings in the
downtown market.
Subject's Market Position
The subject is an excellent quality Class A office building within the CBD
market. The property competes directly for tenants with other, Class A office
buildings in this market. The following chart provides an overview of the
major properties comprising the "Class A" office supply in the downtown
market. The buildings are delineated based on three "tiers", or categories.
The categories are based on ratings of "Class A - Top Tier", which consists of
the eight newest, best quality major office buildings in the market, "Class A
- - 2nd Tier", which consists of seven excellent quality Class A office
properties including the subject completed during the middle portion of the
last decade (with one exception - 333 South Hope Street), and "Class A -3rd
Tier", which consists of five older Class A buildings which previously
represented the top tier of the market, and two relatively smaller, good
quality office properties completed during the middle portion of the 1980s.
- -------------------------------------------------------------------------------
69
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rounded
No. Of Rounded Current Asking PSF
Item Building Stories Area (SF) Year Built Occupancy* Rent Range
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A-1ST TIER
F-1 Library Tower 71 1,360,000 1989 89.9% $8-12** NNN
F-2 California Plaza II 52 1,300,000 1992 89.4% $13-18 NNN
F-3 Gas Company Tower 50 1,200,000 1991 85.9% $8-12** NNN
F-4 777 S. Figueroa 52 1,000,000 1990 92.9% $14-18 NNN
F-5 Sanwa Bank 52 930,000 1990 96.5% $15-25 NNN
F-6 865 S. Figueroa 35 675,000 1991 92.3% $14-16 NNN
F-7 550 S. Hope 28 540,000 1991 87.8% $8.50-14.50 NNN
F-8 801 S. Figueroa 24 435,000 1992 90.4% $22-25 FSG
- ---------------------------------------------------------------------------------------------------
Subtotal Class A 1st Tier - 7,440,000 - 90.5% $8-25 NNN
$22-25 FSG
CLASS A-2ND TIER
S-9 333 South Hope 55 1,360,000 1974 89.7% $15-20 FSG
S-10 Wells Fargo Center N. 54 1,250,000 1982 92.9% $8-12** NNN
S-11 Wells Fargo Center S. 45 1,000,000 1983 79.5% $8-12** NNN
S-12 California Plaza I 42 935,000 1985 89.7% $8-15 NNN
S-13 Citicorp Plaza Phase I 41 900,000 1985 84.5% $12 NNN
S-14 444 S. Flower 48 890,000 1982 98.1% $18 FSG
S-15 400 S. Hope 26 660,000 1982 87.1% $22 FSG
- ---------------------------------------------------------------------------------------------------
Subtotal Class A, 2nd Tier - 6,995,000 - 88.9% $8-20 NNN
$15-22 FSG
CLASS A-3RD TIER
T-16 Arco Plaza (2 towers) 52 2,020,000 1973 69.9% $21-24 FSG
T-17 1st Interstate Tower 60 1,030,000 1973 84.0% $16-24 FSG
T-18 AT&T Center 42 715,000 1968 77.8% $14-22 FSG
T-19 MCI Center 32 680,000 1973 90.3% $19-22 FSG
T-20 Union Bank Plaza 40 610,000 1967 89.2% $16-24 FSG
T-21 Chase Plaza 22 450,000 1986 53.5% $15 FSG
T-22 1000 Wilshire 22 450,000 1987 99.3% $21 FSG
- ---------------------------------------------------------------------------------------------------
Subtotal Class A, 3rd Tier - 5,955,000 - 78.6% $14-24 FSG
Total Class A 1st through 3rd Tiers 20,390,000 86.1% $14-25 FSG
$8-25 NNN
</TABLE>
* Excluding space offered for sublease
** Ownership quotes rent based on net effective prior to amortized Tls and
leasing commissions
The subject competes most directly for tenants with other buildings in the
"Class A-Top Tier" and "2nd Tier" categories listed above. The 3rd tier
properties must compete on a cost basis, and provide somewhat secondary
competition for the subject. We estimated market rental rates for the subject
based on an analysis of leases signed recently for space in the competitive
buildings listed above and in the subject property. The 22 buildings listed
above were included in the rental and occupancy survey presented in the Market
Analysis section of this appraisal. An overview of the buildings and tenancies
are presented below.
- -------------------------------------------------------------------------------
70
<PAGE>
<TABLE>
<CAPTION>
DOWNTOWN LOS ANGELES
Rental and Occupancy Survey of Competitive Office Buildings
- ---------------------------------------------------------------------------------------------------------------------------------
Top Tier - Class "A" Buildings 1st Qtr 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Building Information
---------------------------------------- Available Space (SF) Overall
Item Building Name / No. of Area Avg. Flr. Year --------------------------------- Availability
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
- ---- ----------------- --------- --------- --------- ------ --------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
F-1 Library Tower / FIB World Ctr 73 1,360,086 18,631 1989 9, 16, 64 & 72 0 68,309
633 West 5th Street 14 - 67 137,410 0 Total
-------
137,410 68,309 205,719
- ---------------------------------------------------------------------------------------------------------------------------------
F-2 Two California Plaza 52 1,277,801 24,573 1992 22 0 20,013
350 South Grand Avenue 15 - 39 134,969 0 Total
-------
134,969 20,013 154,982
- ---------------------------------------------------------------------------------------------------------------------------------
F-3 The Gas Company Tower 52 1,200,000 23,077 1991 4 - 8 72,686 0
555 West 5th Street 30 - 50 96,555 0 Total
-------
169,241 0 159,241
- ---------------------------------------------------------------------------------------------------------------------------------
F-4 777 Tower 52 1,004,000 19,308 1991 25,29,34&35 0 16,993
777 South Figueroa Street 3 - 50 71,395 0 Total
-------
71,395 16,993 88,388
- ---------------------------------------------------------------------------------------------------------------------------------
F-5 Sanwa Bank Plaza 52 934,000 17,962 1990 43 & 44 0 11,336
601 South Figueroa Street 13 - 38 32,951 0 Total
-------
32,951 11,336 44,287
- ---------------------------------------------------------------------------------------------------------------------------------
F-6 ??5 S. Figueroa Tower 35 674,132 19,261 1991 27 & 33 0 13,871
865 South Figueroa Street 1 - 33 52,043 0 Total
-------
52,043 13,871 65,914
- ---------------------------------------------------------------------------------------------------------------------------------
F-7 550 S. Hope Street Building 26 538,006 19,215 1991 17 & 25 0 34,987
550 South Hope Street 5 - 28 65,473 0 Total
-------
65,473 34,987 100,460
- ---------------------------------------------------------------------------------------------------------------------------------
F-8 801 Tower 24 435,832 18,160 1992 4 - 8 0 33,680
801 South Figueroa Street Grnd - 10 41,831 0 Total
-------
41,831 33,680 75,511
- ---------------------------------------------------------------------------------------------------------------------------------
Top Tier Totals 368 7,423,857 20,174 705,313 199,189 Vacant
904,502
Total SF
</TABLE>
<TABLE>
<CAPTION>
Quoted
Annual Rent Occupancy Ratio
Item ----------------- Lease ---------------
No. PSF PSF Type Direct Overall
- ---- ------ ------ -------- ------ -------
<S> <C> <C> <C> <C> <C>
F-1 $5.00 - $22.00 NNN/FSG 89.9% 84.9%
$8.00 - $12.00 NNN
- -------------------------------------------------
F-2 $18.00 - $18.00 FSG 89.4% 87.9%
$13.00 - $18.00 NNN
- -------------------------------------------------
F-3 $8.00 - $12.00 NNN 85.9% 85.9%
$8.00 - $12.00 NNN
- -------------------------------------------------
F-4 $12.00 - $25.00 FSG 92.9% 91.2%
$14.00 - $18.00 NNN
- -------------------------------------------------
F-5 $12.50 - $17.00 NNN/FSG 96.5% 95.3%
$15.00 - $25.00 NNN
- -------------------------------------------------
F-6 $12.00 - $22.00 FSG 92.3% 90.2%
$14.00 - $16.00 NNN
- -------------------------------------------------
F-7 $5.00 - $6.00 NNN 87.8% 81.3%
$8.50 - $14.50 NNN
- -------------------------------------------------
F-8 $8.00 - $18.56 FSG 90.4% 82.7%
$22.00 - $25.00 FSG
- -------------------------------------------------
80.5% 87.8%
Direct Overall
Occupancy Ratio
- -------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Second Tier - Class "A" Buildings 1st Qtr 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Building Information
---------------------------------------- Available Space (SF) Overall
Item Building Name / No. of Area Avg. Flr. Year --------------------------------- Availability
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
- ---- ----------------- --------- --------- --------- ------ --------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
S-9 333 South Hops St. Building 55 1,359,934 24,726 1974 24 - 31 0 52,220
333 South Hope Street 22 - 28 140,523 0 Total
-------
140,523 52,220 192,743
- ---------------------------------------------------------------------------------------------------------------------------------
S-10 Wells Fargo Center - North 54 1,255,257 23,246 1982 22-41 & 53 0 125,536
333 South Grand Avenue 4 - 42 93,640 0 Total
-------
93,640 125,536 219,176
- ---------------------------------------------------------------------------------------------------------------------------------
S-11 Wells Fargo Center - South 45 1,012,000 22,489 1983 Ground 0 0
355 South Grand Avenue 18 - 42 207,503 0 Total
-------
207,503 0 207,503
- ---------------------------------------------------------------------------------------------------------------------------------
S-12 One California Plaza 42 936,864 22,306 1985 12 & 26 0 32,401
300 South Grand Avenue Grnd 10 - 38 96,351 0 Total
-------
96,351 32,401 128,752
- ---------------------------------------------------------------------------------------------------------------------------------
S-13 Citicorp Center 41 895,058 21,831 1985 2 - 23 0 170,768
725 South Figueroa Street 15 - 39 138,777 0 Total
-------
138,777 170,768 309,545
- ---------------------------------------------------------------------------------------------------------------------------------
S-14 444 Plaza 48 893,979 18,625 1982 Grnd - 47 0 161,779
444 South Flower Street 37 & 38 16,873 0 Total
-------
16,873 161,779 178,652
- ---------------------------------------------------------------------------------------------------------------------------------
S-15 400 S. Hope Street Building 26 661,756 25,452 1982 Ground 0 0
400 South Hope Street 3 - 26 85,051 0 Total
-------
85,051 0 85,051
- ---------------------------------------------------------------------------------------------------------------------------------
Second Tier Totals 311 7,014,848 22,558 778,718 542,704 Vacant
1,321,422
Total SF
</TABLE>
<TABLE>
<CAPTION>
Quoted
Annual Rent Occupancy Ratio
Item ----------------- Lease ---------------
No. PSF PSF Type Direct Overall
- ---- ------ ------ -------- ------ -------
<S> <C> <C> <C> <C> <C>
S-9 $9.00 - $22.00 FSG 89.7% 85.8%
$15.00 - $20.00 FSG
- -------------------------------------------------
S-10 $11.00 - $16.00 FSG 92.5% 82.5%
$8.00 - $12.00 NNN
- -------------------------------------------------
S-11 --- - --- --- 79.5% 79.5%
$8.00 - $12.00 NNN
- -------------------------------------------------
S-12 $10.00 - $10.00 Negot 89.7% 86.3%
$8.00 - $15.00 NNN
- -------------------------------------------------
S-13 $12.00 - $18.00 NNN/FSG 84.5% 65.4%
$12.00 - $12.00 NNN
- -------------------------------------------------
S-14 $15.00 - $18.00 FSG 98.1% 80.0%
$18.00 - $18.00 FSG
- -------------------------------------------------
S-15 --- - --- --- 87.1% 87.1%
$22.00 - $22.00 FSG
- -------------------------------------------------
88.9% 81.2%
Direct Overall
Occupancy Ratio
- -------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOWNTOWN LOS ANGELES
Rental and Occupancy Survey of Competitive Office Buildings
- ---------------------------------------------------------------------------------------------------------------------------------
Third Tier - Class "A" Buildings 1st Qtr 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Building Information
---------------------------------------- Available Space (SF) Overall
Item Building Name / No. of Area Avg. Flr. Year --------------------------------- Availability
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
- ---- ----------------- --------- --------- --------- ------ --------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
T-16 ARCO Plaza - North Tower 52 1,009,529 19,414 1972 Ground 0 0
515 South Flower Street 4 - 41 269,335 0 Total
-------
269,335 0 269,335
- ---------------------------------------------------------------------------------------------------------------------------------
T-17 ARCO Plaza - South Tower 52 1,009,529 19,414 1972 Ground 0 0
555 South Flower Street 16 - 48 339,042 0 Total
-------
339,042 0 339,042
- ---------------------------------------------------------------------------------------------------------------------------------
T-18 First Interstate Tower 60 1,028,848 17,147 1973 Ground 0 0
707 Wishire Boulevard 4,30-56 164,569 0 Total
-------
164,569 0 164,569
- ---------------------------------------------------------------------------------------------------------------------------------
T-19 AT & T Center 42 715,463 17,035 1968 19,21 & 37 0 23,807
611 West 5th Street 12 - 42 158,676 0 Total
-------
158,676 23,807 162,483
- ---------------------------------------------------------------------------------------------------------------------------------
T-20 MCI Center 32 678,500 21,203 1973 Ground 0 0
700 South Flower Street 4 - 33 65,658 0 Total
-------
65,658 0 65,658
- ---------------------------------------------------------------------------------------------------------------------------------
T-21 Union Bank Plaza 40 607,822 15,196 1967 24 & 33 0 32,063
445 South Figueroa Street 22 - 37 65,479 0 Total
-------
65,479 32,063 97,542
- ---------------------------------------------------------------------------------------------------------------------------------
T-22 Chase Plaza 22 447,218 20,328 1986 5, 19-22 0 91,040
801 South Grand Avenue Grnd 2 - 16 208,008 0 Total
-------
208,008 91,040 299,048
- ---------------------------------------------------------------------------------------------------------------------------------
T-23 1000 Wilshire Building 22 452,000 20,545 1987 Ground 0 0
1000 Wilshire Boulevard 8 3,000 0 Total
-------
3,000 0 3,000
- ---------------------------------------------------------------------------------------------------------------------------------
Third Tier Totals 322 5,948,909 18,475 1,273,767 146,910 Vacant
1,420,677
Total SF
- ---------------------------------------------------------------------------------------------------------------------------------
Three Tier Totals 1,001 20,387,614 20,367 2,757,798 888,803 Vacant
3,646,601
</TABLE>
<TABLE>
<CAPTION>
Quoted
Annual Rent Occupancy Ratio
Item ----------------- Lease ---------------
No. PSF PSF Type Direct Overall
- ---- ------ ------ -------- ------ -------
<S> <C> <C> <C> <C> <C>
T-16 --- --- --- 73.3% 73.3%
$21.00 - $24.00 FSG
-
- -------------------------------------------------
T-17 --- --- --- 66.4% 66.4%
$21.00 - $24.00 FSG
-
- -------------------------------------------------
T-18 --- --- --- 84.0% 84.0%
$16.00 - $24.00 FSG
-
- -------------------------------------------------
T-19 $10.00 $14.00 FSG 77.8% 74.5%
$14.00 - $22.00 FSG
-
- -------------------------------------------------
T-20 --- --- --- 90.3% 90.3%
$19.00 - $22.00 FSG
-
- -------------------------------------------------
T-21 $18.00 $24.00 FSG/NNA 89.2% 64.0%
$16.00 - $24.00 FSG
-
- -------------------------------------------------
T-22 $8.00 $12.00 FSG 53.5% 33.1%
$15.00 - $15.00 FSG
-
- -------------------------------------------------
T-23 --- --- --- 99.3% 99.3%
$21.00 - $21.00 FSG
- -------------------------------------------------
78.6% 76.1%
Direct Overall
Occupancy Ratio
- -------------------------------------------------
66.5% 82.1%
Direct Overall
Occupancy Ratio
- -------------------------------------------------
</TABLE>
<PAGE>
WELLS FARGO CENTER - PHASE I
333 South Grand Street
Los Angeles, California 90071
PARKING INCOME & EXPENSE STATEMENTS
<TABLE>
<CAPTION>
January February March April May June July August September
1998 BUDGET 1998 1998 1998 1998 1998 1998 1998 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Parking Income
Transient $32,730 $31,720 $35,840 $31,780 $32,480 $33,260 $29,400 $30,320 $29,510
Validation Exempt $23,285 $12,270 $18,435 $17,385 $17,875 $18,065 $12,770 $15,360 $16,165
Validation $51,570 $45,805 $22,315 $22,905 $52,210 $50,860 $41,485 $33,405 $48,585
Monthly Exempt $100,320 $100,320 $100,320 $100,320 $100,320 $100,320 $100,320 $100,320 $100,320
Other Monthlies $206,700 $206,700 $208,700 $208,700 $206,700 $208,700 $208,700 $206,700 $208,700
Miscellaneous Income $600 $580 $600 $650 $610 $550 $540 $530 $570
City Club $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Less: Occupancy Tax ($27,600) ($26,982) ($25,223) ($24,912) ($27,636) ($27,579) ($26,375) ($25,723) ($27,033)
- -------------------------------------------------------------------------------------------------------------------------
Total Revenue $399,605 $382,413 $370,987 $366,828 $394,559 $394,196 $376,840 $372,912 $386,817
- -------------------------------------------------------------------------------------------------------------------------
Management Fee $1,680 $1,680 $1,680 $1,680 $1,680 $1,680 $1,680 $1,680 $1,680
- -------------------------------------------------------------------------------------------------------------------------
Expenses $75,415 $75,415 $104,592 $75,415 $75,415 $73,475 $73,475 $101,682 $72,945
- -------------------------------------------------------------------------------------------------------------------------
Net Income $324,190 $306,998 $266,395 $291,413 $319,144 $320,721 $303,365 $271,230 $313,872
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
October November December TOTAL
1998 BUDGET 1998 1998 1998 1998
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Parking Income
Transient $35,390 $28,980 $30,660 $382,070
Validation Exempt $21,765 $14,480 $14,830 $202,705
Validation $47,240 $46,775 $23,440 $486,595
Monthly Exempt $100,320 $100,320 $100,320 $1,203,840
Other Monthlies $208,700 $208,700 $208,700 $2,504,400
Miscellaneous Income $600 $530 $720 $7,080
City Club $10,000 $10,000 $10,000 $120,000
Less: Occupancy Tax ($27,448) ($26,817) ($24,865) ($318,193)
- -------------------------------------------------------------------
Total Revenue $396,567 $382,968 $363,805 $4,588,497
- -------------------------------------------------------------------
Management Fee $1,680 $1,680 $1,680 $20,160
- -------------------------------------------------------------------
Expenses $72,945 $72,945 $72,945 $946,664
- -------------------------------------------------------------------
Net Income $323,622 $310,023 $290,860 $3,641,833
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year End Year End Year End January Budget
1995 1996 1997 YTD 1998 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Parking Income
Transient $413,354 $394,670 $379,475 $30,727 $382,070
Validation Exempt $169,649 $193,836 $210,331 $7,777 $202,705
Validation $477,833 $516,137 $535,728 $24,276 $486,595
Monthly Exempt $1,198,545 $1,376,399 $1,382,462 $164,743 $1,203,840
Other Monthlies $2,512,187 $2,668,073 $2,743,447 $218,394 $2,504,400
Miscellaneous Income $14,041 $28,035 $8,432 ($3,455) $7,080
City Club $104,923 $95,447 $111,843 $9,660 $120,000
Less: Occupancy Tax ($318,363) ($336,031) ($342,434) ($25,586) ($318,193)
- ------------------------------------------------------------------------------------
Total Revenue $4,572,169 $4,936,566 $5,029,284 $426,536 $4,588,497
- ------------------------------------------------------------------------------------
Expenses $898,848 $895,323 $890,311 $65,760 $946,664
- ------------------------------------------------------------------------------------
Net Income $3,673,521 $4,041,243 $4,138,973 $360,776 $3,641,833
- ------------------------------------------------------------------------------------
</TABLE>
MONTHLY NET INCOME TRENDS
BUDGET 1998
[Graph omitted]
[Graph omitted]
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Library Tower (F-1) - This 71-story office tower was completed in 1989, and is
the tallest building in the western United States. The major tenants include
Wells Fargo (as successor to 1st Interstate), with 150,000 square feet,
Pacific Enterprises, with 200,000 square feet, Latham & Watkins, with 200,000
square feet, and Arthur Andersen, with 220,000 square feet. The building is
currently 90 percent leased on a direct basis, although Wells Fargo has been
subleasing substantial portions of its premises (term expires in 2005),
including the ground floor bank branch to City National Bank. Arthur Andersen
has been negotiating a downsizing/early renewal and extension effective 1999,
and is expected to remain in the building despite prior investigations of
alternative locations. This building, as well as Gas Company Tower (F-3), and
Wells Fargo/IBM Towers (S-10 and S-11) are managed by Maguire Partners. This
landlord markets direct space in each of these properties at quoted annual
per-square-foot rents from $8.00 to $12.00 NNN on a "net effective" "as is"
basis, with all costs amortized in higher rent, including tenant improvements
and leasing commissions.
Two California Plaza - (F-2)
This 52-story office tower and business/cultural complex comprises the second
office phase of the California Plaza development, located at the northeast
co??er of Fourth Street and Grand Avenue immediately east across Grand Avenue
from the subject. The project was completed in 1992 by Bunker Hill Associates
(owner and developer) and comprises a total of approximately 1,280,000 square
feet of office area. Major tenants within the building include Coopers and
Lybrand, Industrial Bank of Japan, Mayer, Brown & Platt, the Metropolitan
Water District, Hughes, Hubbard & Reed, and Merrill Lynch. Aames Financial
recently signed a 15-year lease for approximately 175,000 square feet.
The MWD lease for about 350,000 square feet expires in 1999 and the tenant is
developing a new headquarters property in the Union Station area in the
northeastern portion of the downtown area. The available space is marketed for
lease at $13.00 to $18.00 per-square-foot annually NNN, with quoted annual
expenses of approximately $10.60 per-square-foot. The landlord reportedly
offered a major accounting firm a 15-year lease at stepped per-square-foot
rents (each 5 years) of $5, $10, and $15 NNN with a $40 per-square-foot tenant
allowance during 3rd quarter, 1997. Asahi Bank signed a 25,000 square-foot
lease during the last half of 1996 for a 10-year term at an effective 10 year
rent of $15.25 NNN annually. The tenant received a tenant allowance and other
concessions of nearly $80 per-square-foot. As discussed in the Sales
Comparison Approach the building was sold by a consortium of banks ied by
Citibank to Equity Office in July, 1996.
The Gas Company Tower (F-3)
This 49-story tower is located at the base of Bunker Hill, at the northeast
corner of Grand Avenue and 5th Street. The tower was developed by Maquire
Thomas Partners as part of the Library Square Project (two buildings including
First Interstate Tower). The development was completed in August, 1991.
The major tenants are the Gas Company (540,000 square feet for a 20-year
primary term), Morrison Foerster (law firm -155,000 square feet), Jones, Day
Reavis & Pogue (law-firm 150,000 square feet), Sidley & Austin (law firm-
100,000 square feet), and Dai lchi Kangyo Bank (80,000 square feet). The
property is currently 86 percent leased on
- -------------------------------------------------------------------------------
71
<PAGE>
RETAIL SALES
1993 through 1998 Budget
WELLS FARGO CENTER - PHASE 1
333 South Grand Avenue
Los Angeles, California 90071 As of March, 1998
<TABLE>
<CAPTION>
% (SF) Year End Year End Year End Year End Year End % Change Budget
Tenant Name / Type Rent Area 1993 1994 1995 1996 1997 1996-1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL
- -------------------------------------------------------------------------------------------------------------------------------
Russell's Drugs 6.0% 3,070 $683,083 $662,774 $640,495 $626,096 $665,819 6.3% $750,000
Flower Patch 6.0% 710 $167,568 $167,568 $173,508 $177,763 $191,118 7.5% $240,000
Sloan's Cleaners 7.0% 807 $148,202 $141,851 $129,212 $134,093 $146,879 9.5% $150,000
La Petite Boulangerie 7.0% 1,432 $956,252 $843,525 $848,972 $778,709 $955,389 22.7% $900,000
Valet Car Wash 8.0% 0 $102,053 $119,771 $118,487 $121,131 $142,242 17.4% $105,000
- -------------------------------------------------------------------------------------------------------------------------------
6,019 $2,057,158 $1,935,489 $1,910,674 $1,837,792 $2,101,447 14.3% $2,145,000
- -------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS
- -------------------------------------------------------------------------------------------------------------------------------
Stepps 9.0% 8,723 $2,914,502 $2,778,683 $3,043,231 $2,924,000 $2,698,813 -7.7% $3,000,000
Calif Pizza Kitchen 6.3% 4,700 $2,274,562 $2,293,443 $2,265,033 $2,241,499 $2,457,348 9.6% $2,400,000
Fountain Court 6.0% 1,650 $229,125 $208,202 $182,876 $171,700 $140,524 -18.2% $125,000
Robeks (new tenant) * 9.0% 515 --- --- --- --- --- --- $800,000 *
Rocky Mountain 7.0% 523 $152,616 $194,479 $207,010 $228,625 $240,489 5.2% $226,000
Crisp. Inc. (expinng) ** 6.0% 255 $178,460 $186,761 $142,879 $156,554 $152,661 -2.5% $36,000 **
Pasqua 8.0% 878 $479,334 $470,531 $473,993 $532,323 $585,882 10.1% $750,000
Mrs. Fields 8.0% 781 $299,570 $304,608 $300,466 $300,387 $315,898 5.2% $360,000
McDonald's 5.0% 4,036 $1,377,344 $1,297,594 $1,260,488 $1,352,397 $1,292,825 -4.4% $1,400,000
Kachina Grill 6.0% 5,900 $1,730,852 $1,608,611 $1,477,987 $1,450,466 $1,530,299 5.5% $1,500,000
Court Cafeteria 13,668 $1,512,730 $1,403,467 $1,409,328 $1,466,849 $1,454,447 -0.8% N/A
Taipan 6.0% 5,100 $539,768 $537,227 $697,330 $601,622 $689,122 14.5% $600,000
- -------------------------------------------------------------------------------------------------------------------------------
46,729 $11,688,863 $11,283,606 $11,460,621 $11,426,422 $11,558,308 1.2% $10,397,000***
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL 52,748 $13,746,021 $13,219,095 $13,371,295 $13,264,214 $13,659,755 3.0% $12,542,000
===============================================================================================================================
</TABLE>
[Graph omitted]
[Graph omitted]
* - New tenant moving in Apr-98 / ** - Expining in Mar-98 / *** - Excluding
gross sales from new tenant
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Percentage Rent - Six subject retail/restaurant tenants report sales and
have percentage rent clauses in their leases. The historical and budgeted
sales volumes for these tenants are summarized on the accompanying
"Retail Sales" exhibit, which was prepared from data provided by the
property management. The year-end 1997 statements indicate percentage
rental totaled $100,555, which compares with the budgeted 1998 figure of
$154,039. We modeled the tenant's sales for 1998 based on the 1997
figures inflated 3.5 percent.
OPERATING EXPENSES
The historical and budgeted expenses for the subject property are
summarized on the accompanying exhibit. The data covers actual expenses for
full year periods 1994 through 1997. The full year 1998 budget is also
included on the exhibit. The expenses are allocated as "Escalatable", or costs
included in the reimbursements charged to tenants, and "Non-Escalatable", or
costs not subject to reimbursement by the tenants.
The area used to calculate per-square-foot expenses on the exhibit is
based on the total rentable area of 1,336,244 square feet set forth in the
previous rent roll exhibits, including office, storage and retail space.
The subject property is managed by an entity related to the ownership and
the original developer of the property. We analyzed the historical and
budgeted data, as well as comparable expense data for other downtown office
properties. Refer to accompanying exhibit "PSF Expense Costs" for a summary of
expense data for five downtown Los Angeles Class A office buildings.
The historical and budgeted per-square-foot recoverable operating
expenses for the subject, which have ranged from $10.05 for 1995 to $10.68 for
1994, are within the range for downtown Class A office properties. The
"typical" expense range for Class A buildings in the CBD is from approximately
$9.50 to $11.00 per-square-foot. The subject has several unique features,
including offsite parking and the Atrium, which increase operating expenses
above more typical levels. The management fee component of the expense is
above market levels for third party management firms, however, and we adjusted
this figure and other costs based on comparable data. The expenses conclusions
for the property, expressed in 1998 dollars, are summarized below.
RECOVERABLE EXPENSES
UTILITIES - This category includes the cost of electricity, water, and
gas. The historical subject utility expenses have ranged from $1.98 to
$2.13 per-square-foot annually from 1994 through 1997, and is budgeted
at $2.13 per-square-foot during 1998. These per-square-foot figures are
at the low end of the range for actual costs for other CBD office
buildings, which are typically from $2.10 to $2.50 per-square-foot at
stabilized occupancy. The subject operating statements adjust after hours
utilities revenues for costs associated with these billings, and the lower
utilities expenses are partially attributable to the "net" utility
billings to tenants (refer to "Sundry Revenues"). The retail component
of the property is also included in the square-footage calculation, and
these tenants are directly metered. Several tenants have leased premises
which have not
- -------------------------------------------------------------------------------
83
<PAGE>
EXPENSE STATEMENTS
WELLS FARGO CENTER - PHASE I Total Building NRA: 1,336,244
333 South Grand Street Total Office & Storage: 1,267,105
Los Angeles, California 90071 Retail: 69,139
As of March, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997
CATEGORIES Year End PSF Year End PSF Year End PSF Year End PSF
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Utilities $2,640,448 $2.13 $2,651,624 $1.98 $2,693,156 $2.02 $2,735,750 $2.05
Cleaning / Janitorial $1,625,323 $1.22 $1,496,990 $1.12 $1,607,867 $1.20 $1,608,763 $1.20
Repairs & Maintenance $1,982,663 $1.48 $1,969,238 $1.47 $1,956,444 $1.46 $1,932,071 $1.45
Administration $710,090 $0.53 $701,624 $0.53 $669,355 $0.50 $673,461 $0.50
General Building $763,177 $0.57 $881,043 $0.66 $795,521 $0.60 $750,538 $0.56
Management Fee $1,046,886 $0.78 $1,040,373 $0.76 $1,009,345 $0.76 $1,036,027 $0.78
Insurance $1,126,937 $0.84 $1,186,124 $0.89 $1,397,361 $1.05 $1,294,266 $0.97
Atrium $332,089 $0.25 $374,226 $0.28 $380,417 $0.28 $383,485 $0.29
On-Site Parking $119,369 $0.09 $95,239 $0.07 $126,501 $0.09 $122,215 $0.09
Off-Site Parking $275,458 $0.21 $309,884 $0.23 $303,383 $0.23 $336,402 $0.25
- ---------------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL ESCALATABLE EXP. $10,822,641 $8.10 $10,706,365 $8.01 $10,939,348 $8.19 $10,872,979 $8.14
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Tax $3,356,458 $2.51 $2,596,499 $1.94 $2,631,018 $1.97 $2,695,040 $2.02
Other Taxes $87,440 $0.07 $77,591 $0.06 $71,392 $0.05 $70,445 $0.05
Property Tax Consulting $178 $0.00 $45,140 $0.03 $22,588 $0.02 $1,400 $0.00
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ESCALATABLE EXPENSES $14,266,717 $10.68 $13,425,596 $10.05 $13,664,346 $10.23 $13,639,864 $10.21
- ---------------------------------------------------------------------------------------------------------------------------------
Parking Operations $1,030,749 $0.77 $966,272 $0.72 $892,644 $0.67 $865,668 $0.65
Non-Escalatables $105,174 $0.08 $95,427 $0.07 $76,458 $0.06 $92,111 $0.07
Leasing Expense $177,520 $0.13 $217,727 $0.16 $240,566 $0.18 $333,625 $0.25
Advertising & Marketing $68,621 $0.05 $44,767 $0.03 $54,612 $0.04 $65,003 $0.05
Professional Services $106,242 $0.06 $131,765 $0.10 $174,935 $0.13 $131,071 $0.10
Earthquake Damage Repair $1,311 $0.00 $0 $0.00 $0 $0.00 $0 $0.00
Takeback Space Expenses $7,419 $0.01 $0 $0.00 $0 $0.00 $0 $0.00
Prior Yr Escalation Adjustment $0 $0.00 $0 $0.00 ($111,668) ($0.08) ($57,393) ($0.04)
Doubtful Account Expenses $0 $0.00 $0 $0.00 $8,649 $0.01 $9,369 $0.01
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-ESCALATABLE EXP. $1,497,035 $1.12 $1,455,977 $1.09 $1,336,195 $1.00 $1,439,454 $1.08
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES $15,763,751 $11.60 $14,881,573 $11.14 $15,000,541 $11.23 $15,079,318 $11.28
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
1998
CATEGORIES Budget PSF
- -------------------------------------------------
<S> <C> <C>
Utilities $2,754,050 $2.06
Cleaning / Janitorial $1,627,448 $1.22
Repairs & Maintenance $1,976,986 $1.48
Administration $723,366 $0.54
General Building $750,023 $0.56
Management Fee $934,234 $0.70
Insurance $1,146,194 $0.86
Atrium $360,827 $0.27
On-Site Parking $101,440 $0.0??
Off-Site Parking $333,369 $0.25
- -------------------------------------------------
Sub-total Escalatable Exp. $10,707,957 $8.01
- -------------------------------------------------
Real Estate Tax $2,410,440 $1.80
Other Taxes $69,881 $0.05
Property Tax Consulting $45,400 $0.03
- -------------------------------------------------
Total Escalatable Expenses $13,233,678 $9.90
- -------------------------------------------------
Parking Operations $990,474 $0.74
Non-Escalatables $76,368 $0.06
Leasing Expense $243,168 $0.18
Advertising & Marketing $80,318 $0.06
Professional Services $109,400 $0.08
Earthquake Damage Repair $0 $0.00
Takeback Space Expenses $0 $0.00
Prior Yr Escalation Adjustmnt $0 $0.00
Doubtful Account Expenses $0 $0.00
- -------------------------------------------------
Total Non-Escalatable Exp. $1,499,728 $1.12
- -------------------------------------------------
TOTAL EXPENSES $14,733,406 $11.03
- -------------------------------------------------
</TABLE>
<PAGE>
CATEGORY DESCRIPTION FOR ESCALATABLE EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Utilities Electricity, gas, diesel, and water
Cleaning / Janitorial Building, parking, uniforms, service program, and window cleaning contracts, supplies & materials, and
waste removal
Repairs & Maintenance Electrical, plumbing, HVAC, elevator, signage, landscaping, repairs & maintenance, services, contracts,
supplies & materials, painting/decor., engineering, dock, uniform, training, parking, sprinkler,
standpipe, fire pump, communications, other bldg. & grounds, filters, banners & flags, city/state code
permits, relamping, water treatment, mechanical, and lock
Administration Wages & salaries, payroll & benefits, bookkeeping, telephone/answering svcs, dues/subscriptions, postage,
travel & entertainment, equipment rental, supplies/materials, printing & coping, office rent, storage
rent, fire training room rent, temporary help, seminars & training, misc., repairs, escalation fees,
concierge svcs, and transportion
General Building Contract security, security supplies & uniforms, concierge services, and fire/life/safety
Management Fee Building management fee
Insurance Property insurance, liability insurance, & self-insured retention
Atrium Atrium
On-Site Parking On-site garage
Off-Site Parking Off-site garage
Real Estate Tax Property tax
Other Taxes Personal prop tax, misc. taxes, franchise fees, and other fees
</TABLE>
<PAGE>
PSF EXPENSE COSTS
CLASS A OFFICE BUILDINGS
400,000 - 1,000,000 SF
DOWNTOWN LOS ANGELES
<TABLE>
<CAPTION>
=======================================================================================================
PROPERTY PROPERTY 2 PROPERTY 3 PROPERTY 4 PROPERTY 5
EXPENSE CATEGORY 1996 ACTUALS* 1996 ACTUALS* 1996 ACTUALS 1996 BUDGET 1997 BUDGET
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Utilities $2.46 $2.50 $2.11 $2.77 $2.30
Cleaning/Janitorial 1.21 1.15 1.58 1.33 1.15
Repairs & Maintenance 1.85 0.60 1.60 1.75 0.80
Administration 0.75 0.80 0.72 0.73 0.51
General Building 0.60 1.50 0.84 1.15 0.52
Management Fee inc. in admin. 0.20 0.20 0.29 0.25
Insurance 1.11 0.60 0.94 0.71 0.92
Subtotal $7.98 $7.35 $7.99 $8.73 $6.45
Property Taxes 1.91** 1.90** 2.08 1.05 1.62
Total $9.89 $9.25 $10.07 $9.78 $8.07
=======================================================================================================
</TABLE>
* Adjusted to full occupancy
** Includes Metrorail Assessment
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
a direct basis, and current availabilities range from $8.00 to $12.00
per-square-foot annually, NNN on an "net effective" basis.
777 South Figueroa Street (F-4)
-------------------------------
This 52-story office tower is the second phase (three in total are
planned) of the larger Citicorp Plaza development. The Phase I tower
sold in March, 1997, and is under separate ownership (Trizec Hahn)
following a reallocation during 1996 of the assets among the previous
partnership for the Citicorp Plaza project (including Prudential and
Mitsubishi). The major tenants in the Phase II tower include American
Home Assurance (AIG - 105,000 SF), Marsh McLennan (85,000 SF), and
Arnold & Porter (50,000 SF). Adams Duque & Hazeltine leased 83,000
square feet for a 15-year term, but this law firm dissolved in late
1996, and vacated the space. Paine Webber leased the top two floors of
this building during 1st quarter, 1997 at $14 NNN per-square-foot, with
a $65 per-square-foot tenant allowance (raw space). The tenant relocated
from the adjacent 725 South Figueroa Street building. Johnson & Higgins
merged with Marsh McLennan during 1997 and relocated to 777 Tower,
expanding the existing premises by approximately 75,000 square feet. The
expansion premises was structured for a 10-year terms at an effective
(full service gross) rental rate of $26.00 per-square-foot annually,
with the tenant receiving a $40 per-square-foot allowance. The project
is currently 93 percent leased, and available space is marketed at rates
from $14.00 to $18.00 per-square-foot annually NNN.
Sanwa Bank Plaza (F-5)
----------------------
This 52-story office tower was completed in November, 1990, and has the
"100 percent" location in the downtown Central Business District, the
intersection of South Figueroa Street and Wilshire Boulevard. Much of
the building was preleased, and the major tenants include Sanwa Bank of
California (190,000 square feet), Dean Witter Reynolds (63,000 square
feet), Buchalter, Nemer, Fields, et al (125,000 square feet), Milbank,
Tweed, et al (93,000 square feet), Heller, Ehrman, et al (40,000 square
feet), Cushman Realty (35,000 square feet) and Chadbourne & Parke
(30,000 square feet. Buchalter, Nemer, Dean Witter, Cushman Realty,
Andrew & Kurth, Heller Erhman, and Milbank Tweed have subleased portions
of their premises. The property is currently 96 percent leased on a
direct basis, and available space is marketed at asking rents from
$15.00 to $25.00 per-square-foot annually, NNN. The quoted expenses are
$11.50 per-square-foot.
865 South Figueroa Street (F-6)
-------------------------------
This 35-story office tower was completed in January, 1991, and is the
most southerly Class A office building in the downtown market. The major
tenant in the building is the Trust Company of the West (TCW and
Westmark), with a combined premises of 160,000 square feet. Other major
tenants include the law firms Fulbright & Jaworski (40,000 square feet)
and Cummins & White (40,000 square feet), the advertising firm Davis and
Ball (32,000 square feet), and CalTrans legal division. The property is
currently 92 percent leased, and asking rents range from $14.00 to
$16.00 per-square-foot annually, NNN, with annual expenses of
approximately $10.00 per-square-foot. Recent leasing activity in the
building involved Oakmont Corporation, which leased 14,000 square feet
during 2nd quarter, 1997 at a 10-year net rent of $11.50 (effective).
- -------------------------------------------------------------------------------
72
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
550 South Hope Street (F-7)
---------------------------
This office project was a joint venture development of the Koll Company
and Ohbayashi America, and was completed in November, 1991. The site is
located directly north of the Central Library, and was previously
improved with the Church of the Open Door. The major tenants included
the Bank of California (125,000 square feet originally), Nippon Credit
Bank (25,000 square feet), Hokkaido Takusoku Bank (12,000 square feet
plus expansion), Howrey & Simon (64,000 square feet), and the law firm
Brobeck, Phleger & Harrison (150,000 square feet including 5th and 7th
year expansion space).
The Bank of California exercised an early cancellation option during 1994
for approximately five floors of space, and the landlord aggressively
released significant portions of the building during the past two years.
The property is currently 88 percent leased and current asking rents
range from $8.50 to $14.00 per-square-foot NNN. Reported expenses are
$9.90 per-square-foot annually. The property was recently acquired by
Equity Office for approximately $100 million. Oaktree Capital will
relocate from approximately 15,000 square feet in this building for
75,000 square feet in Wells Fargo Center during 1999.
801 Tower (F-8)
---------------
This office building was completed in June, 1992, and the major prelease
tenants were Mitsubishi Trust (35,000 square feet - an equity partner in
the project), Graham & James (95,000 square feet), and AMTAD (36,000
square feet). The Graham & James premises at 725 South Figueroa Street
was assumed by the landlord as part of this lease transaction. Subsequent
leases included Jardine Insurance, who signed an initial lease for 40,000
square feet, and subsequently expanded through merger with Alexander &
Alexander (formerly in Pasadena). Sedgewick & Detert, et al (50,000
square feet) and Chubb Insurance (80,000 square feet) also leased space
in this property during 1995-96. Chubb recently expanded is premises.
Alexander and Alexander has relocated from its 60,000 square-foot
premises in this building to 707 Wilshire, the former 1st Interstate
headquarters. The 801 Tower premises is offered for sublease at $18
per-square-foot, full service. As discussed in the Sales Comparison
Approach this property was acquired by an Indonesian investor during
March, 1996 for approximately $140 per-square-foot, and is currently
under contract as part of a portfolio of properties controlled by the
ownership. The building is currently 90 percent leased, and available
space is marketed for $22.00 to $25.00 per-square-foot, FSG. The prior
ownership had marketed the space for lease on a NNN basis.
333 South Hope Street (S-9)
---------------------------
Completed in 1974, this 55-story office tower was the first major Bunker
Hill office development, and it continues to be considered an excellent
quality Class A building despite its age. The building has a centralized
Bunker Hill location, and offers prominent building top signage formerly
controlled by Security Pacific National Bank. Following the merger with
Bank of America, the Security Pacific premises was vacated, and ARCO
recently (mid-1996) signed a lease for approximately 200,00 square feet
for a 15-year term. This tenant relocated to this building after the
second quarter, 1997, and has new sign rights. Shepherd, Mullin, et al
(140,000 SF) and the Capital Group (100,000 SF)
- -------------------------------------------------------------------------------
73
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
are also major tenants. Other leases in the property included CAP/MPT for
50,000 square feet, and Fuji Bank relocated to this building during the
fourth quarter, 1995. Sheppard Mullin renewed and extended its lease for
10 years. The property is currently 90 percent leased on a direct basis,
and quoted rents are $20.00 per-square-foot annually, full service
(excluding below-grade concourse level). The recent ARCO lease was
structured NNN, and annual per-square-foot expenses are approximately
$10.30. While newer developments in the CBD have been restricted to a
1.0/1,000 SF parking ratio, with 60 percent of this figure onsite, 333
South Hope has a 2.0/1,000 SF parking ratio. Parking rates are $160
(unreserved) and $220 for reserved monthly spaces.
Wells Fargo Center South (IBM Building - S-11)
----------------------------------------------
This 45-story office tower is located immediately south of the subject
and is Phase II of the subject development. This tower is also known as
the IBM building, and IBM is an equity partner with Maguire Partners. IBM
is also the major tenant, with a committed premises of approximately
613,000 square feet. The IBM lease has "staggered" expirations through
1999. The majority of the IBM space has been subleased, including a 1995
transaction for in excess of 200,000 square feet to the Los Angeles
Unified School District (LAUSD). Other major tenants and subtenants
include Munger, Tolles & Olsen (125,000 SF), McCutchen Doyle (50,000
SF), and Northern Trust (40,000 SF). The building is currently 80 percent
leased excluding leased but available IBM sublease space. Portions of the
available direct space is encumbered by expansion options for existing
tenants, and is offered for lease at $8.00 to $12.00 per-square-foot
annually NNN "net effective". The landlord has been negotiating with two
accounting firms to lease the IBM space which will be available at the
end of 1998.
California Plaza I (S-12)
-------------------------
This 42-story office tower was completed in 1985, and represents the
first phase of the California Plaza development (three towers total
planned, although Phase III will not be developed for the foreseeable
future). The building was developed on a speculative basis, and was
completed with no preleasing. Major tenants include Skadden and Arps
(190,000 SF), Riordan & McKenzie (50,000 SF), Morgan, Lewis & Bockius
(80,000 SF), Tokai Bank (70,000 SF) and Banker's Trust (65,000 SF). The
Morgan, Lewis lease was signed during third quarter, 1996. The building
is currently 84 percent leased on a direct basis, and available space is
offered for NNN rents from $10.00 to $15.00 per-square-foot annually. The
low end of the asking rent range corresponds to encumbered space. The
Bank of Boston (24,000 SF) and the Canadian Consulate (23,000 SF) did
not renew their leases following expiration at year-end 1996 (Bank of
Boston has left this market and the Canadian Consulate relocated to
another downtown building). Chase renewed its 23,000 square-foot 4th
floor lease in this building during 2nd quarter, 1997. Hill, Farrer &
Burril leased 30,000 square feet in this building during the second half
of 1997 at an effective rent of $27.50 (adjusted to full service) over a
10-year term.
Citicorp Plaza Phase I (S-13)
-----------------------------
This 41-story office tower sold in March, 1997 to Trizec Hahn/Whitehall
(refer to Sales Comparison Approach). Major tenants include Citicorp
(180,000 SF), Pillsbury, Madison & Sutro (120,000 SF), and KPMG Peat
Marwick (160,000 SF), with all three major leases expiring during 2000.
Citicorp signed a new lease to relocate to 444 South
- -------------------------------------------------------------------------------
74
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Flower Street, and KPMG Peat Marwick has also recently received proposals
from other downtown landlords. The building is currently 84 percent leased
on a direct basis, and available space is marketed at an asking rent of
$12.00 per-square-foot NNN. Expenses have historically been in excess of
$10 per-square-foot, but are reportedly budgeted at approximately $9.00
per-square-foot for 1998. The Citicorp space is offered for sublease, but
the remaining term limits the marketability without a combined
sublease/direct transaction.
444 South Flower Street (S-14)
------------------------------
This 48-story office tower is located at the base of Bunker Hill, at the
northeast corner of 5th and Flower Streets. Originally the headquarters
for Wells Fargo Bank, the building is encumbered by long-term leases
agreements to the bank, which has relocated to the new Wells Fargo Tower.
The major tenants in the building include Wells Fargo (360,000 SF),
Citibank (125,000 SF), and ARCO (145,000 SF). Each of these tenants has
lease terms extending to 2002 or 2012, and each has established
headquarters locations in other downtown buildings. Although the
building is 97 percent leased on a direct basis, sublease availabilities
total 17 percent of the total rentable area. A 50 percent interest in the
building was acquired in 1988 by Meijiseimei Realty. Current quoted
rental rates for direct availabilities are $18.00 per-square-foot
annually, FSG. Citicorp signed a lease for about 60,000 square feet to
relocate to this property prior to expiration of its current lease at 725
South Figueroa Street (S-13 above) in 2000, with building signage rights.
The reputed lease terms were 15 years at an $18 per-square-foot (gross)
effective rental rate and $55 per-square-foot tenant improvements. The
725 South Figueroa landlord remains obligated for Citicorp's original
premises in the 444 building to 2002, which was assumed as part of the
725 Citicorp lease agreement during 1985.
400 South Hope Street (S-15)
----------------------------
This 26-story polished granite office building, located just south of the
subject, was owned by a partnership consisting of Olympla & York (Apollo)
(45 percent), and major tenants O'Melveny & Myers (45 percent), and Price
Waterhouse (10 percent). Mellon Bank Corporation signed a lease during
September, 1996 for about 60,000 square feet of space in this building
for a new west coast headquarters location. The tenant also received
building signage rights. The bank will have offices on the fourth and
fifth floors, and open a Dreyfus Financial Center on the ground level.
The building is 87 percent leased following Mellon's occupancy in
January, 1997. The building recently emerged from bankruptcy.
Arco Plaza North and South Towers (T-16)
----------------------------------------
This two-tower office development was completed in 1972 and serves as
the corporate headquarters in Los Angeles for Atlantic Richfield (ARCO)
and Bank of America. The project was sold to Shuwa Investments in 1986,
and has been undergoing sprinkler retrofit and asbestos abatement for the
much of this decade. The original Arco and Bank of America premises were
approximately 400,000 square feet and 500,000 square feet, respectively.
ARCO negotiated a renewal/extension during the past 24 months, with a
reduction in the premises size. Other significant tenants in the building
include Ernst & Young (200,000 square feet), who is negotiating to
relocate to another downtown building. The landlord (Shuwa) has
experienced capital problems in recent
- -------------------------------------------------------------------------------
75
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
years, and reportedly does not have funds for tenant improvements or
leasing commissions, and the property has not been "actively" marketed for
lease. The project is currently 70 percent leased on a direct basis, and
current quoted asking rents range from $21 to $24 per-square-foot, FSG.
This property has a "100 percent" location in the CBD, and, although an
older development which contains asbestos, is an excellent quality
property (excluding ownership issues).
1st Interstate (Wells Fargo) Tower (T-17)
-----------------------------------------
This 62-story office tower was completed in 1974, and was the tallest
building in southern California prior to the completion of the new
Library Tower building. The merged Wells Fargo/1st interstate has a
premises of 420,000 square feet in this building, with a scheduled
expiration date of February, 1999. The bank also has a partial interest
in the property (with Equitable) and has placed its premises in the new
tower (F-1) on the sublease market, so it is not clear whether this lease
will be renewed. Alexander & Alexander relocated to this building during
1997, and has expanded to about 100,000 square feet. Other tenants
include Parson Brinkerhoff (120,000 SF) and a 90,000 square-foot law firm
tenant Rollins Hudig Hall, who relocated to this building from the
Universal City market during fourth quarter, 1996. The property is
currently 84 percent leased, and asking rental rates for available space
range from $16.00 to $24.00 per-square-foot FSG.
AT&T Center (T-18)
------------------
This 42-story tower is on leased land, and is the headquarters location
for the major tenant, AT&T, who leases 180,000 square feet for a term to
November, 2004. AT&T has subleased portion of its premises during the
past three years. Other major tenants include Burke, Williams, et al
(with 70,000 square feet) and a government tenant, Housing and Urban
Development (HUD), for 55,000 square feet. This building was originally
developed in 1968 and extensively renovated during the first half of this
decade, including fire sprinkler installation, asbestos abatement, and
extensive common area renovation. Currently 78 percent leased, available
space is offered at rates from $14 to $22 per-square-foot annually, FSG.
MCI Center (T-19)
-----------------
The office component of this project, which also includes a regional
shopping center anchored by Macy's and a Hyatt Hotel, was originally
developed in 1973 and has been extensively renovated since 1989
(including fire sprinklers and asbestos abatement programs). Major
tenants include MCI Communications (100,000 SF) Chase, Rotchford, et al
(40,000 SF), Xerox, and Tandem Computers. The building is currently 85
percent leased, and asking rents for available space range from $18.00 to
$22.00 per-square-foot annually, FSG. Farmer's Insurance signed a 10-year
lease for 40,000 square feet in this project during 1st quarter, 1998.
Union Bank Plaza (T-20)
-----------------------
This 40-story office tower was completed in 1967, and has undergone
renovation during the past five years, including common area upgrades and
exterior repainting. The ownership also expanded the retail component
during 1992-1994. The major tenant in the building is Union Bank, which
extended its lease for 300,000 square feet to 2004.
- -------------------------------------------------------------------------------
76
<PAGE>
Summary of
COMPARABLE OFFICE LEASES
Downtown Los Angeles Office Market
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ROUNDED DATE LEASE ANNUAL PSF RENT
ITEM AREA OF TERM ----------------------- EXPENSE
NO. BUILDING NAME LEASED (SF) LEASE (MONTHS) INITIAL ADJUSTMENTS BASIS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L-1 Cal Plaza N a) 175,000 1st Qtr. 180 $11.50 Years 6 - 10: $16.10 NNN
350 S. Grand Ave. 1997 Years 11 - 15: $20.92 NNN
-----------------------------------------------------------------------------
b) 19,000 3rd Qtr. 120 $14.25 Years 6 - 10: $18.00 NNN
1996
-----------------------------------------------------------------------------
c) 4,500 3rd Qtr. 84 $12.00 Years 6 - 7: $13.00 NNN
1996
d) 1,800 3rd Qtr. 84 $8.25 Flat NNN
1996
- ---------------------------------------------------------------------------------------------------------
L-2 550 S. Hope Street a) 2,500 2nd Qtr. 43 $7.25 Flat NNN
1997
b) 17,500 1st Qtr. 144 $16.50 Years 6 - 12: $22.50 FSG
1997
c) 35,000 3rd Qtr. 84 $12.00 Years 6 - 7: $16.00 NNN
1995
d) 25,000 3rd Qtr. 180 $17.00 Flat FSG
1995
- ---------------------------------------------------------------------------------------------------------
L-3 801 Tower a) 13,000 3rd Qtr. 120 $24.00 Years 6 - 10: $28.00 FSG
801 S. Figueroa St. 1997
b) 19,000 3rd Qtr. 60 $12.00 Mos. 13 - 31: $21.00 FSG
1997 Mos. 32 - 60: $22.50
c) 5,000 2nd Qtr. 60 $22.00 Flat FSG
1997
d) 6,200 1st Qtr. 60 $22.00 Flat FSG
1997
e) 13,000 1st Qtr. 132 $22.00 Years 3 - 8: $24.00 FSG
1997 Years 9 - 11: $26.00
f) 8.000 1st Qtr. 84 $21.00 Flat FSG
1997
- ---------------------------------------------------------------------------------------------------------
L-4 777 Tower a) 34,000 1st Qtr. 120 $14.00 Flat NNN
777 S. Figueroa St. 1997
- ---------------------------------------------------------------------------------------------------------
L-5 Library Tower a) 17,000 2nd Qtr. 120 $3.00 Flat NNN
633 W. 5th Street 1997
b) 6,000 2nd Qtr. 120 $9.75 Year 6-8: $6.00 NNN
1997 Year 9-10: $12.00
- ---------------------------------------------------------------------------------------------------------
L-6 444 Plaza a) 7,500 1st Qtr. 60 $5.00 Years 4 - 5: $6.00 NNN
444 S. Flower Street 1997
- ---------------------------------------------------------------------------------------------------------
L-7 333 S. Hope Street a) 130,000 1999 120 $30.00 Effective Rate FSG
(early
renewal)
b) 7,000 1st Qtr. 60 $22.00 Flat FSG
1997
c) 200,000 2nd Qtr. 180 $8.00 Years 6 - 10: $12.00 NNN
1996 Years 11 - 15: $24.00
d) 25,000 1st Qtr. 180 $24.00 Flat FSG
1996
e) 25,000 4th Qtr. 120 $17.00 Years 6 - 10: $22.00 FSG
1995
- ---------------------------------------------------------------------------------------------------------
L-8 Mellon Bank a) 50,000 4th Qtr. 180 $22.00 Years 6 - 10: $28.00 FSG
400 S. Hope St. 1996 Years 11 - 15: $33.00
- ---------------------------------------------------------------------------------------------------------
L-9 IBM Tower a) 288,000 2nd Qtr. 84 $8.60 Year 3: $15.40 FSG
355 S. Grand Avenue 1995 Year 4: $29.50
b) 25,000 4th Qtr. 120 $12.00 Years 6 - 10: $20.00 NNN
1995
- ---------------------------------------------------------------------------------------------------------
L-10 865 S. Figueroa St. a) 14,000 2nd Qtr. 120 $11.00 Years 6 - 10: $12.00 NNN
865 S. Figueroa St. 1997
- ---------------------------------------------------------------------------------------------------------
L-11 Caliornia Plaza I a) 17,000 3rd Qtr. 120 $10.00 Years 6 - 10: $20.00 NNN
300 S. Grand Ave. 1997
b) 30,000 3rd Qtr. 120 $15.00 Years 6 - 10: $20.00 NNN
1997
c) 23,000 2nd Qtr. 106 $5.00 Flat NNN
1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
EFFECTIVE
ITEM EFFECTIVE FSG RENT ADJUSTED
NO. CONCESSIONS RENT PSF FOR TI's
- ---------------------------------------------------------------------
<S> <C> <C> <C>
L-1 24 mos. free (gross) $24.78 $20.78
$60.00 psf TI 15 years 15 years
(adj. to FSG) (adj. to FSG)
12 mos. free (gross) $25.20 $19.00
$62.00 psf TI (adj. to FSG) 10 years
(adj. to FSG)
None free; $23.89 $16.03
$55.00 psf TI (adj. to FSG) 7 years
None free; $19.85 $16.23
$25.00 psf TI (adj. to FSG) 7 years
- ---------------------------------------------------------------------
L-2 None free; $16.86 $16.86
No TI's 4.5 years 4.5 years
$42.00 psf TI $12.40 $8.90
Lease assumption equivalent 12 years 12 years
to 50 mos. free rent;
discounted @ 9%
$1.1 mill lease takeover; $17.90 $12.19
$6 psf moving allowance 7 years 7 years
(20 mos equiv. gross free rent) (adj. to FSG) (FSG Basis)
$40.00 psf TI
None free; $17.00 $14.33
Parking concessions 15 years 15 years
$40.00 psf TI
- ---------------------------------------------------------------------
L-3 None free; $26.00 $22.00
$40.00 psf TI (raw space) 10 years 10 years
None free; $19.20 $19.20
No TI's 5 years 5 years
None free; $22.00 $17.00
$35,00 psf TI 5 years 5 years
None free; $22.00 $14.50
$37.50 psf TI 5 years 5 years
None free; $24.73 $21.09
$40.00 psf TI 11 years 11 years
(Expansion tenant)
None free; $21.00 $15.29
$40.00 psf TI 7 years 7 years
- ---------------------------------------------------------------------
L-4 No free rent; $24.00 $17.50
$65.00 psf TI (raw space) 10 years 10 years
- ---------------------------------------------------------------------
L-5 4 months free; $17.80 $17.80
No TI 10 years 10 years
21 months free; $20.90 $20.90
No TI 10 years 10 years
- ---------------------------------------------------------------------
L-6 One month free (net); $19.28 $19.28
No tenant Improvements 5 years 5 years
- ---------------------------------------------------------------------
L-7 None free; $30.00 $26.00
$40.00 psf TI 10 years 10 years
None free; $22.00 $13.60
$42.00 psf TI 5 years 5 years
26.5 mos. free $23.77 $20.16
$60.00 psf TI 15 years 15 years
$5.00 psf other concessions (FSG basis) (FSG basis)
23 mos. free $20.93 $16.93
$60.00 psf TI 15 years 15 years
None free; $16.84 $11.34
$55.00 psf TI; 10 years 10 years
Lease takeover = 17.4 mos.
$2.00 psf moving allowance,
(1.4 months equiv.)
- ---------------------------------------------------------------------
L-8 None free; $27.67 $22.97
$47.00 psf TI 15 years 15 years
- ---------------------------------------------------------------------
L-9 3 months free; $21.21 $18.92
$16.00 psf TI 7 years 7 years
(cash contributions & allowance)
19 months free (gross) $24.32 $19.32
$50.00 psf TI 10 years 10 years
(FSG basis) (FSG Basis)
- ---------------------------------------------------------------------
L-10 No free rent; $20.50 $14.50
$60.00 psf TI 10 years 10 years
- ---------------------------------------------------------------------
L-11 $6 psf Takeover, $22.00 $18.70
$33.00 psf TI 10 years 10 years
No free rent; $27.50 $22.50
$50.00 psf TI 10 years 10 years
No free rent; $5.00 $5.00
No TI's 10 years 10 years
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
The building is currently 90 percent leased on a direct basis, and
available space is marketed at a range from $16.00 to $24.00
per-square-foot, FSG. This property has a prominent location along the
Figueroa Street corridor, adjacent to the Harbor Freeway. Reuters America
recently renewed its lease in this building for 16,000 square feet for a
10-year term. The rental rate is flat for 10 years at $18 per-square-foot
FSG, and the tenant received a $40 per-square-foot allowances (the space
was "raw").
1000 Wilshire (T-22)
--------------------
This 22-story office building was developed by Reliance and sold to
Sumitomo Life prior to completion in 1986. The building is located
directly east of and adjacent to the Harbor Freeway. Major tenants
include Deloitte & Touche and Loeb & Loeb, Republic Factors and Wedbush
Securities. The building is currently 99 percent leased, and the asking
rent for available space is $21.00 per-square-foot annually, full service
gross.
The preceding buildings represent an extensive cross section of the supply
of major Class A downtown office buildings. As discussed previously the
subject is most similar in terms of quality, age and condition to the Top tier
properties, but must compete on a secondary basis with the 2nd tier properties
as well.
COMPARABLE LEASING ACTIVITY
The exhibit on the accompanying pages summarizes the terms of 30 leases
signed for space in a cross section of 11 competitive Class A (Top tier and
2nd tier) downtown Los Angeles office buildings during roughly the past 18
months. The data includes leases in each of the 1st two asset categories
discussed above, including "top tier" (items L-1 through L-5),
and "2nd tier" (items L-6 through L-11).
The leases cover a range in tenant sizes, rental rates, and concession
packages. While the structure of the leases in the market vary significantly
in terms of expense reimbursement structure, tenant allowances and other
concessions, the overall lease packages are fairly consistent based on the
relationship between the relative appeal of the building and the discounted
value of the lease to the landlord. "Raw" space, or suites that have not
previously been improved represent a frequent exception, however, as the
landlord must compete economically in some cases in which second generation
space can be used "as is" or redemised at substantially reduced costs. The
office lease chart includes detail of the tenant sizes, contract rental rates
and adjustments, and concessions (including tenant improvements, free rent,
lease takeovers, or other considerations such as parking discounts). The
"Effective FSG Rent PSF" column shows the average annual rent over the term of
the lease after deducting for free rent. The "Effective Rent Adjusted for
Tl's" column represents the previous effective rental rate adjusted for
tenant improvement allowances (not discounted) divided by the number of years
in the lease term.
Recent Subject Leasing Activity
-------------------------------
Excluding the Oaktree Capital lease(s) and Century Reprographics, the office
leasing has included predominately renewing ("existing") or expansion tenants.
The leases have all been structured NNN. The office leasing has included
predominately renewing ("existing") or expansion tenants. With two exceptions,
tenant
- -------------------------------------------------------------------------------
77
<PAGE>
RECENT LEASES
OFFICE and RETAIL COMPONENTS
WELLS FARGO CENTER
333 South Grand Avenue Downtown Los Angeles
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
TYPE OF OCCUPIED TERM LEASE DATE MINIMUM ADJUST
SUITE TENANT LEASE SQFT (MOS) BEGIN END RENT/PSF DATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE TENANTS
- -------------------------------------------------------------------------------------------------------
28-2900 Oaktree Capital New 48,892 120 Apr-99 Mar-09 $15.50
2700 Oaktree Capital New 24,491 120 Apr-99 Mar-09 $15.50
400 Century Reprographics New 4,806 60 Jun-98 May-03 $13.00
3100 Payden & Rygel Existing 12,123 78 Apr-98 Sep-04 $8.00
4040 Jeanie Lee Law Existing 1,000 69 Feb-98 Oct-03 $5.00
1880 Daniel Wier Existing 2,167 48 Feb-98 Jan-02 $5.50
650A Nan Nan Xu Existing 2,260 60 Jan-98 Dec-02 $4.00
$5.00 Jan-99
$7.00 Jan-00
$8.50 Jan-01
$10.00 Jan-02
1560 Parker Mulcahy Existing 4,156 72 Dec-97 Nov-03 $9.75
$10.00 Dec-01
3700 Barton Klugman Existing 14,129 62 Sep-97 Oct-02 $10.00
1710 Doc Repository Existing 4,133 54 Jul-97 Dec-01 $5.50
600 Business Acct Solu Existing 3,688 74 Jul-97 Aug-03 $6.00
3680 Ford & Harrison Existing 5,134 60 Jun-97 May-02 $6.33
3000 Jones Lang Wootton Existing 6,993 56 Jun-97 Jan-02 $14.08
4055 Al-Tech Enterprise New 1,603 36 Apr-97 Mar-00 $5.00
4000 Computer Generated 11,004 80 Apr-97 Nov-03 $8.00
$16.00 Apr-99
3010 Cigna 7,410 72 Mar-97 Feb-03 $7.00
NNN 153,989 70 Avg term length Weighted averages:
80,606 Excl. suites 27-2900 Excluding suites 27-2900
- -------------------------------------------------------------------------------------------------------
RETAIL TENANTS
- -------------------------------------------------------------------------------------------------------
R-26 Robeks NNN 515 60 Apr-98 Mar-03 $80 00
R-06 La Petite NNN 1,432 60 Nov-97 Oct-02 $32 00
$34.00 Nov-98
$36.00 Nov-99
$38 00 Nov-00
$40.00 Nov-01
1,947 60 Avg term length Weighted averages:
OFFICE AND RETAIL TENANTS 155,936 Total Leased SF WEIGHTED AVERAGES:
82,553 Total Leased SF excl. suites 27-2900 Excluding suites 27-2900
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE NNN
RENT CONCESSIONS EFFECTIVE NNN RENT ADJUSTED
SUITE FREE RENT TI'S(RSF) RENT PSF FOR TI'S
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
OFFICE TENANTS
- -------------------------------------------------------------------
28-2900 None $45.00/RSF $15.50 $11.00
2700 26 months $35.00/RSF $12.14 $8.64
400 None $18.60/RSF $13.00 $9.28
3100 6 months None $7.38 $7.38
4040 None $2.00/RSF $5.00 $4.65
1880 None None $5.50 $5.50
650A None None $6.90 $6.90
1560 None None $9.92 $9.92
3700 None $15.00/RSF $10.00 $7.10
1710 None $0.24/RSF $5.50 $5.45
600 None None $6.00 $6.00
3680 None $8.50/RSF $6.33 $4.63
3000 None $27.00/RSF $14.08 $8.30
4055 None $4.75/RSF $5.00 $3.42
4000 None None $13.60 $13.60
3010 4 months $5.00/RSF $6.61 $5.78
$23.63/RSF $11.72 $8.97
$7.21/RSF $9.30 $7.84
- -------------------------------------------------------------------
RETAIL TENANTS
- -------------------------------------------------------------------
R-26 None None $80.00 $80.00
R-06 None None $32.00 $32.00
None $44.70 $44.70
OFFICE AND RETAIL TENANTS $23.33/RSF $12.13 $9.42
$7.04/RSF $10.13 $8.71
</TABLE>
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
improvements have ranged from "none" to $8.50 per-square-foot, and the
corresponding NNN effective rental rates have ranged from $5.00 to $13.60 for
lease terms from 3 to 6 years in length. The Jones Lang Wooten lease for 6,993
square feet on the 30th floor included a $27 per-square-foot tenant allowance,
and the effective NNN rental rate for this lease was $14.08 per-square-foot.
As noted the weighted average NNN effective rent (prior to tenant improvement
considerations) was $9.06 for an average lease term of 63 months. As shown
subsequently the rounded per-square-foot expense reimbursements are
approximately $10.50, which results in a weighted average "adjusted" full
service gross rental rate of $19.56 per-square-foot. As shown on the exhibit,
the weighted average tenant improvement allowance for the office leases was
only $7.21 per-square-foot excluding Oaktree Capital. A more "typical" tenant
improvement allowance range is $25 to $40 for new 5- and 10-year tenants, and
these tenant improvement costs are typically "amortized" in the form of
additional rent over the term of the lease.
The Oaktree Capital lease was signed during the first week of March, 1998.
The lease was structured for the tenant to lease its primary premises on the
28 and 29th floors, with the 27th floor reserved as a "hold" space. The tenant
and landlord agreed to exercise to hold space option for the 27th floor so the
premises could be built out in conjunction with the primary premises, which is
expected to result in cost savings. The landlord restructured the agreement
for the 27th floor with 26 months free rent, but if the tenant takes occupancy
during this period the tenant will be required to pay variable expenses. The
primary Oaktree premises contains 48,892 square feet. The lease will commence
in April, 1999 for a 10-year term at a "flat" rent of $15.50 per-square-foot
annually, NNN. The tenant receives a $48 per-square-foot improvement allowance
(including planning), for the primary premises and $35 per-square-foot for the
hold space.
We also reviewed the terms of a "final letter of intent" between the subject
landlord and KPMG Peat Marwick for a total premises of approximately 110,000
square feet in the subject building. The date referenced for the agreement was
September, 1997, with a commencement date of July, 1999 for a 15-year term. As
noted previously this tenant currently occupies space in 725 S. Figueroa, and
has a scheduled lease expiration in 2000. The specific terms of the letter of
intent are included in the detailed subject budget, which is retained in our
files. The annual NNN rental rate over the term of the lease ranges from
$15.00 to $25.00, and the tenant would receive an improvement allowance of $43
per-square-foot. The adjusted "gross" effective rental rate over the term,
assuming a rounded $10.50 base year figure, is approximately $26.60
per-square-foot. KPMG subsequently announced a planned merger with Ernst &
Young, who leases space in another downtown building, and although the merger
was not completed as planned, the subject landlord committed to the Oaktree
Capital lease and can no longer satisfy the KPMG requirement in the subject
building.
Conclusions - Market Rent
-------------------------
The downtown market has been experiencing "real" market rental growth during
the past two years due to several related factors. The absence of new
construction since 801 Tower was completed in 1992, considered with modest,
stable absorption in the CBD, has permitted the upper tier and second tier
Class A buildings in the subject's asset category to achieve direct vacancy
rates of approximately 11 percent (refer to subsequent summary of competitive
buildings). The tightening of the Class A buildings in the market has been
caused
- -------------------------------------------------------------------------------
79
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
by internal growth for some downtown firms as well as new tenant movement to
the market, including Mid-Wilshire firms and insurance firms from Pasadena and
the westside markets. The discounted "effective" rents to the landlord, which
considers the time value of funds, as well as the costs of commissions and all
other concessions to the tenants, have increased during the past two to three
years from negative or zero "net present" lease values to a range from $3.50 to
$8.00 "net effective rents" over the term of the leases. The recent sales of
office buildings in this market, including 801 Tower, Cal Plaza II, Citicorp
Phase I, and 550 South Hope, have resulted in a changing ownership base in the
CBD. These new owners have fairly consistent cost bases, and are maintaining a
more firm stance on quoted, pro-forma rental rates under current, more
favorable market conditions. The more dated lease transactions in the downtown
market are generally acknowledged as below current levels, and brokers we
interviewed suggested rental rates have increased measurably since January,
1997.
The terms of a market lease can vary substantially based on the length of
the lease, the tenant allowance or other concessions requested by the tenant,
the size of the premises, credit worthiness of the tenant, and the level
(floor) within the building. We concluded the subject can compete effectively
for tenants at the upper end of the rental rate range in the CBD market. We
concluded a 10-year typical lease term is most appropriate in light of the
significant percentage of the building leased to major tenants. Based on our
analysis of the data, including the subject leasing activity but placing
emphasis of the comparable lease data and discussions with leasing brokers
active in this market, we concluded the following "typical" market rent and
concession package for the subject property.
MARKET RENT CONCLUSIONS - OFFICE FLOORS 4 THROUGH 22
Annual Rent Per Rentable SF
NNN Mos Free* Tenant Improve
Lease Term Initial PSF Adjustments New Renew New Renew
- ---------- ----------- ----------- --- ----- --- -----
10 Years $13.00 25% Year 6 8 4 $40 $15
($16.25)
Effective NNN Rent Over Term (Net of Free Rent:)
New Tenants: $13.76
Renewing Tenants: $14.19
Effective Rent Over Term - Ajusted to FSG ($10.50 PSF Expenses)
New Tenants $24.26
Renewing Tenants $24.69
Effective FSG Rent Adjusted for TI:
New Tenants: $20.69
Renewing Tenants: $23.19
*Including expenses
- -------------------------------------------------------------------------------
79
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
MARKET RENT CONCLUSIONS - OFFICE FLOORS 23 THROUGH 42
Annual Rent Per Rentable SF
NNN Mos Free* Tenant Improve
Lease Term Initial PSF Adjustments New Renew New Renew
- ---------- ----------- ----------- --- ----- --- -----
10 Years $14.00 25% Year 6 8 4 $40 $15
($17.50)
Effective NNN Rent Over Term (Net of Free Rent:)
New Tenants: $14.82
Renewing Tenants: $15.28
Effective Rent Over Term - Adjusted to FSG ($10.50 PSF Expenses)
New Tenants $25.32
Renewing Tenants $25.78
Effective FSG Rent Adjusted for TI:
New Tenants: $21.32
Renewing Tenants: $24.28
*Including expenses
MARKET RENT CONCLUSIONS - OFFICE FLOORS 43 THROUGH 54
Annual Rent Per Rentable SF
NNN Mos Free* Tenant Improve
Lease Term Initial PSF Adjustments New Renew New Renew
- ---------- ----------- ----------- --- ----- --- -----
10 Years $15.00 25% Year 6 8 4 $40 $15
($18.75)
Effective NNN Rent Over Term (Net of Free Rent:)
New Tenants: $15.88
Renewing Tenants: $16.38
Effective Rent Over Term - Adjusted to FSG ($10.50 PSF Expenses)
New Tenants $26.38
Renewing Tenants $26.88
Effective FSG Rent Adjusted for TI:
New Tenants: $22.38
Renewing Tenants: $25.88
*Including expenses
The accompanying exhibit summarizes the terms of a cross section of retail
leasing activity involving CBD properties during the past two years. We also
analyzed the sales volumes and occupancy costs for subject retail and
restaurant tenants. The historical and budget sales figures are summarized
subsequently. An accompanying exhibit "Occupancy
- -------------------------------------------------------------------------------
80
<PAGE>
OCCUPANCY COST ANALYSIS
Wells Fargo Center - Phase I
<TABLE>
<CAPTION>
ACTUAL TRENDED 3.5% BUDGET ANNUAL
------------------- ------------ ------------------ ------------- TOTAL
1997 1997 1998 1998 1998 RENT NNN ANNUAL OCCUP.
CATEGORY/TENANT SIZE SALES SALES/SF SALES SALES SALES/SF PSF CHARGES CHARGES COST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Russell's Drugs 3,070 $665,819 $216.88 $689,123 $750,000 $244.30 $15.85 $6.65 $22.50 10.4%
Flower Patch 710 $191,118 $269.18 $197,807 $240,000 $338.03 $35.15 $6.65 $41.80 15.5%
Sloan's Cleaners 807 $146,879 $182.01 $152,020 $150,000 $185.87 $38.00 $6.65 $44.65 24.5%
Pasqua 878 $585,882 $667.29 $606,388 $750,000 $854.21 $60.14 $6.65 $66.79 10.0%
Mrs. Fields 781 $315,898 $404.48 $326,954 $360,000 $460.95 $35.00 $6.65 $41.65 10.3%
La Petite Boulangerie 1,432 $955,389 $667.17 $988,828 $900,000 $628.49 $32.00 $6.65 $38.65 5.8%
Robeks (new tenant) 515 $0 $0.00 $0 $800,000 N/A $80.00 $6.65 $86.65 N/A
Valet Car Wash N/A $142,242 N/A $147,220 $105,000 N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
7,678 $2,880,985 $372.62 $2,981,119 $3,150,000 $410.26
- -----------------------------------------------------------------------------------------------------------------------------
RESTAURANTS
Stepps 8,723 $2,698,813 $309.39 $2,793,271 $3,000,000 $343.92 $23.54 $6.65 $30.19 9.8%
Cal Pizza Kitchen 4,700 $2,457,348 $522.84 $2,543,355 $2,400,000 $510.64 $24.00 $6.65 $30.65 5.9%
Fountain Court 1,650 $140,524 $85.17 $145,442 $125,000 $75.76 $0.00 $6.65 $6.65 7.8%
Rocky Mountain 523 $240,489 $459.83 $248,906 $226,000 $432.12 $25.00 $6.65 $31.65 6.9%
Crisp. Inc. (expiring) 255 $152,661 $598.67 $158,004 $36,000 N/A $50.00 $6.65 $56.65 N/A
McDonald's 4,036 $1,292,825 $320.32 $1,338,074 $1,400,000 $346.88 $15.50 $6.65 $22.15 6.9%
Kachina Grill 5,900 $1,530,299 $259.37 $1,583,859 $1,500,000 $254.24 $28.28 $6.65 $34.93 13.5%
Court Cafeteria 13,668 $1,454,447 $106.41 $1,505,353 N/A N/A $38.79 $6.65 $45.44 42.7%
Talpan 5,100 $689,122 $135.12 $713,241 $600,000 $117.65 $20.90 $6.65 $27.55 20.4%
- -----------------------------------------------------------------------------------------------------------------------------
30,632 $9,049,420 $295.42 $9,366,150 $9,251,000 $302.00
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL* 38,310 $11,910,40?? $310.90 $12,327,269 $12,401,000 $323.70 $30.08 9.7%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* - Excluding Valet car wash, Robeks, Crisp. Inc., and McDonald's
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Cost Analysis" summarized the total estimated cost of occupancy for the
subject tenants who report sales. We considered acceptable occupancy costs,
the recent retail leasing activity in the market and the subject property, and
estimated the following "typical" market rental and concession conclusions for
the subject retail and restaurant space.
RESTAURANT TENANTS
Annual Rent Per Rentable SF
NNN Mos Free* Tenant Improve
Lease Term Initial PSF Adjustments New Renew New Renew
- ---------- ----------- ----------- --- ----- --- -----
10 Years $24.00 25% Year 6 8 4 $25 $10
($30.00)
RETAIL TENANTS
Annual Rent Per Rentable SF
NNN Mos Free* Tenant Improve
Lease Term Initial PSF Adjustments New Renew New Renew
- ---------- ----------- ----------- --- ----- --- -----
10 Years $36.00 25% Year 6 8 4 $25 $10
($45.00)
Storage tenants were modeled at a market rent of $20.00 per-square-foot
annually, with no expense recoveries (gross). Future storage leases were
modeled for assumed 10-year terms, and include annual CPI increases.
OTHER REVENUES
The exhibit on the accompanying page "Income Statements" summarizes the
historical and budgeted revenues by category during the periods 1994 through
1997 (year-end actuals), and budgeted 1998. The office, retail, storage, and
escalation revenues for the subject are modeled in the discounted cash flow
analysis. The "other revenue" sources for the subject in addition to these
categories have included "Sundry", Parking" and "Other" income. These
categories and the projections are discussed below.
Sundry Revenues - This income category for the subject has included
primarily revenues (adjusted for directly associated expenses) relating
to direct tenant billings for services and utilities. After-hours HVAC
billings have historically represented the largest single component of
this income category. Supporting detail is included in the Addenda.
Actual and budgeted Sundry revenues (net of associated expenses) are
summarized below.
YEAR SUNDRY REVENUES
- ---- ---------------
1994 $881,558
1995 $912,988
1996 $882,466
1997 $937,569
1998 budget $849,540
Avg indication: $892,824
- -------------------------------------------------------------------------------
81
<PAGE>
INCOME STATEMENTS
WELLS FARGO CENTER - PHASE I
333 South Grand Street Total Building NRA: 1,336,244
Los Angeles, California 90071 Total Office & Storage: 1,267,105
Retail: 69,139
As of March, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
CATEGORIES YEAR END PSF YEAR END PSF YEAR END PSF YEAR END PSF BUDGET PSF
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office Rentals $25,143,580 $19.84 $24,247,402 $19.14 $22,412,674 $17.69 $22,320,527 $17.62 $20,147,413 $15.90
Retail Rentals $2,133,640 $30.86 $2,043,092 $29.55 $2,036,881 $29.46 $2,024,625 $29.28 $2,110,502 $30.53
Escalation Revenue $7,656,146 $5.73 $7,454,471 $5.58 $7,342,848 $5.50 $7,788,784 $5.83 $8,015,772 $6.00
Sundry Revenue $881,558 $0.66 $912,988 $0.68 $882,466 $0.66 $937,569 $0.70 $849,540 $0.64
Parking Revenue $4,124,244 $3.09 $4,554,744 $3.41 $4,945,398 $3.70 $4,988,346 $3.73 $4,668,331 $3.49
Other Revenue $306,064 $0.23 $903,774 $0.68 $1,297,897 $0.97 $1,603,556 $1.20 $591,340 $0.44
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL GROSS INCOME $40,245,232 $30.12 $40,116,471 $30.02 $38,918,164 $29.13 $39,663,407 $29.68 $36,382,898 $27.23
- -----------------------------------------------------------------------------------------------------------------------------
CATEGORY DESCRIPTION
Office Rentals Base rent, overstandard property tax, storage, sublease rent, and rent relief
Retail Rentals Base rent, percentage rent, overstandard property tax, and rent relief
Escalation Revenue Office and retail escalations
Sundry Revenue Electrical, signs, key, engineering/maintenance, security, janitorial, and miscellaneous
sundries late fees, air conditioning, general building, and utilities
Parking Revenue Parking Income
Other Revenue Interest Income, and other income
</TABLE>
[Graph omitted]
[Photo omitted]
<PAGE>
RECENT RETAIL LEASE TRANSACTIONS
Downtown Los Angeles
1995 through 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Item Type of Name of Rentable Lease Annual Rental Adjustment
No. Property/Location Tenant Tenant Area (sf) Term Rent PSF Adj. Date New Rent
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L-1 Pacific Mutual Building a) Restaurant Coffee Grounds 1.250 10 years $32 00 Year 6 $36.80
523 West 6th Street (Fast food) (NNN)
Centrat Business District
- --------------------------------------------------------------------------------------------------------------------------------
L-2 Macy's Plaza & Hyatt Hotel a) Health Bally's Fitness 16,000 15 years $13 00 Year 6 $16 25
700 South Flower Street Club (NNN) Year 10 $20 31
Central Business District
b) Retail Limited Express 7,000 10 years $5 00 Year 4 $10 00
Store (NNN) Year 8 $15 00
c) Post U.S. Post Office 6,000 15 years $6 20 Fixed Bumps
Office (NNN)
Lease was a modified gross lease
- --------------------------------------------------------------------------------------------------------------------------------
L-3 ARCO Tower North a) Restaurant McDonald's 2,144 20 years $11 19 Year 5 $13 43
515 So. Flower Street (Fast food) (Gross) Year 10 $16 11
Central Business District Year 15 $19.34
b) Restaurant Starbucks 697 10 years $24 00
(Fast food) (Gross)
- --------------------------------------------------------------------------------------------------------------------------------
L-4 First Interstate World Center a) Retail Herman Miller Lighting 13,800 10 years $18 00 Year 6 $21 60
633 West Fifth Street Store (NNN)
Central Business District
- --------------------------------------------------------------------------------------------------------------------------------
L-5 California Plaza N a) Florist Junipper's Florist 441 10 years $35 03 None ....
350 South Grand Avenue (NNN)
Bunker Hill
b) Restaurant The Bagel Shop 800 10 years $18.00 Fixed Bumps
(Fast food) (NNN)
- --------------------------------------------------------------------------------------------------------------------------------
L-6 811 Wilshire Building a) Restaurant Flower Street Cafe & 4,760 15 years $4 00 Fixed Bumps
811 Wilshire Boulevard Sports Bar (NNN)
Central Business District
- --------------------------------------------------------------------------------------------------------------------------------
L-7 Union Bank a) Restaurant La Salsa 1,360 10 years $20 00 Fixed Bumps
445 South Figueroa Street (Fast food) (NNN)
Central Business District
b) Restaurant Starbucks 1,227 10 years $27 48 Fixed Bumps
(Fast food) (NNN)
- --------------------------------------------------------------------------------------------------------------------------------
L-8 818 Building a) Beauty/hair Alter Ego 1,400 5 years $27 00 Flat
818 West Seventh Street (NNN)
Central Business District
b) Restaurant It's A Wrap! 1,450 10 years $22 50 Flat
(Fast food) (NNN)
- --------------------------------------------------------------------------------------------------------------------------------
L-9 444 Plaza a) Restaurant Blimpie's 800 10 years $17.49 Fixed Bumps
444 South Flower Street (Fast food) (NNN)
Central Business District
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
ITEM CONCESSIONS EFFECTIVE
NO. TIS FREE RENT RENT
- --------------------------------------------
<S> <C> <C> <C>
L-1 $20.00 /sf None $34.10
- --------------------------------------------
L-2 $95.00 /sf None $16.52
$100.00 /sf None $10.00
None None $7.52
- --------------------------------------------
L-3 None None $15.00
$10.00 /sf None $27.30
- --------------------------------------------
L-4 $95.00 /sf None $19.80
- --------------------------------------------
L-5 $56.69 /sf None $35.03
$30.00 /sf None $20.00
- --------------------------------------------
L-6 $105.00 /sf None $11.14
- --------------------------------------------
L-7 $8.09 /sf N/A $17.64
$10.00 /sf None $30.86
- --------------------------------------------
L-8 None 3 mos $27.00
(in lieu of TIs)
None 6 mos. $21.38
- --------------------------------------------
L-9 $30.00 /sf 6 mos. $20.25
- --------------------------------------------
</TABLE>
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Based on the consistent historical trend we projected Sundry Revenues at
$900,000 during the first year of the analysis.
Parking Revenues - The subject parking facilities include the subterranean
garage beneath the project containing 2,014 spaces, and an offsite parking
garage ("X-2") containing 774 spaces. The parking facilities provide parking
rights for both phases of the subject development, including Phase I (North
Tower, or Wells Fargo Tower), and the Phase II "South Tower", or IBM Tower.
The Phase II tower is not a subject of this appraisal.
The parking garages are operated according to the terms of a Reciprocal
Easement and Operating Agreement governing, among other issues, the common use
and operation of the parking between the two phases of the project. The
parking revenues for monthly parkers are collected and retained by the Phase I
and Phase II ownerships directly, and transient parking income is distributed
"pro rata", based on the number of total spaces less monthly parkers.
Expenses are allocated pro rata between the two phases.
The parking facilities are managed by Century Parking, Inc. ("CPI"). We
reviewed detailed statements submitted by the operator for the combined onsite
and offsite garages covering the periods 1995, 1996, and 1997. We also
reviewed the 1998 budget projections by CPI. This data is summarized on the
accompanying exhibit. The total revenues, net of 10 percent city taxes, are
summarized below.
Year Parking Revenues
- ---- ----------------
1995 $4,572,169
1996 $4,936,566
1997 $5,029,284
1998 budget $4,588,497
Avg indication: $4,781,629
The 1998 budget incorporates a 2.5 percent scheduled increase in parking
rates. We note that the total parking revenue figures contained in the
consolidated statements and budget differ slightly from the figures above,
which were based on the CPI statements. We relied on the historical data and
projected parking revenues at $4,750,000 during the first year of the
projection.
Other Revenues - This category has historically included interest income and
"other" income. The revenues from this category have ranged from $306,064
during 1994 to $1,603,356 for year-end 1996. Based on our review of the
supporting statements the revenues allocated to this category are attributable
to interest income, which we consider "non-realty" or are not detailed. We
have not included these revenues in our projections for the property.
- -------------------------------------------------------------------------------
81
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
been occupied (including Smith Barney with two full floors) which also reduces
utilities costs. Based on the historical data for the subject projected
utilities expenses at $2.25 per-square-foot annually at full occupancy,
allocated $1.15 to fixed and $1.10 to variable expenses. The indicated
utilities expense at 90 percent occupancy is $2.09 per-square-foot.
CLEANING/JANITORIAL - This category includes contract cleaning expenses for
the building, window cleaning, and parking garage (including the off-site
garage). Also included in this category are trash removal expenses, cleaning
supplies and uniforms, and training/incentive programs. The historical costs
for this category range from $1.12 per-square-foot (1995) to $1.22
per-square-foot (1994), which compares with the $1.29 and $1.22
per-square-foot expenses budgeted for 1998. The 1998 budgeted expense is
consistent with historical data for the property, and is generally consistent
with other CBD office buildings in this market. We estimated cleaning and
janitorial expenses at $1.30 per-square-foot annually at full occupancy,
allocated $0.70 to fixed and $0.60 to variable costs. The indicated cost for
this category at 90 percent occupancy is $1.24 per-square-foot.
REPAIRS AND MAINTENANCE - We allocated costs for several categories reported
separately by the property management to this expense category. We included
miscellaneous building and grounds expenses, including building repairs and
maintenance (interior and exterior), pest control, contract engineering
services for the HVAC system and elevators, as well as costs for maintaining
other building mechanical and electrical systems. Per-square-foot annual costs
for this category have been in a tight range from $1.45 to $1.48 during 1994
through 1997. The budgeted 1998 cost for this category is $1.48
per-square-foot. We projected this expense at a rounded $1.50 per-square-foot
during 1998. This projection is consistent with historical and budgeted costs
for the subject, and is consistent with the range in costs for this category
in other Class A CBD office buildings.
ADMINISTRATION - Included in this category are all costs associated with
onsite administration and management of the property, including salaries and
related payroll costs. No specific payroll detail was available, but salaries
for a project of the subject's size will include a general manager and
assistants, onsite office rent, office staff including receptionist, payroll
processing and bookkeeping, concierge, offsite parking/traffic supervisor and
traffic demand management personnel. Also included in this category are rent
expenses for storage space used by building personnel and "Training Room
rent". These two sub-categories total about $112,000 for the 1998 budget. The
per-square-foot administrative expenses for the subject have ranged from $0.50
to $0.53 per-square-foot during 1994 through 1997. The budgeted 1998
administrative cost is $0.54 per-square-foot. We projected administration
expenses at $0.50 per-square-foot annually.
GENERAL BUILDING - This category includes costs for security, concierge
services, and fire/life safety systems. Contract security costs represent the
most significant component of this expense category. Historical
per-square-foot costs ranged from $0.56 (1997) to $0.66 (1995,) and is
budgeted at $0.56 per-square-foot during 1998.
- -------------------------------------------------------------------------------
84
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
We relied on the historical and budgeted data and projected this expense at
$0.58 per-square-foot annually.
MANAGEMENT FEE - This category considers offsite professional management
expenses, and excludes costs included in the onsite Administration category
discussed previously. The historical management expenses for the subject have
ranged from $0.76 per-square-foot during 1996 to $0.78 per-square-foot for
1994, 1995, and 1997. The 1998 budget projects management fees at $0.70
per-square-foot. The management fee is based on 2.5 percent of effective gross
income. The subject is managed by an entity related to the ownership and the
original developer of the property. The historical and current management fees
are above market costs for third party management contracts, which are usually
in the range from approximately $0.20 to $0.40 per-square-foot annually for
other Class A CBD office buildings. Based on comparable costs for CBD
buildings in this market, and recognizing the complexities of the subject
development, we estimated management fees at $0.35 per-square-foot annually
(fixed) during 1998. This figure equals approximately 1.25 percent of the
budgeted 1998 effective gross income.
INSURANCE - According to statements we reviewed this category includes
property, liability, and "self-insured retention" insurance costs. No
breakdown of the property insurance by specific component (such as earthquake)
was included in the statements. The subject insurance expenses have ranged
from $0.84 to $1.05 per-square-foot annually from 1994 through 1997. The 1998
budget shows a decline to $0.86 per-square-foot. Insurance expenses have
increased in southern California since the January, 1994 Northridge
earthquake, particularly for the earthquake component of insurance expense. We
projected insurance expenses of $1.00 per-square-foot during 1997.
ATRIUM - The Atrium level of the subject's retail component is enclosed, and
expenses associated with maintaining this portion of the property are
categorized separately, with pro-rata allocation of the expenses between the
subject Wells Fargo Tower and the adjacent IBM Tower. Atrium expenses include
contract cleaning and window cleaning, extermination, interior landscape
maintenance, repairs and maintenance, HVAC/Elevator maintenance, and security
costs. The historical expenses for this category have ranged from $0.25 during
1994 to $0.29 during 1997, and are budgeted at $0.27 per-square-foot for 1998.
We projected Atrium expenses at $0.28 per-square-foot during 1998.
ONSITE AND OFFSITE PARKING - The subject parking facilities include the
subterranean parking garage beneath the tower ("onsite parking") and the
offsite garage which is located about two blocks northeast of the property
("offsite parking"). The recoverable component of the expenses for these two
parking locations include the costs for cleaning, maintenance, security, and
other miscellaneous costs for each parking structure. The offsite parking
costs are allocated to the north (subject) and south towers (IBM) based on a
56 percent (subject)/44 percent (IBM) prorata allocation. Recoverable expenses
for the offsite garage also include allocated expenses for the parking
shuttle service. As shown on the expense summary, the parking expenses for
these two
- -------------------------------------------------------------------------------
85
<PAGE>
Wells Fargo Center - North Tower
OVERSTANDARD TIS
333 South Grand Avenue Downtown Los Angeles
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EXPIRE
SUITE TENANTS DATE 1998 1999 2000 2001 2002 2003 2004 2005
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OSTI - Office
5300 Sumitomo Trust Aug-02 $9,006 $9,186 $9,370 $9,558 $6,499
5200 Smith Barney Oct-02 $10,724 $10,938 $11,157 $11,380 $9,673
4400 Gibson Dunn Nov-12 $102,838 $104,895 $106,993 $109,132 $111,315 $113,541 $115,812 $118,128
4100 Donovan Leisure Nov-99 $10,965 $10,252
4070 Citibank Nov-03 $1,364 $1,412 $1,440 $1,469 $1,498 $1,401
40??0 Will Trefry Jan-96 $33
4050 Pansky & Markle Oct-98 $40
4040 Jeanie Lee Law Oct-03 $0
3700 Barton Klugman Nov-02 $5,382 $5,490 $5,599 $5,711 $5,340
36??0 Ford & Harrison May-02 $436 $444 $453 $462 $196
3570 Thai Farm Bank Apr-99 $746 $254
3400 Thelen Marrin Dec-02 $25,931 $26,450 $26,979 $27,518 $28,068
3200 Payden & Rygel Sep-04 $31,413 $32,041 $32,682 $33,336 $34,003 $34,683 $26,532
3040 Banco Di Napoli Nov-02 $1,677 $1,711 $1,745 $1,780 $1,664
3030 Boyt Co Sep-96 $45
2900 Kleinwort Benson Jan-96 $88
2300 Kidder Peabody Aug-01 $25,525 $26,035 $26,55?? $18,058
2201 First Boston Dec-04 $25,410 $25,918 $26,437 $26,965 $27,505 $28,055 $26,616
2050 Dev. Specialists May-00 $333 $340 $144
1830 Owen wilkenson Sep-00 $206 $210 $161
1800-A Goldman Sachs Jan-01 $26,986 $27,526 $28,076 $2,386
1600 Peterson Ross Sep-01 $8,021 $8,161 $8,345 $6,384
1570 Marks Murase White Aug-98 $1,342
1500 O'Brien Partners Dec-01 $1,066 $1,067 $1,109 $1,131
1450 Delta Asset Mgmt Aug-98 $988
5, 7 - 12 Wells Fargo Bank Feb-13 $90,459 $92,268 $94,114 $95,996 $97,916 $99,874 $101,872 $103,909
600 Chang HWA Jul-06 $4,649 $4,742 $4,837 $4,934 $5,032 $5,133 $5,236 $5,341
470 Bunker Hill Club Jul-98 $59
300 Wells Fargo Bank Feb-13 $38,242 $39,007 $39,787 $40,583 $41,394 $42,222 $43,067 $43,928
- ------------------------------------------------------------------------------------------------------------------------
OFFICE TOTALS $423,993 $428,387 $425,984 $396,784 $370,105 $324,909 $321,134 $271,306
- ------------------------------------------------------------------------------------------------------------------------
OSTI - Retail
R-32 Cal Pizza Kitchen Apr-04 $8,717 $8,891 $9,069 $9,251 $9,436 $9,624 $3,272
R-9 Russell's Aug-01 $2,128 $2,171 $2,214 $1,506
R-3 Federal Express Dec-96 $441
R-5 Flower Patch Dec-96 $551
R-23 Crisp Foods, Inc. Feb-98 $189
R-50 Legal Source Nov-96 $457
R-15 McDonald's Jul-06 $6,086 $6,208 $6,332 $6,459 $6,588 $6,719 $6,854 $6,991
R-17 Mrs. Fields Dec-06 $103 $105 $107 $109 $111 $114 $116 $118
R-19 Pasqua Apr-07 $696 $710 $724 $739 $753 $768 $784 $799
R-25 Rocky Mountain Jun-02 $829 $846 $862 $880 $449
R-9 Russell's Aug-01 $2,128 $2,171 $2,214 $1,506
R-350 Stepps Dec-00 $9,267 $9,452 $9,641
R-7 Taipan Sep-00 $9,271 $9,456 $7,234
R-33 UPS Dec-96 $84
R-100 Wells Fargo Bank Feb-13 $8,682 $8,856 $9,033 $9,213 $9,398 $9,586 $9,777 $9,973
R-ATM1 Wells Fargo Bank Jul-99 $229 $136
- ------------------------------------------------------------------------------------------------------------------------
Retail Totals $49,857 $49,001 $47,431 $29,661 $26,734 $26,811 $20,803 $17,882
- ------------------------------------------------------------------------------------------------------------------------
Totals $473,850 $477,383 $473,415 $426,446 $336,840 $351,721 $341,938 $289,187
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUITE 2006 2007 2008 2009 2010 2011 2012 2013
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5300
5200
4400 $120,491 $122,901 $125,359 $127,866 $130,423 $133,032 $124,385
4100
4070
4060
4050
4040
3700
3680
3570
3400
3200
3040
3030
2900
2300
2201
2050
1830
1800-A
1600
1570
1500
1450
5, 7 - 12 $105,987 $108,107 $110,269 $112,474 $114,724 $117,018 $119,359 $20,291
600 $3,178
470
300 $44,807 $45,703 $46,617 $47,549 $48,500 $49,470 $50,459 $8,578
$274,462 $276,710 $282,245 $287,889 $293,647 $299,520 $294,203 $28,869
R-32
R-9
R-3
R-5
R-23
R-50
R-15 $4,160
R-17 $121
R-19 $815 $277
R-25
R-9
R-350
R-7
R-33
R-100 $10,172 $10,376 $10,583 $10,795 $11,011 $11,231 $11,456 $1,947
R-ATM1
- ------------------------------------------------------------------------------------------
$15,268 $10,653 $10,583 $10,795 $11,011 $11,231 $11,456 $1,947
- ------------------------------------------------------------------------------------------
$289,730 $287,363 $292,828 $298,684 $304,658 $310,751 $305,659 $30,817
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
locations have totaled from $0.30 per-square-foot during 1994 and 1995 to
$0.34 during 1997. The budgeted figure for 1998 is $0.33 per-square-foot,
which is consistent with the most recent actual performance. We projected
recoverable parking expenses at $0.33 per-square-foot of rentable area
during 1998.
REAL PROPERTY TAXES - This category includes real estate taxes, which can
be increased 2% annually under the terms of Proposition 13. The subject
taxes declined since 1994 due to appeals based on Proposition 8. The
actual real estate taxes have ranged from $1.95 to $2.53 per-square-foot
annually, and are budgeted at $2.08 per-square-foot during 1998. We based
real estate taxes on the value conclusion in this appraisal and the
subject's tax rate (rounded).
OTHER TAXES AND TAX CONSULTING - This category includes
business/occupancy tax, and tax consulting fees associated with
Proposition 8 appeals. The historical costs have ranged from $0.05 to
$0.09 per-square-foot, and are budgeted at $0.08 per-square-foot during
1998. We projected this expense at $0.08 per-square-foot during 1998
based on the consistent trend.
NON-RECOVERABLE EXPENSES
Parking Operating Expenses - This category represents primarily the
parking management and operator's expenses for the subject onsite and
offsite parking garages. A previous summary included in the Parking
Revenue discussion provided detail covering the parking operator's
historical and budgeted expenses and management fees for these two
garages.
The annual expenses are summarized below.
Year Parking Expenses
---- ----------------
1995 $898,648
1996 $895,323
1997 $890,311
1998 budget $946,664
These expenses suggest implied per-square-foot costs based on total
rentable area of $0.67 to $0.71. Based on the trend in costs we projected
this expense at $0.70 per-square-foot of building area during 1998.
Overstandard Property Taxes - This category includes taxes allocated to
specific tenants for above-standard improvements in tenant suites. These
taxes are recovered directly from the tenants, and are based above
buildout costs above specified levels in the leases. The exhibit on the
accompanying page summarizes the current status of these charges and the
remaining period remaining and figures allocated for overstandard
improvements. We modeled these costs and reimbursements according to the
projections shown on the exhibit, and deducted the direct reimbursements
from the expense "pool" for real estate taxes prior to passthrough to the
tenants.
- -------------------------------------------------------------------------------
86
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
RESERVES AND NON-REIMBURSABLE EXPENSES - We included a deduction of $0.20
per-square-foot annually for reserves and replacement of short-lived
items as well as for legal and other non-operating costs absorbed by the
property ownership.
The expense conclusions for the property are summarized below.
SUMMARY OF EXPENSE CONCLUSIONS (1998)
Expense PSF PSF PSF
Category Fixed Variable Total @ 100%
RECOVERABLE ----- -------- ------------
Utilities $1.15 $1.10 $2.25
Cleaning $0.70 $0.60 $1.30
Repairs/Maintenance $1.50 --- $1.50
Administration $0.50 --- $0.50
General Building $0.58 --- $0.58
Management Fee $0.35 --- $0.35
Insurance $1.00 --- $1.00
Atrium $0.28 --- $0.28
On/Offsite Parking $0.33 --- $0.33
Subtotal $6.39 $1.70 $8.09
R.E. Taxes $2.15 --- $2.15
Other Taxes $0.08 --- $0.08
Total $8.61 $1.70 $10.31
NON-RECOVERABLE
Parking $0.70
Reserves $0.20
VACANCY AND COLLECTION LOSS AND RELEASING ASSUMPTIONS
Investors are primarily interested in the annual revenues an income property
is likely to produce over a specified period of time rather than the income it
could produce if it were always 100 percent occupied and all the tenants were
paying their rent in full and on time. It is normally a prudent practice to
expect some income loss as tenants vacate, fail to pay rent, or pay rent late.
The subject is currently 92.9 percent leased, including two major tenants
leasing 35 percent of the total rentable area and a signed lease for a tenant
not yet in occupancy. The retail/restaurant space is fully leased. The exhibit
on the accompanying page is restated from the Market Analysis, and summarizes
the vacancy levels for the 57 office buildings surveyed in five downtown
locations. As shown on the chart direct and overall vacancy levels for the 57
buildings are 17.2 percent and 21.8 percent, respectively.
As discussed in previous sections the CBD market is somewhat "tiered", with
Class A buildings experiencing lower vacancy rates than second tier, or Class
B and C buildings. The
- -------------------------------------------------------------------------------
87
<PAGE>
OFFICE BUILDING VACANCY SURVEY
LOS ANGELES DOWNTOWN OFFICE MARKET
Rental and Occupancy Survey as of 1st Qtr 1998
<TABLE>
<CAPTION>
NO. OF INVENTORY AVAILABLE (SF) VACANCY RATIOS
BUILDING CLASSES BUILDINGS SQUARE FEET DIRECT SUBLEASE OVERALL DIRECT SUBLEASE OVERALL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(A) Top Tier "Class A" 8 7,423,857 705,313 199,189 904,502 9.5% 2.7% 12.2%
(B) Second Tier "Class A" 7 7,014,848 778,718 542,704 1,321,422 11.1% 7.7% 18.8%
(C) Third Tier "Class A" 8 5,948,909 1,273,767 146,910 1,420,677 21.4% 2.5% 23.9%
TOTAL 23 20,387,614 2,757,798 888,803 3,646,601 13.5% 4.4% 17.9%
</TABLE>
[Graph omitted]
[Graph omitted]
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
chart below is restated from the Market Analysis, and shows the year-end 1997
breakdown of the CBD office market by asset category.
Vacancy Rate
Building Quality/Class No. of Buildings Inventory (SF) Direct Overall
- ---------------------- ---------------- -------------- ------- -------
Class A 39 24,832,582 15.7% 20.5%
Class B 19 3,965,539 34.9% 35.1%
Class C 7 803,751 36.1% 36.1%
Totals 65 29,601,872 18.9% 22.9%
The downtown market has experienced a slow, gradual improvement in vacancy
levels over the past several years as a result of modest absorption and no new
development. The previous downtown Los Angeles rental and occupancy survey
which included a breakdown of 23 Class "A" buildings by category showed the
following vacancy statistics.
Building Category No. of Buildings Total NRA Direct Vacancy %
- ----------------- ---------------- --------- ----------------
Top Tier Class A 8 7,423,857 9.5%
Second Tier Class A 7 7,014,848 11.1%
Third Tier Class A 8 5,948,909 21.4%
Totals 23 20,387,614 13.5%
The "top tier" and "second tier" buildings, which represent the most
directly competitive supply, have achieved an aggregate vacancy rate of
approximately 10.3 percent, which substantially below the vacancy rate for all
downtown Los Angeles office buildings.
The subject's Bunker Hills submarket of downtown Los Angeles contains the
greatest concentration of Class A buildings, and has become perhaps the most
desirable location for tenants in the market. The accompanying graph
summarizes the substantial improvement in the direct vacancy rates for the
Bunker Hill submarket during the period from fourth quarter, 1995 through
fourth quarter, 1997. As the exhibit shows, the aggregate direct vacancy rate
for this submarket declined from 17.6 percent to 10.4 percent over
approximately a two-year period. This declining vacancy reflects both the
desirability of the Bunker Hill location as well as the quality of the office
buildings in this submarket.
Based on our analysis of the market and considering the current and
foreseeable trends in vacancy levels in the downtown market we projected the
following vacancy and collection loss assumptions and absorption projections
for the subject property:
Global Vacancy and Collection Loss: 5.0 percent against all revenues excluding
the current lease term for Wells Fargo.
"Lag" Vacancy Between Leases: We modeled a 10-month lag vacancy
between 10-year terms, weighted for
renewal probability. The weighted average
lag vacancy between leases is 3 months
based on a 70 percent renewal probability.
- -------------------------------------------------------------------------------
88
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
Absorption of Remaining Vacant Space: There are currently 93,640 square feet of
landlord direct available office space.
We projected the subject to lease to full
occupancy over a fairly extended
"stabilization" period of approximately 3
years, or through December, 2000. The
currently available space was modeled to
lease according to the following
schedule:
Period SF Office
------ ---------
12/98 19,515
06/99 19,516
12/99 18,203
06/2000 18,203
12/2000 18,203
Totals 93,640
DISCOUNTED CASH FLOW ANALYSIS
By forecasting the anticipated income stream and discounting future value at
reversion to current value, the capitalization process can be applied to
derive a value that the investor would pay to receive that particular income
stream.
Investors in office buildings typically forecast net operating income and
cash flows over a period of time ranging from five to 15 years. This
projection is used to determine a purchase price justified by the degree of
risk inherent in the proposed investment.
We modeled the following specific assumptions within the cash flow:
1) Commencement Date - The cash flows commence April 1, 1998, and are
modeled on a fiscal year basis.
2) Holding Period - We modeled a 10-year holding period.
3) Income Projections - Current tenants were modeled according to the
terms of their leases. Absorption tenants and future speculative
rollover tenants were modeled according to the market rent and
concession conclusions presented previously.
4) Expense Reimbursements - Expenses were modeled NNN for future
speculative tenants, and current tenants were modeled NNN or based on
current expense stop data provided by the management and stated in the
leases.
5) Vacancy and Collection - As discussed previously we modeled the
following vacancy and collection deductions within the cash flow
projections:
Global Vacancy and Collection Loss: 5.0 percent against all revenues excluding
the current lease terms for Wells Fargo.
- -------------------------------------------------------------------------------
89
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
"Lag" Vacancy Between Leases: We modeled a 10-month lag vacancy
between 10-year terms, weighted for
renewal probability. The weighted average
lag vacancy between leases is 3 months
based on a 70 percent renewal probability.
6) Renewal Probability- We assumed a 70 percent renewal probability for
all tenants excluding existing tenants who have vacated their premises
prior to the end of the lease terms and are subleasing the space.
These tenants include Smith Barney, Thelin Marin, Kidder Peabody, and
Credit Suisse. The cash flow model assumes a 100 percent probability
these tenants will vacate, and releasing assumptions included full lag
vacancy, leasing commissions, and new tenant improvements. The
aggregate area for these tenants is 173,663 square feet. Lag vacancy
and tenant improvements were weighted for a 70 percent renewal
probability for all other tenants.
7) Growth Rates -We modeled the following growth rates for expenses and
revenues:
Assumed CPI: 3.5% Annually
Operating Expenses: 3.5% Annually
Real Estate Taxes: 2.0% Annually
Sundry Income: 3.5% Annually
Parking Revenues: 3.5% Annually
MARKET RENTS:
Investors in Class A buildings in the CBD market are currently
forecasting fairly substantial rental growth rates during the first
several years of an investment period. Examples of this rental growth
were described in the Sales Comparison Approach, including the buyer of
Citicorp Center and the contractual buyer for Figueroa Plaza. Each
underwriting analysis incorporated market rental growth projections
equal to approximately 10 percent annually over the first several
years of the cash flow projections. These projections were not based on
specific percentage growth, but rather on incremental dollar
increases each year. The 10 percent cumulative increases were
calculated based on the actual projections. Rents were modeled "flat"
through the end of calendar year 1998. We estimated subsequent rental
growth rates by applying 7.0 percent annual increases to the adjusted
"gross" rents (including NNN passthroughs) for four years, or from
1999 through 2002, prior to projecting increases consistent with the
CPI (3.5 percent annually). The chart below shows the calculated NNN
rental rates over a 10-year holding period. The projected average
expense increase of 3.0 percent considers a 3.5 percent increase for
operating expenses "blended" with real estate tax increases of 2.0
percent annually.
- -------------------------------------------------------------------------------
90
<PAGE>
COMPARATIVE ANALYSIS OF U.S. TREASURIES & REITS
December 1996 through November 1997
UNITED STATES TREASURY YIELDS REAL ESTATE INVESTMENT TRUST YIELDS
PERIOD LONG-TERM INTERMEDIATE SHORT-TERM EQUITY MORTGAGE HYBRID ALL
Nov-97 6.20 5.90 5.72 5.6 8.6 7.5 5.8
Oct-97 6.42 6.09 5.80 5.6 8.7 7.0 5.8
Sep-97 6.56 6.21 5.89 5.5 7.9 7.1 5.6
Aug-97 6.65 6.31 5.96 5.9 7.9 7.4 6.1
Jul-97 6.56 6.21 5.92 5.8 7.8 7.4 6.0
Jun-97 6.86 6.49 6.16 6.1 8.3 7.5 6.3
May-97 7.04 6.71 6.36 6.3 8.0 7.8 6.5
Apr-97 7.17 6.85 6.51 6.4 8.9 7.9 6.7
Mar-97 7.05 6.68 6.29 6.1 9.0 7.8 6.4
Feb-97 6.81 6.37 5.98 6.1 7.6 7.5 6.2
Jan-97 6.93 6.40 5.90 6.1 9.0 7.8 6.4
Dec-96 6.70 6.17 5.73 6.1 7.6 7.5 6.2
- ---------------------------------------------------------------------------
Average 6.75 6.37 6.02 5.97 8.28 7.52 6.17
===========================================================================
[Graph omitted]
<PAGE>
Wells Fargo Center Los Angeles, CA
INCOME & EXPENSE PROFORMA
Combined
Flscal Year Beginning April 1, 1998 PSF
GROSS INCOME
GROSS RENTS $22,333,588 $16.71
LESS LAG VACANCY (349,340) (0.26)
FREE RENT (236,199) (0.18)
TOTAL RECOVERIES 7,995,784 5.96
OVERAGE RENT 96,611 0.07
SUNDRY INCOME 907,875 0.68
PARKING INCOME 4,791,563 3.59
OSTI RECOVERY 474,735 0.36
HVAC (WELLS FARGO) 15,775 0.01
----------------------------------- ------
POTENTIAL GROSS INCOME $36,033,372 $26.97
----------------------------------- ------
VACANCY/CREDIT LOSS (1,217,735) (0.91)
----------------------------------- ------
EFFECTIVE GROSS INCOME $34,815,637 $26.05
----------------------------------- ------
Operating Expenses
UTILITIES $2,789,720 $2.09
CLEANING 1,619,697 1.21
REPAIRS & MAINTNCE 2,021,904 1.51
ADMINISTRATION 673,968 0.50
GENERAL BUILDING 781,803 0.59
MANAGEMENT FEE 471,778 0.35
INSURANCE 1,347,936 1.01
ATRIUM 377,422 0.26
ON/OFFSITE PARKING 444,819 0.33
NON-RECOV PARKING 943,555 0.71
REAL ESTATE TAXES 2,887,290 2.16
OTHER TAXES 107,434 0.06
-------------------------------------- ------
TOTAL EXPENSES $14,467,326 $10.83
-------------------------------------- ------
TOTAL NET OPERATING INCOME $20,348,311 $15.23
VALUE TABLE Total Rentable Area SF: 1,336,244
- ----------------------------------------------------------
Indicated Value Cap Rate PSF
- ----------------------------------------------------------
$290,690,157 7.0% $217.54
$271,310,813 7.5% $203.04
$254,353,888 8.0% $190.35
$239,391,894 8.5% $179.15
$226,092,344 9.0% $169.20
$214,192,747 9.5% $160.29
$203,483,110 10.0% $152.28
[Photo omitted]
- -------------------------------------------------------------------------------
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
PSF PSF
PSF IMPLIED ANNUAL IMPLIED ANNUAL
YEAR EXPENSES FSG RENT % INCREASE NNN RENT % INCREASE
1998 $10.50 $24.50 0.00% $14.00 0.00%
1999 $10.82 $26.22 7.00% $15.40 10.00%
2000 $11.14 $28.05 7.00% $16.91 9.81%
2001 $11.47 $30.01 7.00% $18.54 9.63%
2002 $11.82 $32.11 7.00% $20.30 9.48%
2003 $12.17 $33.24 3.50% $21.07 3.79%
2004 $12.54 $34.40 3.50% $21.86 3.79%
2005 $12.91 $35.61 3.50% $22.69 3.79%
2006 $13.30 $36.85 3.50% $23.55 3.78%
2007 $13.70 $38.14 3.50% $24.44 3.78%
Based on the projections summarized in the chart above, we projected
the following growth in market rental rates, applied to the NNN
figures:
1998: Base
1999: 10.0%
2000: 9.8%
2001: 9.6%
2002: 9.5%
2003 and after: 3.5%
8) Free Rent Concessions - We modeled free rent concessions for
speculative office tenants based on the market rent assumptions: 8
months prior to weighting for 10-year tenants. Renewing tenants were
assumed with one-half free rent concessions. We modeled free rent to
reduce by one-half beginning 2000, and by one-half again in 2002.
9) Leasing Commissions - This expense was modeled at 4.0% for NNN
10-year leases. Renewing tenants were modeled at full commission.
Leasing commissions in the downtown market are calculated based on
gross rents rather than NNN rental rates. We adjusted the commission
to 7.5% based on NNN rents to consider this factor.
10) Reversion - The reversion price was calculated by applying a 9.0
percent overall capitalization rate to the 11th year's net operating
income. Following a deduction for a 0.75 percent cost of sale, the
reversion price was added to the previous year's net cash flow prior
to discounting.
We used the ProJect and Excel cash flow programs to simulate the projected
operating characteristics for the subject property under the preceding
assumptions. The cash flows and value tables are on the accompanying pages,
and additional detail is included in the Addenda.
DERIVATION OF DISCOUNT RATE
The accompanying exhibit entitled "Comparative Analysis of U.S. Treasuries
and REITs" provides an overview of the alternative marketplaces for capital
investment during the period
- -------------------------------------------------------------------------------
91
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
Wells Fargo Center 333 South Grand Avenue 10 year holding period
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FISCAL HOLDING PERIOD BEGINNING 4/1/98 1 2 3 4 5 6 7
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
GROSS RENTS 22,333,588 23,274,584 23,663,570 24,516,892 24,542,372 24,574,816 25,455,398
LESS LAG VACANCY (349,340) (170,527) (278,966) (835,336) (1,373,564) (1,241,040) (426,972)
FREE RENT (236,199) (501,083) (186,056) (357,926) (268,974) (487,920) (103,393)
TOTAL RECOVERIES 7,996,764 9,737,495 10,380,035 10,829,250 11,594,841 12,597,985 13,660,127
OVERAGE RENT 98,611 87,678 70,220 52,097 46,784 46,478 53,380
SUNDRY INCOME 907,875 939,651 972,538 1,006,577 1,041,807 1,078,271 1,116,010
PARKING INCOME 4,791,563 4,959,267 5,132,842 5,312,491 5,498,429 5,690,673 5,890,054
OSTI RECOVERY 474,735 476,396 461,673 419,045 385,560 349,275 326,750
HVAC (WELLS FARGO) 15,775 18,255 18,720 18,720 18,720 19,695 22,815
- --------------------------------------------------------------------------------------------------------------------------------
POTENTIAL GROSS INCOME 36,033,372 38,821,716 40,234,576 40,961,816 41,485,975 42,628,433 45,996,167
- --------------------------------------------------------------------------------------------------------------------------------
VACANCY / CREDIT LOSS (1,217,735) (1,342,006) (1,398,418) (1,421,756) (1,434,105) (1,476,911) (1,628,610)
AVERAGE VACANCY (%) IS 8.3% 7.0% 8.5% 7.1% 9.2% 11.4% 11.1% 8.1%
- ---------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME 34,815,637 37,479,710 38,836,158 39,540,054 40,051,870 41,151,522 44,367,557
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
UTILITIES 2,789,720 2,967,674 3,104,579 3,207,091 3,309,339 3,415,478 3,602,134
CLEANING 1,619,697 1,720,194 1,798,421 1,656,013 1,917,586 1,979,419 2,085,306
REPAIRS & MAINTNCE 2,021,904 2,092,671 2,165,915 2,241,722 2,320,182 2,401,388 2,485,437
ADMINISTRATION 673,968 697,557 721,971 747,240 773,394 800,463 828,479
GENERAL BUILDING 781,803 809,166 837,487 866,799 897,137 928,537 961,035
MANAGEMENT FEE 471,778 488,290 505,380 523,068 541,376 560,324 579,935
INSURANCE 1,347,936 1,395,114 1,443,943 1,494,461 1,546,788 1,600,925 1,656,958
ATRIUM 377,422 390,632 404,304 418,455 433,101 448,259 463,948
ON/OFFSITE PARKING 444,819 460,388 476,501 493,179 510,440 528,305 546,796
NON-RECOV PARKING 943,555 976,580 1,010,760 1,046,137 1,082,751 1,120,648 1,159,870
REAL ESTATE TAXES 2,887,290 2,945,035 3,003,936 3,064,014 3,125,295 3,187,801 3,251,557
OTHER TAXES 107,434 109,583 111,774 114,010 116.290 118,616 120,988
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES 14,467,326 15,052,884 15,584,971 16,074,209 16,573,681 17,090,163 17,742,443
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Expense Ratio 41.6% 40.2% 40.1% 40.7% 41.4% 41.5% 40.0%
- ---------------------------------------------------------------------------------------------------------------------------------
NET OPERATING INCOME 20,348,311 22,426,626 23,251,187 23,465,845 23,478,189 24,061,359 26,625,114
- ---------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
TENANT IMPROVEMENTS 2,743,929 5,571,529 1,349,950 2,952,370 3,767,815 6,691,036 1,485,946
LEASING COMMISSIONS 1,049,333 2,127,603 635,237 1,727,256 1,859,266 2,773,917 1,039,104
RESERVES 267,249 276,603 286,284 296,304 306,674 317,408 328,517
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS 4,868,511 7,975,725 2,271,471 4,975,930 5,933,755 9,782,361 2,853,567
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOW 16,287,800 14,451,091 20,979,716 18,489,915 17,544,434 14,278,998 23,771,547
- ---------------------------------------------------------------------------------------------------------------------------------
CASH ON CASH 7.1% 6.3% 9.1% 8.1% 7.6% 6.2% 10.4%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal holding period beginning 4/1/94 8 9 10 11
FY2006 FY2007 FY2008 FY2009
<S> <C> <C> <C> <C>
INCOME
GROSS RENTS 26,190,696 26,733,562 27,336,276 28,174,308
LESS LAG VACANCY (294,259) (218,118) (160,060) (600,107)
FREE RENT (84,074) (36,217) (90,128) (207,065)
TOTAL RECOVERIES 14,279,034 14,908,166 15,487,739 15,737,701
OVERAGE RENT 63,530 40,926 40,492 35,644
SUNDRY INCOME 1,155,071 1,195,498 1,237,340 1,280,647
PARKING INCOME 6,096,206 6,309,573 6,530,408 6,758,972
OSTI RECOVERY 289,323 289,138 288,729 294,292
HVAC (WELLS FARGO) 23,400 23,400 23,400 24,625
- -----------------------------------------------------------------------------------------
POTENTIAL GROSS INCOME 47,718,927 49,245,928 50,694,196 51,499,017
- -----------------------------------------------------------------------------------------
VACANCY / CREDIT LOSS (1,699,200) (1,757,780) (1,812,097) (1,833,513)
Average Vacancy (%) is 8.3% 7.6% 7.4% 7.2% 8.6%
- -----------------------------------------------------------------------------------------
Effective Gross Income 48,019,639 47,488,148 48,882,099 49,665,504
- ------------------------------------------------------------------------------------------
EXPENSES
UTILITIES 3,729,559 3,877,061 4,004,609 4,121,792
CLEANING 2,159,029 2,243,849 2,317,940 2,386,533
REPAIRS & MAINTNCE 2,572,427 2,662,462 2,755,648 2,852,096
ADMINISTRATION 857,476 887,487 918,549 950,690
GENERAL BUILDING 994,672 1,029,485 1,065,517 1,102,810
MANAGEMENT FEE 600,233 621,241 642,985 665,489
INSURANCE 1,714,951 1,774,974 1,837,099 1,901,397
ATRIUM 480,186 496,993 514,388 532,391
ON/OFFSITE PARKING 565,934 585,742 606,243 627,461
NON-RECOV PARKING 1,200,466 1,242,482 1,285,969 1,330,978
REAL ESTATE TAXES 3,316,588 3,382,919 3,450,578 3,519,590
OTHER TAXES 123,408 125,876 128,394 130,961
OPERATING EXPENSES 18,314,929 18,930,571 19,527,919 20,122,196
Operating Expense Ratio 39.8% 39.9% 39.9% 40.5%
- ------------------------------------------------------------------------------------------
NET OPERATING INCOME 27,704,710 28,557,577 29,354,180 29,543,308
- ------------------------------------------------------------------------------------------
DEDUCTIONS
TENANT IMPROVEMENTS 1,228,767 497,783 1,206,129 3,143,284
LEASING COMMISSIONS 372,007 363,961 905,791 2,081,015
RESERVES 340,015 351,916 364,233 376,981
- ------------------------------------------------------------------------------------------
Total Deductions 1,940,789 1,213,480 2,476,153 5,601,280
- ------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NET CASH FLOW 25,763,921 27,343,897 352,675,062
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CASH ON CASH 11.2% 11.9% 11.7%
- -----------------------------------------------------------------------------
</TABLE>
AVG. CASH ON CASH 9.0%
FIVE YEAR AVERAGE 7.6%
INITIAL CAP. RATE 8.9%
TERMINAL CAP. RATE 9.0%
TRANSACTION COST 0.8%
DISCOUNT RATE 11.0%
- -------------------------------------
REVERSIONARY VALUE $325,797,035
- -------------------------------------
NET PRESENT VALUE (NPV) $229,493,997
- -------------------------------------
NPV - Per Square Foot $171.75
- -----------------------------------------------------------
VALUE MATRIX
Low-Range Mid-Range Hi-Range
- -----------------------------------------------------------
Discount Rate 10.5% 11.0% 11.5%
Net Present Value $237,503,336 $229,493,997 $221,834,375
NPV (PSF) $177.74 $171.75 $166.01
- -----------------------------------------------------------
Total Bldg (SF): 1,336,244
[Graph omitted]
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
from December, 1996 through November, 1997. The graph and accompanying data
show that equity REIT yields are not necessarily sensitive to changes in
interest rates. Although yields for intermediate Treasuries fluctuated by more
than 90 basis points, with an overall decrease of 27 basis points during the
12-month period, yields for equity REITs (on average) decreased by 50 basis
points during the same period. Investor concerns of higher inflation can
increase Treasury yield requirements, but the real estate market can represent
a "hedge" against inflation due to pricing increases. The yields for REITs are
below levels required for single asset real estate investments, however, due
(in part) to liquidity issues and the diversity and management levels of
multi-property portfolios.
Although not included in the accompanying chart, the market for REIT stocks
has declined during the first two months of 1998 despite an overall increase
in excess of 5 percent for the Dow Jones Index during the same timeframe. The
yields have increases (and per-share pricing) decreased for virtually all
office REITs during the past two months (January and February, 1998). The
underlying reason for, and the duration of this trend in the public markets is
not yet clear.
The most recently published Cushman & Wakefield survey of investors' return
requirements was published in Summer, 1997, and a copy is included in the
Addenda. We reviewed current reported return requirements for a cross section
of office investors. The relevant data is summarized in the following chart.
Capitalization Rate Range Internal Rate of Return Range
Property Category Low High Average Low High Average
OFFICE - URBAN/CBD --- ---- ------- --- ---- -------
Class A-Leased Asset(1) 8.0% 10.5% 8.9%-9.5% 10.0% 12.0% 11.0%-11.8%
(1) "Leased Asset" refers to predominately "passive" Investments
involving substantially leased properties
The subject is an excellent quality Class A asset in the Los Angeles CBD
office market. The property is substantially leased, including two major
tenants for a significant percentage of the property for terms extending to
2012 or 2013.
We concluded the quality of the development and the current leasing profile
supports a discount rate conclusion at the lower end of the range for CBD
office properties. We estimated an 11.0 percent IRR is appropriate for the
subject, which results a rounded $230,000,000 value by discounted cash flow
analysis.
DIRECT CAPITALIZATION
In the direct capitalization method we estimated a value by dividing the
subject's net operating income by an overall capitalization rate. This overall
rate (OAR) is selected based on our analysis of market sales and reported
requirements from the category of investor most representative of the buyers
for this asset. The overall rate is calculated by dividing the net operating
income from the sales by their respective sales prices.
The overall capitalization rates for the comparable data in the Sales
Comparison Approach and the occupancy levels at sale used as the basis for the
overall rate calculations are summarized below.
- -------------------------------------------------------------------------------
92
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
SUMMARY OF OVERALL RATES
- ---------------------------------------------------------------------
Item Date of Overall Rate/
No. Property Sale Occupancy @ Sale
- ---------------------------------------------------------------------
I-1 550 South Hope Street 09/97 8.8% @
Los Angeles, CA 86%
- ---------------------------------------------------------------------
I-2 Citicorp Plaza Phase I 03/97 12.5% @
725 South Figueroa Street 88%
Los Angeles, CA
- ---------------------------------------------------------------------
I-3 Cal Plaza II 07/96 8.0% @
350 South Grand Avenue 69%
Los Angeles, CA
- ---------------------------------------------------------------------
I-4 801 Tower 03/96 9.5% prior to costs @
801 South Figueroa Street 87%
Los Angeles, CA
- ---------------------------------------------------------------------
I-5 Figueroa Plaza Pending 8.5% @ 95%
201 & 221 North Figueroa Street 03/98
Los Angeles, CA
- ---------------------------------------------------------------------
I-6 Fox Plaza 11/97 7.8% @
2121 Avenue of the Stars 91%
Los Angeles, CA
- ---------------------------------------------------------------------
I-7 Landmark II Pending 7.5% @
11766 Wilshire Boulevard Sale 97%
Los Angeles, CA
- ---------------------------------------------------------------------
I-8 Century Plaza Towers 04/97 8.5% @
2029-2049 Century Park East 94%
Los Angeles, CA
(Century City)
=====================================================================
The overall rates shown for the eight data items are based on the reported
income in place at the time of sale, calculated at actual occupancy levels.
The overall rates show a wide range from 7.5 percent to 12.5 percent. A
significant portion of the variation in overall rates can be attributed to the
differences in the occupancy levels and the proformas used as the basis for
capitalization. The lowest overall rates correspond generally to the suburban
Los Angeles properties (I-6 through I-8) or to the properties with the lowest
occupancy levels (I-3). The lower overall rates based on capitalizing
income-in place at lower occupancy levels reflect the perceived "upside"
attributable to future lease-up or to anticipated rental "spikes" in the
respective market.
The subject's income and expense proforma for fiscal year 1999 is shown on
the accompanying page. The subject's net income per-square-foot for 1999
equals $15.23, which is generally consistent with market levels. The subject's
occupancy level of 87 percent (Oaktree is not yet in occupancy) which forms
the basis for the proforma is below stabilized occupancy for Class A
properties in this market, indicating cash flow can be increased with
additional lease up. The most recent purchase in the downtown market involved
items I-1, 550 South Hope Street, which is an inferior asset in comparison to
the subject. The subject has a similar occupancy level at sale (86 percent)
and a similar net income per-square-foot ($15.23 for the subject versus $15.45
for I-1). The subject is superior to this property in most areas of
comparison, and warrants a capitalization rate below the 8.8 percent figure
for this transaction based on a similar occupancy level. We concluded an 8.5
percent overall capitalization rate is appropriate for the subject's 1998 net
income, which results in the following value indication:
- -------------------------------------------------------------------------------
93
<PAGE>
INCOME APPROACH
- -------------------------------------------------------------------------------
$20,348,311 / .085 = $239,391,894
Rounded value by direct capitalization: $240,000,000
INCOME APPROACH CONCLUSION
The direct capitalization conclusion of $240,000,000 is 4.3 percent above
the discounted cash flow indication of $230,000,000. Each method is
appropriate for this category of asset. The subject rental rates are, on
average, generally consistent with market levels. An analysis of yields over
the first few years of a holding period are important considerations for REIT
buyers, who are an important component of the investment market for a property
of the subject's size and caliber. In light of the pricing (both in terms of
per-square-foot and capitalization rate) by Equity Office for an inferior
asset (item I-1) about six months prior to the date of value for this
appraisal, we concluded at the middle of the range indicated by the Income
Approach, or $235,000,000 for the subject property.
- -------------------------------------------------------------------------------
94
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
- -------------------------------------------------------------------------------
The indicated value conclusions for the property are:
Cost Approach: $337,000,000
Sales Comparison Approach: $255,000,000
Income Approach: $235,000,000
The three indications of value ranged considerably from $235,000,000 to
$337,000,000, with the highest value indication corresponding to the Cost
Approach. The two value indications from the Sales Comparison and Income
Approaches were in a tighter range of 8.5 percent, or from $235,000,000 to
$255,000,000.
The significant "spread" between current market rents and "replacement cost"
rents in the downtown market represents the primary reason for the
inconsistent indication from the Cost Approach. Investors in CBD office
buildings derive a level of "comfort" from acquisitions in CBD markets based
on a significant discounts to replacement cost. The Cost Approach is not
otherwise meaningful as an indication of value for the property, and the
spread in value indications is attributable to economic obsolescence from
market conditions.
The Sales Comparison and Income Approach indications of value ranged from
$235,000,000 to $255,000,000, or by 8.5 percent. The Income Approach provided
the lowest indication of value, and the implied per-square-foot value based on
the $235,000,000 conclusion in this approach equals approximately $175. This
per-square-foot figure compares with the recent sale of an inferior asset, 550
South Hope Street, at $176 per-square-foot. This sale, in our opinion,
"brackets" the low end of the range in potential value for the subject
property. The subject's leasing profile, which includes long-term "flat"
leases for two major tenants occupying 35 percent of the total area, limits
the cash flow upside for an investor. We relied on the Income Approach, which
most accurately measures and quantifies value for an asset of this caliber.
Based on the analysis and data contained in this appraisal, we concluded the
subject property had a market value, as of February 27, 1998, of:
TWO HUNDRED THIRTY FIVE MILLION DOLLARS
$235,000,000
- -------------------------------------------------------------------------------
95
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- -------------------------------------------------------------------------------
"Appraisal" means the appraisal report and opinion of value stated therein, or
the letter opinion of value, to which these Assumptions and Limiting
Conditions are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
The Appraisal has been made subject to the following assumptions and limiting
conditions:
1. No opinion is intended to be expressed and no responsibility is assumed for
the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken.
2. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the owner
of the Property. Neither the Appraiser nor C&W shall be responsible for the
accuracy or completeness of such information, including the correctness of
estimates, opinions, dimensions, sketches, exhibits and factual matters.
3. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
4. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Except as may be otherwise stated in
the letter of engagement, the Appraisal may not be used by any person other
than the party to whom it is addressed or for purposes other than that for
which it was prepared. No part of the Appraisal shall be conveyed to the
public through advertising, or used in any sales or promotional material
without C&W's prior written consent. Reference to the Appraisal Institute
or to the MAI designation is prohibited.
5. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
6. The Appraisal assumes (a) responsible ownership and competent management of
the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for arranging
for engineering studies that may be required to discover them); (c) full
compliance with all applicable federal, state and local zoning and
environmental regulations and laws, unless noncompliance is stated, defined
and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and
- -------------------------------------------------------------------------------
96
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- -------------------------------------------------------------------------------
other governmental consents have been or can be obtained and renewed for
any use on which the value estimates contained in the Appraisal is based.
7. The physical condition of the improvements considered by the Appraisal is
based on visual inspection by the Appraiser or other person identified in
the Appraisal. C&W assumes no responsibility for the soundness of
structural members nor for the condition of mechanical equipment, plumbing
or electrical components.
8. The forecasted potential gross income referred to in the Appraisal may be
based on lease summaries provided by the owner or third parties. The
Appraiser assumes no responsibility for the authenticity or completeness of
lease information provided by others. C&W recommends that legal advice be
obtained regarding the interpretation of lease provisions and the
contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market thinking
on future income and expenses. The Appraiser and C&W make no warranty or
representation that these forecasts will materialize. The real estate
market is constantly fluctuating and changing. It is not the Appraiser's
task to predict or in any way warrant the conditions of a future real
estate market; the Appraiser can only reflect what the investment
community, as of the date of Appraisal, envisages for the future in terms
of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements, or may be located at or about the
Property, was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation, and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the requirements
of the Americans With Disabilities Act of 1990 (ADA) has not been
considered in arriving at the opinion of value. Failure to comply with the
requirements of the ADA may adversely affect the value of the Property.
C&W recommends that an expert in this field be employed.
- -------------------------------------------------------------------------------
97
<PAGE>
CERTIFICATIONS OF APPRAISAL
- -------------------------------------------------------------------------------
1. James W. Myers, MAI has inspected the property.
2. The statements of fact contained in this report are true and correct.
3. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent on an action or event (such as the
approval of a loan) resulting from the analyses, opinions, or conclusions
in, or the use of, this report. The appraisal is not based on a requested
minimum or specific estimated value.
6. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Practice of the Appraisal Foundation.
7. No one provided significant professional assistance to the persons signing
this report.
8. 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.
9. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
10. As of the date of this report, James W. Myers, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ James W. Myers, MAI /s/ Miles Loo Jr.
- -------------------------- ---------------------------
James W. Myers, MAI Miles Loo Jr.
Senior Director Associate Appraiser
Valuation Advisory Services
- -------------------------------------------------------------------------------
98
<PAGE>
Wells Fargo Center - Phase - 1
[Photo omitted]
<PAGE>
[Photo omitted]
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
Northeasterly view of the subject property
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
view of Hope and 3rd Streets from subject roof
[Photo omitted]
View of Grand Street from subject roof
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
Easterly view of retail entry way along Hope Street
[Photo omitted]
View of atrium in retail area
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
View of the Wells Fargo Museum on plaza level
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
View of common area between Phase I and Phase II towers
[Photo omitted]
View of lobby area
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
View of the dining area of the City Club on the 54th Floor
[Photo omitted]
Typical view of a vacant floor
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
View of a interior staircase in multiple floor suite
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
Northerly view along Hope Street;
subject is to the right
[Photo omitted]
Southerly view along Hope Street;
subject is to the left of photograph
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
Northerly view along Grand Avenue;
subject is to the left
[Photo omitted]
Southerly view along Grand Avenue;
subject is to the right of photograph
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
Northerly view along Grand Avenue;
subject is to the left
[Photo omitted]
Southerly view along Grand Avenue;
subject is to the right of photograph
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
- -------------------------------------------------------------------------------
[Photo omitted]
Northwesterly view of the subject property
<PAGE>
ADDENDA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
99
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION PHASE I LAND
DESCRIPTION:
"LOT 6 OF TRACT NO. 30780. IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 912 PAGE 39 TO 45 (INCLUSIVE)
OF MAPSA IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPTING THAT PORTION OF SAID LAND DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE SOUTHEASTERLY LINE OF SAID LOT 6 THAT IS DISTANT
THEREON NORTH 37 DEGREES 50 MINUTES 12 SECONDS EAST, 6.16 FEET FROM THE MOST
SOUTHERLY CORNER OF SAID LOT 6; THENCE ALONG SAID SOUTHEASTERLY LINE, SOUTH
37 DEGREES 50 MINUTES 12 SECONDS WEST 6.16 FEET TO SAID MOST SOUTHERLY
CORNER; THENCE ALONG THE SOUTHWESTERLY LINE OF SAID LOT 6, NORTH 52 DEGREES 9
MINUTES 40 SECONDS WEST, 317.76 FEET TO THE MOST WESTERLY CORNER OF SAID LOT
6; THENCE ALONG THE NORTHESTERLY LINE OF SAID LOT 6, NORTH 41 DEGREES 32
MINUTES 58 SECONDS EAST 6.17 FEET; THENCE LEAVING SAID NORTHWESTERLY LINE
SOUTH 52 DEGREES 9 MINUTES 48 SECONDS EAST 30.94 FEET; THENCE SOUTH 37
DEGREES 50 MINUTES 12 SECONDS WEST 2.00 FEET; THENCE SOUTH 52 DEGREES 9
MINUTES 48 SECONDS EAST 95.885 FEET; THENCE SOUTH 7 DEGREES 9 MINUTES 48
SECONDS EAST 2.45 FEET; THENCE SOUTH 52 DEGREES 9 MINUTES 48 SECONDS EAST
0.77 FEET; THENCE NORTH 82 DEGREES 50 MINUTES 12 SECONDS EAST 2.45 FEET;
THENCE SOUTH 52 DEGREES 9 MINUTES 48 SECONDS EAST 95.885 FEET; THENCE NORTH 37
DEGREES 50 MINUTES 12 SECONDS EAST 2.00 FEET; THENCE SOUTH 52 DEGREES 9
MINUTES 48 SECONDS EAST 90.42 FEET TO THE POINT OF BEGINNING.
ALSO, "EXCEPTING FROM THAT PORTION OF SAID LAND INCLUDED WITHIN THE LINES OF
THAT CERTAIN STRIP SHOWN ON SHEET 7 OF THE MAP OF SAID TRACT NO. 30780 AS
EASEMENT TO CITY OF LOS ANGELES FOR STREET PURPOSES ABOVE PLANE. SEE SHEET 4
FOR TYPICAL SECTION AND PROFILE OF PLANE, ALL RIGHT, TITLE AND INTEREST
CONVEYED AND/OR DEDICATED TO THE CITY OF LOS ANGELES, BY AND ON THE MAP OF
SAID TRACT NO. 30780.
"ALSO EXCEPTING FROM ALL PUBLIC STREETS, HIGHWAYS OR OTHER PUBLIC WAYS
ADJOINING SAID LOT 6 ALL RIGHT, TITLE AND INTEREST CONVEYED TO THE CITY OF
LOS ANGELES, BY THE MAP OF SAID TRACT NO. 30780.
"ALSO EXCEPTING FROM ALL OF THE ABOVE DESCRIBED LAND, ALL OIL, GAS, AND
OTHER MINERAL SUBSTANCES, TOGETHER WITH THE RIGHT TO EXTRACT SUCH SUBSTANCES,
PROVIDED THAT THE SURFACE OPENING OF A WELL, HOLE, SHAFT OR OTHER MEANS OF
REACHING OR MOVING SUCH SUBSTANCES SHALL NOT BE LOCATED WITHIN THE BUNKER HILL
URBAN RENEWAL PROJECT AREAS; AS RECORDED IN BOOK M-335 PAGE 106; OFFICIAL
RECORDS, AND SHALL NOT PENETRATE ANY PART OR PORTION OF SAID PROJECT AREA
WIDTHIN 500 FEET OF THE SURFACE THEREOF, AS RESERVED IN VARIOUS DEEDS OF
RECORD, AMONG THEM BEING THE DEED RECORDED [ILLEGIBLE], 20, 1966, IN BOOK
D-3311 PAGE 794, OFFICIAL RECORDS.
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 01
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME
400000 OFFICE RENTALS
400100 BASE RENT 1,760,025.06 1,761,313.00 1,287.94 0.1U
400300 OVERSTANDARD PROP TAX 37,727.18 40,407.00 2,679.82 6.6U
400400 STORAGE 23,279.44 22,634.00 645.44 2.9
400800 RENT RELIEF (8,855.42) (2,541.00) 6,314.42 248.5U
400900 OFFICE RENTALS 1,812,176.26 1,821,813.00 9,636.74 0.5U
401000 RETAIL RENTALS
401100 BASE RENT 159,618.18 162,889.00 3,270.82 2.0U
401200 PERCENTAGE RENT 3,755.57 4,615.00 859.43 18.6U
401400 OVERSTANDARD PROP TAX 3,956.96 3,994.00 37.04 0.9U
401900 RENT RELIEF (1,210.61) (579.00) 631.61 109.1U
402000 RETAIL RENTALS 166,120.10 170,919.00 4,798.90 2.8U
403000 OPER. & PROP. TAX ESCALATIONS
403100 OFFICE ESCALATIONS 172,830.99 678,686.00 505,855.01 74.5U
403150 RETAIL ESCALATIONS 19,036.49 16,539.00 2,497.49 15.1
403200 OPER. & PROP. TAX ESCALATIONS 191,867.48 695,225.00 503,357.52 72.4U
404000 SUNDAY REVENUE
404100 ELECTRICAL 2,819.88 712.00 2,107.88 296.1
404125 ELECTRICAL - EXP. (845.00) (603.00) 242.00 40.1U
404200 SIGNS 285.00 188.00 97.00 51.6
404225 SIGNS - EXP. (123.00) (162.00) 39.00 24.1
404300 KEYS 1,003.84 2,000.00 996.16 49.8U
404325 KEYS - EXP. (807.00) (1,000.00) 193.00 19.3
404400 ACCESS CARDS 0.00 489.00 489.00 100.0U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME
400000 OFFICE RENTALS
400100 BASE RENT 21,908,026.90 21,982,024.00 73,997.10 0.3U
400300 OVERSTANDARD PROP TAX 472,582.27 484,895.00 12,312.73 2.5U
400400 STORAGE 289,994.76 271,608.00 18,386.76 6.8
400800 RENT RELIEF (350,076.50) (191,222.00) 158,854.50 83.1U
400900 OFFICE RENTALS 22,320,527.43 22,547,305.00 226,777.57 1.0U
401000 RETAIL RENTALS
401100 BASE RENT 1,900,463.99 1,955,831.00 55,367.01 2.8U
401200 PERCENTAGE RENT 100,555.17 55,835.00 44,720.17 80.1
401400 OVERSTANDARD PROP TAX 47,530.33 47,917.00 386.67 0.8U
401900 RENT RELIEF (23,924.97) (7,003.00) 16,921.97 241.6U
402000 RETAIL RENTALS 2,024,624.52 2,052,580.00 27,955.48 1.4U
403000 OPER. & PROP. TAX ESCALATIONS
403100 OFFICE ESCALATIONS 7,566,871.53 8,068,604.00 501,732.47 6.2U
403150 RETAIL ESCALATIONS 221,912.14 198,660.00 23,252.14 11.7
403200 OPER. & PROP. TAX ESCALATIONS 7,788,783.67 8,267,264.00 478,480.33 5.8U
404000 SUNDAY REVENUE
404100 ELECTRICAL 41,001.66 8,500.00 32,501.66 382.4
404125 ELECTRICAL - EXP. (10,548.00) (7,225.00) 3,323.00 46.0U
404200 SIGNS 3,884.80 2,300.00 1,584.80 68.9
404225 SIGNS - EXP. (3,100.00) (1,955.00) 1,145.00 58.6U
404300 KEYS 34,290.47 24,000.00 10,290.47 42.9
404325 KEYS - EXP. (29,395.02) (12,000.00) 17,395.02 145.0U
404400 ACCESS CARDS 0.00 5,824.00 5,824.00 100.0U
U = Unfavorable
</TABLE>
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 02
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
404425 ACCESS CARDS - EXP. 0.00 (196.00) 196.00 100.0
404700 MISCELLANEOUS SUNDRIES 312.68 1,700.00 1,387.32 81.6U
404725 MISCELLANEOUS SUNDRIES-EXP. (566.47) (1,445.00) 878.53 60.8
404800 ENGINEERING/MAINTENANCE 1,693.95 2,750.00 1,056.05 38.4U
404825 ENGINEERING/MAINTENANCE - EXP (1,631.06) (1,925.00) 293.94 15.3
405000 LATE FEES 1,208.94 0.00 1,208.94 -----
405300 AIR CONDITIONING 100,184.94 80,000.00 20,184.94 25.2
405325 AIR CONDITIONING - EXP. (42,242.00) (40,000.00) 2,242.00 5.6U
405400 SECURITY SERVICE 4,120.00 0.00 4,120.00 -----
405500 JANITORIAL SERVICE 8,738.18 12,500.00 3,761.82 30.1U
405525 JANITORIAL SERVICE - EXP. (8,465.51) (8,125.00) 340.51 4.2U
405600 GENERAL BUILDING 4,917.00 5,000.00 83.00 1.7U
405625 GENERAL BUILDING - EXP. (3,645.86) (4,250.00) 604.14 14.2
405700 UTILITIES 5,127.90 8,063.00 2,935.10 36.4U
405725 UTILITIES - EXP. (4,816.27) (6,853.00) 2,036.73 29.7
405998 SUNDAY REVENUE 67,270.14 48,843.00 18,427.14 37.7
405999 PARKING INCOME
406100 PARKING INCOME 392,538.05 400,420.00 7,881.95 2.0U
406150 PARKING INCOME 392,538.05 400,420.00 7,881.95 2.0U
406175 OTHER REVENUE
406200 INTEREST INCOME 72,029.03 54,800.00 17,229.03 31.4
406700 OTHER INCOME 43,818.15 168,074.00 124,255.85 73.9U
406900 OTHER REVENUE 115,847.18 222,874.00 107,026.82 48.0U
TOTAL INCOME 2,745,819.21 3,360,094.00 614,274.79 18.3U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
404425 ACCESS CARDS - EXP. 0.00 (2,330.00) 2,330.00 100.0
404700 MISCELLANEOUS SUNDRIES 16,792.01 20,400.00 3,607.99 17.7U
404725 MISCELLANEOUS SUNDRIES-EXP. (18,905.02) (17,340.00) 1,565.02 9.0U
404800 ENGINEERING/MAINTENANCE 49,189.65 33,000.00 16,189.65 49.1
404825 ENGINEERING/MAINTENANCE - EXP (37,469.12) (23,100.00) 14,369.12 62.2U
405000 LATE FEES 7,137.91 0.00 7,137.91 -----
405300 AIR CONDITIONING 1,445,370.97 1,250,000.00 195,370.97 15.6
405325 AIR CONDITIONING - EXP. (615,618.00) (573,800.00) 41,818.00 7.3U
405400 SECURITY SERVICE 76,508.31 0.00 76,508.31 -----
405500 JANITORIAL SERVICE 110,663.41 150,000.00 39,336.59 26.2U
405525 JANITORIAL SERVICE - EXP. (102,289.77) (97,500.00) 4,789.77 4.9U
405600 GENERAL BUILDING 80,220.81 60,000.00 20,220.81 33.7
405625 GENERAL BUILDING - EXP. (118,173.60) (51,000.00) 67,173.60 131.7U
405700 UTILITIES 65,501.02 96,800.00 31,298.98 32.3U
405725 UTILITIES - EXP. (57,493.75) (82,280.00) 24,786.25 30.1
405998 SUNDAY REVENUE 937,568.74 782,294.00 155,274.74 19.9
405999 PARKING INCOME
406100 PARKING INCOME 4,988,346.41 4,835,471.00 152,875.41 3.2
406150 PARKING INCOME 4,988,346.41 4,835,471.00 152,875.41 3.2
406175 OTHER REVENUE
406200 INTEREST INCOME 660,041.91 657,600.00 2,441.91 0.4
406700 OTHER INCOME 943,514.50 2,016,800.00 1,073,285.50 53.2U
406900 OTHER REVENUE 1,603,556.41 2,674,400.00 1,070,843.59 40.0U
TOTAL INCOME 39,663,407.18 41,159,314.00 1,495,906.82 3.6U
</TABLE>
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 03
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 116,500.31 118,723.00 2,222.69 1.9
500300 CONTRACT WINDOW CLEANING 420.00 5,000.00 4,580.00 91.6
500400 CONTRACT WASTE REMOVAL 7,056.95 4,719.00 2,337.95 49.5U
500500 SUPPLIES/MATERIALS-CLEAN 15,144.60 12,841.00 2,303.60 17.9U
500600 UNIFORMS - CLEANING 1,940.48 3,531.00 1,590.52 45.0
500610 PARKING CHARGES-CLEANING 2,476.32 2,480.00 3.68 0.2
500620 CLEANING-CUST. SERVICE PROGRAM 10,408.70 2,716.00 7,692.70 283.2U
500900 CLEANING/JANITORIAL 153,947.36 150,010.00 3,937.36 2.6U
501000 BLDG & GROUNDS - GEN MAINT
501200 CONTRACT EXTERM. SVCS. 250.00 815.00 565.00 69.3
501300 PLUMBING MATERIALS 0.00 1,022.00 1,022.00 100.0
501500 CONTRACT LANDSCAPING SV 14,945.28 5,342.00 9,603.28 179.8U
501600 NONTENANT PAINTING/DECOR (9,258.05) 6,497.00 15,755.05 242.5
501700 SUPPLIES/MATERIALS-BLDG. 3,793.07 1,540.00 2,253.07 146.3U
501800 PLUMBING REPAIRS 1,949.81 2,520.00 570.19 22.6
501825 SPRINKLER, STANDPIPE, FIRE PUMP 268.54 1,233.00 964.46 78.2
501900 BUILDING REPAIRS 110.00 6,153.00 6,043.00 98.2
502000 EXTERIOR REPAIRS 10,586.61 2,213.00 8,373.61 378.4U
502100 COMMUNICATIONS 2,596.74 1,891.00 705.74 37.3U
502200 METAL MAINTENANCE 8,378.16 5,082.00 3,296.16 64.9U
502225 DOCK 308.00 603.00 295.00 48.9
502500 DIRECTORY SIGNS (26.53) 285.00 311.53 109.3
502600 FILTERS 0.00 1,133.00 1,133.00 100.0
502650 BANNERS AND FLAGS 219.47 0.00 219.47 -----U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 1,279,976.42 1,343,700.00 63,723.58 4.7
500300 CONTRACT WINDOW CLEANING 49,522.00 60,000.00 10,478.00 17.5
500400 CONTRACT WASTE REMOVAL 61,547.29 56,650.00 4,897.29 8.6U
500500 SUPPLIES/MATERIALS-CLEAN 158,437.45 154,070.00 4,367.45 2.8U
500600 UNIFORMS - CLEANING 31,938.62 42,372.00 10,433.38 24.6
500610 PARKING CHARGES-CLEANING 9,880.64 29,716.00 19,835.36 66.8
500620 CLEANING-CUST. SERVICE PROGRAM 17,460.71 32,592.00 15,131.29 46.4
500900 CLEANING/JANITORIAL 1,608,763.13 1,719,100.00 110,336.87 6.4
501000 BLDG & GROUNDS - GEN MAINT
501200 CONTRACT EXTERM. SVCS. 9,042.00 9,780.00 738.00 7.6
501300 PLUMBING MATERIALS 5,084.14 12,264.00 7,179.86 58.5
501500 CONTRACT LANDSCAPING SV 65,376.86 64,137.00 1,239.86 1.9U
501600 NONTENANT PAINTING/DECOR 86,589.75 77,168.00 9,421.75 12.2U
501700 SUPPLIES/MATERIALS-BLDG. 25,942.92 18,480.00 7,462.92 40.4U
501800 PLUMBING REPAIRS 27,043.51 30,240.00 3,196.49 10.6
501825 SPRINKLER, STANDPIPE, FIRE PUMP 5,605.84 14,840.00 9,234.16 62.2
501900 BUILDING REPAIRS 33,266.84 73,880.00 40,613.16 55.0
502000 EXTERIOR REPAIRS 47,185.04 26,600.00 20,585.04 77.4U
502100 COMMUNICATIONS 33,935.68 22,747.00 11,188.68 49.2U
502200 METAL MAINTENANCE 64,802.80 60,984.00 3,818.80 6.3U
502225 DOCK 6,473.05 7,280.00 806.95 11.1
502500 DIRECTORY SIGNS 9,033.82 3,365.00 5,668.82 168.5U
502600 FILTERS 12,836.55 13,552.00 715.45 5.3
502650 BANNERS AND FLAGS 12,247.36 14,811.00 2,563.64 17.3
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 04
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
02700 PLUMBING SUPPLIES 1,891.34 132.00 1,759.34 -----U
02800 LOCK REPAIR (150.13) 507.00 657.13 129.6
02825 CITY/STATE CODE PERMITS 0.00 0.00 0.00 -----
02900 BLDG. & GROUNDS - GEN. MAINT. 35,862.31 36,968.00 1,105.69 3.0
03000 HVAC MAINT. & REPAIRS
03100 CONTRACT ENGINEERING 99,457.67 66,050.00 33,407.67 50.6U
03110 UNIFORMS-CONTRACT ENGINEERING 412.55 1,261.00 848.45 67.3
03120 PARKING CHARGES-CONTRACT ENGR. 2,236.08 2,116.00 120.08 5.7U
03130 ENGINEERING-CUST. SERVICE
PROGRAM 6,621.69 644.00 5,977.69 928.2U
03200 AIR CONDITIONING REPAIRS 46,628.33 8,933.00 37,695.33 422.0U
03300 SUPPLIES MATERIALS - HVAC 4,999.57 3,123.00 1,876.57 60.1U
03400 WATER TREATMENT 931.33 2,520.00 1,588.67 63.0
03500 MECHANICAL COMPUTER MAIN 4,970.84 0.00 4,970.84 -----U
03900 HVAC MAINT. & REPAIRS 166,258.06 84,647.00 81,611.06 96.4U
04000 ELEVATOR MAINT. & REPAIRS
04100 CONTRACT ELEVATOR SVCS. 34,452.24 35,112.00 659.76 1.9
04300 ELEVATOR REPAIRS 22,522.11 1,991.00 20,531.11 -----U
04400 ELEVATOR MAIN. & REPAIR 56,974.35 37,103.00 19,871.35 53.6U
04500 ELECTRICAL MAINT. - REPAIRS
04600 ELECTRICAL REPAIRS 4,853.49 2,534.00 2,319.49 91.5U
04610 ELECTRICAL SUPPLIES 1,222.84 616.00 606.84 98.5U
04800 RELAMPING 0.00 435.00 435.00 100.0
04810 LAMP REPLACEMENT 936.55 1,022.00 85.45 8.4
04900 ELECTRICAL MAIN. - REPAIRS 7,012.80 4,607.00 2,405.88 52.2U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
02700 PLUMBING SUPPLIES 5,933.24 1,540.00 4,393.24 285.3U
02800 LOCK REPAIR 1,757.20 6,040.00 4,282.80 70.9
02825 CITY/STATE CODE PERMITS 280.00 12,800.00 12,520.00 97.8
02900 BLDG. & GROUNDS - GEN. MAINT. 452,436.60 470,508.00 18,071.40 3.8
03000 HVAC MAINT. & REPAIRS
03100 CONTRACT ENGINEERING 787,121.38 837,680.00 50,558.62 6.0
03110 UNIFORMS-CONTRACT ENGINEERING (805.89) 15,176.00 15,981.89 105.3
03120 PARKING CHARGES-CONTRACT ENGR. 25,551.54 25,392.00 159.54 0.6U
03130 ENGINEERING-CUST. SERVICE
PROGRAM 8,970.21 7,728.00 1,242.21 16.1U
03200 AIR CONDITIONING REPAIRS 98,558.14 107,240.00 8,681.86 8.1
03300 SUPPLIES MATERIALS - HVAC 33,334.13 37,520.00 4,185.87 11.2
03400 WATER TREATMENT 17,214.67 30,240.00 13,025.33 43.1
03500 MECHANICAL COMPUTER MAIN 6,581.68 4,984.00 1,597.68 32.1U
03900 HVAC MAINT. & REPAIRS 976,525.06 1,065,960.00 89,434.14 8.4
04000 ELEVATOR MAINT. & REPAIRS
04100 CONTRACT ELEVATOR SVCS. 409,429.88 413,734.00 4,304.12 1.0
04300 ELEVATOR REPAIRS 29,111.03 23,925.00 5,186.03 21.7U
04400 ELEVATOR MAIN. & REPAIR 438,540.91 437,659.00 881.91 0.2U
04500 ELECTRICAL MAINT. - REPAIRS
04600 ELECTRICAL REPAIRS 21,428.20 30,320.00 8,891.80 29.3
04610 ELECTRICAL SUPPLIES 7,806.45 7,392.00 414.45 5.6U
04800 RELAMPING 9,739.91 5,264.00 4,475.91 85.0U
04810 LAMP REPLACEMENT 25,592.65 12,264.00 13,328.65 108.7U
04900 ELECTRICAL MAIN. - REPAIRS 64,567.21 55,240.00 9,327.21 16.9U
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 05
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
505000 UTILITIES
505100 ELECTRICITY 187,840.53 209,047.00 21,206.47 10.1
505200 GAS 0.00 1,120.00 1,120.00 100.0
505250 DIESEL FUEL 626.15 0.00 626.15 -----U
505600 WATER 4,339.59 8,000.00 3,660.41 45.8
505900 UTILITIES 192,806.27 218,167.00 25,360.73 11.6
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 39,509.50 43,524.00 4,014.50 9.2
506400 SEC-SPPLS/MATRLS & REPAIR 18,449.48 3,141.00 15,308.48 487.4U
506500 UNIFORMS-SECURITY 5,084.01 3,138.00 1,946.01 62.0U
506550 PARKING CHARGES-SECURITY 139.58 4,747.00 4,607.42 97.1
506560 SECURITY-CUST. SERVICE PROGRAM 6,585.17 1,344.00 5,241.17 390.0U
506600 FIRE/LIFE SAFETY 6,214.88 10,591.00 4,376.12 41.3
506800 MUNICIPAL FEES 12,303.69 2,218.00 10,085.69 454.7U
506810 CITY/STATE TESTING &CERT 10,500.78 3,780.00 6,720.78 177.8U
506811 SECURITY/LIFE SAFETY 98,787.09 72,483.00 26,304.09 36.3U
508000 ADMINISTRATION
508100 WAGES & SALARIES (7,760.95) 33,427.00 41,187.95 123.2
508200 PAYROLL TAXES & BENEFITS (8,188.93) 6,690.00 14,878.93 222.4
508300 MANAGEMENT FEES 71,849.87 85,620.00 13,770.13 16.1
508400 BOOKKEEPING EXPENSE 130.63 100.00 30.63 30.6U
508500 TELEPHONE/ANSWERING SVCS. 4,816.04 3,854.00 962.04 25.0U
508600 DUES/SUBSCRIPTIONS 96.21 240.00 143.79 59.9
508700 POSTAGE 0.00 83.00 83.00 100.0
508800 TRAVEL & ENTERTAINMENT 500.38 743.00 242.62 32.7
508900 EQUIPMENT RENTAL 1,298.24 1,873.00 574.76 30.7
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
505000 UTILITIES
505100 ELECTRICITY 2,623,184.36 2,694,590.00 71,405.64 2.7
505200 GAS 0.00 3,360.00 3,360.00 100.0
505250 DIESEL FUEL 626.15 1,120.00 493.85 44.1
505600 WATER 111,939.69 106,400.00 5,539.69 5.2U
505900 UTILITIES 2,735,750.20 2,805,470.00 69,719.80 2.5
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 465,380.69 522,310.00 56,929.31 10.9
506400 SEC-SPPLS/MATRLS & REPAIR 50,804.35 37,670.00 13,134.35 34.9U
506500 UNIFORMS-SECURITY 28,087.86 37,623.00 9,535.14 25.3
506550 PARKING CHARGES-SECURITY 45,407.52 56,986.00 11,578.48 20.3
506560 SECURITY-CUST. SERVICE PROGRAM 10,298.32 16,128.00 5,829.68 36.2
506600 FIRE/LIFE SAFETY 83,582.28 127,147.00 43,564.72 34.3
506800 MUNICIPAL FEES 26,148.57 26,572.00 423.43 1.6
506810 CITY/STATE TESTING &CERT 40,828.42 45,360.00 4,531.58 10.0
506811 SECURITY/LIFE SAFETY 750,538.01 869,796.00 119,257.99 13.7
508000 ADMINISTRATION
508100 WAGES & SALARIES 326,026.09 401,124.00 75,097.91 18.7
508200 PAYROLL TAXES & BENEFITS 27,988.02 80,225.00 52,236.98 65.1
508300 MANAGEMENT FEES 1,036,026.89 1,050,726.00 14,699.11 1.4
508400 BOOKKEEPING EXPENSE 1,930.58 1,200.00 730.58 60.9U
508500 TELEPHONE/ANSWERING SVCS. 49,349.93 46,204.00 3,145.93 6.8U
508600 DUES/SUBSCRIPTIONS 1,567.77 2,880.00 1,312.23 45.6
508700 POSTAGE 609.85 952.00 342.15 35.9
508800 TRAVEL & ENTERTAINMENT 3,777.87 8,960.00 5,182.13 57.8
508900 EQUIPMENT RENTAL 24,826.45 22,509.00 2,317.45 10.3U
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 06
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
609000 SUPPLIES/MATERIALS - ADMIN. 533.89 1,372.00 838.11 61.1
609100 PRINTING & COPYING 1,480.80 956.00 524.80 54.9U
609200 OFFICE RENT 3,849.30 4,025.00 175.70 4.4
609250 STORAGE RENT 5,410.72 5,408.00 2.72 0.1U
609275 FIRE TRAINING ROOM RENT 4,297.76 4,325.00 27.24 0.6
609300 TEMPORARY HELP 0.00 280.00 280.00 100.0
609500 SEMINARS & TRAINING 0.00 0.00 0.00 -----
609600 MISCELLANEOUS-ADMIN. 1,193.65 1,247.00 53.35 4.3
609700 ADMIN. EQUIP. REPAIRS 0.00 267.00 267.00 100.0
609750 ESCALATION FEES 10,500.00 9,975.00 525.00 5.3U
609760 CONCIERGE SERVICE 3,045.76 967.00 2,078.76 215.0U
609800 TRANSPORTATION SYST.MGMT. 2,948.96 1,031.00 1,917.96 186.0U
609900 ADMINISTRATION 96,002.33 162,483.00 66,480.67 40.9
600000 TAXES (OTHER THAN INCOME)
600100 REAL ESTATE TAXES 228,587.52 226,700.00 1,887.52 0.8U
600300 FRANCHISE FEES 250.00 0.00 250.00 -----U
600600 OTHER FEES 0.00 0.00 0.00 -----
600700 PROPERTY TAX CONSULTING 0.00 3,787.00 3,787.00 100.0
600900 TAXES (OTHER THAN INCOME) 228,837.52 230,487.00 1,649.48 0.7
601000 INSURANCE
601100 PROPERTY INSURANCE 185,009.18 103,437.00 81,572.18 78.9U
601200 LIABILITY INSURANCE 10,789.50 12,455.00 1,665.50 13.4
601300 SELF-INSURED RETENTION 255.33 1,745.00 1,489.67 85.4
601900 INSURANCE 196,054.01 117,637.00 78,417.01 66.7U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
609000 SUPPLIES/MATERIALS - ADMIN. 8,736.76 16,464.00 7,727.24 46.9
609100 PRINTING & COPYING 14,663.03 11,505.00 3,158.03 27.5U
609200 OFFICE RENT 46,191.60 48,322.00 2,130.40 4.4
609250 STORAGE RENT 64,207.28 64,929.00 721.72 1.1
609275 FIRE TRAINING ROOM RENT 51,573.12 51,966.00 392.88 0.8
609300 TEMPORARY HELP 462.16 840.00 377.84 45.0
609500 SEMINARS & TRAINING 484.40 1,568.00 1,083.60 69.1
609600 MISCELLANEOUS-ADMIN. 17,718.69 15,008.00 2,710.69 18.1U
609700 ADMIN. EQUIP. REPAIRS 3,018.07 3,248.00 229.93 7.1
609750 ESCALATION FEES 10,500.00 9,975.00 525.00 5.3U
609760 CONCIERGE SERVICE 10,619.23 11,637.00 1,017.77 8.8
609800 TRANSPORTATION SYST.MGMT. 9,210.40 12,405.00 3,194.60 25.8
609900 ADMINISTRATION 1,709,488.19 1,862,647.00 153,158.81 8.2
600000 TAXES (OTHER THAN INCOME)
600100 REAL ESTATE TAXES 2,693,040.35 2,694,000.00 1,040.35 0.0U
600300 FRANCHISE FEES 1,050.00 800.00 250.00 31.3U
600600 OTHER FEES 69,394.83 68,659.00 735.83 1.1U
600700 PROPERTY TAX CONSULTING 1,400.00 45,400.00 44,000.00 96.9
600900 TAXES (OTHER THAN INCOME) 2,766,885.18 2,808,859.00 41,973.82 1.56
601000 INSURANCE
601100 PROPERTY INSURANCE 1,157,110.50 1,241,244.00 84,133.50 6.8
601200 LIABILITY INSURANCE 134,119.30 149,460.00 15,340.70 10.3
601300 SELF-INSURED RETENTION 3,036.59 20,940.00 17,903.41 85.5
601900 INSURANCE 1,294,266.39 1,411,644.00 117,377.61 8.3
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 07
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
602000 ON-SITE GARAGE
602010 ON-SITE GARAGE 40,635.52 7,213.00 33,422.52 463.4U
602011 ON-SITE GARAGE 40,635.52 7,213.00 33,422.52 463.4U
602012 OFF-SITE GARAGE
602013 OFF-SITE GARAGE 41,456.70 27,262.00 14,194.70 52.1U
602014 OFF-SITE GARAGE 41,456.70 27,262.00 14,194.70 52.1U
602015 ATRIUM
602016 ATRIUM 52,445.19 29,978.00 22,467.19 75.0U
602017 ATRIUM 52,445.19 29,978.00 22,467.19 75.0U
602100 ESCALATABLES 1,367,079.59 1,179,045.00 188,034.59 16.0U
701000 NON-ESCALATABLES
701100 COURIER SERVICE 325.41 112.00 213.41 190.5U
701200 DONATIONS 1,000.00 377.00 623.00 165.3U
701400 NON-ESCALATABLE MANAGEMENT FEE 8,470.86 5,837.00 2,633.86 45.1U
701500 MISCELLANEOUS-NON-ESCALATABLE 0.00 112.00 112.00 100.0
701600 NON-ESC. TRAVEL & ENTERTAINMT 0.00 50.00 50.00 100.0
701900 NON-ESCALATABLES 9,796.27 6,488.00 3,308.27 51.0U
702000 LEASING EXPENSE
702300 SPACE PLANNING PROPOSALS 292.50 3,038.0 0 2,745.50 90.4
702350 LEASING/ T.I. SERVICES 82,299.69 15,000.00 67,299.69 448.7U
702400 TRAVEL & ENTERTAINMENT 990.33 336.00 654.33 194.7U
702500 PUBLIC RELATIONS 0.00 100.00 100.00 100.0
702700 MISCELLANEOUS 298.28 100.00 198.28 198.3U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
602000 ON-SITE GARAGE
602010 ON-SITE GARAGE 122,215.35 86,523.00 35,692.35 41.3U
602011 ON-SITE GARAGE 122,215.35 86,523.00 35,692.35 41.3U
602012 OFF-SITE GARAGE
602013 OFF-SITE GARAGE 336,401.68 327,100.00 9,301.68 2.8U
602014 OFF-SITE GARAGE 336,401.68 327,100.00 9,301.68 2.8U
602015 ATRIUM
602016 ATRIUM 383,485.25 359,780.00 23,705.25 6.6U
602017 ATRIUM 383,485.25 359,780.00 23,705.25 6.6U
602100 ESCALATABLES 13,639,863.96 14,280,286.00 640,422.04 4.5
701000 NON-ESCALATABLES
701100 COURIER SERVICE 2,870.73 1,344.00 1,526.73 113.6U
701200 DONATIONS 1,000.00 4,480.00 3,480.00 77.7
701400 NON-ESCALATABLE MANAGEMENT FEE 85,724.07 70,000.00 15,724.07 22.5U
701500 MISCELLANEOUS-NON-ESCALATABLE 2,516.01 1,344.00 1,172.01 87.2U
701600 NON-ESC. TRAVEL & ENTERTAINMT 0.00 600.00 600.00 100.0
701900 NON-ESCALATABLES 92,110.81 77,768.00 14,342.81 18.4U
702000 LEASING EXPENSE
702300 SPACE PLANNING PROPOSALS 49,113.45 36,500.00 12,613.45 34.6U
702350 LEASING/ T.I. SERVICES 272,350.77 180,000.00 92,350.77 51.3U
702400 TRAVEL & ENTERTAINMENT 10,187.78 4,032.00 6,155.78 152.7U
702500 PUBLIC RELATIONS 0.00 1,200.00 1,200.00 100.0
702700 MISCELLANEOUS 1,972.98 1,200.00 772.98 64.4U
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 08
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
702900 LEASING EXPENSES 83,880.80 18,574.00 65,306.80 351.6U
703000 ADVERTISING & MARKETING
703200 PROMOTION 4,747.68 8,960.00 4,212.32 47.0
703300 P.R. AGENCY 6,859.83 2,057.00 4,802.83 233.5U
703400 SHUTTLE BUS 3,926.45 2,391.00 1,535.45 64.2U
703500 COMMUNITY RELATIONS 0.00 112.00 112.00 100.0
703600 ADVERTISING 0.00 210.00 210.00 100.0
703900 ADVERTISING & MARKETING 15,533.96 13,730.00 1,803.96 13.1U
704000 PROFESSIONAL SERVICES
704100 LEGAL 3,751.94 7,087.00 3,335.06 47.1
704200 TAX ACCTNG.SERVICES 18,800.00 21,378.00 2,578.00 12.1
704300 CONSULTANTS 9,850.00 1,077.00 8,773.00 814.6U
704400 ACCOUNTING SERVICES 35,500.00 34,283.00 1,217.00 3.6U
704900 PROFESSIONAL SERVICES 67,901.94 63,825.00 4,076.94 6.4U
704910 PARKING
704915 OPERATING COST 2,880.47 70,646.00 67,765.53 95.9
704917 MANAGEMENT FEES 1,680.00 1,680.00 0.00 0.0
704922 UNIFORMS - PARKING 16,255.00 3,135.00 13,120.00 418.5U
704923 PARKING-CUST. SERVICE PROGRAM 9,871.22 2,072.00 7,799.22 376.4U
704930 PARKING 30,686.69 77,533.00 46,846.31 60.4
TOTAL OPERATING EXPENSES 1,574,879.25 1,359,195.00 215,684.25 15.9U
NET OPERATING INCOME/LOSS 1,170,939.96 2,000,899.00 829,959.04 41.5U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
----------------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
702900 LEASING EXPENSES 333,624.98 222,932.00 110,692.98 49.7U
703000 ADVERTISING & MARKETING
703200 PROMOTION 14,721.92 15,596.00 874.08 5.6
703300 P.R. AGENCY 20,456.67 24,640.00 4,183.33 17.0
703400 SHUTTLE BUS 23,453.37 28,725.00 5,271.63 18.4
703500 COMMUNITY RELATIONS 2,289.07 1,344.00 945.07 70.3U
703600 ADVERTISING 4,082.40 1,512.00 2,570.40 170.0U
703900 ADVERTISING & MARKETING 65,003.43 71,817.00 6,813.57 9.57
704000 PROFESSIONAL SERVICES
704100 LEGAL 28,298.67 85,000.00 56,701.33 66.7
704200 TAX ACCTNG.SERVICES 26,675.00 21,378.00 5,297.00 24.8U
704300 CONSULTANTS 28,097.56 12,880.00 15,217.56 118.2U
704400 ACCOUNTING SERVICES 48,000.00 34,283.00 13,717.00 40.0U
704900 PROFESSIONAL SERVICES 131,071.23 153,541.00 22,469.77 14.6
704910 PARKING
704915 OPERATING COST 809,342.82 908,648.00 99,305.18 10.9
704917 MANAGEMENT FEES 19,880.00 20,160.00 280.00 1.4
704922 UNIFORMS - PARKING 24,174.66 37,653.00 13,478.34 35.8
704923 PARKING-CUST. SERVICE PROGRAM 12,270.27 24,864.00 12,593.73 50.7
704930 PARKING 865,667.75 991,325.00 125,657.25 12.7
TOTAL OPERATING EXPENSES 15,127,342.16 15,797,669.00 670,326.84 4.2
NET OPERATING INCOME/LOSS 24,536,065.02 25,361,645.00 825,579.98 3.3U
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
GENERAL ACCOUNT
PAGE 09
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OTHER EXPENSES
705000 FINANCING EXPENSES
705200 INTEREST NOTES PAYABLE 41,791.47 41,791.00 0.47 0.0U
705300 INTEREST-WELLS FARGO MTG LOAN 556,644.67 557,322.00 677.33 0.1
705400 INTEREST-METROP. MTG LOAN 556,641.71 557,323.00 681.29 0.1
706600 COMMERCIAL PAPER INTEREST (500.00) 0.00 500.00 -----
706660 OTHER FINANCING EXPENSES 500.00 0.00 500.00 -----U
706900 FINANCING EXPENSES 1,155,077.85 1,156,436.00 1,358.15 0.1
707000 DEPRECIATION EXPENSE
707700 GENERAL DEPRECIATION EXP. 511,260.69 503,245.00 8,015.69 1.6U
707900 DEPRECIATION EXPENSE 511,260.69 503,245.00 8,015.69 1.6U
708000 AMORTIZATION EXPENSE
708600 GENERAL AMORTIZATION EXP. 32,408.57 42,521.00 10,112.43 23.8
708900 AMORTIZATION EXPENSE 32,408.57 42,521.00 10,112.43 23.8
708910 FASB RENT ADJUSTMENT
708915 FASB OFFICE RENT ADJUSTMENT 44,885.00 0.00 44,885.00 -----U
708920 TOTAL FASB RENT ADJUSTMENT 44,885.00 0.00 44,885.00 -----U
708925 PRIOR YR ESCALATION ADJUSTMENT 0.00 0.00 0.00 -----
708950 DOUBTFUL ACCOUNT EXPENSE 88,623.81 0.00 88,623.81 -----U
TOTAL OTHER EXPENSES 1,832,255.92 1,702,202.00 130,053.92 7.6U
NET INCOME (LOSS) (661,315.96) 298,697.00 960,012.96 321.4U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
OTHER EXPENSES
705000 FINANCING EXPENSES
705200 INTEREST NOTES PAYABLE 637,913.67 641,702.00 3,788.33 0.6
705300 INTEREST-WELLS FARGO MTG LOAN 6,727,883.00 6,735,668.00 7,785.00 0.1
705400 INTEREST-METROP. MTG LOAN 6,727,826.44 6,735,669.00 7,842.56 0.1
706600 COMMERCIAL PAPER INTEREST 0.00 0.00 0.00 -----
706660 OTHER FINANCING EXPENSES 57,712.70 0.00 57,712.70 -----U
706900 FINANCING EXPENSES 14,151,335.81 14,113,039.00 38,296.81 0.3U
707000 DEPRECIATION EXPENSE
707700 GENERAL DEPRECIATION EXP. 6,023,045.76 6,038,940.00 15,894.24 0.3
707900 DEPRECIATION EXPENSE 6,023,045.76 6,038,940.00 15,894.24 0.3
708000 AMORTIZATION EXPENSE
708600 GENERAL AMORTIZATION EXP. 569,874.84 510,252.00 59,622.84 11.7U
708900 AMORTIZATION EXPENSE 569,874.84 510,252.00 59,622.84 11.7U
708910 FASB RENT ADJUSTMENT
708915 FASB OFFICE RENT ADJUSTMENT 538,620.00 0.00 538,620.00 -----U
708920 TOTAL FASB RENT ADJUSTMENT 538,620.00 0.00 538,620.00 -----U
708925 PRIOR YR ESCALATION ADJUSTMENT (57,393.39) 0.00 57,393.39 -----
708950 DOUBTFUL ACCOUNT EXPENSE 9,368.83 0.00 9,368.83 -----U
TOTAL OTHER EXPENSES 21,234,851.85 20,662,231.00 572,620.85 2.8U
NET INCOME (LOSS) 3,301,213.17 4,699,414.00 1,398,200.83 29.8U
</TABLE>
U=Unfavorable
<PAGE>
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME
400000 OFFICE RENTALS 1,812,176.26 1,821,813.00 9,636.74 0.5U
401000 RETAIL RENTALS 166,120.10 170,919.00 4,798.90 2.8U
403000 OPER. & PROP. TAX ESCALATIONS 191,867.48 695,225.00 503,357.52 72.4U
404000 SUNDRY REVENUE 67,270.14 48,843.00 18,427.14 37.7
405999 PARKING INCOME 392,538.05 400,420.00 7,881.95 2.0U
406175 OTHER REVENUE 115,847.18 222,874.00 107,026.82 48.0U
TOTAL INCOME 2,745,819.21 3,360,094.00 614,274.79 18.3U
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 153,947.36 150,010.00 3,937.36 2.6U
501000 BLDG & GROUNDS - GEN MAINT 35,862.31 36,968.00 1,105.69 3.0
503000 HVAC MAINT. & REPAIRS 166,258.06 84,647.00 81,611.06 96.4U
504000 ELEVATOR MAINT. & REPAIRS 56,974.35 37,103.00 19,871.35 53.6U
504500 ELECTRICAL MAINT. - REPAIRS 7,012.88 4,607.00 2,405.88 52.2U
505000 UTILITIES 192,806.27 218,167.00 25,360.73 11.6
506000 SECURITY/LIFE SAFETY 98,787.09 72,483.00 26,304.09 36.3U
508000 ADMINISTRATION 96,002.33 162,483.00 66,480.67 40.9
600000 TAXES (OTHER THAN INCOME) 228,837.52 230,487.00 1,649.48 0.7
601000 INSURANCE 196,054.01 117,637.00 78,417.01 66.7U
602000 ON-SITE GARAGE 40,635.52 7,213.00 33,422.52 463.4U
602012 OFF-SITE GARAGE 41,456.70 27,262.00 14,194.70 52.1U
602015 ATRIUM 52,445.19 29,978.00 22,467.19 75.0U
602100 ESCALATABLES 1,367,079.59 1,179,045.00 188,034.59 16.0U
701000 NON-ESCALATABLES 9,796.27 6,488.00 3,308.27 51.0U
702000 LEASING EXPENSE 83,880.80 18,574.00 65,306.80 351.6U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
INCOME
400000 OFFICE RENTALS 22,320,527.43 22,547,305.00 226,777.57 1.0U
401000 RETAIL RENTALS 2,024,624.52 2,052,580.00 27,955.48 1.4U
403000 OPER. & PROP. TAX ESCALATIONS 7,788,783.67 8,267,264.00 478,480.33 5.8U
404000 SUNDRY REVENUE 937,568.74 782,294.00 155,274.74 19.9
405999 PARKING INCOME 4,988,346.41 4,835,471.00 152,875.41 3.2
406175 OTHER REVENUE 1,603,556.41 2,674,400.00 1,070,843.59 40.0U
TOTAL INCOME 39,663,407.18 41,159,314.00 1,495,906.82 3.6U
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 1,608,763.13 1,719,100.00 110,336.87 6.4
501000 BLDG & GROUNDS - GEN MAINT 452,436.60 470,508.00 18,071.40 3.8
503000 HVAC MAINT. & REPAIRS 976,525.86 1,065,960.00 89,434.14 8.4
504000 ELEVATOR MAINT. & REPAIRS 438,540.91 437,659.00 881.91 0.2U
504500 ELECTRICAL MAINT. - REPAIRS 64,567.21 55,240.00 9,327.21 16.9U
505000 UTILITIES 2,735,750.20 2,805,470.00 69,719.80 2.5
506000 SECURITY/LIFE SAFETY 750,538.01 869,796.00 119,257.99 13.7
508000 ADMINISTRATION 1,709,488.19 1,862,647.00 153,158.81 8.2
600000 TAXES (OTHER THAN INCOME) 2,766,885.18 2,808,859.00 41,973.82 1.5
601000 INSURANCE 1,294,266.39 1,411,644.00 117,377.61 8.3
602000 ON-SITE GARAGE 122,215.35 86,523.00 35,692.35 41.3U
602012 OFF-SITE GARAGE 336,401.68 327,100.00 9,301.68 2.8U
602015 ATRIUM 383,485.25 359,780.00 23,705.25 6.6U
602100 ESCALATABLES 13,639,863.96 14,280,286.00 640,422.04 4.5
701000 NON-ESCALATABLES 92,110.81 77,768.00 14,342.81 18.4U
702000 LEASING EXPENSE 333,624.98 222,932.00 110,692.98 49.7U
</TABLE>
U=Unfavorable
<PAGE>
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
703000 ADVERTISING & MARKETING 15,533.96 13,730.00 1,803.96 13.1U
704000 PROFESSIONAL SERVICES 67,901.94 63,825.00 4,076.94 6.4U
704910 PARKING 30,686.69 77,533.00 46,846.31 60.4
TOTAL OPERATING EXPENSES 1,574,879.25 1,359,195.00 215,684.25 15.9U
NET OPERATING INCOME/LOSS 1,170,939.96 2,000,899.00 829,959.04 41.5U
OTHER EXPENSES
705000 FINANCING EXPENSES 1,155,077.85 1,156,436.00 1,358.15 0.1
707000 DEPRECIATION EXPENSE 511,260.69 503,245.00 8,015.69 1.6U
708000 AMORTIZATION EXPENSE 32,408.57 42,521.00 10,112.43 23.8
708910 FASB RENT ADJUSTMENT 44,885.00 0.00 44,885.00 -----U
708925 PRIOR YR ESCALATION ADJUSTMENT 0.00 0.00 0.00 -----
708930 DOUBTFUL ACCOUNT EXPENSE 88,623.81 0.00 88,623.81 -----U
TOTAL OTHER EXPENSES 1,832,255.92 1,702,202.00 130,053.92 7.6U
NET INCOME (LOSS) (661,315.96) 298,697.00 960,012.96 321.4U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
-------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C>
703000 ADVERTISING & MARKETING 65,003.43 71,817.00 6,813.57 9.5
704000 PROFESSIONAL SERVICES 131,071.23 153,541.00 22,469.77 14.6
704910 PARKING 865,667.75 991,325.00 125,657.25 12.7
TOTAL OPERATING EXPENSES 15,127,342.16 15,797,669.00 670,326.84 4.2
NET OPERATING INCOME/LOSS 24,536,065.02 25,361,645.00 825,579.98 3.3U
OTHER EXPENSES
705000 FINANCING EXPENSES 14,151,335.81 14,113,039.00 38,296.81 0.3U
707000 DEPRECIATION EXPENSE 6,023,045.76 6,038,940.00 15,894.24 0.3
708000 AMORTIZATION EXPENSE 569,874.84 510,252.00 59,622.84 11.7U
708910 FASB RENT ADJUSTMENT 538,620.00 0.00 538,620.00 -----U
708925 PRIOR YR ESCALATION ADJUSTMENT (57,393.39) 0.00 57,393.39 -----
708930 DOUBTFUL ACCOUNT EXPENSE 9,368.83 0.00 9,368.83 -----U
TOTAL OTHER EXPENSES 21,234,851.85 20,662,231.00 572,620.85 2.8U
NET INCOME (LOSS) 3,301,213.17 4,699,414.00 1,398,200.83 29.8U
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
ON SITE PARKING
Page 01
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 4,197.86 2,325.00 1,872.86 80.6U
500900 CLEANING/JANITORIAL 4,197.86 2,325.00 1,872.86 80.6U
501000 BLDG & GROUNDS - GEN MAINT
501400 CONTRACT SWEEP 16,443.77 1,650.00 14,793.77 896.6U
501600 NONTENANT PAINTING/DECOR 33,367.27 3,875.00 29,492.27 761.1U
501700 SUPPLIES/MATERIALS-BLDG. 110.74 1,416.00 1,305.26 92.2
501800 PLUMBING REPAIRS 0.00 0.00 0.00 -----
501900 BUILDING REPAIRS 4,142.00 333.00 3,809.00 -----U
502100 COMMUNICATIONS 0.00 0.00 0.00 -----
502500 DIRECTORY SIGNS 7,543.44 250.00 7,293.44 -----U
502600 FILTERS 0.00 0.00 0.00 -----
502900 BLDG. & GROUNDS - GEN. MAINT. 61,607.22 7,524.00 54,083.22 718.8U
503000 HVAC MAINT. & REPAIRS
503300 SUPPLIES MATERIALS - HVAC 0.00 0.00 0.00 -----
503900 HVAC MAINT. & REPAIRS 0.00 0.00 0.00 -----
504500 ELECTRICAL MAINT. - REPAIRS
504600 ELECTRICAL REPAIRS 0.00 167.00 167.00 100.0
504800 RELAMPING 0.00 100.00 100.00 100.0
504810 LAMP REPLACEMENT 189.11 0.00 189.11 -----U
504900 ELECTRICAL MAINT. - REPAIRS 189.11 267.00 77.89 29.2
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------------ -------- ------- -----
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 40,438.85 27,900.00 12,538.85 44.9U
500900 CLEANING/JANITORIAL 40,438.85 27,900.00 12,538.85 44.9U
501000 BLDG & GROUNDS - GEN MAINT
501400 CONTRACT SWEEP 16,443.77 19,800.00 3,356.23 17.0
501600 NONTENANT PAINTING/DECOR 74,020.82 46,500.00 27,520.82 59.2U
501700 SUPPLIES/MATERIALS-BLDG. 4,392.37 17,000.00 12,607.63 74.2
501800 PLUMBING REPAIRS 133.15 0.00 133.15 -----U
501900 BUILDING REPAIRS 9,510.00 4,000.00 5,510.00 137.8U
502100 COMMUNICATIONS 75.00 0.00 75.00 -----U
502500 DIRECTORY SIGNS 8,019.34 3,000.00 5,019.34 167.3U
502600 FILTERS 547.80 0.00 547.80 -----U
502900 BLDG. & GROUNDS - GEN. MAINT. 113,142.25 90,300.00 22,842.25 25.3U
503000 HVAC MAINT. & REPAIRS
503300 SUPPLIES MATERIALS - HVAC 151.43 0.00 151.43 -----U
503900 HVAC MAINT. & REPAIRS 151.43 0.00 151.43 -----U
504500 ELECTRICAL MAINT. - REPAIRS
504600 ELECTRICAL REPAIRS 1,072.52 2,000.00 927.48 46.4
504800 RELAMPING 0.00 1,200.00 1,200.00 100.0
504810 LAMP REPLACEMENT 1,553.25 0.00 1,553.25 -----U
504900 ELECTRICAL MAINT. - REPAIRS 2,625.77 3,200.00 574.23 17.9
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
ON SITE PARKING
Page 02
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
505000 UTILITIES
505600 WATER 95.00 0.00 95.00 -----U
505900 UTILITIES 95.00 0.00 95.00 -----U
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 2,555.90 2,358.00 197.90 8.4U
506400 SEC-SPPLS/MATRLS & REPAIR 0.00 0.00 0.00 -----
506811 SECURITY/LIFE SAFETY 2,555.90 2,358.00 197.90 8.4U
508000 ADMINISTRATION
508500 TELEPHONE/ANSWERING SVCS. 37.22 125.00 87.78 70.2
508900 EQUIPMENT RENTAL 532.22 275.00 257.22 93.5U
509100 PRINTING & COPYING 0.00 0.00 0.00 -----
509900 ADMINISTRATION 569.44 400.00 169.44 42.4U
602100 ESCALATABLES 69,214.53 12,874.00 56,340.53 437.6U
704000 PROFESSIONAL SERVICES
704300 CONSULTANTS 3,348.90 0.00 3,348.90 -----U
704900 PROFESSIONAL SERVICES 3,348.90 0.00 3,348.90 -----U
704970 ALLOCATIONS
704971 ALLOCATIONS-PHASE I (40,635.52) 0.00 40,635.52 -----
704972 ALLOCATIONS-SOUTH TOWER (31,927.91) 0.00 31,927.91 -----
704975 ALLOCATIONS (72,563.43) 0.00 72,563.43 -----
TOTAL OPERATING EXPENSES 0.00 12,874.00 12,874.00 100.0
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
505000 UTILITIES
505600 WATER 95.00 0.00 95.00 -----U
505900 UTILITIES 95.00 0.00 95.00 -----U
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 32,348.61 28,305.00 4,043.61 14.3U
506400 SEC-SPPLS/MATRLS & REPAIR 132.18 0.00 132.18 -----U
506811 SECURITY/LIFE SAFETY 32,480.79 28,305.00 4,175.79 14.8U
508000 ADNINISTRATION
508500 TELEPHONE/ANSWERING SVCS. 1,116.75 1,500.00 383.25 25.6
508900 EQUIPMENT RENTAL 5,066.22 3,300.00 1,766.22 53.5U
509100 PRINTING & COPYING 10.78 0.00 10.78 -----U
509900 ADMINISTRATION 6,193.75 4,800.00 1,393.75 29.0U
602100 ESCALATABLES 195,127.84 154,505.00 40,622.84 26.3U
704000 PROFESSIONAL SERVICES
704300 CONSULTANTS 23,113.81 0.00 23,113.81 -----U
704900 PROFESSIONAL SERVICES 23,113.81 0.00 23,113.81 -----U
704970 ALLOCATIONS
704971 ALLOCATIONS-PHASE I (121,970.48) 0.00 121,970.48 -----
704972 ALLOCATIONS-SOUTH TOWER (96,271.17) 0.00 96,271.17 -----
704975 ALLOCATIONS (218,241.65) 0.00 218,241.65 -----
TOTAL OPERATING EXPENSES 0.00 154,505.00 154,505.00 100.0
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
ON SITE PARKING
Page 03
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
NET OPERATING INCOME/LOSS 0.00 (12,874.00) 12,874.00 100.0
NET INCOME (LOSS) 0.00 (12,874.00) 12,874.00 100.0
</TABLE>
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
NET OPERATING INCOME/LOSS 0.00 (154,505.00) 154,505.00 100.0
NET INCOME (LOSS) 0.00 (154,505.00) 154,505.00 100.0
</TABLE>
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
ON SITE PARKING
Page 03
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 4,197.86 2,325.00 1,872.86 80.6U
501000 BLDG & GROUNDS - GEN MAINT 61,607.22 7,524.00 54,083.22 718.8U
503000 HVAC MAINT. & REPAIRS 0.00 0.00 0.00 -----
504500 ELECTRICAL MAINT. - REPAIRS 189.11 267.00 77.89 29.2
505000 UTILITIES 95.00 0.00 95.00 -----U
506000 SECURITY/LIFE SAFETY 2,555.90 2,358.00 197.90 8.4U
508000 ADMINISTRATION 569.44 400.00 169.44 42.4U
602100 ESCALATABLES 69,214.53 12,874.00 56,340.53 437.6U
704000 PROFESSIONAL SERVICES 3,348.90 0.00 3,348.90 -----U
704970 ALLOCATIONS (72,563.43) 0.00 72,563.43 -----
TOTAL OPERATING EXPENSES 0.00 12,874.00 12,874.00 100.0
NET OPERATING INCOME/LOSS 0.00 (12,874.00) 12,874.00 100.0
NET INCOME (LOSS) 0.00 (12,874.00) 12,874.00 100.0
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 40,438.85 27,900.00 12,538.85 44.9U
501000 BLDG & GROUNDS - GEN MAINT 113,142.25 90,300.00 22,842.25 25.3U
503000 HVAC MAINT. & REPAIRS 151.43 0.00 151.43 -----U
504500 ELECTRICAL MAINT. - REPAIRS 2,625.77 3,200.00 574.23 17.9
505000 UTILITIES 95.00 0.00 95.00 -----U
506000 SECURITY/LIFE SAFETY 32,480.79 28,305.00 4,175.79 14.8U
508000 ADMINISTRATION 6,193.75 4,800.00 1,393.75 29.0U
602100 ESCALATABLES 195,127.84 154,505.00 40,622.84 26.3U
704000 PROFESSIONAL SERVICES 23,113.81 0.00 23,113.81 -----U
704970 ALLOCATIONS (218,241.65) 0.00 218,241.65 -----
TOTAL OPERATING EXPENSES 0.00 154,505.00 154,505.00 100.0
NET OPERATING INCOME/LOSS 0.00 (154,505.00) 154,505.00 100.0
NET INCOME (LOSS) 0.00 (154,505.00) 154,505.00 100.0
</TABLE>
U=Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
OFF SITE PARKING
Page 01
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 1,601.04 1,475.00 126.04 8.6U
500300 CONTRACT WINDOW CLEANING 0.00 815.00 815.00 100.0
500400 CONTRACT WASTE REMOVAL 89.97 135.00 45.03 33.4
500900 CLEANING/JANITORIAL 1,691.01 2,425.00 733.99 30.3
501000 BLDG & GROUNDS - GEN MAINT
501200 CONTRACT EXTERM. SVCS. 126.00 126.00 0.00 0.0
501500 CONTRACT LANDSCAPING SV 446.00 600.00 154.00 25.7
501600 NONTENANT PAINTING/DECOR 0.00 250.00 250.00 100.0
501700 SUPPLIES/MATERIALS-BLDG. 39.79 0.00 39.79 -----U
501800 PLUMBING REPAIRS 0.00 0.00 0.00 -----
501825 SPRINKLER, STANDPIPE, FIRE PUMP 0.00 84.00 84.00 100.0
502000 EXTERIOR REPAIRS 0.00 459.00 459.00 100.0
502100 COMMUNICATIONS 0.00 167.00 167.00 100.0
502800 LOCK REPAIR 0.00 0.00 0.00 -----
502900 BLDG. & GROUNDS - GEN. MAINT. 611.79 1,686.00 1,074.21 63.7
504000 ELEVATOR MAINT. & REPAIRS
504100 CONTRACT ELEVATOR SVCS. 747.44 725.00 22.44 3.1U
504300 ELEVATOR REPAIRS 0.00 209.00 209.00 100.0
504400 ELEVATOR MAINT. & REPAIR 747.44 934.00 186.56 20.0
504500 ELECTRICAL MAINT. - REPAIRS
504600 ELECTRICAL REPAIRS 0.00 209.00 209.00 100.0
504610 ELECTRICAL SUPPLIES 0.00 67.00 67.00 100.0
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 17,107.35 17,700.00 592.65 3.4
500300 CONTRACT WINDOW CLEANING 4,075.00 9,780.00 5,705.00 58.3
500400 CONTRACT WASTE REMOVAL 1,079.64 1,620.00 540.36 33.4
500900 CLEANING/JANITORIAL 22,261.99 29,100.00 6,838.01 23.5
501000 BLDG & GROUNDS - GEN MAINT
501200 CONTRACT EXTERM. SVCS. 1,386.00 1,512.00 126.00 8.3
501500 CONTRACT LANDSCAPING SV 5,398.24 7,200.00 1,801.76 25.0
501600 NONTENANT PAINTING/DECOR 0.00 3,000.00 3,000.00 100.0
501700 SUPPLIES/MATERIALS-BLDG. 137.41 0.00 137.41 -----U
501800 PLUMBING REPAIRS 95.00 0.00 95.00 -----U
501825 SPRINKLER, STANDPIPE, FIRE PUMP 0.00 1,000.00 1,000.00 100.0
502000 EXTERIOR REPAIRS 452.89 5,500.00 5,047.11 91.8
502100 COMMUNICATIONS 0.00 2,000.00 2,000.00 100.0
502800 LOCK REPAIR 34.68 0.00 34.68 -----U
502900 BLDG. & GROUNDS - GEN. MAINT. 7,504.22 20,212.00 12,707.78 62.9
504000 ELEVATOR MAINT. & REPAIRS
504100 CONTRACT ELEVATOR SVCS. 8,878.28 8,700.00 178.28 2.1U
504300 ELEVATOR REPAIRS 524.25 2,500.00 1,975.75 79.0
504400 ELEVATOR MAINT. & REPAIR 9,402.53 11,200.00 1,797.47 16.1
504500 ELECTRICAL MAINT. - REPAIRS
504600 ELECTRICAL REPAIRS 764.99 2,500.00 1,735.01 69.4
504610 ELECTRICAL SUPPLIES 0.00 800.00 800.00 100.0
</TABLE>
U = Unfavorable
<PAGE>
Page 02
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
----------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
504800 RELAMPING 11,427.91 84.00 11,343.91 -----U
504810 LAMP REPLACEMENT 0.00 0.00 0.00 -----
504900 ELECTRICAL MAINT. - REPAIRS 11,427.91 360.00 11,067.91 -----U
505000 UTILITIES
505100 ELECTRICITY 10,075.54 5,750.00 4,325.54 75.2U
505600 WATER 0.00 291.00 291.00 100.0
505900 UTILITIES 10,075.54 6,041.00 4,034.54 66.8U
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 9,176.13 10,718.00 1,541.87 14.4
506300 ALARM SYSTEMS 0.00 259.00 259.00 100.0
506600 FIRE/LIFE SAFETY 0.00 0.00 0.00 -----
506800 MUNICIPAL FEES 0.00 167.00 167.00 100.0
506810 CITY/STATE TESTING & CERT 0.00 334.00 334.00 100.0
506811 SECURITY/LIFE SAFETY 9,176.13 11,478.00 2,301.87 20.1
507000 PARKING
507300 SHUTTLE SERVICE 41,514.51 25,665.00 15,849.51 61.8U
507900 INACTIVE-PARKING 41,514.51 25,665.00 15,849.51 61.8U
508000 ADMINISTRATION
508500 TELEPHONE/ANSWERING SVCS. 41.26 41.00 0.26 0.6U
508900 EQUIPMENT RENTAL 48.17 50.00 1.83 3.7
509900 ADMINISTRATION 89.43 91.00 1.57 1.7
602100 ESCALATABLES 75,333.76 48,680.00 26,653.76 54.8U
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
504800 RELAMPING 11,427.91 1,000.00 10,427.91 -----U
504810 LAMP REPLACEMENT 379.96 0.00 379.96 -----U
504900 ELECTRICAL MAINT. - REPAIRS 12,572.86 4,300.00 8,272.86 192.4U
505000 UTILITIES
505100 ELECTRICITY 59,296.65 69,000.00 9,703.35 14.1
505600 WATER 2,529.35 3,500.00 970.65 27.7
505900 UTILITIES 61,826.00 72,500.00 10,674.00 14.7
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 110,788.21 128,607.00 17,818.79 13.9
506300 ALARM SYSTEMS 5,016.73 3,100.00 1,916.73 61.8U
506600 FIRE/LIFE SAFETY 1,800.00 0.00 1,800.00 -----U
506800 MUNICIPAL FEES 540.00 2,000.00 1,460.00 73.0
506810 CITY/STATE TESTING & CERT 0.00 4,000.00 4,000.00 100.0
506811 SECURITY/LIFE SAFETY 118,144.94 137,707.00 19,562.06 14.2
507000 PARKING
507300 SHUTTLE SERVICE 369,006.54 307,989.00 61,017.54 19.8U
507900 INACTIVE-PARKING 369,006.54 307,989.00 61,017.54 19.8U
508000 ADMINISTRATION
508500 TELEPHONE/ANSWERING SVCS. 712.02 500.00 212.02 42.4U
508900 EQUIPMENT RENTAL 590.16 600.00 9.84 1.6
509900 ADMINISTRATION 1,302.18 1,100.00 202.18 18.4U
602100 ESCALATABLES 602,021.26 584,108.00 17,913.26 3.1U
</TABLE>
U = Unfavorable
<PAGE>
INCOME/EXPENSE BUDGET
CROCKER PROPERTIES - PHASE 1
OFF SITE PARKING
Page 03
Accrual Basis
Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
-----------------------------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
----------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
704970 ALLOCATIONS
704971 ALLOCATIONS-PHASE I (41,456.70) 0.00 41,456.70 -----
704972 ALLOCATIONS-SOUTH TOWER (33,877.06) 0.00 33,877.06 -----
704975 ALLOCATIONS (75,333.76) 0.00 75,333.76 -----
TOTAL OPERATING EXPENSES 0.00 48,680.00 48,680.00 100.0
NET OPERATING INCOME/LOSS 0.00 (48,680.00) 48,680.00 100.0
NET INCOME (LOSS) 0.00 (48,680.00) 48,680.00 100.0
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
-----------------------------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
----------- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
704970 ALLOCATIONS
704971 ALLOCATIONS-PHASE I (336,401.68) 0.00 336,401.68 -----
704972 ALLOCATIONS-SOUTH TOWER (265,619.58) 0.00 265,619.58 -----
704975 ALLOCATIONS (602,021.26) 0.00 602,021.26 -----
TOTAL OPERATING EXPENSES 0.00 584,108.00 584,108.00 100.0
NET OPERATING INCOME/LOSS 0.00 (584,108.00) 584,108.00 100.0
NET INCOME (LOSS) 0.00 (584,108.00) 584,108.00 100.0
</TABLE>
<PAGE>
01/23/98 INCOME/EXPENSE BUDGET Page 01
2:10 p.m. CROCKER PROPERTIES - PHASE 1 Accrual Basis
OFF SITE PARKING Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
------------------------------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
--------- --------- -------- ------
OPERATING EXPENSES
<S> <C> <C> <C> <C> <C>
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 1,691.01 2,425.00 733.99 30.3
501000 BLDG & GROUNDS - GEN MAINT 611.79 1,686.00 1,074.21 63.7
504000 ELEVATOR MAINT. & REPAIRS 747.44 934.00 186.56 20.0
504500 ELECTRICAL MAINT. - REPAIRS 11,427.91 360.00 11,067.91 -----U
505000 UTILITIES 10,075.54 6,041.00 4,034.54 66.8U
506000 SECURITY/LIFE SAFETY 9,176.13 11,478.00 2,301.87 20.1
507000 PARKING 41,514.51 25,665.00 15,849.51 61.8U
508000 ADMINISTRATION 89.43 91.00 1.57 1.7
602100 ESCALATABLES 75,333.76 48,680.00 26,653.76 54.8U
704970 ALLOCATIONS (75,333.76) 0.00 75,333.76 -----
TOTAL OPERATING EXPENSES 0.00 48,680.00 48,680.00 100.0
NET OPERATING INCOME/LOSS 0.00 (48,680.00) 48,680.00 100.0
NET INCOME (LOSS) 0.00 (48,680.00) 48,680.00 100.0
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
---------------------------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------ ------ -------- -----
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 22,261.99 29,100.00 6,838.01 23.5
501000 BLDG & GROUNDS - GEN MAINT 7,504.22 20,212.00 12,707.78 62.9
504000 ELEVATOR MAINT. & REPAIRS 9,402.53 11,200.00 1,797.47 16.1
504500 ELECTRICAL MAINT. - REPAIRS 12,572.86 4,300.00 8,272.86 192.4U
505000 UTILITIES 61,826.00 72,500.00 10,674.00 14.7
506000 SECURITY/LIFE SAFETY 118,144.94 137,707.00 19,562.06 14.2
507000 PARKING 369,006.54 307,989.00 61,017.54 19.8U
508000 ADMINISTRATION 1,302.18 1,100.00 202.18 18.4U
602100 ESCALATABLES 602,021.26 584,108.00 17,913.26 3.1U
704970 ALLOCATIONS (602,021.26) 0.00 602,021.26 -----
TOTAL OPERATING EXPENSES 0.00 584,108.00 584,108.00 100.0
NET OPERATING INCOME/LOSS 0.00 (584,108.00) 584,108.00 100.0
NET INCOME (LOSS) 0.00 (584,108.00) 584,108.00 100.0
</TABLE>
U = Unfavorable
<PAGE>
01/23/98 INCOME/EXPENSE BUDGET Page 01
2:09 p.m. CROCKER PROPERTIES - PHASE 1 Accrual Basis
ATRIUM Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
--------------------------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------ ------ -------- ---
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 17,293.66 16,699.00 594.66 3.6U
500300 CONTRACT WINDOW CLEANING 650.00 2,042.00 1,392.00 68.2
500500 SUPPLIES/MATERIALS-CLEAN 0.00 0.00 0.00 -----
500900 CLEANING/JANITORIAL 17,943.66 18,741.00 797.34 4.3
501000 BLDG & GROUNDS - GEN MAINT
501200 CONTRACT EXTERM. SVCS. 1,716.00 580.00 1,136.00 195.9U
501300 PLUMBING MATERIALS 0.00 0.00 0.00 -----
501500 CONTRACT LANDSCAPING SV 26,666.84 12,725.00 13,941.84 109.6U
501600 NONTENANT PAINTING/DECOR 7,066.00 2,041.00 5,025.00 246.2U
501700 SUPPLIES/MATERIALS-BLDG. 36.00 375.00 339.00 90.4
501800 PLUMBING REPAIRS 2,765.69 500.00 2,265.69 453.1U
501825 SPRINKLER, STANDPIPE, FIRE PUMP 0.00 0.00 0.00 -----
501900 BUILDING REPAIRS 2,177.18 1,542.00 635.18 41.2U
502000 EXTERIOR REPAIRS 10,895.00 1,250.00 9,645.00 771.6U
502100 COMMUNICATIONS (572.00) 0.00 572.00 -----
502200 METAL MAINTENANCE 0.00 0.00 0.00 -----
502400 OTHER BLDG. & GROUNDS 75.00 209.00 134.00 64.1
502600 FILTERS 9,403.20 0.00 9,403.20 -----U
502800 LOCK REPAIR 0.00 667.00 667.00 100.0
502900 BLDG. & GROUNDS - GEN. MAINT. 60,228.91 19,889.00 40,339.91 202.8U
503000 HVAC MAINT. & REPAIRS
503100 CONTRACT ENGINEERING 0.00 1,250.00 1,250.00 100.0
503900 HVAC MAINT. & REPAIRS 0.00 1,250.00 1,250.00 100.0
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
-----------------------------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------ ------ -------- ---
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL
500200 CONTRACT BLDG. CLEANING 190,995.07 200,379.00 9,383.93 4.7
500300 CONTRACT WINDOW CLEANING 22,687.75 24,500.00 1,812.25 7.4
500500 SUPPLIES/MATERIALS-CLEAN 82.81 0.00 82.81 -----U
500900 CLEANING/JANITORIAL 213,765.63 224,879.00 11,113.37 4.9
501000 BLDG & GROUNDS - GEN MAINT
501200 CONTRACT EXTERM. SVCS. 6,292.00 6,960.00 668.00 9.6
501300 PLUMBING MATERIALS 559.63 0.00 559.63 -----U
501500 CONTRACT LANDSCAPING SV 157,098.11 152,700.00 4,398.11 2.9U
501600 NONTENANT PAINTING/DECOR 54,921.09 24,500.00 30,421.09 124.2U
501700 SUPPLIES/MATERIALS-BLDG. 5,179.46 4,500.00 679.46 15.1U
501800 PLUMBING REPAIRS 8,678.41 6,000.00 2,678.41 44.6U
501823 SPRINKLER, STANDPIPE, FIRE PUMP 569.13 0.00 569.13 -----U
501900 BUILDING REPAIRS 25,380.88 18,500.00 6,880.88 37.2U
502000 EXTERIOR REPAIRS 19,371.81 15,000.00 4,371.81 29.2U
502100 COMMUNICATIONS 0.00 0.00 0.00 -----
502200 METAL MAINTENANCE 3,087.50 0.00 3,087.50 -----U
502400 OTHER BLDG. & GROUNDS 1,302.84 2,500.00 1,197.16 47.9
502600 FILTERS 9,403.20 0.00 9,403.20 -----U
502800 LOCK REPAIR 1,007.21 8,000.00 6,992.79 87.4
502900 BLDG. & GROUNDS - GEN. MAINT. 292,851.27 238,660.00 54,191.27 22.7U
503000 HVAC MAINT. & REPAIRS
503100 CONTRACT ENGINEERING 0.00 15,000.00 15,000.00 100.0
503900 HVAC MAINT. & REPAIRS 0.00 15,000.00 15,000.00 100.0
</TABLE>
U = Unfavorable
<PAGE>
01/23/98 INCOME/EXPENSE BUDGET Page 02
2:09 p.m. CROCKER PROPERTIES - PHASE 1 Accrual Basis
ATRIUM Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
--------------------------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
------ ------ --------- -----
<S> <C> <C> <C> <C> <C>
504000 ELEVATOR MAINT. & REPAIRS
504100 CONTRACT ELEVATOR SVCS. 4,620.16 4,663.00 42.84 0.9
504300 ELEVATOR REPAIRS 2,109.98 250.00 1,859.98 744.0U
504400 ELEVATOR MAINT. & REPAIR 6,730.14 4,913.00 1,817.14 37.0U
504500 ELECTRICAL MAINT. - REPAIRS
504600 ELECTRICAL REPAIRS 420.00 209.00 211.00 101.0U
504610 ELECTRICAL SUPPLIES 0.00 0.00 0.00 -----
504800 RELAMPING 0.00 259.00 259.00 100.0
504810 LAMP REPLACEMENT 327.95 0.00 327.95 -----U
504900 ELECTRICAL MAINT. - REPAIRS 747.95 468.00 279.95 59.8U
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 7,977.09 8,014.00 36.91 0.5
506400 SEC-SPPLS/MATRLS & REPAIR 0.00 0.00 0.00 -----
506800 MUNICIPAL FEES 0.00 100.00 100.00 100.0
506810 CITY/STATE TESTING & CERT 0.00 166.00 166.00 100.0
506811 SECURITY/LIFE SAFETY 7,977.09 8,280.00 302.91 3.7
508000 ADMINISTRATION
509100 PRINTING & COPYING 24.36 0.00 24.36 -----U
509900 ADMINISTRATION 24.36 0.00 24.36 -----U
602100 ESCALATABLES 93,652.11 53,541.00 40,111.11 74.9U
704970 ALLOCATIONS
704971 ALLOCATIONS-PHASE I (52,445.19) 0.00 52,445.19 -----
704972 ALLOCATIONS-SOUTH TOWER (41,206.92) 0.00 41,206.92 -----
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
-------------------------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
504000 ELEVATOR MAINT. & REPAIRS
504100 CONTRACT ELEVATOR SVCS. 54,902.92 55,950.00 1,047.08 1.9
504300 ELEVATOR REPAIRS 2,812.19 3,000.00 187.81 6.3
504400 ELEVATOR MAINT. & REPAIR 57,715.11 58,950.00 1,234.89 2.1
504500 ELECTRICAL MAINT. - REPAIRS
504600 ELECTRICAL REPAIRS 1,430.00 2,500.00 1,070.00 42.8
504610 ELECTRICAL SUPPLIES 506.44 0.00 506.44 -----U
504800 RELAMPING 6,746.02 3,100.00 3,646.02 117.6U
504810 LAMP REPLACEMENT 7,933.95 0.00 7,933.95 -----U
504900 ELECTRICAL MAINT. - REPAIRS 16,616.41 5,600.00 11,016.41 196.7U
506000 SECURITY/LIFE SAFETY
506200 CONTRACT SECURITY SVCS. 102,483.26 96,175.00 6,308.26 6.6U
506400 SEC-SPPLS/MATRLS & REPAIR 788.21 0.00 788.21 -----U
506800 MUNICIPAL FEES 183.00 1,200.00 1,017.00 84.8
506810 CITY/STATE TESTING & CERT 0.00 2,000.00 2,000.00 100.0
506811 SECURITY/LIFE SAFETY 103,454.47 99,375.00 4,079.47 4.1U
508000 ADMINISTRATION
509100 PRINTING & COPYING 392.13 0.00 392.13 -----U
509900 ADMINISTRATION 392.13 0.00 392.13 -----U
602100 ESCALATABLES 684,795.02 642,464.00 42,331.02 6.6U
704970 ALLOCATIONS
704971 ALLOCATIONS-PHASE I (383,485.25) 0.00 383,485.25 -----
704972 ALLOCATIONS-SOUTH TOWER (301,309.77) 0.00 301,309.77 -----
</TABLE>
U = Unfavorable
<PAGE>
01/23/98 INCOME/EXPENSE BUDGET Page 03
2:09 p.m. CROCKER PROPERTIES - PHASE 1 Accrual Basis
ATRIUM Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
--------------------------------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
--------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
704975 ALLOCATIONS (93,652.11) 0.00 93,652.11 -----
TOTAL OPERATING EXPENSES 0.00 53,541.00 53,541.00 100.0
NET OPERATING INCOME/LOSS 0.00 (53,541.00) 53,541.00 100.0
NET INCOME (LOSS) 0.00 (53,541.00) 53,541.00 100.0
12 MONTHS ENDED 12/31/97
</TABLE>
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
--------------------------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
--------- ------- ---------- -----
<S> <C> <C> <C> <C> <C>
704975 ALLOCATIONS (684,795.02) 0.00 684,795.02 -----
TOTAL OPERATING EXPENSES 0.00 642,464.00 642,464.00 100.0
NET OPERATING INCOME/LOSS 0.00 (642,464.00) 642,464.00 100.0
NET INCOME (LOSS) 0.00 (642,464.00) 642,464.00 100.0
</TABLE>
<PAGE>
01/23/98 INCOME/EXPENSE BUDGET Page 01
2:10 p.m. CROCKER PROPERTIES - PHASE 1 Accrual Basis
ATRIUM Year-end adj.
<TABLE>
<CAPTION>
1 MONTH ENDED 12/31/97
-------------------------------------------
ACTUAL BUDGET VARIANCE %
A B C=B-A D=C/B
---------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 17,943.66 18,741.00 797.34 4.3
501000 BLDG & GROUNDS - GEN MAINT 60,228.91 19,889.00 40,339.91 202.8U
503000 HVAC MAINT. & REPAIRS 0.00 1,250.00 1,250.00 100.0
504000 ELEVATOR MAINT. & REPAIRS 6,730.14 4,913.00 1,817.14 37.0U
504500 ELECTRICAL MAINT. - REPAIRS 747.95 468.00 279.95 59.8U
506000 SECURITY/LIFE SAFETY 7,977.09 8,280.00 302.91 3.7
508000 ADMINISTRATION 24.36 0.00 24.36 -----U
602100 ESCALATABLES 93,652.11 53,541.00 40,111.11 74.9U
704970 ALLOCATIONS (93,652.11) 0.00 93,652.11 -----
TOTAL OPERATING EXPENSES 0.00 53,541.00 53,541.00 100.0
NET OPERATING INCOME/LOSS 0.00 (53,541.00) 53,541.00 100.0
NET INCOME (LOSS) 0.00 (53,541.00) 53,541.00 100.0
</TABLE>
<TABLE>
<CAPTION>
12 MONTHS ENDED 12/31/97
-----------------------------------------------
ACTUAL BUDGET VARIANCE %
E F G=F-E H=G/F
-------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES
499950 ESCALATABLES
500000 CLEANING/JANITORIAL 213,765.63 224,879.00 11,113.37 4.9
501000 BLDG & GROUNDS - GEN MAINT 292,851.27 238,660.00 54,191.27 22.7U
503000 HVAC MAINT. & REPAIRS 0.00 15,000.00 15,000.00 100.0
504000 ELEVATOR MAINT. & REPAIRS 57,715.11 58,950.00 1,234.89 2.1
504500 ELECTRICAL MAINT. - REPAIRS 16,616.41 5,600.00 11,016.41 196.7U
506000 SECURITY/LIFE SAFETY 103,454.47 99,375.00 4,079.47 4.1U
508000 ADMINISTRATION 392.13 0.00 392.13 -----U
602100 ESCALATABLES 684,795.02 642,464.00 42,331.02 6.6U
704970 ALLOCATIONS (684,795.02) 0.00 684,795.02 -----
TOTAL OPERATING EXPENSES 0.00 642,464.00 642,464.00 100.0
NET OPERATING INCOME/LOSS 0.00 (642,464.00) 642,464.00 100.0
NET INCOME (LOSS) 0.00 (642,464.00) 642,464.00 100.0
</TABLE>
U = Unfavorable
<PAGE>
MaguirePartners TOTAL NRA 1,328.9
WELLS FARGO CENTER - PHASE I AVG. OCCUPANCY 1997 94.60% OFFICE 1,220.7
1998 OPERATING BUDGET AVG. OCCUPANCY 1998 87.50% RETAIL 108.1
<TABLE>
<CAPTION>
1997 1997 1998 VARIANCE
YTD ACT. 1997 BUDGET 1997 FCST. 1998 BUDGET FCSTvsBGT
AS OF 9/30/97 BUDGET PSF FORECAST PSF BUDGET PSF FAV(UNFAV)
-------------- ------ ------ --------- ----- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
OFFICE RENTALS 16,829,352 22,547,305 18.00 22,356,005 18.00 20,147,413 17.00 (2,208,592)
RETAIL RENTALS 1,505,658 2,052,580 18.98 2,036,580 18.84 2,110,502 19.52 73,922
ESCALATION REVENUE 6,202,943 8,267,264 6.22 7,747,264 5.83 8,015,772 6.03 268,508
SUNDRY REVENUE 701,750 782,294 0.59 902,294 0.68 849,540 0.64 (52,754)
PARKING REVENUE 3,736,636 4,835,471 3.64 4,860,471 3.66 4,668,331 3.51 (192,140)
OTHER REVENUE 1,286,762 2,674,400 2.01 1,674,400 1.26 591,340 0.44 (1,083,060)
--------- --------- ---- --------- ---- --------- ---- ----------
TOTAL REVENUE 30,263,101 41,159,314 30.97 39,577,014 29.78 36,382,898 27.38 (3,194,116)
EXPENSES
CLEANING/JANITORIAL 1,194,092 1,719,100 1.41 1,639,100 1.34 1,627,448 1.42 11,652
BUILDING & GROUNDS 254,660 470,508 0.35 470,508 0.35 465,712 0.35 4,796
HVAC MAINTENANCE 648,234 1,065,960 0.80 965,960 0.73 1,042,053 0.78 (76,093)
ELEVATOR MAINTENANCE 301,784 437,659 0.33 427,659 0.32 398,469 0.30 29,190
ELECTRICAL MAINTENANCE 45,944 55,240 0.04 55,240 0.04 70,752 0.05 (15,512)
UTILITIES 2,065,870 2,805,470 2.30 2,755,470 2.26 2,754,050 2.36 1,420
SECURITY/LIFE SAFETY 485,250 869,796 0.65 754,796 0.57 750,023 0.56 4,773
INSURANCE 909,959 1,411,644 1.06 1,307,144 0.98 1,146,194 0.86 160,950
ADMINISTRATION 519,514 811,920 0.61 731,920 0.55 723,386 0.54 8,534
MANAGEMENT FEE 790,224 1,050,726 0.79 1,011,126 0.76 934,234 0.76 76,892
ON-SITE PARKING 69,184 86,523 0.07 86,523 0.07 101,440 0.08 (14,917)
OFF-SITE PARKING 222,636 327,100 0.25 327,100 0.25 333,369 0.25 (6,269)
ATRIUM 274,048 359,780 0.27 359,780 0.27 360,827 0.27 (1,047)
--------- --------- ---- --------- ---- --------- ---- ----------
SUBTOTAL ESCALATABLE 7,781,398 11,471,426 8.93 10,892,326 8.49 10,707,957 8.58 184,369
CSCI 0 150,465 0.11 150,465 0.11 51,619 0.04 98,846
REAL PROPERTY TAXES 1,712,976 2,276,047 1.71 2,276,047 1.71 2,410,440 1.81 (134,393)
--------- --------- ---- --------- ---- --------- ---- ----------
TOTAL ESCALATABLE 9,494,374 13,897,938 10.76 13,318,838 10.31 13,170,016 10.43 148,822
PARKING OPERATIONS 691,368 991,325 0.75 946,325 0.71 990,474 0.75 (44,149)
OVSTD PROPERTY TAXES 357,127 532,812 0.40 532,812 0.40 475,329 0.36 57,483
NON-ESCALATABLES 66,591 77,768 0.06 77,768 0.06 76,368 0.06 1,400
LEASING EXPENSE 231,655 222,932 0.17 272,932 0.21 243,168 0.18 29,764
ADVERTISING & MKTG. 39,765 71,817 0.05 71,817 0.05 80,318 0.06 (8,501)
PROF. SERVICES 55,485 153,541 0.12 153,541 0.12 109,400 0.08 44,141
--------- --------- ---- --------- ---- --------- ---- ----------
NON-ESCAL 1,441,990 2,050,195 1.55 2,055,195 1.55 1,975,057 1.49 80,138
--------- --------- ---- --------- ---- --------- ---- ----------
TOTAL EXPENSES 10,936,364 15,948,133 12.31 15,374,033 11.86 15,145,073 11.92 228,960
--------- --------- ---- --------- ---- --------- ---- ----------
NET OP INCOME 19,326,737 25,211,181 18.66 24,202,981 17.92 21,237,825 15.46 (2,965,156)
INTEREST EXP 10,675,426 14,113,039 10.62 14,113,039 10.62 10,633,163 8.00 3,479,876
PRIOR YEAR ESC. ADJ. (57,393) 0 0.00 (57,393) -0.04 0 0.00 (57,393)
TAKEBACK SPACE EXP. 0 0 0.00 0 0.00 0 0.00 0
DOUBTFUL ACCT. EXP. 6,542 0 0.00 6,541 0.00 0 0.00 6,541
--------- --------- ---- --------- ---- --------- ---- ----------
CASH FLOW 8,702,162 11,098,142 8.04 10,140,794 7.34 10,604,662 7.46 463,868
CAPITAL IMPROVEMENTS 188,751 318,400 0.24 445,213 0.34 498,400 0.38 (53,187)
TENANT IMPROVEMENTS 1,653,564 1,472,150 1.11 2,076,308 1.56 881,805 0.66 1,194,503
LEASING COMMISSIONS 191,051 831,558 0.63 411,912 0.31 1,099,845 0.83 (687,933)
LINE OF CREDIT 2,367,432 3,156,576 2.38 3,156,576 2.38 0 0.00 3,156,576
PRINCIPAL PAYMENTS 1,530,879 2,068,663 1.56 2,068,663 1.56 2,142,540 1.61 (73,877)
LOAN REPAYMENT (9,811) 0 0.00 (13,100) -0.01 (14,309) -0.01 1,209
DEFERRED COSTS 233,158 0 0.00 240,000 0.18 67,117 0.05 172,883
ACCRUED PROPERTY TAX (674,993) 0 0.00 0 0.00 0 0.00 0
CSCI 0 (150,465) -0.11 (150,465) -0.11 (51,619) -0.04 (98,846)
ACCRUALS 793,636 255,000 0.19 (658,800) -0.50 520,000 0.39 (1,178,800)
PREPAID RENT (225,798) 0 0.00 0 0.00 0 0.00 0
--------- --------- ---- --------- ---- --------- ---- ----------
NET CASH FLOW 2,654,293 3,146,260 2.04 2,564,487 1.63 5,460,883 3.59 2,896,396
========= ========= ==== ========= ==== ========= ==== ==========
NET INCOME CALCULATION
DEPRECIATION 4,509,642 6,038,940 4.54 6,038,940 4.54 6,037,572 4.54 1,368
AMORTIZATION EXP 439,745 510,252 0.38 510,252 0.38 751,488 0.57 (241,236)
FASB RENT ADJ. 410,004 0 0.00 724,944 0.55 1,079,316 0.81 (354,372)
--------- --------- ---- --------- ---- --------- ---- ----------
NET INCOME 3,342,771 4,548,950 3.12 2,866,658 1.87 2,736,286 1.54 130,372
========= ========= ==== ========= ==== ========= ==== ==========
</TABLE>
<PAGE>
MaguirePartners TOTAL NRA 1,328,917
WELLS FARGO CENTER - PHASE I AVG OCC. 1997 94.60% OFFICE NRA 1,220,794
1998 OPERATING BUDGET AVG OCC. 1998 87.50% RETAIL NRA 108.123
<TABLE>
<CAPTION>
ACTUAL YTD 1997 1997 1998 1998
AS OF 9/30/97 BUDGET PER/SF BUDGET PER/SF
------------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
DETAIL OF REVENUES
OFFICE BASE RENT 16,571,012 21,982,024 18.01 19,502,981 15.98
OVERSTANDARD PERS PROP TAX ESC 357,127 484,895 0.40 425,477 0.35
STORAGE 218,515 271,608 0.22 280,871 0.23
SUBLEASE RENT 0 0 0.00 0 0.00
RENT RELIEF (317,302) (191,222) (0.16) (61,916) (0.05)
---------- ---------- ----- ---------- -----
TOTAL OFFICE RENTALS 16,829,352 22,547,305 18.47 20,147,413 16.50
RETAIL BASE RENT 1,411,861 1,955,831 18.09 1,913,614 17.70
PERCENTAGE RENT 76,217 55,835 0.52 154,039 1.42
OVERSTANDARD PERS PROP TAX ESC 35,659 47,917 0.44 49,852 0.46
RENT RELIEF (18,078) (7,003) (0.06) (7,003) (0.06)
---------- ---------- ----- ---------- -----
TOTAL RETAIL RENTALS 1,505,658 2,052,580 18.99 2,110,502 19.52
ESCALATIONS OPERATING EXP/R.E. TAX 6,036,986 8,068,604 0.40 7,803,589 0.35
ESCALATIONS OPERATING EXP/R.E. TAX 165,957 198,660 1.84 212,183 1.96
---------- ---------- ----- ---------- -----
TOTAL ESCALATIONS OPER EXP/R.E. TAX 6,202,943 8,267,264 2.24 8,015,772 2.31
ELECTRICAL 31,658 8,500 0.01 17,000 0.01
ELECTRICAL EXPENSE (8,588) (7,225) (0.01) (14,450) (0.01)
SIGNS 2,914 2,300 0.00 4,600 0.00
SIGNS EXPENSE (2,413) (1,955) 0.00 (3,910) 0.00
KEYS 28,447 24,000 0.02 36,000 0.03
KEYS EXPENSE (24,706) (12,000) (0.01) (18,000) (0.01)
ACCESS CARD 0 5,824 0.00 10,400 0.01
ACCESS CARD EXPENSE 0 (2,330) 0.00 (4,160) 0.00
MISCELLANEOUS 13,496 20,400 0.02 20,400 0.02
MISCELLANEOUS EXPENSE (15,085) (17,340) (0.01) (17,340) (0.01)
ENGINEERING/ MAINTENANCE 40,017 33,000 0.03 66,000 0.05
ENGINEERING/MAINT. EXPENSE (29,694) (23,100) (0.02) (56,100) (0.05)
FREIGHT ELEVATOR 0 0 0.00 0 0.00
FREIGHT ELEVATOR EXPENSE 0 0 0.00 0 0.00
LATE FEES 5,444 0 0.00 0 0.00
AIR CONDITIONING (PLANT ELECTRICITY) 1,077,499 1,250,000 1.02 1,375,000 1.13
AIR CONDITIONING EXPENSE (460,483) (573,800) (0.47) (633,500) (0.52)
SECURITY 62,808 0 0.00 78,000 0.06
SECURITY EXPENSE 0 0 0.00 (50,700) (0.04)
JANITORIAL 83,562 150,000 0.12 120,000 0.10
JANITORIAL EXPENSE (75,920) (97,500) (0.08) (96,000) (0.08)
GENERAL BUILDING 53,770 60,000 0.05 36,000 0.03
GENERAL BUILDING EXPENSE (87,773) (51,000) (0.04) (30,600) (0.03)
UTILITIES 48,842 96,800 0.08 72,600 0.06
UTILITIES EXPENSE (42,045) (82,280) (0.07) (61,700) (0.05)
LOCATION REVENUE 0 0 0.00 0 0.00
LOCATION EXPENSE 0 0 0.00 0 0.00
---------- ---------- ----- ---------- -----
TOTAL SUNDRY REVENUE 701,750 782,294 0.64 849,540 0.70
PARKING INCOME 3,736,636 4,835,471 3.96 4,668,331 3.82
---------- ---------- ----- ---------- -----
TOTAL PARKING INCOME 3,736,636 4,835,471 3.96 4,668,331 3.82
INTEREST INCOME 457,373 657,600 0.54 568,940 0.47
CASH COLLATERAL INCOME 0 0 0.00 0 0.00
OTHER INCOME 829,389 2,016,800 1.65 22,400 0.02
---------- ---------- ----- ---------- -----
TOTAL OTHER INCOME 1,286,762 2,674,400 2.19 591,340 0.49
---------- ---------- ----- ---------- -----
TOTAL REVENUES 30,263,101 41,159,314 30.97 36,382,898 27.38
</TABLE>
<PAGE>
MaguirePartners TOTAL NRA 1,328,917
WELLS FARGO CENTER - PHASE I AVG OCC. 1997 94.60% OFFICE NRA 1,220,794
1998 OPERATING BUDGET AVG OCC. 1998 87.50% RETAIL NRA 108.123
<TABLE>
<CAPTION>
ACTUAL YTD 1997 1997 1998 1998
AS OF 9/30/97 BUDGET PER/SF BUDGET PER/SF
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
DETAIL OF OPERATING EXPENSES
CONTRACT BUILDING CLEANING 956,587 1,343,700 1.01 1,236,525 0.93
CONTRACT WINDOW CLEANING 46,005 60,000 0.05 57,915 0.04
CONTRACT WASTE REMOVAL 44,147 56,650 0.04 84,943 0.06
SUPPLIES/MATERIALS-CLEANING 117,072 154,070 0.12 159,959 0.12
UNIFORMS-CLEANING 21,551 42,372 0.03 25,798 0.02
PARKING-CLEANING 2,452 29,716 0.02 29,716 0.02
TRAINING/INCENTIVE PROGRAM 6,279 32,592 0.02 32,592 0.02
CLEANING/JANITORIAL 1,194,092 1,719,100 1.29 1,627,448 1.21
--------- --------- ---- --------- ----
CONTRACT EXTERMINATOR 7,148 9,784 0.01 10,104 0.01
PLUMBING MATERIALS 5,084 12,264 0.01 10,808 0.01
CONTRACT SWEEPING 0 0 0.00 0 0.00
CONTRACT LANDSCAPE-EXTERIOR 35,239 64,137 0.05 59,715 0.04
NON TENANT PAINTING 45,586 77,168 0.06 87,360 0.07
SUPPLIES/MATERIALS BUILDING 15,769 18,480 0.01 30,800 0.02
PLUMBING REPAIRS 11,617 30,240 0.02 28,560 0.02
SPRINKLER, STANDPIPE, FIRE PUMP 5,128 14,840 0.01 14,000 0.01
BUILDING REPAIRS 28,291 73,880 0.06 58,800 0.04
EXTERIOR REPAIRS 18,943 26,600 0.02 35,840 0.03
COMMUNICATIONS 14,980 22,747 0.02 19,040 0.01
METAL MAINTENANCE 45,195 60,980 0.05 60,980 0.05
LOADING DOCK 5,549 7,280 0.01 9,520 0.01
UNIFORMS 0 0 0.00 0 0.00
OTHER BUILDING & GROUNDS 0 0 0.00 0 0.00
SIGNAGE 2,556 3,365 0.00 4,042 0.00
FILTERS 6,429 13,552 0.01 14,280 0.01
BANNERS 6,716 14,811 0.01 14,823 0.01
PLUMBING SUPPLIES 0 1,540 0.00 1,540 0.00
LOCK REPAIRS 429 6,040 0.00 5,500 0.00
CITY/STATE CODE REQ. 0 12,800 0.01 0 0.00
--------- --------- ---- --------- ----
BUILDING & GROUNDS 254,660 470,508 0.35 465,712 0.35
CONTRACT ENGINEERING 566,149 837,680 0.63 836,980 0.63
UNIFORMS-ENGINEERING (2,022) 15,176 0.01 5,600 0.00
PARKING-ENGINEERING 18,843 25,392 0.02 25,761 0.02
TRAINING/INCENTIVE PROGRAM 2,065 7,728 0.01 8,400 0.01
AIR CONDITIONING REPAIR 23,690 107,240 0.08 92,960 0.07
SUPPLIES/MATERIALS 25,377 37,520 0.03 38,640 0.03
WATER TREATMENT 12,519 30,240 0.02 28,728 0.02
MECHANICAL COMP MAIN 1,611 4,984 0.00 4,984 0.00
--------- --------- ---- --------- ----
HVAC MAINT & REPAIRS 648,234 1,065,960 0.80 1,042,053 0.78
CONTRACT ELEVATOR 306,073 413,734 0.31 376,472 0.28
ELEVATOR REPAIRS (4,289) 23,925 0.02 21,997 0.02
--------- --------- ---- --------- ----
ELEVATOR MAINT & REPAIRS 301,784 437,659 0.33 398,469 0.30
ELECTRICAL MAINTENANCE 10,552 30,320 0.02 34,240 0.03
ELECTRICAL SUPPLIES 5,602 7,392 0.01 7,392 0.01
ELECTRICAL CONTRACTS 0 0 0.00 0 0.00
RELAMPING 9,740 5,264 0.00 11,200 0.01
LAMP REPLACEMENT 20,050 12,264 0.01 17,920 0.01
--------- --------- ---- --------- ----
ELECTRIC MAINT & REPAIRS 45,944 55,240 0.04 70,752 0.05
</TABLE>
<PAGE>
MaguirePartners TOTAL NRA 1,328,917
WELLS FARGO CENTER - PHASE I AVG OCC. 1997 94.60% OFFICE NRA 1,220,794
1998 OPERATING BUDGET AVG OCC. 1998 87.50% RETAIL NRA 108.123
<TABLE>
<CAPTION>
ACTUAL YTD 1997 1997 1998 1998
AS OF 9/30/97 BUDGET PER/SF BUDGET PER/SF
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
UTILITIES-ELECTRIC 1,978,715 2,694,590 2.03 2,645,930 1.99
UTILITIES-GAS 0 3,360 0.00 2,800 0.00
UTILITIES-DIESEL 0 1,120 0.00 1,120 0.00
UTILITIES-WATER 87,155 106,400 0.08 104,200 0.08
--------- ---------- ----- ---------- -----
UTILITIES 2,065,870 2,805,470 2.11 2,754,050 2.07
CONTRACT SECURITY 335,917 522,310 0.39 478,854 0.36
SECURITY SUPPLIES/MAINTENANCE 23,283 37,670 0.03 30,194 0.02
UNIFORMS-SECURITY (194) 37,623 0.03 22,714 0.02
PARKING-SECURITY 37,909 56,986 0.04 50,081 0.04
TRAINING/INCENTIVE PROGRAM 3,301 16,128 0.01 16,128 0.01
FIRE/LIFE SAFETY 57,315 127,147 0.10 89,668 0.07
FIRE/LIFE SAFETY BLDG MATERIAL 0 0 0.00 0 0.00
MUNICIPAL FEES 2,509 26,572 0.02 24,472 0.02
CITY/STATE REQ'D TESTING 25,211 45,360 0.03 37,912 0.03
--------- ---------- ----- ---------- -----
SECURITY/LIFE SAFETY 485,250 869,796 0.65 750,023 0.56
SALARIES-ADMINISTRATION 268,411 401,124 0.30 338,912 0.26
PAYROLL TAXES & BENEFITS 24,669 80,225 0.06 67,782 0.05
MANAGEMENT FEES 790,224 1,050,726 0.79 934,234 0.70
PAYROLL PROCESSING 1,630 1,200 0.00 1,200 0.00
TELEPHONE ANSWERING 31,888 46,204 0.03 31,789 0.02
DUES/SUBCRIPTIONS 1,279 2,883 0.00 2,526 0.00
POSTAGE 294 952 0.00 941 0.00
TRAVEL & ENTERTAINMENT 2,609 8,960 0.01 8,960 0.01
EQUIPMENT RENTAL 20,965 22,509 0.02 15,772 0.01
SUPPLIES & MATERIALS 7,214 16,464 0.01 16,800 0.01
PRINTING/COPYING 10,779 11,502 0.01 13,888 0.01
OFFICE RENT 34,644 48,322 0.04 47,032 0.04
STORAGE RENT 47,975 64,929 0.05 64,923 0.05
FIRE TRAINING ROOM RENT 38,680 51,966 0.04 51,168 0.04
TEMPORARY HELP 0 840 0.00 840 0.00
SEMINARS & TRAINING 484 1,568 0.00 2,520 0.00
MISC ADMINISTRATION 13,588 15,008 0.01 16,800 0.01
ADMIN EQUIPMENT REPAIRS 2,788 3,248 0.00 6,720 0.01
ESCALATION - AUDIT FEES 0 9,975 0.01 10,100 0.01
CONCIERGE 5,354 11,637 0.01 12,309 0.01
TRANSPORTATION PROGRAM 6,261 12,404 0.01 12,404 0.01
SHUTTLE SERVICE 0 0 0.00 0 0.00
--------- ---------- ----- ---------- -----
ADMINISTRATION 1,309,739 1,862,646 1.40 1,657,620 1.25
TAXES-REAL ESTATE 1,998,508 2,694,000 2.03 2,770,488 2.08
FRANCHISE FEES 800 800 0.00 800 0.00
BUSINESS USE/OCCUPANCY TAX 69,395 68,659 0.05 69,081 0.05
OTHER FEES (BUSINESS TAXES) 0 0 0.00 0 0.00
PROPERTY TAX CONSULTING 1,400 45,400 0.03 45,400 0.03
PERSONAL PROPERTY TAX 0 0 0.00 0 0.00
--------- ---------- ----- ---------- -----
TAXES 2,070,103 2,808,859 2.11 2,885,769 2.17
INSURANCE PROPERTY 806,138 1,241,244 0.93 995,784 0.75
INSURANCE LIABILITY 101,751 149,460 0.11 129,470 0.10
SELF INSURED RETENTION 2,070 20,940 0.02 20,940 0.02
--------- ---------- ----- ---------- -----
INSURANCE 909,959 1,411,644 1.06 1,146,194 0.86
ON-SITE GARAGE 69,184 86,523 0.07 101,440 0.08
OFF-SITE GARAGE 222,636 327,100 0.25 333,369 0.25
ATRIUM OPERATING COST 274,048 359,780 0.27 360,827 0.27
--------- ---------- ----- ---------- -----
TOTAL ESCALATABLE EXPENSES 9,851,501 14,280,285 10.74 13,593,726 10.21
</TABLE>
<PAGE>
MaguirePartners TOTAL NRA 1,328,917
WELLS FARGO CENTER - PHASE I AVG OCC. 1997 94.60% OFFICE NRA 1,220,794
1998 OPERATING BUDGET AVG OCC. 1998 87.50% RETAIL NRA 108.123
<TABLE>
<CAPTION>
ACTUAL YTD 1997 1997 1998 1998
AS OF 9/30/97 BUDGET PER/SF BUDGET PER/SF
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PARKING OPERATING COST 666,819 908,648 0.68 926,504 0.70
MANAGEMENT FEE 14,840 20,160 0.02 20,160 0.02
TRAINING/INCENTIVE PROGRAM 1,790 24,864 0.02 25,872 0.02
EMPLOYEE PARKING 0 0 0.00 0 0.00
UNIFORMS 7,920 37,653 0.03 17,938 0.01
---------- ---------- ----- ---------- ----
PARKING 691,368 991,325 0.75 990,474 0.75
COURIER SERVICE 1,742 1,344 0.00 1,344 0.00
DONATIONS 0 4,480 0.00 3,080 0.00
NON-ESCALATABLE MGT. FEE-CITY CLUB 64,383 70,000 0.05 70,000 0.05
MISC NON-ESCALATABLE 466 1,344 0.00 1,344 0.00
NON-ESC TRAVEL & ENTERTAINMENT 0 600 0.00 600 0.00
---------- ---------- ----- ---------- ----
NON-ESCALATABLES 66,591 77,768 0.06 76,368 0.06
SPACE PLANNING PROPOSALS 41,545 36,500 0.03 48,000 0.04
LEASING/T.I. SERVICES 180,901 180,000 0.14 180,000 0.14
TRAVEL & ENTERTAINMENT 8,512 4,032 0.00 12,768 0.01
PUBLIC RELATIONS 0 1,200 0.00 1,200 0.00
LEASING MISCELLANEOUS 696 1,200 0.00 1,200 0.00
---------- ---------- ----- ---------- ----
LEASING 231,655 222,932 0.17 243,168 0.18
PROMOTION 8,552 15,596 0.01 17,192 0.01
P.R. AGENCY 13,597 24,640 0.02 24,640 0.02
THEATRE SHUTTLE BUS 14,908 28,725 0.02 35,630 0.03
COMMUNITY RELATIONS 2,289 1,344 0.00 1,344 0.00
ADVERTISING 420 1,512 0.00 1,512 0.00
CONTINGENCY 0 0 0.00 0 0.00
---------- ---------- ----- ---------- ----
ADVERTISING & MARKETING 39,765 71,817 0.05 80,318 0.06
LEGAL 18,237 85,000 0.06 47,600 0.04
TAX RETURN PREPARATION 6,500 21,378 0.02 18,800 0.01
CONSULTANTS 18,248 12,880 0.01 8,400 0.01
ACCOUNTING SERVICES 12,500 34,283 0.03 34,600 0.03
PROFESSIONAL FEES 0 0 0.00 0 0.00
---------- ---------- ----- ---------- ----
PROFESSIONAL SERVICES 55,485 153,541 0.12 109,400 0.08
---------- ---------- ----- ---------- ----
SUBTOTAL NON-ESC OPER EXPENSES 1,084,863 1,517,383 1.14 1,499,728 1.13
---------- ---------- ----- ---------- ----
TOTAL OPERATING EXPENSES 10,936,364 15,797,668 11.88 15,093,454 11.34
---------- ---------- ----- ---------- ----
NET OPERATING INCOME 19,326,737 25,361,646 19.09 21,289,444 16.03
INTEREST NOTES PAYABLE 506,847 641,702 0.48 10,543,163 7.93
SWAP EXPENSE 0 0 0.00 0 0.00
INTEREST - WFB 5,055,707 6,735,668 5.07 0 0.00
INTEREST - METRO 5,055,659 6,735,669 5.07 0 0.00
OTHER FINANCING EXPENSES 57,213 0 0.00 90,000 0.07
---------- ---------- ----- ---------- ----
TOTAL FINANCING EXPENSES 10,675,426 14,113,039 10.62 10,633,163 8.00
</TABLE>
<PAGE>
MaguirePartners TOTAL NRA 1,328,917
WELLS FARGO CENTER - PHASE I AVG OCC. 1997 94.60% OFFICE NRA 1,220,794
1998 OPERATING BUDGET AVG OCC. 1998 87.50% RETAIL NRA 108.123
<TABLE>
<CAPTION>
ACTUAL YTD 1997 1997 1998 1998
AS OF 9/30/97 BUDGET PER/SF BUDGET PER/SF
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
DEPRECIATION 4,509,642 6,038,940 4.54 6,037,572 4.54
AMORTIZATION EXPENSE 439,745 510,252 0.38 751,488 0.57
FASB RENT ADJUSTMENT - OFFICE 410,004 0 0.00 1,079,316 0.81
FASB RENT ADJUSTMENT - RETAIL 0 0 0.00 0 0.00
PRIOR YR ESCALATION (57,393) 0 0.00 0 0.00
DOUBTFUL ACCOUNT 6,542 0 0.00 0 0.00
TAKEBACK SPACE EXPENSE 0 0 0.00 0 0.00
TAKEBACK SPACE REVENUE 0 0 0.00 0 0.00
TAKEBACK SPACE 0 0 0.00 0 0.00
---------- ---------- ----- ---------- ----
NET INCOME (LOSS) 3,342,771 4,699,415 3.54 2,787,905 2.11
ACCRUALS 793,636 255,000 0.19 520,000 0.39
CAPITAL IMPROVEMENTS 188,751 318,400 0.24 498,400 0.38
LINE OF CREDIT 2,367,432 3,156,576 2.38 0 0.00
ACCRUED PROPERTY TAXES (674,993) 0 0.00 0 0.00
PRINCIPAL PAYMENTS 1,530,879 2,068,663 1.56 2,142,540 1.61
TI LOAN REPAYMENT (9,811) 0 0.00 (14,309) (0.01)
DEFERRED RENT 0 0 0.00 0 0.00
TENANT IMPROVEMENTS 1,653,564 1,472,150 1.11 881,805 0.66
LEASING COMMISSIONS 191,051 831,558 0.63 1,099,845 0.83
PREPAID RENT (225,798) 0 0.00 0 0.00
PRIOR YR PROPERTY TAX 0 0 0.00 0 0.00
DEFERRED COSTS 233,158 0 0.00 67,117 0.05
NON- CASH ITEMS - DEPRECIATION (4,509,642) (6,038,940) (4.54) (6,037,572) (4.54)
- AMORTIZATION (439,745) (510,252) (0.38) (751,488) (0.57)
- FASB RENT ADJUSTMENT (410,004) 0 0.00 (1,079,316) (0.81)
---------- ---------- ----- ---------- ----
TOTAL NON-CASH ITEMS (5,359,391) (6,549,192) (4.93) (7,868,376) (5.92)
---------- ---------- ----- ---------- ----
TOTAL OTHER CASH REQUIREMENTS 688,478 1,553,155 1.17 (2,672,978) (2.01)
---------- ---------- ----- ---------- ----
NET CASH FLOW 2,654,293 3,146,260 2.37 5,460,883 4.11
CASH BEGINNING OF THE PERIOD 10,659,202 10,659,202 13,223,689
CAPITAL DISTRIBUTIONS 0 0 0.00 0 0.00
---------- ---------- ----- ---------- ----
CASH AT END OF PERIOD 13,313,495 13,805,462 10.39 18,684,572 14.06
========== ========== ===== ========== =====
</TABLE>
<PAGE>
MaguirePartners
WELLS FARGO CENTER - PHASE I TOTAL NRA 1,328,917
1998 OPERATING BUDGET AVG OCCUPANCY 1997 94.60% OFFICE 1,220,794
ESCALATABLE EXPENSE SCHEDULE AVG OCCUPANCY 1998 87.50% RETAIL 108,123
<TABLE>
<CAPTION>
1997 1997 1997
SQ. FT. 1997 1997 ADJUSTED 1997 EST ACT EST ACT 1998
USED BUDGET ADJ. ADJUSTED PER SQ. F EST ACT ADJ. ADJUSTED PER SQ. F BUDGET
--------- ---------- --- -------- --------- ------- --- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLEANING/JAN. VAR (1) 1,220,794 1,719,100 1,719,100 1.41 1,639,100 1,639,100 1.34 1,187,011
JANITORIAL/JAN 1,220,794 0 0 0.00 0 0 0.00 440,436
BUILDING & GROUNDS 1,328,917 470,508 470,508 0.35 470,508 470,508 0.35 465,712
HVAC MAINTENANCE 1,328,917 1,065,960 1,065,960 0.80 965,960 965,960 0.73 1,042,053
ELEVATOR MAINTENANCE 1,328,917 437,659 437,659 0.33 427,659 427,659 0.32 398,469
ELECTRICAL MAINTENANCE 1,328,917 55,240 55,240 0.04 55,240 55,240 0.04 70,752
UTILITIES VARIABLE (2) 1,220,794 2,805,470 2,805,470 2.30 2,755,470 2,755,470 2.26 1,401,115
UTILITIES 1,220,794 0 0 0.00 0 0 0.00 1,352,935
SECURITY/LIFE SAFETY 1,328,917 869,796 869,796 0.65 754,796 754,796 0.57 750,023
INSURANCE 1,328,917 1,411,644 1,411,644 1.06 1,307,144 1,307,144 0.98 1,146,194
ADMINISTRATION 1,328,917 811,920 811,920 0.61 731,920 731,920 0.55 723,386
MANAGEMENT FEE - VAR. 1,328,917 1,050,726 1,050,726 0.79 1,011,126 1,011,126 0.76 934,234
ON-SITE PARKING 1,328,917 86,523 86,523 0.07 86,523 86,523 0.07 101,440
OFF-SITE PARKING 1,328,917 327,100 327,100 0.25 327,100 327,100 0.25 333,369
ATRIUM 1,328,917 359,780 359,780 0.27 359,780 359,780 0.27 360,827
---------- ---------- ---- ---------- ---------- ---- ----------
SUBTOTAL ESC. EXP. 11,471,426 11,471,426 8.93 10,892,326 10,892,326 8.49 10,707,957
---------- ---------- ---- ---------- ---------- ---- ----------
CSCI 1,328,917 150,465 150,465 0.11 150,465 150,465 0.11 51,619
REAL PROPERTY TAXES 1,328,917 2,276,047 2,276,047 1.71 2,276,047 2,276,047 1.71 2,410,440
---------- ---------- ---- ---------- ---------- ---- ----------
TOTAL ESC. OFFICE EXP. 13,897,938 13,897,938 10.76 13,318,838 13,318,838 10.31 13,170,016
========== ========== ===== ========== ========== ===== ==========
RETAIL ESCALATABLE EXPENSES PER SQ. FT. (3) 7.05 6.71
==== ====
</TABLE>
<TABLE>
<CAPTION>
1998
1998 ADJUSTED
ADJ. ADJUSTED PER SQ. FT.
------ -------- -----------
<S> <C> <C> <C>
CLEANING/JAN. VAR (1) 101,744 1,288,755 1.06
JANITORIAL/JAN 440,436 0.36
BUILDING & GROUNDS 465,712 0.35
HVAC MAINTENANCE 1,042,053 0.78
ELEVATOR MAINTENANCE 398,469 0.30
ELECTRICAL MAINTENANCE 70,752 0.05
UTILITIES VARIABLE (2) 120,096 1,521,211 1.25
UTILITIES 1,352,935 1.11
SECURITY/LIFE SAFETY 750,023 0.56
INSURANCE 1,146,194 0.86
ADMINISTRATION 723,386 0.54
MANAGEMENT FEE - VAR. 80,077 1,014,311 0.76
ON-SITE PARKING 101,440 0.08
OFF-SITE PARKING 333,369 0.25
ATRIUM 360,827 0.27
---------- -----
SUBTOTAL ESC. EXP. 11,009,874 8.58
CSCI 51,619 0.04
REAL PROPERTY TAXES 2,410,440 1.81
---------- -----
TOTAL ESC. OFFICE EXP. 13,471,932 10.43
========== =====
RETAIL ESCALATABLE EXPENSES PER SQ. FT. (3) 6.65
====
</TABLE>
(1) CLEANING/JANITORIAL CONTRACT & SUPPLIES EXPENSES ARE 85% VARIABLE.
(2) ELECTRICITY IS 50% VARIABLE AND WATER IS 75% VARIABLE.
(3) RETAIL ESCALATABLE EXPENSES EXCLUDE CLEANING/JANITORIAL & UTILITIES.
<PAGE>
WELLS FARGO CENTER--PHASE I TOTAL NRA 1,323,808
1998 OPERATING BUDGET OFFICE 1,221,334
12 MONTH CASH FLOW RETAIL NRA 102,474
<TABLE>
<CAPTION>
1 2 3 4 5 6
JAN-98 FEB-98 MAR-98 APR-98 MAY-98 JUN-98
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE RENTALS 1,685,824 1,669,654 1,670,683 1,670,983 1,670,983 1,670,983
RETAIL RENTALS 172,105 171,953 171,042 177,047 177,047 177,047
ESCALATION REVENUE 665,810 661,720 658,978 659,263 659,263 659,263
SUNDRY REVENUE 52,796 52,796 58,296 58,296 58,296 75,896 85,596
PARKING REVENUE 404,823 387,631 376,205 372,046 399,777 399,414
OTHER REVENUE 49,322 49,312 49,305 49,297 49,297 49,281
--------- --------- --------- --------- --------- ---------
TOTAL REVENUE 3,030,680 2,998,566 2,984,509 2,986,932 3,032,263 3,039,584
ESCALATABLE EXPENSES 794,429 768,629 781,320 782,337 809,125 797,439
REAL PROPERTY TAXES 3,783 72,864 3,783 1,376,111 3,783 3,783
INSURANCE 81,406 1,745 1,745 280,565 81,408 210,878
NON-ESCAL. EXPENSES 115,495 115,495 144,882 117,735 116,671 113,765
--------- --------- --------- --------- --------- ---------
TOTAL EXPENSES 995,114 958,734 931,731 2,556,748 1,010,987 1,125,865
--------- --------- --------- --------- --------- ---------
NET OPERATING INCOME 2,035,566 2,039,833 2,052,779 430,184 2,021,276 1,913,719
INTEREST EXP 884,468 883,422 882,370 881,311 880,246 879,174
TAKEBACK 0 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
OPERATING CASH FLOW 1,151,098 1,156,411 1,170,409 (451,127) 1,141,030 1,034,545
CAPITAL IMPROVEMENTS 41,533 41,533 41,533 41,533 41,533 41,533
TENANT IMPROVEMENTS 0 0 0 0 0 260,902
LEASING COMMISSION 0 0 0 0 0 0
DEFERRED LEGAL FEES 0 0 0 61,117 0 0
PRINCIPAL PAYMENTS 172,674 173,720 174,772 175,831 176,896 177,968
TI LOAN REPAYMENT (1,149) (1,157) (1,165) (1,173) (1,180) (1,188)
ACCRUALS (ESCAL
REFUN 0 0 0 0 520,000 0
--------- --------- --------- --------- --------- ---------
NET CASH FLOW 938,040 942,315 955,269 (728,435) 403,781 555,330
========= ========= ========= ========= ========= =========
BEGINNING CASH
BALANCE 13,223,689 14,161,729 15,104,043 16,059,312 15,330,877 15,734,657
ENDING CASH BALANCE 14,161,729 15,104,043 16,059,312 15,330,877 15,734,657 16,289,987
========== ========== ========== ========== ========== ==========
<CAPTION>
7 8 9 10 11 12 TOTAL
JUL-98 AUG-98 SEP-98 OCT-98 NOV-98 DEC-98 1998
-------------- -------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE RENTALS 1,688,677 1,679,633 1,681,284 1,685,661 1,685,661 1,687,387 20,147,413
RETAIL RENTALS 177,047 177,047 177,047 177,547 177,785 177,788 2,110,502
ESCALATION REVENUE 669,095 671,783 671,269 679,775 679,775 679,778 8,015,772
SUNDRY REVENUE 52,796 85,996 90,196 84,696 83,796 64,896 52,784 849,540
PARKING REVENUE 383,972 380,044 393,949 405,613 392,014 372,843 4,668,331
OTHER REVENUE 49,273 49,265 49,257 49,249 49,241 49,241 591,340
--------- --------- --------- --------- --------- --------- ----------
TOTAL REVENUE 3,054,060 3,047,968 3,057,502 3,081,641 3,049,372 3,019,821 36,382,898
ESCALATABLE EXPENSES 819,405 800,357 800,261 826,978 786,775 794,709 9,561,763
REAL PROPERTY TAXES 3,783 3,783 3,783 3,783 3,783 1,402,747 2,885,769
INSURANCE 81,408 81,408 81,408 81,408 81,408 81,408 1,146,194
NON-ESCAL. EXPENSES 115,067 144,002 113,235 114,201 113,361 175,817 1,499,728
--------- --------- --------- --------- --------- --------- ----------
TOTAL EXPENSES 1,019,662 1,029,549 998,686 1,026,370 985,326 2,454,680 15,093,454
--------- --------- --------- --------- --------- --------- ----------
NET OPERATING INCOME 2,034,398 2,018,419 2,058,816 2,055,271 2,064,046 565,141 21,289,444
INTEREST EXP 878,096 877,011 875,920 874,822 873,718 962,605 10,633,163
TAKEBACK 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- ----------
OPERATING CASH FLOW 1,156,302 1,141,408 1,182,896 1,180,449 1,190,328 (397,464) 10,656,281
CAPITAL IMPROVEMENTS 41,533 41,533 41,533 41,533 41,533 41,537 498,400
TENANT IMPROVEMENTS 260,903 0 180,000 180,000 0 0 881,805
LEASING COMMISSION 974,445 0 62,700 62,700 0 0 1,099,845
DEFERRED LEGAL FEES 6,000 0 0 0 0 0 87,117
PRINCIPAL PAYMENTS 179,046 180,131 181,222 182,320 183,424 184,536 2,142,540
TI LOAN REPAYMENT (1,196) (1,204) (1,212) (1,220) (1,228) (1,237) (14,309)
ACCRUALS (ESCAL
REFUN 0 0 0 0 0 0 520,000
--------- --------- --------- --------- --------- --------- ----------
NET CASH FLOW (304,429) 920,948 718,653 715,116 966,599 (622,300) 5,460,883
========= ========= ========= ========= ========= ========= ==========
BEGINNING CASH
BALANCE 16,289,987 15,985,558 16,906,505 17,625,158 18,340,274 19,306,873 13,223,689
ENDING CASH BALANCE 15,985,558 16,906,505 17,625,158 18,340,274 19,306,873 18,684,572 18,684,572
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
SUMMARY OF WEIGHTED AVERAGES
Cushman & Wakefield Valuation Advisory Services
Summer 1997
<TABLE>
<CAPTION>
CAPITALIZATION RATES
---------------------------------------- INTERNAL
GOING-IN TERMINAL RATE OF RETURN
LOW HIGH LOW HIGH LOW HIGH
--------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OFFICE
Urban/CBD 9.6% 10.0% 9.5% 9.9% 11.5% 12.4%
--- ---- --- --- ---- ----
Class A - Leased Asset 8.9% 9.5% 9.2% 9.7% 11.0% 11.8%
Class B - Leased Asset 10.1% 10.3% 9.8% 10.0% 11.7% 12.3%
Class A - Value Added 9.3% 9.8% 9.4% 9.9% 11.8% 13.3%
Class B - Value Added 10.7% 10.8% 10.0% 10.1% 12.5% 12.8%
---- ---- ---- ---- ---- ----
Suburban 9.0% 9.6% 9.7% 10.2% 11.6% 12.5%
---- ---- ---- ---- ---- ----
Class A - Leased Asset 9.0% 9.5% 9.4% 9.8% 11.0% 11.8%
Class B - Leased Asset 9.3% 9.9% 9.9% 10.3% 11.7% 12.8%
Class A - Value Added 8.6% 9.3% 9.6% 10.2% 11.8% 12.9%
Class B - Value Added 9.5% 10.1% 10.3% 10.8% 12.5% 13.3%
---- ---- ---- ---- ---- ----
INDUSTRIAL
Warehouse/Distribution 9.1% 9.5% 9.8% 10.1% 11.2% 11.9%
---- ---- ---- ---- ---- ----
Class A - Leased Asset 8.7% 9.2% 9.4% 9.7% 10.8% 11.4%
Class B - Leased Asset 9.4% 9.7% 9.9% 10.1% 11.1% 12.0%
Class A - Value Added 9.4% 9.7% 10.0% 10.3% 11.5% 12.2%
Class B - Value Added 9.7% 10.0% 10.4% 10.7% 11.8% 12.6%
---- ---- ---- ---- ---- ----
Business Parks/Other Ind'l & Mfg 9.4% 9.8% 10.2% 10.5% 12.2% 13.6%
---- ---- ---- ---- ---- ----
Class A - Leased Asset 9.2% 9.7% 9.9% 10.3% 12.1% 13.1%
Class B - Leased Asset 9.5% 9.8% 10.1% 10.3% 12.3% 13.3%
Class A - Value Added 9.7% 10.0% 10.4% 10.6% 12.3% 13.3%
Class B - Value Added 9.7% 10.0% 10.6% 10.9% 12.3% 14.5%
---- ---- ---- ---- ---- ----
RETAIL
Neighborhood & Community Centers 9.4% 9.8% 9.8% 10.1% 11.2% 12.1%
---- ---- ---- ---- ---- ----
Class A - Leased Asset 9.1% 9.5% 9.5% 9.9% 10.9% 11.8%
Class B - Leased Asset 9.5% 9.8% 9.8% 10.1% 11.2% 12.0%
Class A - Value Added 9.6% 9.9% 10.0% 10.2% 11.6% 12.3%
Class B - Value Added 9.9% 10.1% 10.3% 10.5% 11.5% 12.5%
---- ---- ---- ---- ---- ----
Power Center & "Big Box" 9.4% 9.7% 9.9% 10.1% 11.5% 12.3%
Class A - Leased Asset 9.4% 9.9% 9.8% 10.1% 11.3% 12.0%
<CAPTION>
GROWTH RATE
--------------------------------------- TYPICAL PROJECTION
INCOME EXPENSES PERIOD (YEARS)
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OFFICE
Urban/CBD 3.9% 4.0% 3.7% 3.8% 7.2 7.5
--- --- --- --- --- ---
Class A - Leased Asset 3.9% 4.1% 3.7% 3.8% 7.2 7.5
Class B - Leased Asset 3.9% 4.0% 3.6% 3.8% 7.2 7.5
Class A - Value Added 3.8% 3.9% 3.7% 3.8% 6.9 7.1
Class B - Value Added 3.9% 4.0% 3.6% 3.8% 5.6 6.0
--- --- --- --- --- ---
Suburban 3.3% 3.6% 3.2% 3.4% 7.2 7.9
--- --- --- --- --- ---
Class A - Leased Asset 3.4% 3.5% 3.3% 3.4% 7.7 8.4
Class B - Leased Asset 3.3% 3.5% 3.2% 3.4% 8.3 8.9
Class A - Value Added 3.2% 3.7% 3.2% 3.3% 6.0 6.7
Class B - Value Added 3.4% 3.6% 3.1% 3.4% 5.7 6.7
--- --- --- --- --- ---
INDUSTRIAL
Warehouse/Distribution 3.0% 3.3% 3.1% 3.3% 8.2 8.6
--- --- --- --- --- ---
Class A - Leased Asset 3.1% 3.3% 3.2% 3.3% 9.2 9.3
Class B - Leased Asset 3.0% 3.3% 3.0% 3.2% 8.9 9.3
Class A - Value Added 3.0% 3.3% 3.0% 3.3% 6.2 6.8
Class B - Value Added 3.0% 3.4% 3.1% 3.4% 6.7 7.3
--- --- --- --- --- ---
Business Parks/Other Ind'l & Mfg 3.3% 3.6% 3.3% 3.6% 5.1 6.8
--- --- --- --- --- ---
Class A - Leased Asset 3.5% 3.7% 3.5% 3.7% 8.2 8.3
Class B - Leased Asset 3.2% 3.5% 3.2% 3.5% 6.0 6.7
Class A - Value Added 3.2% 3.5% 3.2% 3.5% 4.0 5.3
Class B - Value Added 3.1% 3.6% 3.1% 3.6% 4.0 5.3
--- --- --- --- --- ---
RETAIL
Neighborhood & Community Centers 3.4% 3.7% 3.3% 3.5% 6.9 7.5
--- --- --- --- --- ---
Class A - Leased Asset 3.2% 3.4% 3.4% 3.6% 7.8 8.5
Class B - Leased Asset 3.2% 3.6% 3.3% 3.5% 7.0 8.1
Class A - Value Added 3.5% 3.8% 3.3% 3.5% 6.3 6.8
Class B - Value Added 3.8% 4.1% 3.3% 3.5% 6.3 6.5
--- --- --- --- --- ---
Power Center & "Big Box" 3.1% 3.3% 3.2% 3.3% 7.2 8.4
Class A - Leased Asset 3.1% 3.3% 3.3% 3.4% 8.8 10.2
</TABLE>
<PAGE>
Summary of Weighted Averages
Cushman & Wakefield Valuation Advisory Services
Summer 1997
<TABLE>
<CAPTION>
Capitalization Rates Growth Rate
----------------------- Internal ---------------------- Typical Projection
Going-In Terminal Rate of Return Income Expenses Perlod (Years)
Low High Low High Low High Low High Low High Low High
--- ---- --- ---- --- ---- --- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B - Leased Asset 9.0% 9.0% 10.0% 10.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0% 4.0 5.0
Class A - Value Added 9.8% 9.8% 10.1% 10.1% 12.0% 13.0% 3.5% 3.5% 3.0% 3.0% 6.0 6.7
Class B - Value Added 9.0% 9.0% 10.5% 10.5% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0% 4.0 5.0
--- --- ---- ---- ---- ---- --- --- --- --- --- ---
REGIONAL MALLS 8.4% 9.1% 8.7% 9.4% 13.4% 13.9% 3.2% 3.4% 3.4% 3.6% 6.4 6.9
--- --- ---- ---- ---- ---- --- --- --- --- --- ---
Class A - Leased Asset 8.0% 8.5% 8.5% 9.0% 11.1% 12.0% 3.0% 3.4% 3.3% 3.6% 8.1 8.6
Class B - Leased Asset 9.0% 9.5% 9.2% 9.7% 15.0% 15.0% 2.8% 2.8% 3.5% 3.5% 4.3 5.0
Class A - Value Added 8.3% 9.0% 8.5% 9.5% 15.8% 15.8% 3.5% 3.5% 3.3% 3.5% 6.0 6.7
Class B - Value Added 9.0% 10.0% 8.5% 9.5% 16.5% 16.5% 4.0% 4.0% 4.0% 4.0% 4.3 5.0
--- --- ---- ---- ---- ---- --- --- --- --- --- ---
SPECIALTY RETAIL 9.3% 9.3% 9.7% 9.7% 12.3% 12.5% 2.7% 2.7% 4.0% 4.0% 5.0 5.9
--- --- ---- ---- ---- ---- --- --- --- --- --- ---
Class A - Leased Asset 9.0% 9.0% 9.5% 9.5% 11.5% 11.8% 3.0% 3.0% 4.0% 4.0% 5.3 6.0
Class B - Leased Asset 10.0% 10.0% 10.8% 10.8% 14.0% 14.0% 2.0% 2.0% 6.5 7.5
Class A - Value Added 9.0% 9.0% 9.0% 9.0% 3.0 3.0
Class B - Value Added 9.0% 9.0% 9.0% 9.0% 3.0 5.0
RESIDENTIAL
--- --- ---- ---- ---- ---- --- --- --- --- --- ---
APARTMENTS 8.8% 9.0% 9.2% 9.4% 11.4% 11.7% 3.5% 3.7% 3.1% 3.2% 9.0 9.3
--- --- ---- ---- ---- ---- --- --- --- --- --- ---
Class A - Leased Asset 8.6% 8.8% 9.0% 9.3% 11.0% 11.4% 3.3% 3.4% 3.2% 3.3% 9.5 9.6
Class B - Leased Asset 9.0% 9.1% 9.5% 9.6% 11.8% 11.9% 3.3% 3.6% 3.1% 3.2% 9.0 9.3
Class A - Value Added 8.8% 9.0% 8.9% 9.2% 11.5% 11.8% 3.9% 4.1% 3.0% 3.3% 8.3 8.8
Class B - Value Added 9.2% 9.4% 9.4% 9.4% 12.2% 12.5% 3.9% 4.1% 3.0% 3.3% 8.3 8.8
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
OFFICE MARKET
URBAN/CBD
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL
---------------------------------------- RATE OF RETURN
GOING-IN TERMINAL
LOW HIGH LOW HIGH LOW HIGH
--------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A--Leased Asset
8.0% 10.0%
9.0% 9.0% 8.5% 8.5%
9.0% 9.0% 9.5% 9.5% 11.5% 11.5%
9.0% 9.0% 9.0% 9.0%
9.5% 9.5% 9.5% 9.5% 11.5 11.5%
10.5% 10.5% 9.5% 9.5%
8.0% 9.0% 9.0% 10.0% 10.5% 12.0%
8.5% 9.5% 9.0% 9.5% 10.5% 11.5%
9.0% 9.5% 9.5% 10.0% 12.0% 12.0%
9.5% 9.5% 10.0% 10.0%
8.0% 10.0% 8.5% 11.0% 10.0% 12.0%
---- ---- ---- ---- ---- ----
Responses 11 11 10 10 6 6
Average (%) 8.9% 9.5% 9.2% 9.7% 11.0% 11.8%
---- ---- ---- ---- ---- ----
Class B--Leased Asset
10.0% 10.0% 10.0% 10.0%
10.5% 10.5% 10.5% 10.5% 12.0% 12.0%
12.0% 12.0% 10.0% 10.0%
9.0% 9.0% 8.5% 8.5%
9.0% 10.0% 9.5% 10.0% 11.0% 12.0%
10.0% 10.5% 10.5% 11.0% 12.0% 13.0%
---- ---- ---- ---- ---- ----
Responses 6 6 6 6 3 3
Average (%) 10.1% 10.3% 9.8% 10.0% 11.7% 12.3%
---- ---- ---- ---- ---- ----
Class A--Value Added
8.0% 8.0% 9.0% 9.0%
9.0% 9.0% 8.5% 8.5%
9.0% 9.0% 9.5% 9.5% 11.5% 11.5%
12.0% 12.0% 9.5% 9.5%
8.0% 8.0% 9.5% 9.5% 12.0% 16.0%
9.0% 12.0% 9.5% 12.0% 11.0% 13.0%
10.0% 10.5% 10.5% 11.0% 12.5% 12.5%
---- ---- ---- ---- ---- ----
Respones 7 7 7 7 4 4
Average (%) 9.3% 9.8% 9.4% 9.8% 11.8% 13.3%
Class B--Value Added
9.0% 9.0% 10.0% 10.0%
9.0% 9.0% 8.5% 8.5%
10.0% 10.0% 10.5% 10.5% 12.0% 12.0%
15.0% 15.0% 10.0% 10.0%
10.5 11.0% 11.0% 11.5% 13.0% 13.5%
---- ---- ---- ---- ---- ----
Responses 5 5 5 5 2 2
Average (%) 10.7% 10.8% 10.0% 10.1% 12.5% 12.8%
---- ---- ---- ---- ---- ----
Total Responses 29 29 28 28 15 15
Weighted Average (%) 9.6% 10.0% 9.5% 9.9% 11.5% 12.4%
==== ==== ==== ==== ==== ====
<CAPTION>
GROWTH RATE
--------------------------------------- TYPICAL PROJECTION
INCOME EXPENSES PERIOD (YEARS)
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A--Leased Asset
3.0 5.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 5.0 5.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.5% 3.5% 3.5% 3.5% 10.0 10.0
10.0 10.0
3.5% 4.0% 3.5% 4.0% 10.0 10.0
4.0% 5.0% 4.0% 4.0% 10.0 10.0
3.5% 3.5% 10.0 10.0
--- --- ---- ----
Responses 7 7 8 8 10 10
Average (%) 3.9% 4.1% 3.7% 3.8% 8.3 8.5
--- --- --- --- ---- ----
Class B--Leased Asset
4.0% 4.0% 4.0% 4.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 5.0 5.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0 5.0
10.0 10.0
3.5% 4.0% 3.5% 4.0% 10.0 10.0
--- --- --- --- ---- ----
Responses 4 4 4 4 6 6
Average (%) 3.9% 4.0% 3.8% 3.6% 7.2 7.5
--- --- --- --- ---- ----
Class A--Value Added
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0 5.0
4.0% 4.0% 3.0% 3.0% 5.0 5.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
3.5% 3.5% 10.0 10.0
3.5% 4.0% 3.5% 4.0% 10.0 10.0
--- --- --- --- ---- ----
Responses 6 6 5 5 7 7
Average (%) 3.8% 3.8% 3.7% 3.8% 6.9 7.1
Class B--Value Added
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0 5.0
4.0% 4.0% 3.0% 3.0% 5.0 5.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.5% 4.0% 3.5% 4.0% 10.0 10.0
--- --- --- --- ---- ----
Responses 4 4 4 4 5 5
Average (%) 3.9% 4.0% 3.6% 3.8% 5.6 6.0
--- --- --- --- ---- ----
Total Responses 21 21 21 21 28 28
Weighted Average (%) 3.9% 4.0% 3.7% 3.8% 7.2 7.5
=== === === === ==== ====
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
OFFICE MARKET
SUBURBAN/NON-CBD
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL
--------------------------------------- RATE OF RETURN
GOING-IN TERMINAL
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
8.0% 8.0% 8.5% 8.5% 11.0% 11.0%
8.5% 8.5% 9.0% 9.0% 10.5% 10.5%
9.0% 9.0% 8.5% 8.5%
9.5% 9.5% 9.5% 9.5%
10.0% 10.0%
10.5% 10.5% 11.0% 11.0% 12.0% 12.0%
8.5% 8.5% 9.0% 9.0% 11.0% 11.0%
9.5% 9.5% 10.0% 10.0% 11.0% 11.0%
8.0% 10.0% 9.0% 11.0% 11.0% 13.0%
8.0% 9.0% 8.5% 9.5% 11.0% 11.5%
8.0% 9.0% 9.5% 10.0% 10.0% 12.0%
8.5% 11.0% 9.0% 11.0% 10.0% 12.0%
8.5% 9.5% 9.0% 9.5% 10.5% 11.0%
9.8% 9.8% 10.0% 10.0% 12.0% 14.0%
10.0% 10.0% 9.5% 9.5%
11.0% 11.0% 12.0% 13.0%
---- ---- ---- ----
Responses 15 15 15 15 12 12
Average (%) 9.0% 9.5% 9.4% 9.8% 11.0% 11.8%
Class B - Leased Asset
9.0% 9.0% 8.5% 8.5%
10.0% 10.0% 11.0% 11.0% 12.0% 12.0%
10.5% 10.5% 10.5% 10.5%
8.5% 8.5% 9.3% 9.3% 11.5% 11.5%
9.5% 9.5% 10.5% 10.5% 12.5% 12.5%
8.0% 10.0% 9.0% 11.0% 11.0% 13.0%
8.5% 10.5% 10.0% 10.5% 11.0% 13.5%
9.0% 10.0% 9.5% 10.5% 11.5% 12.5%
9.5% 10.5% 10.0% 11.0% 11.5% 12.0%
10.0% 10.0% 10.0% 10.0%
10.0% 10.0% 9.3% 9.3% 12.0% 15.0%
11.0% 11.0% 12.0% 13.0%
---- ---- ---- ----
Responses 11 11 12 12 9 9
Average (%) 9.3% 9.9% 9.9% 10.3% 11.7% 12.8%
---- ---- ---- ---- ---- ----
Class A - Value Added
8.0% 6.0% 9.0% 9.0% 12.0% 12.0%
8.5% 8.5% 9.5% 9.5
9.0% 9.0% 8.5% 8.5%
10.0% 10.0% 10.5% 10.5% 12.0% 12.0%
10.0% 10.0% 11.0% 12.0% 12.0% 2.0%
13.0% 13.0%
8.0% 10.0% 9.0% 11.0% 11.0% 13.0%
8.0% 9.0% 8.5% 9.5% 11.0% 15.0%
9.0% 12.0% 9.5% 12.0% 11.0% 13.0%
11.0% 11.0% 12.0% 13.0%
---- ---- ---- ----
Responses 8 8 9 9 8 8
Average (%) 8.6% 9.3% 9.6% 10.2% 11.8% 12.9%
---- ---- ---- ---- ---- ----
Class B - Value Added
9.0% 9.0% 8.5% 8.5%
8.5% 9.5% 10.5% 10.5%
12.0% 12.0% 12.0% 12.0% 13.0% 13.0%
15.0% 15.0%
8.0% 10.0% 9.0% 11.0% 11.0% 13.0%
9.0% 10.0% 9.5% 10.5% 11.5% 12.5%
12.0% 12.0% 12.0% 13.0%
---- ---- ---- ----
Responses 5 5 6 6 5 5
Average (%) 9.5% 10.1% 10.3% 10.8% 12.5% 13.3%
---- ---- ---- ---- ---- ----
Total Responses 39 39 42 42 34 34
Weighted Average (%) 9.0% 9.8% 9.7% 10.2% 11.6% 12.5%
---- ---- ---- ---- ---- ----
<CAPTION>
GROWTH RATE
--------------------------------------- TYPICAL PROJECTION
INCOME EXPENSES PERIOD (YEARS)
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
3.5% 3.5% 3.5% 3.5% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 5.0 5.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
3.0% 4.0% 3.0% 4.0% 5.0 10.0
4.0% 5.0% 3.0% 4.0% 5.0 10.0
3.5% 3.5% 10.0 10.0
3.5% 3.5% 10.0 10.0
10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- --- ---- ----
Responses 12 12 14 14 18 18
Average (%) 3.4% 3.5% 3.3% 3.4% 7.7 8.4
Class B - Leased Asset
3.0 5.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
3.5% 3.5% 3.5% 3.5% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 4.0% 3.0% 4.0% 5.0 10.0
3.5% 3.5% 10.0 10.0
4.0% 5.0% 3.5% 4.0% 7.0 7.0
10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- --- ---- ----
Responses 10 10 9 9 12 12
Average (%) 3.3% 3.5% 3.2% 3.4% 8.3 8.9
--- --- --- --- ---- ----
Class A - Value Added
3.5% 3.5% 3.0% 3.0% 5.0 5.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0 5.0
2.0% 4.0% 3.0% 3.0% 5.0 5.0
2.0% 2.0% 2.0% 10.0 10.0
3.5% 3.5% 3.5% 3.5% 5.0 5.0
4.0% 4.0% 3.0% 3.0%
3.0% 4.0% 3.0% 4.0% 5.0 10.0
4.0% 5.0% 3.5% 4.0% 7.0 7.0
3.5% 3.5% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- ---- ---- ----
Responses 9 9 10 10 10 10
Average (%) 3.2% 3.7% 3.2% 3.3% 6.0 6.7
--- --- --- ---- ---- ----
Class B - Value Added
3.0 5.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
3.5% 3.5% 3.5% 3.5% 5.0 5.0
4.0% 4.0% 3.0% 3.0%
3.0% 4.0% 3.0% 4.0% 5.0 10.0
4.0% 5.0% 3.5% 4.0% 7.0 7.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- ---- ---- ----
Responses 7 7 7 7 7 7
Average (%) 3.4% 3.6% 3.1% 3.4% 5.7 8.7
--- --- --- ---- ---- ----
Total Responses 38 38 40 40 45 45
Weighted Average (%) 3.3% 3.6% 3.2% 3.4% 7.2 7.9
--- --- --- ---- ---- ----
</TABLE>
- ---------
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
INDUSTRIAL MARKET
WAREHOUSE/DISTRIBUTION
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL
--------------------------------------- RATE OF RETURN
GOING-IN TERMINAL
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A -- Leased Asset
8.3% 8.3% 8.8% 8.8% 10.5% 10.5%
8.5% 8.5% 9.0% 9.0% 10.5% 10.5%
9.5% 9.5% 10.0% 10.0%
10.0% 10.0% 10.0% 10.0%
9.0% 9.0% 10.0% 10.0% 11.0% 11.0%
8.5% 8.5%
9.0% 9.0% 9.0% 9.0% 11.0% 11.0%
8.5% 8.5%
9.0% 9.0% 9.0% 9.0% 11.0% 11.0%
8.0% 9.0% 9.0% 10.0% 10.5% 12.0%
8.0% 9.0% 9.5% 10.0% 10.0% 11.0%
8.0% 9.0% 9.0% 10.0% 10.0% 12.0%
8.5% 10.5% 9.0% 11.0% 10.0% 12.0%
8.5% 9.3% 9.3% 9.8%
8.5% 9.0% 9.0% 9.0% 10.5% 11.0%
8.5% 9.0% 9.0% 8.5% 11.0% 11.5%
8.5% 9.5% 9.0% 9.5%
9.3% 9.3% 9.5% 9.5% 12.0% 12.0%
9.5% 9.5% 9.5% 9.5%
11.0% 11.0% 12.0% 12.0%
---- ---- ---- ----
Responses 17 17 17 17 12 12
Average (%) 8.7% 9.2% 9.4% 9.7% 10.8% 11.4%
---- ---- ---- ---- ---- ----
Class B -- Leased Asset
8.5% 8.5% 9.0% 9.0% 10.0% 10.0%
9.5% 9.5% 10.0% 10.0% 10.0% 12.0%
10.0% 10.0% 10.0% 10.0%
10.5% 10.5% 11.0% 11.0% 13.0% 13.0%
9.5% 9.5% 9.5% 9.5% 12.0% 12.0%
8.0% 9.0% 9.0% 10.0% 10.0% 12.0%
9.0% 10.0% 10.0% 10.5% 10.5% 12.0%
9.0% 9.5% 9.5% 9.5% 11.0% 12.0%
9.5% 10.0% 10.0% 10.5% 11.5% 12.0%
9.8% 9.8% 9.8% 9.8%
10.0% 10.5% 10.0% 10.5%
9.5% 10.0% 9.5% 10.0% 10.5% 11.5%
11.0% 11.0% 12.0% 13.0%
---- ---- ---- ----
Responses 12 12 13 13 10 10
Average (%) 9.4% 9.7% 9.9% 10.1% 11.1% 12.0%
---- ---- ---- ---- ---- ----
Class A -- Value Added
8.0% 9.0% 9.0% 10.0% 10.0% 12.0%
8.5% 9.0% 90.% 9.5% 11.0% 11.5%
11.0% 11.0% 12.0% 13.0%
9.5% 9.5% 9.5% 9.5% 12.0% 12.0%
10.0% 10.0% 10.0% 10.0%
11.0% 11.0% 11.5% 11.5%
12.5% 12.5%
---- ----
Responses 5 5 6 6 5 5
Average (%) 9.4% 9.7% 10.0% 10.3% 11.5% 12.2%
---- ---- ---- ---- ---- ----
Class B -- Value Added
8.0% 9.0% 9.0% 10.0% 10.0% 12.0%
9.5% 10.0% 10.0% 10.5% 11.5% 12.0%
10.0% 10.0% 10.0% 10.0% 13.0% 13.0%
10.0% 10.0% 10.0% 10.0%
11.0% 11.0% 11.5% 11.5%
13.5% 13.5%
13.5% 13.5%
11.0% 12.0% 3.0%
12.0% 12.0% 12.0% 13.0%
---- ---- ---- ----
Responses 5 5 6 6 6 6
Average (%) 9.7% 10.0% 10.4% 10.7% 11.8% 12.6%
---- ---- ---- ---- ---- ----
Total Responses 39 39 42 42 33 33
Weighted Average (%) 9.1% 9.5% 9.8% 10.1% 11.2% 11.9%
==== ==== ==== ==== ==== ====
<CAPTION>
GROWTH RATE
--------------------------------------- TYPICAL PROJECTION
INCOME EXPENSES PERIOD (YEARS)
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A -- Leased Asset
3.5% 3.5% 3.5% 3.5% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
3.5% 3.5% 3.5% 3.5% 10.0 10.0
3.0 5.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
3.5% 3.5% 3.5% 3.5% 10.0 10.0
3.5% 3.5% 10.0 10.0
3.0% 4.0% 3.0% 4.0%
3.5% 3.5% 10.0 10.0
3.5% 3.5% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 4.0% 3.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- --- ---- ----
Responses 12 12 15 15 15 15
Average (%) 3.1% 3.3% 3.2% 3.3% 9.2 9.3
--- --- --- --- ---- ----
Class B -- Leased Asset
3.5% 3.5% 3.5% 3.5% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0 5.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
3.0% 4.0% 3.0% 4.0%
3.5% 3.5% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 4.0% 3.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 4.0% 3.5% 3.5% 10.0 12.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- --- ---- ----
Responses 10 10 11 11 11 11
Average (%) 3.0% 3.3% 3.0% 3.2% 8.9 9.3
--- --- --- --- ---- ----
Class A -- Value Added
3.0% 4.0% 3.0% 4.0%
3.0% 4.0% 3.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
3.0 5.0
3.5% 3.5% 3.5% 3.5% 4.0 6.0
3.5% 3.5% 3.5% 3.5% 5.0 5.0
--- --- --- --- ---- ----
Responses 6 6 6 6 6 6
Average (%) 3.0% 3.3% 3.0% 3.3% 6.2 6.8
--- --- --- --- ---- ----
Class B -- Value Added
3.0% 4.0% 3.0% 4.0%
3.0% 4.0% 3.0% 4.0% 10.0 10.0
2.0% 2.0% 2.0% 2.0% 10.0 10.0
3.0 5.0
3.5% 3.5% 3.5% 3.5% 4.0 6.0
3.5% 3.5% 3.5% 3.5% 5.0 5.0
3.5% 3.5% 3.5% 3.5% 5.0 5.0
4.0% 3.5% 3.5% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 5.0 5.0
--- --- --- ---- ---- ----
Responses 7 7 7 7 7 7
Average (%) 3.0% 3.4% 3.1% 3.4% 6.7 7.3
--- --- --- ---- ---- ----
Total Responses 35 35 39 39 39 39
Weighted Average (%) 3.0% 3.3% 3.1% 3.3% 8.2 8.6
=== === === ==== ==== ====
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
Industrial Market
Business Parks, Other Industrial and Manufacturing
<TABLE>
<CAPTION>
Capitalization Rates Internal Growth Rate
Going-In Terminal Rate of Return Income Expenses
Low High Low High Low High Low High Low High
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
9.0% 9.0%
9.5% 9.5% 10.0% 10.0% 3.5% 3.5% 3.5% 3.5%
10.0% 10.0% 10.0% 10.0% 15.0% 15.0%
8.5% 9.0% 9.0% 9.5% 10.5% 11.5% 4.0% 4.0% 4.0% 4.0%
8.0% 9.0% 9.0% 10.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
9.0% 11.0% 10.0% 12.0% 11.0% 13.0% 3.5% 3.5% 3.5% 3.5%
9.5% 10.0% 10.0% 10.0%
10.0% 10.0% 10.3% 10.3% 14.0% 14.0% 4.0% 4.0% 4.0% 4.0%
11.0% 11.0% 3.0% 3.0% 3.0% 3.0%
Responses 3 3 8 3 5 5 6 6 8 6
Average (%) 9.2% 9.7% 9.8% 10.3% 12.1% 13.1% 3.5% 3.7% 3.5% 3.7%
Class B - Leased Asset
8.0% 9.0% 9.0% 10.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
10.5% 10.5% 10.5% 10.5%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
9.5% 9.5% 10.0% 10.0% 3.5% 3.5% 3.5% 3.5%
10.0% 10.0% 10.0% 10.0% 15.0% 15.0%
Responses 4 4 5 5 3 3 3 3 3 3
Average (%) 9.5% 9.8% 10.1% 10.3% 12.3% 13.3% 3.2% 3.5% 3.2% 3.5%
Class A - Value Added
8.0% 9.0% 9.0% 10.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
10.0% 10.0% 10.0% 10.0% 15.0% 15.0%
11.0% 11.0% 11.5% 11.5% 3.5% 3.5% 3.5% 3.5%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 3 3 4 4 3 3 3 3 3 3
Average (%) 9.7% 10.0% 10.4% 10.6% 12.3% 13.3% 3.2% 3.5% 3.2% 3.5%
Class B - Value Added
10.0% 10.0% 10.0% 10.0% 15.0% 15.0%
11.0% 11.0% 11.5% 11.5% 3.5% 3.5% 3.5% 3.5%
8.0% 9.0% 9.0% 10.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
12.0% 12.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
12.0% 18.0% 3.0% 4.0% 3.0% 4.0%
Responses 3 3 4 4 4 4 4 4 4 4
Average (%) 9.7% 10.0% 10.8% 10.9% 12.3% 14.5% 3.1% 3.6% 3.1% 3.6%
Total Responses 18 18 21 21 15 15 16 16 16 16
Weighted Average (%) 9.4% 9.8% 10.2% 10.5% 12.2% 13.6% 3.3% 3.6% 3.3% 3.6%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
Typical Projection
Period (Years)
Low High
Class A - Leased Asset
10.0 10.0
3.0 5.0
10.0 10.0
10.0 10.0
10.0 10.0
6.0 5.0
Responses 6 6
Average (%) 8.2 8.3
Class B - Leased Asset
5.0 5.0
10.0 10.0
3.0 5.0
Responses 3 3
Average (%) 6.0 6.7
Class A - Value Added
3.0 5.0
4.0 6.0
5.0 5.0
Responses 3 3
Average (%) 4.0 5.3
Class B - Value Added
3.0 5.0
4.0 6.0
5.0 5.0
Responses 3 3
Average (%) 4.0 5.3
Total Responses 15 15
Weighted Average (%) 6.1 6.8
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital
investment for physical issues.
<PAGE>
Retail Market
Neighborhood and Community Centers
<TABLE>
<CAPTION>
Capitalization Rates Internal Growth Rate
Going-In Terminal Rate of Return Income Expenses
Low High Low High Low High Low High Low High
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
8.5% 8.5% 9.0% 9.0% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0%
8.5% 8.5% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0%
9.0% 9.0% 9.0% 9.0% 10.5% 10.5% 3.5% 3.5% 3.5% 3.5%
9.5% 9.5% 10.0% 10.0% 3.5% 3.5% 3.5% 3.5%
10.0% 10.0% 10.0% 10.0% 2.5% 2.5% 3.0% 3.0%
9.0% 9.0% 9.0% 9.0%
9.5% 9.5% 9.0% 9.0% 4.0% 4.0% 4.0% 4.0%
8.5% 11.0% 9.0% 11.5% 10.0% 13.0% 3.5% 3.5%
9.0% 10.0% 10.0% 11.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
9.0% 9.5% 9.5% 10.0% 10.8% 11.5%
9.0% 10.0% 9.5% 10.5% 11.5% 12.0% 3.0% 4.0% 3.0% 4.0%
9.0% 9.5% 9.5% 10.0% 3.0% 3.0% 3.5% 3.5%
9.3% 9.8% 9.8% 9.8% 11.0% 12.0% 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 13 13 14 14 9 9 11 11 12 12
Average (%) 9.1% 9.5% 9.5% 9.9% 10.9% 11.8% 3.2% 3.4% 3.4% 3.6%
Class B - Leased Asset
8.5% 8.5% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0%
9.0% 9.0% 9.0% 9.0%
9.3% 9.3% 9.3% 9.3% 11.0% 11.0% 3.5% 3.5% 3.5% 3.5%
9.5% 9.5% 10.0% 10.0% 3.5% 3.5% 3.5% 3.5%
10.0% 10.0% 9.0% 9.0% 4.0% 4.0% 4.0% 4.0%
10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0%
9.0% 10.0% 10.0% 11.0% 10.0% 10.0% 3.0% 4.0% 3.0% 4.0%
9.5% 10.0% 10.0% 10.5% 3.0% 4.0%
10.0% 11.0% 10.5% 11.5% 12.0% 13.0% 3.0% 4.0% 3.0% 4.0%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 9 9 10 10 5 5 9 9 6 6
Average (%) 9.5% 9.3% 9.8% 10.1% 11.2% 11.6% 3.2% 3.6% 3.3% 3.5%
Class A - Value Added
8.5% 8.5% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0%
9.0% 9.0% 9.0% 9.0%
9.0% 9.0% 9.0% 9.0% 4.0% 4.0% 4.0% 4.0%
11.0% 11.0% 11.5% 11.5% 3.5% 3.5% 3.5% 3.5%
11.0% 11.0% 10.3% 10.3% 5.0% 5.0% 3.0% 3.0%
9.0% 10.0% 10.0% 11.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
8.5% 10.5% 10.0% 11.0% 11.5% 12.0% 3.0% 4.0% 3.0% 4.0%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
13.5% 13.5% 3.5% 3.5% 3.5% 3.5%
Responses 7 7 8 8 5 5 8 8 8 8
Average (%) 9.6 9.9% 10.0% 10.2% 11.1% 12.0% 3.5% 3.8% 3.2% 3.5%
Class B - Value Added
8.5% 8.5% 9.0% 9.0% 10.0% 11.0% 3.0% 3.0% 3.0% 3.0%
9.0% 9.0% 9.0% 9.0%
9.0% 9.0% 9.0% 9.0% 4.0% 4.0% 4.0% 4.0%
11.0% 11.0% 11.5% 11.5% 3.5% 3.5% 3.5% 3.5%
12.0% 12.0% 10.5% 10.5% 7.5% 7.5% 3.0% 3.0%
13.5% 13.5% 3.5% 3.5% 3.5% 3.5%
9.0% 10.0% 10.0% 11.0% 10.0% 12.0% 3.0% 4.0% 3.0% 4.0%
10.5% 11.5% 11.0% 12.0% 12.0% 13.0% 3.0% 4.0% 3.0% 4.0%
12.0% 12.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 7 7 8 8 5 5 8 8 5 8
Average (%) 9.9% 10.1% 10.3% 10.5% 11.5% 12.5% 3.8% 4.1% 3.3% 3.5%
Total Responses 36 36 40 40 24 24 35 35 36 36
Weighted Average (%) 9.4% 9.8% 9.8% 10.1% 11.1% 11.9% 3.4% 3.7% 3.3% 3.5%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
Typical Projection
Period (Years)
Low High
Class A - Leased Asset
10.0 10.0
10.0 10.0
10.0 10.0
5.0 10.0
3.0 5.0
3.0 3.0
10.0 10.0
10.0 10.0
10.0 10.0
10.0 10.0
5.0 5.0
Responses 11 11
Average (%) 7.8 8.5
Class B - Leased Asset
10.0 10.0
3.0 5.0
10.0 10.0
3.0 3.0
5.0 10.0
10.0 12.0
10.0 10.0
5.0 5.0
Responses 8 8
Average (%) 7.0 8.1
Class A - Value Added
10.0 10.0
3.0 5.0
3.0 3.0
4.0 6.0
10.0 10.0
10.0 10.0
5.0 5.0
5.0 5.0
Responses 8 8
Average (%) 6.4 7.0
Class B - Value Added
10.0 10.0
3.0 3.0
3.0 3.0
4.0 ??.0
10.0 10.0
5.0 5.0
10.0 10.0
5.0 5.0
Responses 8 8
Average (%) 6.3 6.5
Total Responses 35 35
Weighted Average (%) 7.0 7.5
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
Retail Market
Power Center & "Big Box"
<TABLE>
<CAPTION>
Capitalization Rates Internal Growth Rate
Going-in Terminal Rate of Return Income Expenses
Low High Low High Low High Low High Low High
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
9.0% 9.0% 9.0% 9.0%
9.0% 9.0% 10.0% 10.0% 11.5% 11.5% 3.0% 3.0% 3.0% 3.0%
10.0% 10.5% 10.0% 10.0% 10.5% 10.5% 3.5% 3.5% 3.5% 3.5%
10.3% 10.3% 9.0% 9.0% 2.0% 2.0% 3.0% 3.0%
9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 4.0% 4.0% 4.0% 4.0%
10.0% 10.0%
9.0% 9.8% 9.8% 9.8% 12.0% 13.5% 4.0% 4.0%
9.0% 11.0% 9.0% 11.0% 10.5% 12.5% 3.5% 3.5%
9.5% 10.0% 10.0% 10.5% 12.0% 12.0%
9.5% 10.0% 10.0% 10.5% 3.0% 4.0%
10.0% 10.5% 10.5% 11.5% 2.0% 3.0% 3.0% 4.0%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 9 9 12 12 8 8 8 8 7 7
Average (%) 9.4% 9.9% 9.8% 10.1% 11.3% 12.0% 3.1% 3.3% 3.3% 3.4%
Class B - Leased Asset
9.0% 9.0% 9.0% 9.0%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 1 1 2 2 1 1 1 1 1 1
Average (%) 9.0% 9.0% 10.0% 10.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Class A - Value Added
9.0% 9.0% 9.0% 9.0%
10.5% 10.5% 10.3% 10.3% 4.0% 4.0% 3.0% 3.0%
11.0% 11.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 2 2 3 3 1 1 2 2 2 2
Average (%) 9.8% 9.8% 10.1% 10.1% 12.0% 13.0% 3.5% 3.5% 3.0% 3.0%
Class B - Value Added
9.0% 9.0% 9.0% 9.0%
12.0% 12.0% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Responses 1 1 2 2 1 1 1 1 1 1
Average (%) 9.0% 9.0% 10.5% 10.5% 12.0% 13.0% 3.0% 3.0% 3.0% 3.0%
Total Responses 13 13 19 19 11 11 12 12 11 11
Weighted Average (%) 9.4% 9.7% 9.9% 10.1% 11.5% 12.3% 3.1% 3.3% 3.2% 3.3%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
Typical Projection
Period (Years)
Low High
Class A - Leased Asset
3.0 5.0
10.0 10.0
10.0 10.0
10.0 10.0
10.0 10.0
10.0 20.0
10.0 10.0
10.0 12.0
10.0 10.0
5.0 5.0
Responses 10 10
Average (%) 8.8 10.2
Class B - Leased Asset
3.0 5.0
5.0 5.0
Responses 2 2
Average (%) 4.0 5.0
Class A - Value Added
3.0 5.0
10.0 10.0
5.0 5.0
Responses 3 3
Average (%) 6.0 6.7
Class B - Value Added
3.0 5.0
5.0 5.0
Responses 2 2
Average (%) 4.0 5.0
Total Responses 17 17
Weighted Average (%) 7.2 8.4
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital
investment for physical issues.
<PAGE>
RETAIL MARKET
REGIONAL MALLS
<TABLE>
<CAPTION>
CAPITALIZATION RATES
--------------------------------------- INTERNAL
GOING-IN TERMINAL RATE OF RETURN
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
7.8% 7.8% 8.0% 8.0% 10.5% 10.5%
8.0% 8.0% 8.5% 8.5% 10.5% 11.0%
8.0% 8.0% 8.5% 8.5% 10.5% 11.0%
8.0% 10.0% 15.0% 15.0%
9.0% 9.0% 9.0% 9.0%
7.5% 8.0% 10.0% 11.5%
7.5% 9.5% 8.5% 11.0% 10.0% 13.0%
8.0% 8.0%
--- ---- --- ---- ---- ----
Responses 8 8 5 5 6 6
Average (%) 8.0% 8.5% 8.5% 9.0% 11.1% 12.0%
--- ---- --- ---- ---- ----
Class B - Leased Asset
9.0% 9.0% 9.5% 9.5%
8.0% 10.0% 8.0% 10.0% 18.0% 18.0%
9.0% 9.0% 9.0% 9.0%
10.0% 10.0% 10.3% 10.3% 12.0% 12.0%
---- ---- ---- ---- ---- ----
Responses 4 4 4 4 2 2
Average (%) 9.0% 9.5% 9.2% 9.7% 15.0% 15.0%
---- ---- ---- ---- ---- ----
Class A - Valued Added
8.0% 8.0% 11.5% 11.5%
8.0% 10.0% 8.0% 10.0% 20.0% 20.0%
9.0% 9.0% 9.0% 9.0%
---- ---- ---- ----
Responses 3 3 2 2 2 2
Average (%) 8.3% 9.0% 8.5% 9.5% 15.8% 15.8%
---- ---- ---- ---- ---- ----
Class B - Value Added
8.0% 10.0% 8.0% 10.0% 20.0% 20.0%
9.0% 9.0% 9.0% 9.0%
10.0% 11.0% 13.0% 13.0%
---- ---- ---- ----
Responses 3 3 2 2 2 2
Average (%) 9.0% 10.0% 8.5% 9.5% 16.5% 16.5%
---- ---- ---- ---- ---- ----
Total Responses 18 18 13 13 12 12
Weighted Average (%) 8.4% 9.1% 8.7% 9.4% 13.4% 13.9%
---- ---- ---- ---- ---- ----
<CAPTION>
GROWTH RATE
--------------------------------------- TYPICAL PROJECTION
INCOME EXPENSES PERIOD (YEARS)
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A - Leased Asset
2.0% 2.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0 5.0
3.0% 5.0% 3.0% 5.0% 10.0 10.0
3.5% 3.5% 10.0 10.0
Responses 5 5 6 6 7 7
Average (%) 3.0% 3.4% 3.3% 3.6% 8.3 8.6
--- --- --- --- ---- ----
Class B - Leased Asset
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0% 5.0
1.5% 1.5% 3.0% 3.0% 5.0 5.0
--- --- --- --- ---- ----
Responses 2 2 2 2 3 3
Average (%) 2.8% 2.8% 3.5% 3.5% 4.3 5.0
--- --- --- --- ---- ----
Class A - Valued Added
3.0% 3.0% 2.5% 3.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 5.0 5.0
Responses 2 2 2 2 3 3
Average (%) 3.5% 3.5% 3.3% 3.5% 6.0 6.7
--- --- --- --- ---- ----
Class B - Value Added
4.0% 4.0% 4.0% 4.0% 5.0 5.0
3.0 5.0
5.0 5.0
---- ----
Responses 1 1 1 1 3 3
Average (%) 4.0% 4.0% 4.0% 4.0% 4.3 5.0
--- --- --- --- ---- ----
Total Responses 10 10 11 11 16 16
Weighted Average (%) 3.2% 3.4% 3.4% 3.6% 6.4 6.9
--- --- --- --- ---- ----
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
RESIDENTIAL
APARTMENTS
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL
--------------------------------------- RATE OF RETURN
GOING-IN TERMINAL
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Class A -- Leased Asset
8.5% 8.5% 9.0% 9.0% 11.0% 11.0%
8.5% 8.5% 9.0% 9.0% 11.0% 11.0%
8.5% 8.5% 9.5% 9.5% 11.0% 11.0%
8.5% 8.5% 9.0% 9.0% 10.5% 10.5%
8.5% 8.5% 9.0% 9.0% 11.0% 11.0%
8.8% 8.8% 9.3% 9.3% 10.5% 10.5%
9.0% 9.0% 8.5% 8.5%
8.0% 9.0% 9.5% 9.5% 11.0% 11.8%
8.5% 8.5% 9.0% 9.0%
8.5% 8.5% 9.0% 9.0% 11.0% 11.0%
8.5% 10.0% 9.0% 10.5% 11.0% 13.0%
9.5% 9.5% 9.8% 9.8% 12.5% 12.5%
8.0% 9.0% 9.0% 10.0% 10.5% 12.0%
--- ---- --- ---- ---- ----
Responses 13 13 13 13 11 11
Average (%) 8.6% 8.8% 9.0% 9.3% 11.0% 11.4%
--- ---- --- ---- ---- ----
Class B -- Leased Asset
8.5% 8.5% 9.0% 9.0% 11.5% 11.5%
9.0% 9.0% 8.5% 8.5%
9.0% 9.0% 9.5% 9.5% 11.0% 11.0%
9.0% 9.0% 10.0% 10.0% 11.5% 11.5%
9.0% 9.0% 9.8% 9.8% 12.0% 12.0%
9.0% 10.0% 9.5% 10.5% 12.0% 12.5%
9.5% 9.5% 10.0% 10.0% 13.0% 13.0%
--- ---- ---- ---- ---- ----
Responses 7 7 7 7 6 6
Average (%) 9.0% 9.1% 9.5% 9.6% 11.8% 11.9%
--- ---- ---- ---- ---- ----
Class A -- Value Added
8.0% 9.0% 8.5% 9.5% 11.0% 11.8%
9.0% 9.0% 8.5% 8.5%
9.0% 9.0% 9.3% 9.3% 11.5% 11.5%
9.0% 9.0% 9.5% 9.5% 12.0% 12.0%
--- ---- ---- ---- ---- ----
Responses 4 4 4 4 3 3
Average (%) 8.8% 9.0% 8.9% 9.2% 11.5% 11.8%
--- ---- ---- ---- ---- ----
Class B -- Value Added
9.0% 9.0% 8.5% 8.5% 12.0% 12.0%
9.0% 10.0% 9.5% 9.5% 12.0% 13.0%
9.3% 9.3% 9.8% 9.8%
9.5% 9.5% 10.0% 10.0% 12.5% 12.5%
--- ---- ---- ---- ---- ----
Responses 4 4 4 4 3 3
Average (%) 9.2% 9.4% 9.4% 9.4% 12.2% 12.5%
--- ---- ---- ---- ---- ----
Total Responses 28 28 28 28 23 23
Weighted Average (%) 8.8% 9.0% 9.2% 9.4% 11.4% 11.7%
--- ---- ---- ---- ---- ----
<CAPTION>
GROWTH RATE
----------------------------------------------- TYPICAL PROJECTION
INCOME EXPENSES PERIOD (YEARS)
LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A -- Leased Asset
3.0% 3.0% 3.0% 3.0% 10.0 10.0
4.0% 4.0% 4.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
2.5% 3.0% 3.0% 3.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 3.0 5.0
3.0% 4.0% 3.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
10.0 10.0
3.5% 3.5% 10.0 10.0
3.5% 3.5% 3.5% 3.5% 10.0 10.0
--- --- --- ------ ---- ----
Responses 11 11 12 12 13 13
Average (%) 3.3% 3.4% 3.2% 3.3% 9.5 9.6
--- --- --- ------ ---- ----
Class B -- Leased Asset
4.0% 4.0% 3.0% 3.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 3.0 5.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
3.0% 4.0% 3.5% 3.5% 10.0 10.0
3.0% 4.0% 3.0% 4.0% 10.0 10.0
3.0% 3.0% 3.0% 3.0% 10.0 10.0
--- --- --- -------- ---- ----
Responses 7 7 7 7 7 7
Average (%) 3.3% 3.6% 3.1% 3.2% 9.0 9.3
--- --- --- -------- ---- ----
Class A -- Value Added
3.0% 4.0% 3.0% 4.0% 10.0 10.0
4.0% 4.0% 3.0% 3.0% 3.0 5.0
3.5% 3.5% 3.0% 3.0% 10.0 10.0
5.0% 5.0% 3.0% 3.0% 10.0 10.0
--- --- --- -------- ---- ----
Responses 4 4 4 4 4 4
Average (%) 3.9% 4.1% 3.0% 3.3% 8.3 6.8
--- --- --- -------- ---- ----
Class B -- Value Added
4.0% 4.0% 3.0% 3.0% 3.0 5.0
3.0% 4.0% 3.0% 4.0% 10.0 10.0
3.5% 3.5% 3.0% 3.0% 10.0 10.0
5.0% 5.0% 3.0% 3.0% 10.0 10.0
--- --- --- -------- ---- ----
Responses 4 4 4 4 4 4
Average (%) 3.9% 4.1% 3.0% 3.3% 8.3 8.8
--- --- --- -------- ---- ----
Total Responses 26 26 27 27 28 28
Weighted Average (%) 3.5% 3.7% 3.1% 3.2% 9.0 9.3
--- --- --- -------- ---- ----
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties.
"Value Added" denotes properties which require more active management
involvement due to leasing issues and/or additional capital investment for
physical issues.
<PAGE>
QUALIFICATIONS OF APPRAISER
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James W. Myers, MAI
Professional Affiliations
Member of the Appraisal Institute (MAI Designation No. 09296)
Certified Real Estate Appraiser - (ID# AG002662)
Real Estate Experience
Cushman & Wakefield of California, Inc. - Senior Director
March 1994 to Present
Cushman & Wakefield of California, Inc. - Director
May 1992 - April 1994
Cushman & Wakefield of California, Inc. - Associate Director
January 1989 - May 1992
Cushman & Wakefield of California, Inc. - Appraiser, October 1986 to
January 1989. Property types appraised include office, retail, and
industrial developments, hotels, residential income, and special purpose
properties.
Donahue and Company, Inc. - Newport Beach - Appraiser January, 1985 -
1986. Appraiser emphasis on eminent domain litigation, special purpose
and problem properties, easement valuation, and full and partial property
damages.
Experience includes appraisal of the following types of property:
Office Buildings Medical Buildings
Apartment Buildings Residential Subdivisions
Shopping Centers Vacant Land
Hotels Industrial Warehouses
Department Stores Industrial Parks
Auto Sales Facilities Condominium Complexes
Multi-Use Buildings
Primary area of specialization has been major office buildings throughout
southern California, with particular emphasis on appraising office
buildings located along the Wilshire Boulevard corridor, extending from
downtown Los Angeles to West Los Angeles.
Education
Bachelor of Arts (English Literature), 1975
Kenyon College, Gambier, Ohio
American Institute of Real Estate Appraisers Courses:
Real Estate Appraisal Principles
Basic Valuation Procedures
Capitalization Theory and Techniques, Parts A & B
Standards of Professional Practice
Valuation Analysis and Report Writing
Case Studies in Real Estate Valuation
<PAGE>
QUALIFICATIONS OF APPRAISER
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Miles Loo, Jr
Professional Affiliations & Licensures
Associate Member of the Appraisal Institute (ID# M950226)
State of California Real Estate Broker License (ID#01115873)
Real Estate Experience
Associate Real Estate Appraiser - Cushman & Wakefield of California, Inc.,
Los Angeles Valuation Advisory Services
May 1995 to Present
Real Estate Broker - Good Land Realty Corporation, Los Angeles
August 1991 to Present
Experience includes appraisal of the following types of property:
Apartment Complexes Office Buildings
Commercial Land Regional Shopping Centers
Condominium Complexes Special Purpose
Medical Office Buildings Specialty Retail Centers
Neighborhood Shopping Centers Subdivision Lots
Education
California State University of Los Angeles, Los Angeles, CA
Bachelor of Science, Business Administration 1995
Emphasis in Business Arts / Pre-Legal
University Programs, Inc., Oxnard, CA
Certificate for Real Estate Broker License 1994
Certificate for Real Estate Appraisal License 1993
Glendale Community College, Glendale, CA
Associate Arts Degree 1991
Graduated with a Business Curriculum
Real Estate Courses:
Real Estate Appraisal I Real Estate Finance
Real Estate Appraisal II Real Estate Law
Real Estate Escrow Real Estate Principles
Appraisal Institute Courses:
I-310 - Basic Income Capitalization
I-410 - Standards of Professional Practice, Part A
I-420 - Standards of Professional Practice, Part B
I-510 - Advanced Income Capitalization
I-530 - Advanced Sales Comparison & Cost Approaches
I-540 - Report Writing and Valuation Analysis
N/A - Argus 7.0 Financial Cash Flow Analysis (Basic & Advance)
<PAGE>
This CD ROM contains an electronic version of appraisals for the Mortgaged
Properties in PDF format. The appraisals for the Mortgaged Properties were
prepared prior to the date of this Prospectus Supplement. Accordingly, the
information included in such appraisals may not reflect the current
economic, competitive, market and other conditions with respect to the
Mortgaged Properties. The information contained in this CD ROM does not appear
elsewhere in paper form in this Prospectus Supplement and must be considered
together with the information contained elsewhere in this Prospectus Supplement
and the Prospectus. The information contained in this CD ROM has been filed by
the Seller with the Securities and Exchange Commission as part of a Current
Report on Form 8-K, which is incorporated by reference in this Prospectus
Supplement, and is also available through the public reference branch of the
Securities and Exchange Commission. Defined terms used in this CD ROM but not
otherwise defined therein shall have the respective meanings assigned to them
in the paper portion of the Prospectus Supplement and the Prospectus. All of
the information contained in this CD ROM is subject to the same limitations and
qualifications contained in this Prospectus Supplement and the Prospectus.
Prospective investors are strongly urged to read the paper portion of this
Prospectus Supplement and the Prospectus in its entirety prior to accessing
this CD ROM. If this CD ROM was not received in a sealed package, there can be
no assurances that it remains in its original format and should not be relied
upon for any purpose. Prospective investors may contact Cecilia Tarrant of
Morgan Stanley & Co. Incorporated at (212) 761-6028 to receive an original copy
of the CD ROM.
<PAGE>
[HVS INTERNATIONAL LOGO]
SELF-CONTAINED APPRAISAL OF
HOTEL DEL CORONADO
CORONADO, CALIFORNIA
PREPARED BY:
HVS International
116 New Montgomery, Suite 620
San Francisco, California 94105
(415) 896-0868
SUBMITTED TO:
Mr. Marc Childress
Morgan Stanley Mortgage Capital, Inc.
1585 Broadway
New York, New York 10036
(212) 761-7212
<PAGE>
[HVS INTERNATIONAL LOGO]
November 8, 1997
Mr. Marc Childress
Morgan Stanley Mortgage Capital, Inc.
1585 Broadway
New York, New York 10036
(212) 761-7212
Re: Hotel Del Coronado
Coronado, California
HVS Ref.: #974209
Dear Mr. Childress:
Pursuant to your request, we herewith submit our self-contained appraisal
report pertaining to the above-captioned property. We have inspected the site
and facilities and analyzed the hostelry market conditions in the San Diego
County area.
Based on the available data, our analysis, and our experience in the hotel
industry, it is our opinion that the market value "as is" of the fee simple
interest in the 692-unit subject property described in this report, as of
October 28, 1997, is:
$330,000,000
THREE HUNDRED THIRTY MILLION DOLLARS
This conclusion represents the market value of the subject property "as is,"
assuming the deduction of roundly $24,900,000 in capital improvements. As will
be discussed in greater detail later in this report, the $24,900,000 capital
improvement deduction represents the present value (discounted at a 6.0% safe
rate) of a five-year, roundly $53,000,000 capital improvement plan and
partially funded with monies held in the reserve for replacement account. In
the appraisers' opinion, a prudent buyer of the subject property would consider
this expenditure necessary.
Our report is made in conformance with, and subject to, the requirements of the
Uniform Standards of Appraisal Practice (USPAP), as provided by the Appraisal
Foundation, as well as the requirements of the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA). We do hereby certify that we have no
undisclosed interest in the property, and our employment and compensation are
not contingent upon our findings and valuation. The valuation is expressly made
subject to all normal and
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[HVS INTERNATIONAL LOGO]
specific assumptions and limiting conditions, a copy of which is included in
the attached appraisal report.
Very truly yours,
HVS International
/s/ Mark D. Capasso
Mark D. Capasso
Senior Associate
/s/ Elaine Sahlins
Elaine Sahlins
Director
/s/ Suzanne R. Mellen
Suzanne R. Mellen, CRE, MAI
Managing Director
MDC/ES/SRM/leg
<PAGE>
HVS International, San Francisco, California Quality Assurance
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[HVS INTERNATIONAL LOGO]
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QUALITY ASSURANCE
The HVS International division of M&R Valuation Services, Inc., strives to
achieve the highest standards of quality during all phases of the appraisal
process. It is our goal to provide clients with the finest appraisal report
available. The following staff members acknowledge their contribution to this
report.
/s/ Linda Gee
Linda Gee - Editing and Report Production
Editor (Extension 209)
/s/ Mark D. Capasso
Mark D. Capasso - Fieldwork, Analysis, and Text
Senior Associate (Extension 205)
/s/ Elaine Sahlins
Elaine Sahlins - Analysis and Review
Director (Extension 325)
/s/ Suzanne R. Mellen
Suzanne R. Mellen, CRE, MAI - Analysis and Review
Managing Director (Extension 108)
We are available to answer any questions and are pleased to have provided you
with the finest quality product available. Paula Hood (extension 201) is
available to answer any billing questions. We look forward to serving you again
in the future.
<PAGE>
HVS International, San Francisco, California Table of Contents
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[HVS INTERNATIONAL LOGO]
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TABLE OF CONTENTS
1. Summary of Salient Data and Conclusions ................ 1
2. Nature of the Assignment ............................... 3
3. Description of the Land ................................ 8
4. Description of the Improvements ........................ 12
5. Zoning ................................................. 26
6. Assessed Value and Taxes ............................... 27
7. Market Area and Neighborhood Analysis .................. 29
8. Market for Transient Accommodations .................... 48
9. Competition ............................................ 57
10. Occupancy and Average Rate Analysis .................... 75
11. Highest and Best Use ................................... 87
12. Approaches,to Value .................................... 90
13. Income Capitalization Approach ......................... 93
14. Cost Approach .......................................... 130
15. Sales Comparison Approach .............................. 145
16. Reconciliation of Value Indications .................... 150
17. Statement of Assumptions and Limiting Conditions........ 153
18. Certification .......................................... 157
Addenda
Accepted Proposal
Legal Description
Photographs of Subject Property
Qualifications
Mark D. Capasso
Elaine Sahlins
Suzanne R. Mellen, CRE, MAI
<PAGE>
HVS International, San Francisco, California Summary of Salient Data
and Conclusions 1
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[HVS INTERNATIONAL LOGO]
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1. SUMMARY OF SALIENT DATA AND CONCLUSIONS
Property: Hotel Del Coronado
Location: 1500 Orange Avenue
Coronado, California 92118
Date of Inspection: October 28,1997
Interest Appraised: Fee simple
Date of Value: October 28, 1997
Land:
Area: (plus or minus) 27.00 acres, or
(plus or minus) 1,176,120 square feet
Zoning: HM - Hotel Motel
Assessor's Parcel Number: 537-630-31-00
Flood Zone: X
Improvements:
Guestrooms: 692
Buildings: 3
Food and Beverage Facilities
Crown & Coronet Rooms: 500 seats
Prince of Wales: 150 seats
Ocean Terrace: 100 seats
Palm Court: 75 seats
Del Deli: 25 seats
Ocean Terrace Lounge: 50 seats
Pool Snack Bar & Burger Bar: Capacity of pool deck area
Meeting Space: (plus or minus) 73,000 square
feet
Year Opened: 1888
Summary of Value Parameters:
Highest and Best Use
(as if vacant): Development of a first-class resort
Highest and Best Use
(as improved): First-class resort with marina
Effective Date of the Appraisal: October 28, 1997
Marketing Period: Less than or equal to six months
Exposure Period: Less than or equal to six months
<PAGE>
HVS International, San Francisco, California Summary of Salient Data
and Conclusions 2
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[HVS INTERNATIONAL LOGO]
Stabilized Year: October 28, 2001 - October 27, 2002
Valuation Parameters
Mortgage Interest Rate: 8.0%
Amortization Period: 25 years
Debt Service Constant: 0.092618
Loan-to-Value Ratio: 75%
Stabilized Inflation Rate: 3.0%
Equity Yield Rate: 17.0%
Terminal Capitalization Rate: 8.0%
Brokerage and Legal Fees: 2.0%
Holding Period: 10 years
Calculated Discount Rate: 11.3%
Estimates of Value:
Income Capitalization Approach: $330,000,000
Sales Comparison Approach: $330,000,000
Cost Approach Not Applicable
Market Value Conclusion: $330,000,000
<PAGE>
HVS International, San Francisco, California Nature of the Assignment 3
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[HVS INTERNATIONAL LOGO]
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2. NATURE OF THE ASSIGNMENT
SUBJECT OF THE The subject of the appraisal is the fee simple interest in
APPRAISAL a (plus or minus) 1,176,120-square-foot ((plus or minus)
27.00-acre) parcel of land improved with a lodging facility
known as the Hotel Del Coronado. The subject property is a
full-service, resort-oriented, first-class lodging
facility, containing 692 rentable units, seven food and
beverage establishments, (plus or minus) 73,000 square feet
of meeting and banquet space, two outdoor pools, a health
club, six outdoor tennis courts, a full-service business
center, retail outlets, and other amenities and facilities
typically found in a first-class resort hotel.
In addition, the subject property will reportedly undergo a
roundly $53,000,000 upgrade to guestrooms, meeting space,
food and beverage outlets, and building systems. This
massive project is expected to be conducted over five
years.In addition, considering the historical level of
necessary capital improvements, as well as the age of the
subject property, we are of the opinion that a long-term
reserve for replacement equal to 5.0% of total revenues is
necessary to maintain the subject property's long-term
competitive position. We have assumed the budgeted amounts
for capital improvements over the first five years of the
forecast, would accumulate in reserves and be used to help
fund the planned capital improvement. The amount over and
above the reserves in each year was then discounted at a
safe rate of 6% to present dollars. This results in capital
expenditures of roundly $24,900,000, which we have deducted
from the subject property's "as improved" value.
The property is located in the city of Coronado, San Diego
County, California. The hotel's civic address is 1500
Orange Avenue, Coronado, California 92118.
OBJECTIVE OF THE The objective of the appraisal is to estimate the market
APPRAISAL value of the subject property. The following definition has
been agreed upon by agencies that regulate federal
financial institutions in the United States:
<PAGE>
[CALIFORNIA STATE MAP]
<PAGE>
HVS International, San Francisco, California Nature of the Assignment 4
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[HVS INTERNATIONAL LOGO]
The most probable price which a property should bring in a
competitive and open market under all conditions requisite
to a fair sale, the buyer and seller each acting prudently
and knowledgeably, and assuming the price is not affected
by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions
whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and
acting in what they consider their own best interests;
3. a reasonable time is allowed for exposure in the open
market;
4. payment is made in terms of cash in United States
dollars or in terms of financial arrangements comparable
thereto; and
5. the price represents the normal consideration for the
property sold unaffected by special or creative financing
or sales concessions granted by anyone associated with
the sale.(1)
"As is" market value estimates the market value of a
property in the condition observed upon inspection and as
it physically and legally exists without hypothetical
conditions, assumptions, or qualifications as of the date
of inspection.
MARKETING AND We estimate the marketing period of the subject property to
EXPOSURE PERIODS be less than or equal to six months, assuming that it is
ultimately transacted at or near the concluded market
value. In the current market, buyers are generally present
when the property is appropriately priced. Our estimate of
marketing period is supported by the range presented in the
Korpacz Real Estate Investor Survey, indicating marketing
periods from two to six months for full-service hotels and
from marketing periods for comparable sales. The exposure
period, referring to the amount of time necessary for the
real estate to have been exposed retrospectively, prior to
our date of value, is also estimated to be less than or
equal to six months.
USE OF THE This appraisal is being prepared for use by Morgan Stanley
APPRAISAL Mortgage Capital, Inc. in connection with a securitized loan
of the subject property.
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(1) Appraisal Institute. The Dictionary of Real estate
Appraisal, 3rd ed, Chicago: Author, 1993, pp. 222-223.
<PAGE>
HVS International, San Francisco, California Nature of the Assignment 5
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[HVS INTERNATIONAL LOGO]
No information presented in this report should be
disseminated to the public or third parties without the
express written consent of HVS International.
PROPERTY RIGHTS The property right appraised is the fee simple ownership of
APPRAISED the land and improvements, including furniture, fixtures,
and equipment. Fee simple interest is defined as "absolute
ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the governmental
powers of taxation, eminent domain, police power, and
escheat."(2) The subject property is being appraised as a
going concern (i.e., an open and operating facility).
METHOD OF STUDY The methodology used to develop this appraisal is based on
the market research and valuation techniques set forth in
the textbooks we authored for the American Institute of
Real Estate Appraisers and the Appraisal Institute,
entitled The Valuation of Hotels and Motels,(3) Hotels,
Motels and Restaurants: Valuations and Market Studies,(4)
The Computerized Income Approach to Hotel/Motel Market
Studies and Valuations,(5) and Hotels and Motels: A Guide
to Market Analysis, Investment Analysis, and Valuations.(6)
The specific steps incorporated in our analysis are
outlined as follows:
1. The subject site will be evaluated from the viewpoint of
its physical utility for the operation of a resort hotel,
as well as access, visibility, and other relevant
locational factors.
2. The subject's existing improvements will be inspected
for their quality of construction, design, layout
efficiency, and items of physical deterioration and
functional obsolescence.
3. The surrounding economic environment, on both an area
and neighborhood level, will be reviewed to identify
specific hostelry-related economic and demographic trends
that may have an impact on future demand for hotels.
---------------
(2) ibid., p. 204.
(3) Rushmore, S. The Valuation of Hotels and Motels.
Chicago: American Institute of Real Estate Appraisers,
1978.
(4) Rushmore, S. Hotels, Motels and Restaurants:
Valuations and Market Studies. Chicago: American
Institute of Real Estate Appraisers, 1983.
(5) Rushmore, S. The Computerized Income Approach to
Hotel/Motel Market Studies and Valuations. Chicago:
American Institute of Real Estate Appraisers, 1990.
(6) Rushmore, S. Hotels and Motels: A Guide to Market
Analysis, Investment Analysis, and Valuations.
Chicago: Appraisal Institute, 1992.
<PAGE>
HVS International, San Francisco, California Nature of the Assignment 6
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[HVS INTERNATIONAL LOGO]
4. Dividing the market for resort accommodations into
individual segments will allow us to define specific
market characteristics for the types of travelers
expected to utilize the area's hotels. The factors
that will be investigated include purpose of visit,
average length of stay, facilities and amenities
required, seasonality, daily demand fluctuations, and
price sensitivity.
5. An analysis of existing and proposed competition will
provide an indication of the current accommodated
demand, along with market penetration and the degree
of competitiveness.
6. Documentation for an occupancy and average rate
projection will be derived from a room night analysis
utilizing the build-up approach based on an analysis
of lodging activity.
7. A detailed projection of income and expense made in
accordance with the Uniform System of Accounts for
Hotels will show the anticipated economic benefits of
the subject property and provide the basis for the
income capitalization approach.
8. The appraisal will consider the three approaches to
value: cost, sales comparison, and income
capitalization. Because lodging facilities are
income-producing properties that are normally bought
and sold on the basis of capitalization of their
anticipated stabilized earning power, the greatest
weight is given to the value indicated by the income
capitalization approach. We find that most hotel
investors employ a similar procedure in formulating
their purchase decisions, and thus the income
capitalization approach most closely reflects the
rationale of typical buyers.
SCOPE OF THE All information was collected and analyzed by the
ASSIGNMENT signatories to this report. Operating history and
descriptive data for the property were supplied by property
management and Morgan Stanley Mortgage Capital, Inc. We
have investigated numerous improved sales in the market
area and have spoken with buyers, sellers, brokers,
property developers, and public officials. In addition, we
have investigated the general economy of the area affecting
the subject property, as well as the specifics of the
competitive hotel market. The value conclusion is based
upon this investigation and analysis and is conveyed
herein.
<PAGE>
HVS International, San Francisco, California Nature of the Assignment 7
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[HVS INTERNATIONAL LOGO]
OWNERSHIP AND The subject property was originally developed by Elisha
MANAGEMENT HISTORY Babcock, Jr. and H.L. Story and opened with 380 rooms on
AND ASSUMPTIONS February 19, 1888. The property's ownership was transferred
to John D. Spreckels at the turn of the century. Although
John Spreckels died in 1927, the Spreckels family trust
operated the hotel until it was sold in 1948 to investor
Robert A. Nordblom. Nordblom sold the property two days
later to Barney Goodman. The hotel then transferred in 1960
to John Alessio; at this time the property was completely
renovated. John Alessio then sold the property in 1968 to M.
Larry Lawrence. Lawrence embarked on a three-decade,
$80-million dollar refurbishment restoration and expansion
of the property. Mechanical, plumbing, electrical, heating,
ventilation, and cooking gas lines were improved and a
myriad of structural changes were made. In addition, the
hotel was expanded by 214 rooms in 1973 with the addition
of the Ocean Towers. The property was again expanded in
1979 with the addition of the 97-room Poolside Building.
The main building, Ocean Towers, and the Poolside Building,
together with a seaside cottage, yields the subject
property's current guestroom total of 692.
In January 1996, M. Larry Lawrence passed away. The hotel
was operated by the Lawrence family trust until September
1996 when it reverted to the lender, the Travelers
Insurance Company. Upon taking control of the property,
Travelers installed Wyndham Hotels, a professional
management company, as manager of the property. In August
1997, Travelers sold the property to Lowe Enterprises for
$330,000,000 in an all-cash transaction. Lowe Enterprises
then promptly installed Destination Hotels & Resorts, their
Denver-based management subsidiary as manager. While the
appraisers have not been supplied with a copy of the
management agreement, on-site management indicated
management fees are to equate to 3.5% of total revenues per
year. These fees are typical of the industry.
We have prepared our forecast of income and expense
assuming continued professional management by DH&R or an
alternate first-tier management company, at market rates.
PERTINENT DATES The effective date of the appraisal is October 28,
1997. All projections are expressed in inflated dollars,
and the value estimate represents 1997 dollars. The subject
property was inspected by Mark D. Capasso on October 28,
1997. Elaine Sahfins and Suzanne R. Mellen did not
physically inspect the subject property, however they did
actively participate in the analysis and conclusions set
forth in this report.
<PAGE>
HVS International, San Francisco, California Description of the Land 8
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3. DESCRIPTION OF THE LAND
The suitability of the land for the operation of a lodging
facility is an important consideration affecting the
economic viability of a property and its overall value.
Factors such as size, topography, access, visibility, and
the availability of utilities have a direct impact on the
desirability of a particular site.
SIZE AND According to the San Diego County Assessor's Office, the
TOPOGRAPHY subject site totals (plus or minus) 27.0 acres. The
following description of the subject site is based on the
San Diego County tax assessor's map. The site's boundaries
are described as follows.
-----------------------------------------------------------
SUBJECT PARCEL'S BOUNDARIES
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DIRECTION LENGTH (FEET) BOUNDARY
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West (plus or minus) 1,352 Beach and Pacific Ocean
South (plus or minus) 383 Avienda Del Sol
East (plus or minus) 771 Orange Avenue
North (plus or minus) 1,017 R.H. Dana Place
-----------------------------------------------------------
As shown on the following assessor's parcel map, the site's
shape is irregular. In addition, the overall topography of
the subject site is level, with a slight downward slope
from northeast to southwest. Overall, in terms of size and
topography, the subject parcel appears well suited for its
current use.
SITE USE The site is currently improved with three hotel buildings
totaling 692 rooms, (plus or minus) 73,000 square feet of
meeting space, various recreational amenities, and retail
spaces. The site is also improved with a three-story
building that houses various administrative and sales
offices. In addition, the subject site has two surface
parking lots that total 978 spaces. The subject's current
improvements will be discussed in greater detail later in
this report. According to information provided by the
Coronado Planning Office, there have been discussions about
possible expansions of the subject property. The possible
expansions include an addition of 250 guestrooms, 40,000
additional
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[ASSESSOR'S PARCEL MAP]
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HVS International, San Francisco, California Description of the Land 9
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[HVS INTERNATIONAL LOGO]
square feet of conference space, the expansion of a spa and
retail buildings, as well as the repositioning of the
hotel's entrance and public access pathways. The additional
guestrooms and meeting space are apparently to be built on
one of the subject's surface parking lots. While these
expansions have been discussed, it does not appear they
will happen. The citizens of Coronado have reacted in a
strongly negative way to any expansions at the subject
property. They believe the property should remain as it is
for historical reasons. In addition, the subject property
was placed on the national historic register in the 1970s.
As such, any changes to the property must first be cleared
by national authorities. No such clearances have been
granted. While there is a possibility of expanding the
subject property, the Coronado Planning Department does not
believe they will grant any permits due to the negative
reactions of citizens. As such, for purposes of this
analysis, we have not considered any expansion of the
subject property.
ACCESS AND The subject property is located in the city of Coronado.
VISIBILITY The city of Coronado is located across San Diego Bay and
directly west of downtown San Diego on the northern end of
the Coronado Peninsula. The city of Coronado encompasses
approximately 7.7 square miles and is comprised of two
primary area: the Village and the Strand. The subject is
located on the southwest end of the Village immediately
north of Coronado Shores and west of Glorietta Bay. The
main vehicular access to Coronado from downtown San Diego
is via the San Diego-Coronado Bay Bridge. This span
provides direct access to the peninsula from Interstate 5
(I-5), the West Coast's major north-south artery. For
motorists traveling westbound from San Diego, the bridge
provides direct access to Glorietta Avenue and Fourth
Street, both of which are local thoroughfares in Coronado.
After crossing the bridge and traveling on Fourth Street
for approximately five blocks, incoming motorists wishing
to access the subject property execute a left-hand turn
onto Orange Avenue (State Route 75). The subject property
is located at 1500 Orange Avenue approximately
one-half-mile from the Fourth Street/Orange Avenue
intersection. The subject property is not visible from
mainland San Diego or the San Diego-Coronado Bay Bridge.
The property is visible however from downtown Coronado due
to its height and distinctive red roof.
On the mainland, I-5 provides ready access to San Diego's
well-developed freeway system, including Interstates 805, 8,
and 15, and Highways 94, 163, and 52. I-5 is a north-south
highway which originates at the US-Mexico border and
extends north through California, Oregon, and Washington to
its northern terminus at the US-Canada border. Regionally,
I-5 provides access to the coastal areas of San Diego and
serves as the principal link for the commercial centers of
San Diego, Orange County, and Los Angeles.
<PAGE>
HVS International, San Francisco, California Description of the Land 10
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State Route 75 generally runs north-south along the San
Diego Peninsula from Third Street in the city of Coronado
to I-5, at the area between Imperial Beach and Chula Vista.
In the vicinity of the subject property, State Route 75 is
a four-lane highway.
Guests arriving by airplane can fly into San Diego
International Airport, a 20-minute drive from the subject
property. The San Diego International Airport, also known
as Lindbergh Field, is located on the mainland along Harbor
Boulevard, north of the San Diego-Coronado Bay Bridge.
UTILITIES The subject property is served by all necessary utilities,
supplied by the following entities:
Natural Gas and Electricity: San Diego Gas & Electric
Water and Sewage: California American Water
Waste Removal: Refuse Service
Telephone: Pacific Bell
SOIL AND SUBSOIL According to a soils remediation report conducted by Dames
CONDITIONS & Moore and dated July 21, 1997, some soils located
proximate to the subject property's dry cleaning facilities
were in need of remediation. The report stated that these
soils were removed. Note that the appraisers are not
qualified to evaluate soil conditions other than by a
visual inspection of the surface. No extraordinary
conditions were apparent.
NUISANCES AND Based on an expanded Phase I Environmental Report conducted
HAZARDS by Dames & Moore and dated August 26, 1997, two on-site
environmental conditions were found. These include: two
open County SAM cases that were pending closure with little
or no additional work required. In addition two County LUST
cases remained open, specifically, a 50,000-gallon concrete
tank in the main complex which formerly stored crude oil
and the previously mentioned soils problems. According to
the property engineer, the soil cleanup was completed.
The Dames & Moore report also stated asbestos-containing
materials were identified at the property. Some of these
materials were observed to be damaged and friable.
However, this problem was not considered a Recognized
Environmental Condition. In addition, lead-based paint was
detected at the property, although this condition was not
considered a Recognized Environmental Condition. Lead was
also detected in one "first draw" drinking water sample,
but not in a "second draw" sample. As such, lead in the
drinking water was not a Recognized Environmental
Condition.
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Based on the recent sale of the subject property, these
issues did not affect the property's marketability or
utility.
The appraisers have not been informed of any other
site-specific nuisances or hazards. However, because the
appraisers are not experts in this field, we do not warrant
the absence of asbestos or hazardous waste and urge the
reader to obtain an independent analysis of these factors.
FLOOD ZONE According to the City of Coronado Planning Department and
Federal Emergency Management Agency (FEMA) Flood Panel
#060287007B, effective July 15, 1988, the subject
improvements are located in flood zone X, which is defined
as "areas determined to be outside the 500-year flood
plain." Thus the risk of flood to the subject site is
minimal.
LEGAL DESCRIPTION A copy of the subject property's legal description is
contained in the addenda to this report.
CONCLUSION The subject site's size, shape, topography, access,
visibility, potential hazards, and availability of
utilities have been examined and evaluated, with the
following advantages and disadvantages noted.
ADVANTAGES:
o Adequate size and topography for the development and
operation of a full-service resort;
o Oceanfront location;
o Good access from area roadways;
o All necessary utilities to the site; and
o Minimal potential flood hazard.
DISADVANTAGE:
o No visibility from Downtown San Diego or the San
Diego-Coronado Bridge
The physical advantages of the subject site are considered
to outweigh the drawback. The appraisers conclude that the
subject site is physically appropriate for the current
improvement with a full-service resort.
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4. DESCRIPTION OF THE IMPROVEMENTS
The quality of a lodging facility's physical improvements
has a direct influence on marketability, attainable
occupancy, and average room rate. The design and
functionality of the structure can also affect operating
efficiency and overall profitability. This section
investigates the subject property's physical improvements
and personal property to determine how they contribute to
total value.
PROPERTY OVERVIEW The subject property is a full-service, resort-oriented,
AND LAYOUT first-class lodging facility, containing 692 rentable
units, seven food and beverage establishments, (plus or
minus) 73,000 square feet of meeting and banquet space, two
outdoor pools, a health club, six outdoor tennis courts, a
full-service business center, retail outlets, and other
amenities and facilities typically found in a first-class
resort hotel.
The subject's improvements are housed in a complex of
buildings that are located throughout the site. The
property has been developed in various stages over the past
110 years, with the (then 330-room) main hotel building
having first opened in 1888. Although modifications,
additions, and modernization of this building have occurred
throughout the years, its architectural integrity has been
carefully preserved, and the original structure is still
intact.
The hotel's facilities remained more or less unchanged,
though not unrenovated, until the 1930s. Around this time,
portions of the main building were converted into meeting
and banquet space. In addition, guestrooms were equipped
with modem heating and plumbing. In the late 1940s, a fifth
floor with 50 additional guestrooms was added to the main
hotel building. In 1972, the Grande Hall was completed.
This building is located on the northeastern portion of the
site and houses meeting and banquet facilities, as well as
some administrative offices and other back-of-the-house
spaces. At about the same time, another guestroom building,
known as the Ocean Towers (215 guestrooms), was constructed
on the southwestern portion of the site. Through the 1970s
additional
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[SITE PLAN FOR HOTEL DEL CORONADO]
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facilities, including tennis courts, a spa, two heated
pools, expanded dining, parking, and retail areas were
added to the property. In 1979, the remaining guestroom
building, known as the Poolside Building (96 guestrooms),
was completed.
GENERAL SITE LAYOUT As mentioned, the subject property's improvements consist
of several separate structures. The main building, housing
guestrooms, meeting space, the lobby and front desk area,
and food and beverage facilities, is located in the center
of the site. The Grande Hall, consisting of meeting space,
is located east of the main building along Orange Avenue.
To the east of the main building are the subject's tennis
courts, pool, and poolside guestroom. building. The Ocean
Towers building is located in the southeast portion of the
site and has its own large heated pool. East of the Ocean
Towers building is the property's main parking lot. At the
southeast corner of the site, the property's Oxford
Building, containing various administrative and sale
offices, is located. In addition, this section of the site
houses the subject's main support building, including
engineering offices, boiler and mechanical rooms. Another
surface parking lot is located at the northern edge of the
subject site along R.H. Dana Place. Overall, while the
subject's improvements are spread out and expansive, the
property is laid out in a logical manner, providing guests
easy and convenient access to all areas. Note that the site
map on the following page shows the layout of the subject
property.
FACILITIES SUMMARY The following table summarizes the subject property's
facilities.
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SUMMARY OF FACILITIES - HOTEL DEL CORONADO
-----------------------------------------------------------
GUESTROOM CONFIGURATION NUMBER OF UNITS
----------------------- ---------------
Main Building 380
Ocean Towers 215
Poolside Building 96
Ocean Cottage 1
------
Total 692
FOOD AND BEVERAGE FACILITIES SEATING CAPACITY
---------------------------- ----------------
Crown and Coronet Rooms 500
Prince of Wales 150
Ocean Terrace 100
Palm Court 75
Del Deli 25
Ocean Terrace Lounge 50
------
Total 900
Poolside Snack and Burger Bar Capacity of pool deck area
MAIN BUILDING SQUARE FEET
------------- -----------
Ballroom 15,707
International Room 6,078
Crown Room 9,672
Coronet Room 3,500
Windsor Complex 1,369
Crystal/Continental Rooms 1,891
Executive Room 465
Garden Room 1,584
Hanover Room 1,479
Stuart Room 1,152
York Room 414
Kent Room 299
Tudor Room 540
------
Subtotal 44,150
GRANDE HALL
-----------
Upper Level (Three Rooms) 11,792
Babcock Complex 1,320
Story Complex 1,599
Edison Complex 1,612
------
Subtotal 16,323
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SUMMARY OF FACILITIES - HOTEL DEL CORONADO
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POOLSIDE
--------
Dover Room 2,350
Dover Complex 3,915
Stratford Room 920
Durham Room 920
Somerset Room 418
Bradford Room 418
Manchester Room 836
Carduff Room 380
Lancaster Room 380
Pembroke Room 500
Leeds Room 450
------
Subtotal 11,487
Windsor Cottage 1,040
Total Meeting Space 73,000
RECREATIONAL FACILITIES
-----------------------
Fitness Center Facilities:
Exercise room with bicycles, rowing machines, step
machines, treadmills, free weights, and Paramount
station machines
Men's and Women's saunas
Men's and Women's steam rooms
Men's and Women's massage rooms
Two Outdoor Pools (at varying temperatures)
Two Outdoor Spas
Six Hardcourt Tennis Courts
-----------------------------------------------------------
MAIN BUILDING The main hotel building is the centerpiece of the Hotel Del
Coronado's facilities. The building's design is most
frequently referred to as Victorian; however, it is
actually a combination of several styles, including the
Queen Anne style, characterized by its lack of symmetry and
unity in everything from building materials to cupola
designs and window shapes. This style is evidenced by the
disparity in guestroom sizes and configurations, as will be
discussed in greater detail later in this section.
The building is comprised of three full floors, plus a
basement level, partial fourth and fifth floors over the
eastern portion of the building, and various sixth-floor
penthouse areas. Because the site slopes downward slightly
from the street side to the ocean side, the western
portions of the basement level are at or almost at grade,
while the eastern portions are below grade. Guestrooms are
laid out in a doughnut configuration around a central
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courtyard, known as the Garden Patio. This area is well
landscaped and can be utilized for weddings and receptions.
Many of the main building guestrooms feature balconies
overlooking the Garden Patio.
The building exterior is distinctive in appearance, with
red-roofed turrets, intricate woodwork, and hand-carved
pillars. The structure is one of the largest predominantly
wooden buildings currently in existence, and building
materials utilized include wood, shingle, glass, and brick.
The wood utilized in the property's construction is of
several different varieties with a preponderance of
redwood. On the exterior of the building at least four
different kinds of cedar shingles have been used, along
with horizontal siding and vertical siding, both of
redwood.
MAIN ENTRANCE AND The main entrance to the hotel is situated along the
LOBBY SPACE southern side of the main hotel building, and is denoted
by a porte-cochere. Upon entering the hotel, the lobby is
immediately accessed; front desk and registration areas
are ahead and to the left and are easily identifiable. From
its northwestern corner, the lobby provides access to the
Palm Court Lounge and to other first floor public
facilities, including an exterior courtyard and several
meeting rooms. The eastern side of the lobby accesses the
Crown and Coronet Rooms (used as the property's main dining
rooms and meeting rooms) and farther north, several smaller
meeting rooms. A gift shop is located to the south of the
front desk as are the property's general manager and
controller offices.
GUESTROOMS - MAIN Almost no two of the subject's 380 main building guestrooms
BUILDING are alike. A small number are quite undersized by modern
standards, while a greater number are much larger than
standard. The count of 380 includes 12 parlor suites. For
the most part, guestrooms are double-loaded along interior
corridors, but several rooms feature odd locations in the
penthouse, mezzanine, or interior cul-de-sac areas. In
addition, as the main building is constructed around an
interior courtyard, the guestrooms offer several different
view types, including courtyard and ocean views. It is also
important to note that roughly 105 rooms offer balconies.
In addition to having balconies and ocean views, numerous
other distinguishing features can he found in roughly 50
guestrooms. These include octagonal- or otherwise
irregular-shaped rooms, rooms located in odd corners of the
building, or rooms accessible via back staircases. Needless
to say, these guestrooms in the main building add to the
charm
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and uniqueness of the subject property. However, these
rooms are also signs of functional obsolescence.
Guestroom furnishings and fixtures vary from room to room,
but all feature wall-to-wall carpeting, papered walls, and
plaster ceilings with painted moldings throughout. Decor
and furnishings tend to mirror the antique ambiance of the
property, although some rooms feature "built in" drawers or
vanities. Closets in many rooms are of the oversized,
walk-in variety (a remainder from an earlier period when
guests would stay for several weeks or months). Guest
bathrooms are standard three-fixture types with a toilet,
sink, and tub/shower combination, but they vary
tremendously in size and location within the room. All
guestrooms are equipped with at least one television set,
one push-button telephone, and a minibar. In general the
main building's guestrooms appear to be in fair condition,
with some signs of physical obsolescence and wear and tear
noticed. As mentioned previously, the subject will undergo
a five-year, roundly $53,000,000 renovation. Various
upgrades to guestroom softgoods and casegoods are to be
part of this renovation. As the property renovates these
rooms, average rates are expected to increase. This will
be discussed in greater detail later in this report.
It is also important to note that the subject's main
building guestrooms are not air conditioned. Although the
property is located in an area known for its mild climate,
the absence of air conditioning is an undesirable feature.
The transoms above most guestroom doors and ceiling fans
can be utilized to increase air circulation and
ventilation; however, they also facilitate undesirable
noise transmission. In addition, the lack of a modem HVAC
system can also result in a certain amount of odor
transmission from the building's various food and beverage
outlets to various points within the guestroom area. While
the property currently does not have a modern HVAC system
for the main building guestrooms, part of the
aforementioned capital expenditure budget is earmarked for
installation of one. Specifically, roundly $4,000,000 will
be spent on a main building HVAC system. Like the planned
guestroom renovation, the installation of an HVAC system
should enable the subject property to significantly
increase average rates in the future.
OCEAN TOWERS The seven-story Ocean Towers building opened in 1971. Its
BUILDING modern glass and concrete facade contrasts greatly with the
distinctive architecture of the main hotel building and the
Poolside Building, the latter of which is designed to more
or less blend in with the main hotel building. Located
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along the ocean, in the southern part of the site, this
building houses 215 guestrooms; there are no public or
back-of-the-house facilities with the exception of
housekeeping closets and a few storage areas. Like the
Poolside Building, all guestrooms in the Ocean Towers
building are identical in size and configuration, with the
exception of nine suites located on the top floor. Of these
nine suites, three are configured as two-bedroom
apartments.
The standard guestroom in this building measures 512
square feet, which is larger than typical guestrooms. Of
the 215 guestrooms in this building, approximately 100
feature full or partial ocean views and all rooms except
those on the first floor offer balconies.
POOLSIDE BUILDING Completed in 1979, the Poolside building is the newest of
the subject property's guestroom buildings. It is located
in the center of the site, between the main hotel building
and the Ocean Towers building.
The Poolside Building ranges from two to three stories in
height, and houses 96 guestrooms. The building, which is of
concrete block construction, is configured around a small
atrium with a bird cage elevator and a glass-clock
skylight.
Unlike the main hotel building, guestrooms in this building
are all identical in size and configuration. Roughly half
of these guestrooms provide ocean views while the other
half open directly to the pool area or overlook the pool.
In addition, the Poolside Building is fully heated and
cooled via a two-pipe HVAC system with a chilled water
loop. The Poolside Building's casegoods and softgoods
appeared dated and worn at the time of inspection. Roughly
half of the guestrooms are decorated in an island motif
with wicker furniture and fixtures. Like the main building
guestroorns, these rooms are expected to be upgraded and
refurbished during the planned capital renovation at the
property. The upgrade and renovation of the Poolside
Building guestrooms should also positively impact average
rates at the subject property.
FOOD AND BEVERAGE The subject property's food and beverage facilities are
FACILITIES primarily located within the main commercial structure. The
Prince of Wales is the resort's oceanfront specialty
restaurant, featuring steaks and seafood. This facility is
located on the basement level of the main building.
Adjacent to the Prince of Wales are the Ocean Terrace
restaurant and lounge. The Ocean Terrace has a casual
outdoor setting overlooking the ocean and serves California
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HVS International, San Francisco, California Description of the
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bistro fare. Both the Prince of Wales and the Ocean Terrace
were in good condition at the time of inspection. In
addition, one kitchen located on the basement level
adjacent to the Prince of Wales services both outlets.
The Crown and Coronet Rooms are the property's main dining
rooms and are located off of the lobby in the main
building. The Crown Room is architecturally distinctive and
boasts one of the world's largest unsupported wooden domed
ceilings, and is quite breathtaking in appearance. The
Coronet Room portion of the restaurant is somewhat less
spectacular, but still attractive. The property's main
kitchen is located adjacent to these rooms and is quite
expansive.
The Palm Court Lounge is located at the northwest corner of
the lobby area. This lounge features nightly piano music
and offers evening cocktails. In addition, the Palm Court
hosts a continental breakfast buffet every morning. This
area was in good condition at the time of inspection.
The Del Deli is also particularly distinctive in design. It
was carved out of what was once the hotel's rainwater
storage cistern. The Deli serves sandwiches and salads and
is located adjacent to the property's galleria shopping
area on the basement level.
The subject property also offers poolside snacks,
sandwiches and burgers. A large outdoor grill is used to
prepare most of the hot foods poolside. This food and
beverage area has proven to be popular with guests of the
hotel. Seating is provided via an observation platform
above the property's pool as well as by various tables and
chairs situated adjacent to the pool.
MEETING SPACE The subject property's (plus or minus)73,000 square feet
of meeting and banquet facilities are located throughout
the property. Specifically, the Grande Hall building houses
approximately 16,323 square feet of space in four separate
complexes. These complexes can be broken down into several
separate meeting rooms. The main building houses a majority
of the subject's meeting space, approximately 44,150 square
feet including the subject's Ballroom. The Ballroom is
quite distinctive as it is virtually round and offers large
panoramic views of the Ocean. The remainder of the subjects
main building meeting space is located off of the Garden
Patio. This area houses nine small meeting rooms. The
remainder of the property's meeting space is located in the
Poolside Building. This area houses approximately 11,487
square feet of space and contains 11 separate meeting rooms
that can be combined in several variations.
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Overall, the subject's meeting banquet space is adequate in
size and configuration. As will be discussed in subsequent
sections of this report, the subject derives approximately
63% of its total room night demand from the group meeting
segment. Due to the high volume of group business at the
hotel, the property's meeting facilities appeared worn in
several areas, most notably the carpet and wall coverings
in the main building and Poolside Building space. As
mentioned, the subject property will undergo a five-year
renovation program. The upgrade and refurbishment of all of
the subject's meeting space is expected to be addressed
during this renovation.
Given the expansive nature of the subject property's
meeting facilities and the subsequent distance from the
main kitchen, the transportation of food can sometimes be
problematic. However, property management indicated an
extensive network of service corridors, prep areas, and
dish-up areas are located throughout the property, which
minimizes problems with food transportation.
Overall, the subject property's meeting and banquet
facilities are comparable or superior to those of the
competitive properties.
RECREATIONAL A health club is located on the basement level of the main
FACILITIES building adjacent to the Ocean Terrace Restaurant. The
health club is comprised of a sauna, steam bath, exercise
room, whirlpool, and massage rooms. Hotel guests are
charged various rates for use of the health club
facilities. Private memberships are also available which
permit members to use the health club, swimming pools and
tennis courts. The property's two swimming pools are both
located outside, with one adjacent to the Poolside
Building, and the other adjacent to the Ocean Towers
building. Also, as mentioned, the subject property offers
six lighted tennis courts.
RETAIL FACILITIES Retail facilities at the subject property include
facilities operated by the subject management, as well as
leased facilities. The 11 facilities currently operated by
the subject property are located throughout the property.
The following chart details these facilities.
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RETAIL FACILITIES OPERATED BY THE HOTEL DEL CORONADO
-----------------------------------------------------------
NAME TYPE
---------------------------------------------------------
Signature Shop Del Coronado Signature Merchandise
Set Sail Apparel
Sun Sport Apparel
Waves Apparel
Courtside Pro Shop
Tropical T's Apparel
Spa Boutique Health Club Store
Bubbles Sundries
Kiosk Sundries
Crown Court Garden Flowers and Gifts
Corporate Gifts Sundries
In addition, the subject property leases retail space to 22
separate retail tenants. These operations are located in
the subject's galleria area on the basement level of the
main building. The following chart details these tenants.
-----------------------------------------------------------
LEASED RETAIL FACILITIES
-----------------------------------------------------------
NAME TYPE
---------------------------------------------------------
American Nostalgia Apparel
Beauty Salon Beauty Salon
Brady's Men's Shop Apparel
Brady's Women's Shop Apparel
Geppetto's Toys
Coronado Gallery An Gallery
Del Jewels Jewelry
Hertz Car Rental
European Heritage Apparel
Jessops Apparel
McNary Art Gallery Art Gallery
Naturally Yours Specialty Gifts
New Images Specialty Gifts
Opal & Gems Jewelry
Ribbons & Roses Gifts
Ancient Mariner Apparel
Sally Huss Gallery Art Gallery
Shell World Specialty Gifts
Sunglass Hut Sunglasses
The Sweater Ship Apparel
Victorian Corner Specialty Gifts
Windsor Chocolates Candy
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Overall, the subject's leased space has exhibited very
little turnover historically. In addition, the tenants
occupying the space now are on long-term leases. According
to property management, the high level of walk-in traffic
generated by the hotel is a very positive attribute to the
subject's leased retail outlets.
BACK-OF-THE-HOUSE As previously mentioned, most of the property's major
FACILITIES back-of-the-house facilities are located in the one-story
structure that is situated along the site's eastern
boundary. The property operates its own upholstery and
carpentry shops, and has an on-site construction department
located in this building. While these types of
back-of-the-house facilities are more extensive than those
normally found at a typical hotel, they are required at the
subject due to the complexity of repairing and maintaining
the main hotel building. This building also houses the
subject's laundry faculties, including guest dry-cleaning.
Adjacent to the laundry area are additional housekeeping
departmental facilities, including linen storage, sorting
and folding area. The service building also houses various
other mechanical rooms and storage areas and is connected
to the main hotel building via an underground tunnel.
The subject property maintains efficient energy production
through its co-generation plant and solar power collection
system. On the roof of the Grande Hall building are 16
large solar collectors which produce a reported 1% of the
property's electrical needs and 5% of its hot water.
Additional hot water is produced by a heat harvesting
system in the Ocean Towers building, thus reducing natural
gas consumption by a reported 25%. Approximately one-third
of the hotel's electricity is produced by an 800-kilowatt,
gas-fired turbine generator system located below the Grande
Hall. This system also supplies high pressure steam for the
hotel's laundry facility, main building guestrooms, and
kitchens.
VERTICAL The main hotel building is serviced by two passenger
TRANSPORTATION elevators and two freight elevators. The passenger
elevators are original to the property and are among the
first Otis elevators ever placed in service. These bird
cage-type elevators require operators, and are therefore
expensive to run. They do, however, add to the property's
charm.
Four sets of public stairs also connect all guestroom
levels to the lobby and lower lobby levels, and several
other staircases connect odd corners and penthouses of the
building to the floor below.
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HVS International, San Francisco, California Description of the
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As mentioned, two elevators each service the Poolside
building and the Ocean Towers building.
HEATING, As mentioned, the subject property operates several
VENTILATION, AND different HVAC systems. The food and beverage facilities,
AIR CONDITIONING meeting space, and most of the public areas in the main
(HVAC) building are air conditioned via a two-pipe system with a
chilled water loop running underneath the building. The
Poolside Building is also air conditioned via this system.
The subject's main building guestrooms and lobby area are
not air conditioned. The entire main building is heated via
steam radiators. The Oceanside Towers are heated and cooled
via a four-pipe HVAC system that was in good working order
at the time of inspection.
As mentioned, the subject property's five-year capital
improvement plan is expected to address the divergent HVAC
problem. Currently a four-pipe system is planned to provide
heating and cooling for the entire main building and
Poolside Building, including guestrooms and the lobby.
FIRE PROTECTION The subject property is fully sprinklered and each
guestroom has a hardwired smoke detector; each smoke
detector is connected to the emergency generator. According
to the property engineer, the subject's pending capital
improvement included monies for a completely updated fire
protection system.
ADA CONFORMANCE Following the January 26, 1992, passage of the Americans
with Disabilities Act (ADA), the subject property is
subject to new physical standards. ADA standards
principally address the number and accessibility of
guestrooms designed to accommodate physically challenged
guests, though a variety of safety standards are also
included that can touch on the status of building systems.
Due to the high, and sometimes prohibitive, cost of ADA
conformance, necessary improvements have generally been
limited to what is "readily achievable." When a property is
in the process of refurbishment, efforts at that time are
expected to be made to address ADA standards. For example,
if, in the process of refurbishment, a vanity is being
replaced, at that time the vanity should be raised so that
it conforms with ADA standards. According to property
management, the subject property conforms to all the
current federal ADA guidelines.
CAPITAL As mentioned, while the subject property's guestrooms,
EXPENDITURES public areas, and building systems were in fair to good
condition at the time of inspection, they are in need of
upgrades. According to property management the
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subject will reportedly undergo a roundly $53,000,000
upgrade to guestrooms, meeting space, food and beverage
outlets, and building systems. The following chart details
the capital improvement plan at the subject property.
<TABLE>
<CAPTION>
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PLANNED CAPITAL IMPROVEMENTS
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FORECASTED CAPITAL PROJECTS YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Administrative and General $580,000 $311,000 $676,000 $180,000 $170,000
Building and Engineering 1,759,332 5,889,481 4,518,987 4,725,402 6,073,661
Rooms 2,638,759 2,349,925 4,452,499 126,800 131,400
Site and Landscaping 441,351 89,699 26,400 30,800 399,000
Food and Beverage 1,513,334 82,953 110,856 250,212 301,868
Public Areas 4,752,731 364,300 50,000 50,000 643,270
Recreation and Health 648,950 172,700 49,225 0 3,850
Unallocated Upside Projects 0 0 2,000,000 2,000,000 1,497,984
Construction Management 100,000 100,000 100,000 100,000 100,000
Development Management 497,378 374,402 479,359 298,529 372,841
Total Yearly Capital Expenditure $12,931,835 $9,734,460 $12,463,326 $7,761,743 $9,693,874
Total Capital Expenditure $52,585,238
(SAY) $53,000,000
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</TABLE>
As shown, this massive project is expected to be conducted
over five years. In addition, considering the historical
level of necessary capital improvements, as well as the age
of the subject property, we are of the opinion that a
long-term reserve for replacement equal to 5.0% of total
revenues is necessary to maintain the subject property's
long-term competitive position. We have assumed the budgeted
amounts for capital improvements over the first five years
of the forecast, would accumulate in reserves and be used
to help fund the planned capital improvement. The amount
over and above the reserves in each year was then
discounted at a safe rate of 6% to present dollars. This
results in capital expenditures of roundly $24,900,000,
which we have deducted from the subject property's "as
improved" value. The calculations for this amount are
presented in the following chart.
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<TABLE>
<CAPTION>
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CAPITAL EXPENDITURES
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CAPITAL EXPENDITURES (IN 000S) 1997/98 1996/99 1999/00 2000/01 2001/02
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Budgeted Amount $12,932 $9,734 $12,463 $7,762 $9,694
Reserve for Replacement 4,601 4,883 5,036 5,303 5,494
----- ----- ----- ----- -----
Over and above Reserves $8,331 $4,851 $7,427 $2,459 $4,200
Present Value @ 6% discount rate $8,331 $4,577 $6,610 $2,064 $3,327
Total Capital Expenditure Deduction (Say) $24,900
- ---------------------------------------------------------------------------------------
</TABLE>
CONCLUSION The subject property's improvement are extremely complex
and entirely unique. The age and design of the main hotel
building are the cornerstones of the property's fame and
reputation. While these building has a charm and ambiance
that is completely unreplaceable, it also feature
significant items of functional obsolescence which affect
the property's operation. In addition, the expansive nature
of the facilities as well as the property's age can effect
property operations and maintenance and energy expenses.
This will be discussed in greater detail later in this
report.
Overall, the historically significant and one-of-a-kind
nature of the property's improvements have contributed to
create a hotel property that is in an enviable position. As
such the subject property is a completely unique real
estate entity.
<PAGE>
HVS International, San Francisco, California Zoning 26
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[HVS INTERNATIONAL LOGO]
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5. ZONING
According to the city of Coronado zoning regulations, the
subject property is zoned as follows.
HM - Hotel Motel
The purpose and intent of this zone is to provide areas
that serve the needs of tourists, travelers, and transient
occupancy and to encourage transient retail facilities. As
such, hotels and motels are expressly permitted in this
zone. In addition, retail facilities and recreational
facilities are allowed as long as they are built in
conjunction with a hotel or motel. The zone has a 40-foot
height limitation, a 25-foot front yard requirement, and a
10-foot side yard requirement. Additionally, one parking
space for every two lodging units and one space for every
two employees are required. The subject property reportedly
meets all of the above requirements. In addition, as the
subject property occupies a position along the coastline,
the coastal commission indirectly has a say in the use of
the land. According to Coronado planning officials, the
coastal commission has approved the city's overall plan for
all coastal land. As such, the city has ultimate zoning
control.
Planning department officials also indicated, should the
property be destroyed it most likely could be rebuilt in
its current orientation. However, any new plans would have
to be submitted for approval.
We assume that all necessary permits (including a liquor
license) and approvals have been secured and that the
subject property has been constructed in accordance with
the port district's ordinances, building codes, and all
other applicable regulations.
<PAGE>
HVS International, San Francisco, California Assessed Value and Taxes 27
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[HVS INTERNATIONAL LOGO]
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6. ASSESSED VALUE AND TAXES
Property or ad valorem tax is one of the primary revenue
sources for municipalities. Based on the concept that the
tax burden should be distributed in proportion to the value
of all properties within a taxing jurisdiction, a system of
assessments is established by the local assessor.
Theoretically, the assessed value placed on each parcel
bears a definite relationship to market value.
Real estate in the state of California is assessed at 100%
of market value upon the sale, expansion, or new
construction of a property. Once established, the assessed
value of a property can increase by no more than 2% per
year, according to state law. A reassessment is triggered
by the sale, expansion, or improvement of a property. Real
and personal property are taxed at the same rate.
The fiscal year for tax purposes runs from July 1 to June
30, with real estate taxes due in two installments, no
later than December 10 and April 10 of the fiscal year.
HISTORICAL TAX As shown, the effective property tax rate for 1996/97
RATE equated to 1.000%. The following table shows how the
applied tax rate has varied since the 1991/92 fiscal year.
<PAGE>
HVS International, San Francisco, California Assessed Value and Taxes 28
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[HVS INTERNATIONAL LOGO]
-----------------------------------------------------------
HISTORICAL PROPERTY TAX RATE
-----------------------------------------------------------
YEAR TAX RATE % CHANGE
-----------------------------------------------------------
1991/92 1.00215% ---
1992/93 1.00104 (0.1)%
1993/94 1.00000 (0.1)
1994/95 1.00000 0.0
1995/96 1.00000 0.0
1996197 1.00000 0.0 %
Average Annual Compounded Percent
Change 1991/92-96/97 0.0 %
-----------------------------------------------------------
Property tax rates in the subject property's tax rate area
have remained stable in recent years, at 1.000%. For the
purpose of this appraisal we have projected that the
subject property's tax rate will stabilize at approximately
1.00%.
PROJECTION OF Because the subject property's real estate and personal
PROPERTY TAXES property taxes cannot be forecast until a market value is
determined, the appraisers performed an iterative
calculation through a computer program to estimate the
reassessment which would occur upon the sale of the
property at a price equal to the estimated "as improved"
market value of the fee simple interest. Based upon the "as
improved" value conclusion determined by this appraisal,
the estimated "as improved" market value of the fee simple
interest in the subject property is $354,855,000. Therefore
the first year's tax burden was calculated as follows:
ESTIMATED MARKET VALUE FIRST YEAR'S
OF FEE SIMPLE INTEREST X TAX RATE TAX BURDEN
-----------------------------------------------------------
$354,855,000 1,0000 % $3,548,550
Say $3,549,000
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HVS International, San Francisco, California Market Area and
Neighborhood Analysis 29
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[HVS INTERNATIONAL LOGO]
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7. MARKET AREA AND NEIGHBORHOOD ANALYSIS
The economic vitality of the market surrounding the subject
property is an important consideration in forecasting
lodging demand and income potential. Economic and
demographic trends that reflect the amount of visitation
provide a basis from which to project hostelry demand. The
purpose of the market area analysis is to review available
economic and demographic data to determine whether the
local market will undergo economic growth, stability, or
decline. In addition to predicting the direction of the
economy, the rate of change must be quantified. These
trends are then correlated based on their propensity to
reflect variations in lodging demand, with the objective of
forecasting the amount of growth or decline in transient
visitation by individual market segment (e.g., group
meeting, leisure, and commercial).
MARKET AREA The subject property is located in the city of Coronado, a
OVERVIEW small resort and residential community located immediately
west of the city of San Diego, across the San Diego Bay,
and within San Diego County. San Diego County corresponds
to the San Diego Metropolitan Statistical Area (MSA), which
is so defined for statistical purposes. As a convention-
and leisure-oriented resort, the subject property draws a
significant amount of its patronage from the entire
Southern California region, a nine-county area that
includes both the San Diego and Los Angeles MSAs;
additionally, the subject property derives patronage from
throughout the nation.
San Diego County is located at the southwestern corner of
the continental United States. It is bordered by Orange and
Riverside Counties to the north, Imperial County to the
east, and the Pacific Ocean to the west; Mexico lies
adjacent to the southern border of San Diego County. At the
closest point, the city of San Diego is roughly 16 miles
north of the Mexican border.
San Diego County covers roughly 4,261 square miles and is
most densely developed in its western and coastal areas.
The terrain varies from mountains, deserts, and rolling
hills in the inland areas to more than 70
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 30
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[HVS INTERNATIONAL LOGO]
miles of coastline and beaches to the west. Subtropical sun
and the cooling California current produce a pleasant
year-round climate, which is one of the area's greatest
assets.
ECONOMIC OVERVIEW San Diego County was one of the nation's fastest growing
economies in the 1980s. However, according to a comparative
economic study prepared by the Alphametrics Corporation,
San Diego dropped from being one of the 10 fastest-growing
metropolitan areas through the 1980s to being one of the 10
slowest growing between 1990 and 1993. However, in 1994,
the San Diego County economy began to emerge from its worst
recession since the 1930s. Overall, between 1990 and 1996,
San Diego lost more than 74,000 jobs. Aerospace alone
accounted for 20,800, or one out of three, lost jobs. By
the end of 1996, only one in five aerospace jobs existing
in San Diego during 1990 remained. During this same period,
however, other industries created more than 88,600 jobs. By
the end of 1996, San Diego had 14,600 more jobs than the
pre-recession high at the end of 1990. The defense-related
employment cuts during the early 1990s were offset by gains
in the medical instrument, biotechnology, and biomedical
fields. In addition, the expansion of the service sector is
expected to continue, allowing for modest overall growth in
the economy. Although Southern California experienced
significant job losses in the aerospace sector as a result
of the downsizing of national defense expenditures, the
military's presence and commitment to San Diego grew as San
Diego became the Navy's principal location for West Coast
operations, with the consolidation of operations
concentrated in the region. The planned relocation of the
U.S. Space & Naval Warfare Systems Command (SPAWAR) to San
Diego from Arlington, Virginia in 1997 will bring 800 to
1,000 high paying jobs to the county, and provide a $1
billion injection to the economy, and an estimated $2 to $3
billion annually in procurement contracts to San Diego.
According to the January 1997 issue of the San Diego
Economic Bulletin real growth occurred in the gross
regional product (GRP) of 4.7% in 1996, following
inflation-adjusted increases of 0.7%, 2.3%, and 4.6% in
1993, 1994, and 1995, respectively. In addition, San
Diego's economy is projected to grow at a rate of 4.8% in
1997. San Diego is once again outperforming the rest of the
state and nation in economic expansion.
On a broader perspective, the state's economic recovery
began in 1994. The recovery in California is being driven
by a variety of forces, including international trade,
motion picture/television production, tourism, wholesale
trade, the resale housing market, and even a modest upturn
in
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 31
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[HVS INTERNATIONAL LOGO]
new home construction. According to UCLA-Anderson Forecast
economists, 14% of new employment growth in the U.S. in
the past year occurred in California and the state's job
growth rate is forecast to continue to outpace that of the
nation over the next three years. Furthermore, in response
to the current economic imbalance, supply and demand forces
are expected to lower the cost of living and conducting
business in the state. State governing bodies have already
drafted legislation to curtail the state's "anti-business"
reputation, including changes regarding investment,
research and development, and tax incentives. Lodging
demand, which has already demonstrated a considerable
resurgence, is expected to mirror the trend of the overall
state economy, with healthy, gradual expansion over the
long term.
Due to its macroeconomic effect on the local hotel market,
the building statewide recovery is considered to be a
positive sign for purposes of this analysis. Despite the
rather adverse trends apparent through the early 1990s, it
appears that the area's underlying geographic and
demographic advantages will help provide the basis for
moderate and steady long-term growth in the subject's
lodging market.
DEMOGRAPHIC REVIEW The following demographic and economic review sets forth
population, per-capita income, and retail sales for the San
Diego MSA, the state of California, and the United States
as a whole from 1980 through 2000. While not directly
correlated with hotel room night demand, population and
retail sales serve as a general measure of a market's
health. The per-capita income reflects the economic
well-being of the populace.
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 32
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DEMOGRAPHIC AND ECONOMIC REVIEW
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL % CHANGE
-------------------------
1980 1990 1996 2000 1980-90 1990-96 1996-00
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESIDENT POPULATION (THOUSANDS)
San Diego, CA MSA 1,875.3 2,513.4 2,703.8 2,941.6 3.0 % 1.2% 2.1%
State of California 23,792.8 29,904.5 31,967.7 33,474.5 2.3 1.1 1.2
United States 227,225.6 249,403.0 265,225.5 274,581.0 0.9 1.0 0.9
PER CAPITA PERSONAL INCOME*
San Diego, CA MSA 18,151.0 21,237.0 21,541.0 22,665.0 1.6% 0.2 % 1.3%
State of California 19,971.0 22,234.0 22,210.0 23,181.0 1.1 (0.0) 1.1
United States 16,994.0 20,093.0 21,443.0 22,478.0 1.7 1.1 1.2
W&P WEALTH INDEX
San Diego, CA MSA 106.2 105.5 101.5 101.8
State of California 115.1 109.0 102.7 102.3
United States 100.0 100.0 100.0 100.0
TOTAL RETAIL SALES (MILLIONS)*
San Diego, CA MSA 14,174.8 19,995.6 21,711.7 23,809.3 3.5 % 1.4% 2.3%
State of California 188,150.6 232,441.3 252,456.3 266,561.4 2.1 1.4 1.4
United States 1,636,425.6 1,926,189.3 2,143,737.6 2,239,888.5 1.6 1.8 1.1
* Inflation Adjusted
Source: Woods & Poole Economics, Inc.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Between 1980 and 1990, population growth in San Diego
County occurred at three times the rate of growth achieved
by the nation as a whole. With the migration of the
population to the Sunbelt and Western portions of the
nation, the entire state of California experienced
above-average population growth during the past decade;
however, the percentage growth in San Diego's population
substantially surpassed that of the state as a whole
through the early 1990s. Although population growth in San
Diego slowed to 1.2% per year between 1990 and 1996, it
still exceeded the 1.1% and 1.0% rates of growth attained
by the state and nation, respectively. San Diego County is
projected to sustain population growth of 2.1% per year
throughout the remainder of the decade, well above that of
the state and the nation.
Per-capita personal income and the W&P Wealth Index data
presented in the preceding chart indicate that the San
Diego County populace's per-capita income level is below
the state average, but above the national average. San
Diego County has historically featured a per-capita income
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 33
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[HVS INTERNATIONAL LOGO]
equal to roughly 106% of the national level, a condition
that has eroded in recent years.
Inflation-adjusted retail sales for the subject market area
indicate that countrywide and statewide retail activity
decelerated between 1990 and 1996, but countrywide retail
sales are expected to accelerate through the remainder of
the decade. Growth in county retail sales levels is
projected to be more than double national levels through
2000.
WORKFORCE The characteristics of an area's workforce provide an
CHARACTERISTICS indication of the type and amount of transient visitation
likely to be generated by local businesses. Sectors such as
finance, insurance, and real estate (FIRE); wholesale
trade; and services produce a considerable number of
visitors who are not particularly rate sensitive. The
government sector often generates room nights, but per-diem
reimbursement allowances often limit attainable rates. The
manufacturing, construction, and transportation,
communications, and public utilities (TCPU) sectors are
least likely to generate a significant number of hotel
guests. The following table sets forth the San Diego County
workforce distribution by business sector in 1980, 1990,
and 1996, as well as a forecast for 2000.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
HISTORICAL AND PROJECTED EMPLOYMENT - SAN DIEGO MSA (000s)
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL COMPOUNDED
-------------------------
PERCENT PERCENT PERCENT PERCENT
INDUSTRY 1980 OF TOTAL 1990 OF TOTAL 1996 OF TOTAL 2000 OF TOTAL 1980-96 1990-96 1996-00
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Farm 16.8 1.7% 13.6 0.9% 13.4 0.9% 13.3 0.8% (1.4)% (0.3)% (O.1)%
Agriculture 11.6 1.2 16.7 1.2 16.9 1.2 17.3 1.1 2.4 0.3 0.6
Mining 1.5 0.1 2.3 0.2 2.3 0.2 2.5 0.2 2.9 0.1 2.6
Construction 46.5 4.8 83.9 5.8 68.4 4.7 73.2 4.7 2.4 (3.3) 1.7
Manufacturing 112.2 11.5 142.3 9.9 129.8 8.9 136.9 8.7 0.9 (1.5) 1.3
T.C.P.U. 31.8 3.2 44.2 3.1 46.0 3.2 49.5 3.1 2.3 0.7 1.8
Total Trade 174.6 17.8 282.0 19.6 295.1 20.2 321.2 20.4 3.3 0.8 2.1
Wholesale Trade 27.2 2.8 51.6 3.6 54.2 3.7 60.7 3.9 4.4 0.8 2.9
Retail Trade 147.4 15.0 230.4 16.0 240.9 16.5 260.5 16.6 3.1 0.7 2.0
F.I.R.E. 84.1 8.6 120.1 8.4 108.8 7.5 117.6 7.5 1.6 (1.6) 2.0
Services 217.8 22.2 414.9 28.9 477.6 32.7 531.5 33.8 5.0 2.4 2.7
Total Government 282.7 28.9 315.6 22.0 301.0 20.6 309.1 19.7 0.4 (0.8) 0.7
Federal Civilian Govt. 42.2 4.3 48.4 3.4 45.8 3.1 46.9 3.0 0.5 (0.9) 0.6
Federal Military Govt. 136.7 14.0 132.8 9.3 114.6 7.9 111.8 7.1 (1.1) (2.4) (0.6)
State & Local Govt. 103.8 10.6 134.4 9.4 140.6 9.6 150.4 9.6 1.9 0.8 1.7
----- ---- ----- --- ----- --- ----- --- --- --- ---
TOTAL 979.5 100.0% 1,435.5 100.0% 1,459.2 100.0% 1,572.1 100.0% 2.5% 0.3 % 1.9 %
Source: Woods and Poole Economics, Inc.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 34
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[HVS INTERNATIONAL LOGO]
The service, government, trade, and manufacturing sectors,
which made up roughly 33%, 21%, 20%, and 9%, respectively,
of the labor force in 1996, are the dominant employment
sectors in the San Diego economy. Of these major employment
sectors, the government and manufacturing sectors posted
decreases between 1990 and 1996. The 0.8% decrease in
government employment between 1990 and 1996 reflects the
impact of the national reduction in defense spending and
the downsizing of military installations. Although Woods &
Poole statistics indicate continued shrinking of the
military presence in the local economy, recent information
suggests that this may not be the case. For instance, of
the nine military installations in San Diego County, only
the San Diego Naval Training Center at Miramar was
recommended for closure by the Presidential Commission's
July 1, 1993 report. While the Navy has departed from
Miramar, the facility has been converted to a Marine Corps
Air Station that will generate $420 million in spending in
1997. Moreover, the consolidation of the armed services has
actually increased the Navy's maritime presence in the
area. The deep-water port currently located in Long Beach
will be moved to San Diego, augmenting the already
extensive facilities located in the Bay. With the addition
of a carrier battle group from Long Beach, and another from
the recently closed facility in Alameda, San Diego will
boast a total of three carrier battle groups. Furthermore,
the previously mentioned SPAWAR Command will join the Naval
Research and Development and the Naval Aviation and
Engineering Service Unit in relocating to San Diego by
mid-1997. The Naval Aviation Technical Service Facility will
arrive in 1998. These developments bode well for government
sector employment into the future.
Service employment, which posted the highest rate of growth
(5.0%) between 1980 and 1996, is the area's largest
employment sector. Employment in the service sector
continued to increase at an appreciable 2.4% per year
between 1990 and 1996, and is projected to increase at a
slightly higher rate throughout the remainder of the
decade.
Employment in the trade sector, which increased at a rate
of 3.3% per year between 1980 and 1996, increased by only
0.8% annually between 1990 and 1996, primarily as a result
of the national economic recession. With the recovery in
Mexico underway, San Diego County's largest international
trade partner, employment in this sector is projected to
increase at 2.1% per year between 1996 and 2000.
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 35
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[HVS INTERNATIONAL LOGO]
The military buildup during the 1980s was instrumental in
the 0.9% average annual increase in San Diego's
manufacturing employment. However, growth in this
employment sector decreased by 1.5% per year between 1990
and 1996. As the majority of San Diego's manufacturers are
involved in the fields of aerospace, transportation,
shipbuilding, electronics, and electrical machinery
products, the cutbacks in defense spending negatively
impacted the area's manufacturing employment. However,
recent reassignment and transfers of key military aerospace
and aeronautical divisions cited previously will bring in
further military consulting, contracting, and manufacturing
jobs into the economy. As a result, employment in this
sector is projected to rebound at a rate of 1.3% per year
between 1996 and 2000.
Providing additional context for understanding the nature
of the regional economy, the following chart presents a
list of the major employers in San Diego County.
- -------------------------------------------------------------------------------
MAJOR EMPLOYERS IN SAN DIEGO COUNTY
- -------------------------------------------------------------------------------
NUMBER OF
FIRM PRODUCT EMPLOYEES
- -------------------------------------------------------------------------------
United States Government - Military US Government 139,000
United States Government - Civilian US Government 47,000
University of California, San Diego Education 17,000
County of San Diego Government 13,000
San Diego Unified School District Education 13,000
City of San Diego Government 10,000
Sharp Healthcare Healthcare 9,000
General Dynamics Aerospace and Defense
Manufacturing 9,000
Scripps Institute of Medicine Research 8,000
State of California Government 7,000
Rohr Industries Aerospace Supplies 4,700
Hughes Aircraft Manufacturing 4,000
Source: San Diego Chamber of Commerce
- -------------------------------------------------------------------------------
Traditionally, the major employers in San Diego have been government and
defense-related industries; however, this fact belies the true drivers of
San Diego's economy. The technology, telecommunication, and biomedical
industries have steadily gained in prominence and have emerged as the
sectors which will lead San Diego through the next century. According to
the San Diego Economic Development Corp., the area has the third highest
concentration of telecommunication companies in the world, the fourth
<PAGE>
HVS International, San Francisco, California Market Area and
Neighborhood Analysis 36
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[HVS INTERNATIONAL LOGO]
highest concentration of biotechnology companies in the
world, and more than 350 computer software development
companies. Although none of these industries are
represented in the preceding list of major employers, these
smaller, high growth companies created 15,000 to 18,000 new
jobs in San Diego County in 1996.
UNEMPLOYMENT The following table presents historical average unemployment
STATISTICS rates for the San Diego MSA, the state of California, and
the nation, from 1985 to projected 1997.
-----------------------------------------------------------
UNEMPLOYMENT STATISTICS
-----------------------------------------------------------
SAN DIEGO STATE OF UNITED
YEAR MSA CALIFORNIA STATES
-----------------------------------------------------------
1985 5.3 % 7.2 % 7.2 %
1986 5.0 6.7 7.0
1987 4.5 5.8 6.2
1988 4.3 5.3 5.5
1989 3.9 4.9 5.3
1990 4.5 5.6 5.5
1991 6.3 7.5 5.7
1992 7.4 9.1 7.4
1993 6.8 9.2 6.8
1994 5.3 8.6 5.1
1995* 6.4 7.9 5.6
1996* 5.4 7.3 5.4
Projected 1997* 4.7 6.9 5.2
* methodology changed
Sources: San Diego Economic Bulletin,
Bureau of Labor Statistics
-----------------------------------------------------------
Since dropping to 3.9% in 1989, San Diego's unemployment
rate nearly doubled over the following four years. However,
the unemployment rate in the San Diego area began falling
in 1994, and a significant decline is noted through 1997.
In 1995, the Bureau of Labor Statistics changed its
reporting methodology; nevertheless San Diego's
unemployment outlook has steadily improved.
CONVENTION CENTER Vital to the analysis are trends in convention visitation
and tourism. The San Diego Convention Center opened in
November 1989. The first-class facility is located downtown
on the shore of the San Diego Bay, roughly 10 minutes from
San Diego International Airport. The facility is roughly
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HVS International, San Francisco, California Market Area and
Neighborhood Analysis 37
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[HVS INTERNATIONAL LOGO]
942,000 square feet in size, including service and support
areas. The San Diego Convention Center has generated an
estimated $1.1 billion in economic benefits for San Diego,
according to the San Diego Metropolitan. At the time of its
opening, San Diego's center was the largest on the West
Coast; however, following expansions, convention centers in
San Francisco, Los Angeles, and Anaheim have surpassed San
Diego's center in terms of capacity. Additionally, with an
increase in convention activity, the current capacity of
the San Diego Convention Center is inadequate to
accommodate the "down times" between conventions for the
setup and break-down of exhibits and equipment.
The following table presents the number of groups, delegate
attendance, associated room nights, and expenditures
attributable to the convention center, as provided by the
San Diego Convention and Visitors Bureau.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
HISTORICAL CONVENTION ACTIVITY - SAN DIEGO CONVENTION CENTER
- -----------------------------------------------------------------------------------------------------------------
NUMBER PERCENTAGE DELEGATE PERCENTAGE ROOM PERCENTAGE PERCENTAGE
YEAR OF GROUPS CHANGE ATTENDANCE CHANGE NIGHTS CHANGE EXPENDITURES CHANGE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 33 --- 183,600 --- 251,825 --- $123,931,050 ---
1991 36 9.1 % 196,930 7.3 % 248,970 (1.1)% 123,181,630 (0.6)%
1992 39 8.3 317,500 61.2 416,983 67.5 184,575,546 49.8
1993 52 33.3 236,600 (25.5) 333,727 (20.0) 160,112,046 (13.3)
1994 48 (7.7) 232,600 (1.7) 455,000 36.3 210,435,456 31.4
1995 49 2.1 330,510 42.1 507,942 11.6 243,669,716 15.8
1996 52 6.1 285,812 (13.5) 521,506 2.7 247,375,380 1.5
Avg. Ann. Comp. % Change 6.4 % 4.0 % 10.4 % 9.2 %
YTD 5/96 22 --- 114,764 --- 160,296 --- $83,324,565 ---
YTD 5/97 30 36.4 % 128,650 12.1 % 251,505 56.9 % 126,320,040 51.6 %
Source: San Diego Convention & Visitors Bureau
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The number of convention groups at the San Diego Convention
Center increased at an average annual rate of 6.4% between
1990 and 1996. Attendance increased at an average annual
compounded rate of 4.0% from 1990 to 1996. Room nights, the
vital indicator for the hotel industry, increased at an
average annual compounded rate of 10.4% from 1990 to 1996,
primarily due to the increases in 1992, 1994, and 1995. In
1996, the number of conventions held increased to 52, from
49 in the prior year. Although the number of delegates per
convention was lower than the prior year, the length of
stay was longer, resulting in the strongest convention
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HVS International, San Francisco, California Market Area and
Neighborhood Analysis 38
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[HVS INTERNATIONAL LOGO]
year ever. Particularly noteworthy was the impact of the
Republican National Convention, which took place in San
Diego in August 1996. Year-to-date through May 1997, the
numbers of groups, delegates, room nights, and expenditures
are up considerably compared to the same period of the
previous year.
The following table presents the definite and tentative
room nights associated with the convention center, as of
April 7, 1997.
---------------------------------------------------------------
CONVENTION BOOKINGS AND FORECASTS - SAN DIEGO CONVENTION CENTER
---------------------------------------------------------------
PERCENTAGE
YEAR TENTATIVE DEFINITE TOTAL CHANGE
---------------------------------------------------------------
1990 --- 251,825 251,825 ---
1991 --- 248,970 248,970 (1.1)%
1992 --- 415,983 415,983 67.1
1993 --- 333,727 333,727 (19.8)
1994 --- 455,281 455,281 36.4
1995 --- 507,942 507,942 11.6
1996 --- 521,506 521,506 2.7
1997 8,575 501,745 510,320 (2.1)
1998 22,875 604,968 627,843 23.0
1999 84,928 469,360 554,288 (11.7)
2000 143,950 500,183 644,133 16.2
2001 139,345 394,069 533,414 (17.2)
2002 234,084 495,475 729,559 36.8
2003 193,502 356,724 550,226 (24.6)
2004 310,534 190,640 501,174 (8.9)
2005 196,165 116,839 313,004 (37.5)
2006 330,184 208,725 538,909 72.2
Source: San Diego Convention & Visitors Bureau
---------------------------------------------------------------
The convention center statistics presented in the addenda
to this report illustrate the effects of the San Diego
convention cycle. According to discussions with convention
center officials, as well as local hotel operators,
even-numbered years at the convention center are generally
stronger than odd-numbered years, as a result of convention
locations rotating through the West Coast. This dynamic is
most evident in the number of room nights associated with
conventions. The percentage change for the number of
delegates and the number of hotel room nights for each year
is generally stronger in the years 1992, 1994, 1996, and
projected 1998. The years 2000 and 2002 are forecasted to
be excellent years in terms of convention business. We note
that according to the research department at the
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convention and visitors bureau, the above statistics also
reflect a cancellation of 53 definite and tentative
conventions that were booked through the year 2003 and have
been lost because of the delay in the convention center
expansion.
The expansion of competitive facilities and the shortage of
space have prompted plans for the convention center's
expansion. The plan for the expanded center calls for
adding 276,000 square feet of exhibit space and 106,000
square feet of meeting/ballroom space. A study completed by
Price Waterhouse in September 1991 claimed that a doubling
of the existing 250,000 square feet of exhibit space could
result in a 60% increase in the number of delegates and a
60% increase in convention center revenues. The expansion
could increase the number of conventions to 76 annually,
and increase the number of room nights to an annual goal of
650,000. The economic impact was estimated at an additional
$920 million infused annually into the local economy once
the expansion was complete. The study also estimated that
the expansion would make San Diego a viable West Coast
destination for a 13% market share currently not being
served by the existing center. The expansion will allow for
continuous convention activity, as conventions can be held
in one wing while a prior convention is being dismantled or
a new one set up in another wing, offering more dates and
growth opportunities for existing clients. The Price
Waterhouse study concluded that without the expansion, the
San Diego Convention Center's market share may decline.
In April 1994, the city of San Diego and the San Diego
Unified Port District began planning for expansion of the
San Diego Convention Center. In June 1995, the Port
committed $4.5 million and the City Council approved a 1.5
cent increase in the Transient Occupancy Tax (TOT), with
one cent dedicated to the expansion. During 1995, the
preliminary plans were approved, with the final
Environmental Impact Report approved in November. In
January 1996, the California Coastal Commission approved
the center expansion plan and the San Diego City Council
approved the lease revenue financing package of $194
million. In March 1996, the Port approved its portion of the
financing and the project was well on its way to breaking
ground by April 1996 for completion by spring 1998.
However, in March 1996, Libertarian Party activists, led by
Richard Rider, filed a court challenge to the city's
lease-revenue financing method for expanding San Diego's
Jack Murphy Stadium. In May 1996, they also filed a lawsuit
against the city and the Joint Powers Authority over the
same
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financing method for the Convention Center's expansion. On
April 2, 1997, the California Supreme Court voted to review
the challenge, placing the expansion of the convention
center on indefinite hold. City officials believe that they
will ultimately prevail, arguing that the same method of
financing is utilized by numerous public agencies in
California, having implications beyond this project. The
Supreme Court has a window of up to 36 months to decide the
case, meaning that approval to begin the expansion could be
delayed as far as March 2000. Prior to the Supreme Court
vote, representatives from the Convention and Visitors
Bureau were confident of a completion of the expansion
project by November 1999. According to a recent San Diego
Union Tribune article, supporters of the convention center
expansion, led by the chamber of commerce, also failed to
get enough signed petitions in time to call for a ballot
measure in the November election on the matter.
An alternative financing strategy is reportedly being
considered in which the San Diego Unified Port District
will take over the $213-million expansion project
financing. Under such an arrangement, the city would then
lease the center for the amount of the port's bond
payments, estimated at $17 million for 30 years. According
to Tom Creamer of the Chamber of Commerce, the port had
built the original convention center and leased it to the
city. Our discussions with city officials, convention and
visitors bureau officials, developers, and hotel managers
indicate that the convention center expansion will be
delayed at least one year, but no more than two. The
Supreme Court is highly likely to rule against the
challenge by the Libertarian Party when the economic impact
to the city is considered. Therefore, assuming a two-year
development time frame for the convention center, we have
projected a 2000 opening date of the convention center
expansion.
Although the delay in the convention center expansion has
been somewhat detrimental in terms of cancellations in
bookings, it is not considered to have an extensive nor
significant impact on the local hotel market. As will be
demonstrated in the "Supply and Demand Analysis" section of
this report, with the current facility, the market has
enjoyed exceptional demand levels. The delay will have a
more direct impact on new supply entering the market. As
will be further discussed later, three major convention
hotel expansions along the waterfront (Hyatt, Marriott, and
Westin) were proposed in anticipation of the near doubling
of the convention center's size. Since the development of
these hotels is basically predicated upon the expansion of
the convention center, delays to the
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convention center expansion will likely translate to delays
in the development of these hotel projects.
AIRPORT TRAFFIC Airport passenger counts are an important indicator of
transient visitation and lodging demand. Depending on the
type of airfield, a sizable percentage of arriving
passengers may need hotel accommodations. In addition,
airline crews can provide a substantial base of contract
demand within a given market. In the case of the subject
market area, many travelers and airline crews use local
hotel and motel accommodations. Trends in passenger counts
also reflect local business activity and the overall
economic health of an area.
The San Diego International Airport is located
approximately three miles west of the subject property. The
following table summarizes historical passenger activity
since 1990.
-----------------------------------------------------------
PASSENGER ACTIVITY - SAN DIEGO INTERNATIONAL AIRPORT
-----------------------------------------------------------
AIRPORT PERCENT
YEAR ARRIVALS CHANGE
-----------------------------------------------------------
1990 5,597,347 ---
1991 5,672,420 1.3%
1992 5,952,555 4.9
1993 5,978,078 0.4
1994 6,457,742 8.0
1995 6,598,278 2.2
1996 6,859,472 4.0
Average Annual Compounded
Percent Change: 1990-96 3.4%
YTD 5/96 2,649,838 ---
YTD 5/97 2,827,377 6.7%
Source: San Diego International Airport; FAA
Terminal Forecasts
-----------------------------------------------------------
Since 1990, San Diego International Airport has experienced
an average annual compounded increase in passenger activity
of 3.4%. The 4.9% growth in 1992 reflects the effect of
America's Cup participants and spectators coming to San
Diego. Strong growth of 8.0% was evidenced in 1994, due to
the recovering Southland economy. Year-to-date through May
1997, passenger arrivals are up by 6.7% compared to the
prior period. Activity at the airport is projected to
continue to grow in the near future. Currently, operations
at Lindbergh Field are conducted only between 6:30
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a.m. and 10:30 p.m. due to aircraft noise restrictions.
Additionally, the airport's current runway configuration is
insufficient to handle the forecasted aviation operations
of the next decade. The San Diego Association of
Governments has studied options for the relocation of San
Diego's airport, and the issue has been partially resolved
with the expansion of a new terminal and eight new gates by
December 1997, and a further eight gates by 1999. According
to airport officials, this expansion will allow for 3.5% to
4.0% average annual growth through 2000.
OFFICE SPACE Trends in occupied office space are among the most reliable
STATISTICS indicators of commercial lodging demand; firms that occupy
office space often exhibit a strong propensity to attract
commercial visitors. Although it is difficult to quantify
hotel demand based on the amount of occupied office space,
trends that cause changes in the amount of occupied office
space or office space vacancy rates may have a proportional
impact on commercial lodging demand, and a less direct
effect on group meeting demand. Office space statistics for
downtown San Diego are summarized in the following table.
-----------------------------------------------------------
DOWNTOWN SAN DIEGO OFFICE MARKET STATISTICS
-----------------------------------------------------------
SQUARE FEET
------------------- VACANCY SQUARE FEET OF EFFECTIVE
YEAR RENTABLE AVAILABLE RATE NET ABSORPTION RENT
-----------------------------------------------------------
1994 9,152,000 2,274,000 24.8% (299,000) $1.17
1995 9,171,000 1,865,000 20.3 326,000 1.14
1996 9,155,000 1,762,000 19.2 153,000 1.30
Source: Grubb & Ellis
-----------------------------------------------------------
Due to the negative effects of the national economic
recession, as well as a general lack of corporate tenants,
the downtown San Diego office market has historically had
high vacancy rates. A majority of downtown San Diego's
office space is inhabited by legal firms and government
entities. Typically these types of firms do not produce
large amounts of commercial lodging demand. During the
early 1990s, the S&L debacle, a large-scale consolidation
among law firms, and layoffs or slower hiring for the
business and professional firms that occupy downtown space
resulted in a very weak office environment. But the
restructuring of the banking and financial services
industry has largely run its course, and the local economy
is steadily improving. This led to moderate absorption in
1995 and 1996, with an even stronger performance projected
for 1997, of between 250,000 and 300,000 square feet,
according to Grubb & Ellis. While the downtown area has
witnessed high vacancy rates historically, the improved
economic conditions in 1996 caused a decrease in vacancy
rates from 24.8% in 1994, to
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20.3% in 1995, to 19.2% in 1996. Downtown rents should
remain flat at $1.30 per square foot during 1997, but may
begin a modest upturn in late 1998.
Although the subject property is somewhat removed from the
downtown area, the office space statistics for the central
business district indicate the overall health of the area.
As the downtown office market continues to improve, new
attractions and activities will be developed in the area
which will in turn stimulate increased group meeting and
leisure demand.
TOURIST The tourism industry within the San Diego region is
ATTRACTIONS outranked only by the manufacturing and government sectors
in terms of revenue contributed to the area's economy.
Visitor spending in San Diego totaled over $3.6 billion in
1994, $3.8 billion in 1995, and $4.0 billion in 1996, a
6.6% increase from the prior year.
The San Diego area has a well-developed base of tourist
attractions. San Diego's Old Town State Park is the most
frequented attraction in the region. Sea World and the San
Diego Zoo are easily accessed via highway travel. Other
tourist attractions in the San Diego area include the San
Diego Wild Animal Park, the Scripps Aquarium/Museum, and
the Cabrillo National Monument.
In addition to those facilities mentioned above, San Diego
offers museums specializing in topics ranging from
aerospace to history to oceanography. Art galleries,
shopping facilities, and restaurants abound and are located
throughout the region. Theaters, comedy clubs, dinner
cruises, bicycle and boat rentals, and beaches also help to
make the San Diego region attractive to tourists.
Additionally, golf, tennis, horseback riding, bicycling,
and skating facilities are available to tourists.
Sports facilities in San Diego include the San Diego Jack
Murphy Stadium and the San Diego Sports Arena. Professional
athletic teams in the city include baseball's Padres,
football's Chargers, indoor soccer's Sockers, and roller
hockey's Barracudas. The United States' first warm-weather,
multi-sport, Olympic training complex recently opened in
the San Diego area. The 154-acre training site is situated
along the Western Shore of Lower Otay Reservoir in Chula
Vista, approximately 20 miles south of downtown San Diego.
The complex includes 1.5 million square feet of outdoor
playing fields, as well as 250,000 square feet of
dormitories, dining halls, storage rooms, and gymnasiums.
Funding for the training center was
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secured though private sources. The complex is expected to
attract additional leisure visitation to the San Diego
region.
The leisure visitor market is getting a boost in 1997 from
several new attractions. Notable draws include the pandas
at the San Diego Zoo, a 25th anniversary expansion at the
Wild Animal Park, a Jurassic Park dinosaur exhibit at the
National History Museum in Balboa Park, and the $40-million
Wild Arctic exhibit opening at Sea World in June. San Diego
recently hosted the ESPN's televised Extreme Games.
Furthermore, in late January, 1998, San Diego will host
Super Bowl XXXII.
The following table illustrates recent trends in San
Diego's visitor industry, as measured by both expenditure
level and number of travelers.
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SAN DIEGO VISITATION STATISTICS
- --------------------------------------------------------------------------------
NUMBER OF PERCENT TOTAL VISITOR PERCENT EXPENDITURE PERCENT
YEAR VISITORS (000) CHANGE SPENDING (000) CHANGE PER VISITOR CHANGE
- --------------------------------------------------------------------------------
1990 12,544 --- $3,092,600 --- $246.54 ---
1991 12,765 1.8% 3,280,000 6.1 % 256.95 4.2 %
1992 13,030 2.1 3,510,500 7.0 269.42 4.9
1993 12,867 (1.3) 3,451,000 (1.7) 268.21 (0.4)
1994 13,394 4.1 3,636,000 5.4 271.46 1.2
1995 13,692 2.2 3,797,100 4.4 277.32 2.2
1996 13,982 2.1 4,048,600 6.6 289.56 4.4
Average Annual Compounded
Percentage Change 1990 to 1996: 1.8 % 4.6 2.7
YTD 5/96 5,319 --- $1,502,026 --- $282.39 ---
YTD 5/97 5,489 3.2 % 1,631,200 8.6 % 297.18 5.2 %
Source: San Diego Convention & Visitors Bureau
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-----------------------------------------------------------
SAN DIEGO ATTRACTION ATTENDANCE
-----------------------------------------------------------
ATTRACTION PERCENT ART/MUSEUM PERCENT
YEAR ATTENDANCE(1) CHANGE ATTENDANCE(2) CHANGE
-----------------------------------------------------------
1990 16,609,436 --- 2,334,735 ---
1991 16,496,481 (0.7)% 2,093,193 (10.3)%
1992 17,136,529 3.9 2,163,717 3.4
1993 16,583,665 (3.2) 2,109,998 (2.5)
1994 16,890,862 1.9 1,887,621 (10.5)
1995 17,832,351 5.6 1,778,713 (5.8)
1996 18,781,537 5.3 2,002,551 12.6
Average annual compounded
% change from 1990 - 1996: 2.1 % (2.5)%
YTD 5/96 6,426,459 --- 885,702 ---
YTD 5/97 6,644,959 3.4 % 763,475 (13.8)%
(1) Total Attendance figures from six San Diego attractions
- Sea World, San Diego Zoo, Wild Animal Park, Old Town
State Park, Cabrillo National Monument, and Mission Bay
Center
(2) Total attendance figures from eight cultural
institutions - Aerospace Museum, San Diego Museum of
Contemporary Art, Maritime Museum, Natural History Museum,
San Diego Museum of Art, Reuben H. Fleet Space Theater,
Serra Museum, and Stephen Birch Aquarium
Source: San Diego Convention & Visitors Bureau
-----------------------------------------------------------
NEIGHBORHOOD The neighborhood surrounding a lodging facility often has
ANALYSIS an impact on a hotel's status, image, class, style of
operation, and sometimes its ability to attract and
properly serve a particular market segment. The subject
property's neighborhood can affect its occupancy, average
rate, food and beverage revenues, and overall
profitability.
The subject property is located on Coronado Island,
adjacent to the downtown area of the city of Coronado. The
island is approximately 7.7 square miles in size, of which
3.0 square miles are occupied by the Naval Air Station
North Island and the Naval Amphibious Base. Coronado is
primarily a bedroom community for executives working in San
Diego, a retirement community for retired senior military
officers, the workplace for personnel stationed at the
military bases, and a tourist destination.
As was discussed in the "Description of the Land" section
of this report, the subject property is located in an area
that is easily accessible from both downtown Coronado and
San Diego. The area is well developed with various retail
shops, restaurants, and facilities that support the subject
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HVS International, San Francisco, California Market Area and
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[HVS INTERNATIONAL LOGO]
property. In addition, a large condominium complex is
located at the subject site's southern border.
The subject property's location along the Pacific Ocean
enhances the resort orientation of the facility. The
property's location affords guests a view of the water from
roughly half of its guestrooms. In addition, the subject
property has access to a beach along its western border.
The location of this beach and the subject's direct access
to it heightens the feeling of exclusivity the resort
enjoys.
The subject property's feeling of an exclusive location, in
addition to its proximity to commercial developments,
enhances the resort's attractiveness to both leisure
travelers and group meeting attendees.
PROPOSED GOLF According to the subject property's management and
COURSE representatives from the City of Coronado Planning
Department, in late 1995 the city proposed developing a
160- to 175-acre world-class 18-hole golf course on Navy
land, approximately seven miles south of the subject
property in the area currently used as a U.S. Naval
Communication Station on Imperial Beach. This course would
be a municipal course that would be a long-term lease from
the Navy. The proposed golf course site is planned on a
site currently used as a two-mile-long, 300-foot-wide
oceanside wildlife preserve for indigenous species, to
provide a balance for other Navy property that is being
contaminated. The city earmarked $11 million or more for
the new Ocean Strand Links, which is to be designed by a
local architect. The city had hoped to break ground in 1996
and complete the course in 1997. However, in 1996, the Navy
was reluctant to proceed with the development and the
project has stalled for an indefinite period, according to
city of Coronado planners.
Currently, only one course is located on the island, the
Municipal Golf Course, just south of the subject property.
Because of its location on Coronado Island, and since it is
a public course, it is currently being overplayed, with
more than 100,000 rounds per year, and is perceived to be
average in overall quality. The subject property has an
advantage over other competitors located on the island as
it is the closest property to the course. If the proposed
course is developed, a pro-rata portion of the tee-times
would be allocated among the various hotels, thus
minimizing the subject's advantage.
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HVS International, San Francisco, California Market Area and
Neighborhood Analysis 47
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[HVS INTERNATIONAL LOGO]
CONCLUSION Economic analysis of the subject property's region alludes
to a favorable hotel market environment in the foreseeable
future. As will be detailed in the subsequent sections of
this report, hotel demand, as well as average rates, are
surging. In addition, the anticipated eventual expansion of
the San Diego Convention Center should add to the base of
hotel demand in the market. Other area data also bode well
for the subject's market. Tourism, a large sector of the
area's economy, is growing at a favorable rate, reflected
by visitation statistics and passenger activity at the
area's major airport. While downtown office space
statistics do not show a favorable trend for the subject's
area, the area's tenants have not historically been a
strong source of demand. The statewide and regional
economic recovery should also contribute to improved hotel
market conditions within the downtown San Diego market.
Overall, the subject's market area appears poised for
further growth.
The "Supply and Demand Analysis" section of this report
will relate the historical and projected growth trends
reviewed herein to specific market segments based on their
propensity to reflect changes in lodging demand. This
analysis will provide a basis for forecasting changes in
room night demand in the subject property's market area.
<PAGE>
HVS International, San Francisco, California Market for Transient
Accommodations 48
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8. MARKET FOR TRANSIENT ACCOMMODATIONS
The market for transient accommodations is an
all-encompassing term referring to the many types of
travelers who utilize the lodging facilities in a given
market area. The total of all these travelers over a
specific period of time represents the market's
accommodated room night demand. This section will start
with an analysis of historical demand trends to determine
how the local hotel room night demand has changed over
time. The current hotel room night demand will then be
subdivided into individual market segments so it can be
forecasted into the future utilizing growth rates derived
from the relevant economic and demographic data set forth
in the previous section.
HISTORICAL SUPPLY Historical supply and demand data compiled by Smith Travel
AND DEMAND DATA Research (STR) were obtained for the subject's lodging
market. This includes properties on Coronado Island,
Downtown San Diego, and outlying areas of San Diego. STR is
an independent research firm which compiles data on the
lodging industry. We find that Smith Travel Research data
are generally relied upon by typical hotel buyers. This
information was available since 1991 and is presented in
the following table.
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HVS International, San Francisco, California Market for Transient
Accommodations 49
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SAN DIEGO LODGING MARKET TRENDS
- ------------------------------------------------------------------------
% CHANGE FROM PREVIOUS YEAR
---------------------------
% AVERAGE % ROOM
YEAR OCCUPANCY CHANGE RATE CHANGE SUPPLY DEMAND SALES
- ------------------------------------------------------------------------
1991 69.7% --- $138.22 --- --- --- ---
1992 68.4 (1.9)% 131.53 (4.8)% 9.9 12.2% 10.1 %
1993 68.0 (0.6) 130.09 (1.1) 17.8 17.2 15.9
1994 72.6 6.8 133.27 2.4 0.0 6.6 9.3
1995 73.1 0.7 141.60 6.3 0.0 0.8 7.0
1996 76.7 4.9 151.63 7.1 0.0 5.0 12.4
YTD 9/96 78.2% --- $152.10 --- --- ---
YTD 9/97 82.0 4.9 % 162.62 6.9 % 0.0% 4.8% 12.1 %
Source: Smith Travel Research
- ------------------------------------------------------------------------
In reviewing the data compiled by STR, it is important to
note some of the inherent limitations. We have found that
since hotels are occasionally dropped in and out of the
sample and since not every property reports data in a
totally consistent and timely manner, the overall quality
of this information may be affected. These variables can
sometimes skew the data for a particular market. However,
we find that STR data are generally relied upon by typical
hotel buyers, and these data will therefore be considered
in this study.
Areawide supply increased due to the opening of the
875-unit Hyatt Regency in 1994. Areawide occupancy levels
rebounded in 1994, following decreased demand in 1993 due
to the effects of the national economic recession and the
Persian Gulf War. In 1994, demand increased with the
regional economic recovery; since then, demand has
continued to increase while supply has remained flat,
resulting in a regaining of market equilibrium and
increasing occupancy and average rate levels. Areawide
occupancy has improved from 68.0% in 1993 to 76.7% in 1996.
Equally important, areawide average rate increased from
$130.09 in 1993 to $151.63 in 1996, an average annual
increase of 5.2%. Year-to-date through September 1997,
areawide occupancy and average rate levels continue to
improve, a positive indicator for the regional lodging
market.
DEMAND ANALYSIS For the purpose of demand analysis, the overall market is
USING MARKET divided into individual segments based on the nature of
SEGMENTATION travel present in a given area. Although a market may have
various segments, the three primary
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HVS International, San Francisco, California Market for Transient
Accommodations 50
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classifications occurring in most areas are commercial,
group meeting, and leisure.
Market segmentation is a useful procedure because
individual classifications often exhibit unique
characteristics in terms of growth potential, seasonality
of demand, average length of stay, double occupancy,
facility requirements, price sensitivity, and so forth. By
quantifying the room night demand by market segment and
analyzing the characteristics of each segment, the future
demand for transient accommodations can be projected.
Demand for transient accommodations in the subject market
area is generated primarily by the following three market
segments.
Segment 1 Group Meeting
Segment 2 Commercial
Segment 3 Leisure
Based on our fieldwork, area analysis, and knowledge of the
local lodging market, we have estimated the 1996
distribution of accommodated hotel room night demand for
the market as a whole and for the subject property. The
1996 accommodated room night demand is estimated to have
been captured by the 3,494 rooms of the subject property
and its primary and weighted secondary competitors.
- -------------------------------------------------------------------------------
ACCOMMODATED ROOM NIGHT DEMAND
- -------------------------------------------------------------------------------
ANNUAL ROOM ANNUAL ROOM
NIGHT DEMAND PERCENTAGE OF NIGHT DEMAND PERCENTAGE OF
MARKET SEGMENT MARKET TOTAL SUBJECT TOTAL
- -------------------------------------------------------------------------------
Group Meeting 597,027 62.4 133,984 63.0
Commercial 111,711 11.7 0 0.0
Leisure 248,038 25.9 78,689 37.0
------- ----- ------- -----
Total 956,776 100.0% 212,672 100.0%
- -------------------------------------------------------------------------------
Group meeting demand dominates the local market, at
approximately 62% of the 1996 room night demand. The
remaining two segments account for between 11.7% and 25.9%
of total demand, each playing an important role in the
overall demand picture. With roughly 73,000 square feet of
meeting space, the subject property is aligned toward the
group meeting segment. Additionally, the subject property,
like most of the primarily competitive resort properties,
accommodates the leisure component of demand.
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HVS International, San Francisco, California Market for Transient
Accommodations 51
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According to property management, the subject property does
not accommodate commercial demand outside of some corporate
groups. Information provided to the appraisers concerning
the subject property's historical accommodated room nights
did include some commercial segment demand; however,
property management indicated this demand was actually
misquoted group demand. As such, we have included this
demand within the group category.
Using the distribution of accommodated hotel demand as a
starting point, we will analyze the characteristics of each
market segment in an effort to determine future trends in
room night demand.
DEMAND TREND Based on our market research, we have estimated the trends
ANALYSIS in market demand, supply, and average rate for year-end
1995 and 1996 and year to date 1997. The following chart
sets forth the trends for the subject market area; the data
pertain specifically to those hotels described in the
"Competition" section of this report.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
HISTORICAL MARKET TRENDS
- -----------------------------------------------------------------------------------------------------
ACCOMMODATED PERCENT ROOM NIGHTS PERCENT MARKET MARKET PERCENT MARKET PERCENT
YEAR ROOM NIGHTS CHANGE AVAILABLE CHANGE OCCUPANCY ADR CHANGE REVPAR CHANGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 913,086 --- 1,275,383 --- 71.6% $145.37 --- $104.08 ---
1996 957,087 4.8% 1,275,383 0.0% 75.0 155.98 7.3% 117.05 12.5%
Proj. 1997 989,272 3.4 1,275,383 0.0 77.6 166.19 6.5 128.91 10.1
Average Annual Compounded
Percent Change 1995-97 4.1% 0.0% 6.9% 11.3%
Source: HVS International
- -----------------------------------------------------------------------------------------------------
</TABLE>
As will be further reviewed in the "Competition" section of
this report, the subject market area's effective supply has
essentially remained unchanged through 1996. In August
1997, the 100% competitive 331-unit Four Seasons Aviara
opened. As such, the subject's competitive supply will
increase through 1997 and 1998. Because of the stable room
inventory and increasing demand, marketwide occupancy
results have steadily improved from 71.6% in 1995 to 77.6%
in projected 1997. At the same time, a 6.9% average annual
increase in marketwide average rate was recorded, resulting
in an overall average annual RevPAR increase of 11.3%.
Based on discussions with local hotel operators and
analyses by local economists, continued improvement in the
local economy is foreseen with the strong
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HVS International, San Francisco, California Market for Transient
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rates of growth in the high technology areas of northern
San Diego County, expansion of the military's presence in
the area, growth in tourism draws, and slow but steady
strengthening of the downtown office market. As a result,
strong improvement in both demand and pricing is
anticipated over the short and long terms.
In order to forecast demand growth rates for the subject
market area, by segment, we have reviewed the economic and
demographic statistics presented in the "Market Area and
Neighborhood Analysis" section of this report.
GROUP MEETING The group meeting market includes meetings, seminars,
SEGMENT trade association shows, and similar gatherings of 10 or
more people. Corporate group meeting demand typically peaks
in the spring and fall, whereas association demand peaks
during the summer. The average length of stay for typical
meetings and conventions ranges from three to five days.
Most commercial groups meet during the weekday period of
Monday through Thursday, but associations and social groups
will sometimes gather on weekends. Commercial groups tend
to have a low double occupancy of 1.3 to 1.5 people per
room, while associations are likely to have double
occupancy rates ranging from 1.5 to 1.9.
Group meeting patronage is generally quite profitable for
hotels and motels. Although room rates are discounted for
large groups, the hotel benefits from the use of meeting
space and revenues generated by in-house banquets and
cocktail receptions. Facilities that are necessary to
attract meetings and conventions include function areas
with adequate space for breakout, meals, and receptions;
recreational amenities; and a sufficient number of
guestrooms to house the attendees.
Hotels affiliated with large chains have an advantage in
attracting group meeting demand owing to the chain's
centralized marketing organization. Also, civic convention
centers can be significant demand generators for lodging
facilities and food and beverage establishments, and
enhance an area's overall economy.
Group meeting demand in the subject market is primarily
generated by corporate and incentive travel. Incentive
travel emanates primarily from sales on a property level
directed toward incentive houses, which sell room nights to
corporations, or toward the travel and meeting planners of
individual corporations. This component of group meeting
demand is desirable to lodging facilities as it often
exhibits a lower degree of rate
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sensitivity than other segments of visitation. Moreover,
such demand is often entirely subsidized by the
corporations involved, and consequently, the frequency of
corporate and incentive demand exhibits a lag period in
response to changes in external factors, such as the
economy or the cost of air travel. Such lag periods tend to
minimize the overall volatility of the market.
As mentioned previously, the expansion of the San Diego
Convention center has been postponed pending a review by
the Supreme Court of California. Our discussions with city
officials, convention and visitors bureau officials,
developers, and hotel managers indicate that the convention
center expansion will be delayed at least one year, but no
more than two. Therefore, assuming a two-year development
time frame for the convention center, we have used a 2000
opening date of the convention center expansion.
The subject property, with its extensive meeting space,
high-quality food and beverage outlets, varied recreational
facilities, and its historic charm and uniqueness is a
primary competitor for group meeting demand.
In forming our forecast of base group meeting demand
growth, we have considered certain historical and
forecasted rates of growth noted in the preceding section
of this report. Most notably, the number of room nights
generated by convention center bookings increased by 2.7%
in 1996 after increasing by 11.6% in 1995, and has
increased by a stunning 57% through year-to-date 1997;
airport passenger counts have increased by 6.7% through May
1997, after increasing 4.0% in 1996. Based on these
positive trends we have forecast group meeting demand
growth of 6.0% in 1997, 3.0% in 1998, with 1.0% annual
growth projected thereafter.
COMMERCIAL SEGMENT The commercial segment consists of individual business
travelers visiting firms in the subject property's market.
Commercial demand is strongest Monday through Thursday
nights, declines significantly on Friday and Saturday, and
increases somewhat on Sunday. The typical length of stay
ranges from one to three days, and the rate of double
occupancy is a low 1.2 to 1.3 people per room. Commercial
demand is strongest during the fall and spring months, with
noticeable declines, during the winter and summer months.
Business travelers are usually not particularly rate
sensitive and tend to use a hotel's food and beverage
outlets. The commercial segment is a highly
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desirable and lucrative market that provides a consistent
level of demand at relatively high room rates.
Commercial demand in the subject market area is represented
by two principal areas, legal and financial firms in San
Diego's central business district, and high technology
companies located around the La Jolla area in northern San
Diego county.
Commercial demand in the subject market area is closely
tied to total employment, employment in the FIRE sector,
office space occupancy, and total economic growth.
Projected growth per annum through 2000 in the FIRE sector
and overall employment equates to 2.0% and 1.9%,
respectively. According to the San Diego Economic Bulletin
San Diego's economy is projected to grow at a rate of 4.8%
in 1997. Based on these data, we have forecast commercial
demand to grow by 5.0% in 1997, 3.0% in 1998, and 1.0% per
year thereafter.
LEISURE SEGMENT The leisure market segment consists of individuals and
families who are spending time in the area or passing
through en route to other destinations. Their travel
purposes may include sightseeing, recreation, visiting
friends and relatives, or numerous other non-business
activities. Leisure demand is strongest Friday and Saturday
nights and all week during holiday periods and the summer
months. These peak periods generally correlate negatively
with commercial visitation, underscoring the stabilizing
effect of capturing weekend and summer tourist travel. The
typical length of stay ranges from one to four days,
depending on the destination and travel purpose, and the
rate of double occupancy typically ranges from 1.8 to 2.5
people per room.
Trends in leisure travel have shifted in recent years. The
increase in dual-income families has altered traditional
vacation spending. More money is now being spent for
shorter, but more frequent trips. Trips lasting three or
four days have become more prevalent. This is a favorable
trend for the subject property, which is a
two-and-a-half-hour drive from Los Angeles, the
second-largest city in the United States, and a
one-and-a-half-hour flight from the San Francisco Bay Area,
the fourth-largest metropolitan area in the country.
Additionally, recent fare wars between the regional
carriers, Southwest and Shuttle by United, have made travel
along the entire West Coast corridor affordable, and
electronic ticketless boarding has made travel more
convenient; frequent daily flights to San Diego are now
provided from all the major areas of the West Coast.
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Although each of the primary competitors identified in the
subsequent section of this report is located in Southern
California, the subject property competes to a lesser
extent with other resort properties in Northern California
(Bay Area, Napa Valley, Monterey, and Carmel), the desert
communities of the Coachella Valley (Palm Springs), the
coastal areas of Florida (Boca Raton), and the
Phoenix/Scottsdale region in Arizona. Because of coastal
California's comfortable year-round climate, the subject
property draws leisure destination demand throughout the
year. Regional leisure demand from cold-weather portions of
the country peaks in the winter. In the desert regions of
Arizona and California's Coachella Valley (the Palm Springs
area), the extreme summer temperatures preclude midday
outdoor activity. In these regions, leisure demand
generally peaks during the spring and winter months.
According to the San Diego Convention and Visitors Bureau,
significant events scheduled to occur in the San Diego area
in the future include the National Football League's
Superbowl XXX in January 1998, and a LEGOLAND amusement
park scheduled to open in Carlsbad in the spring of 1999.
Due to the subject's oceanfront location, recreational
amenities, and its proximity to downtown Coronado, it
maintains a strong competitive position in the leisure
segment.
Our forecast of demand growth in the leisure segment is
based upon the general health of the feeder economies and
travel-related data specific to the region. Based on the
historical and projected rates of growth noted in the
preceding section, we have forecast leisure demand growth
of 6.0% in 1997, 3.0% in 1998, and 1.0% per year
thereafter.
LATENT DEMAND The previous discussion details our projection of base
accommodated room night demand. Because this estimate is
based on achieved occupancies by the competitive hotels, it
includes only those hotel rooms that were used by guests.
Latent demand considers guests who could not be
accommodated by the existing competitive supply. With the
opening of new hotels in the subject market area, we
anticipate these new hotels to induce new lodging demand
into the subject market area.
INDUCED DEMAND
Induced demand represents additional room nights that are
likely to be attracted to the market following the
introduction of new supply or new
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demand generators. We are of the opinion that the new
hotels will induce additional demand by their individual
marketing and sales efforts. In forecasting induced demand,
we have considered the overall expansion to the market
supply over the next few years. A total of 783 weighted
rooms will be added to the existing supply of 3,494 rooms
by 2001. Based on the number of new rooms entering the
market, the quality of the rooms, their location, brand
affiliation, and expected market orientation, we have
forecast induced demand for the subject property's market.
The following table details our induced demand estimate.
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INDUCED DEMAND ESTIMATE
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1997 1998 1999 2000 2001 2002
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Phase-in: 18 % 42 % 42 % 68 % 100 % 100 %
Group Meeting 11,774 28,257 28,257 45,330 66,800 66,800
Leisure 4,124 9,898 9,898 15,879 23,400 23,400
----- ----- ----- ------ ------ ------
Total 15,898 38,155 38,155 61,209 90,200 90,200
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As the increases in supply are forecast to occur over the
next few years, the total latent demand is phased in. The
latent demand projections for each forecast year are based
on the ratio of the build up of new rooms per year to the
total new supply.
Based on this procedure, we forecast the following average
annual compounded market segment growth rates. It should be
noted that the weighted growth rates also consider latent
demand.
-----------------------------------------------------------
FORECAST ANNUAL GROWTH RATES
-----------------------------------------------------------
1997 1998 1999 2000 2001 2002
-----------------------------------------------------------
Group Meeting 6.0% 3.0% 1.0% 1.0% 1.0% 1.0%
Commercial 5.0 3.0 1.0 1.0 1.0 1.0
Leisure 6.0 3.0 1.0 1.0 1.0 1.0
--- --- --- --- --- ---
Weighted Growth Rate* 7.5 5.1 1.0 3.1 3.5 0.9
* Includes latent demand
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HVS International, San Francisco, California Competition 57
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9. COMPETITION
An integral component of the supply and demand relationship
that has a direct impact on the availability of lodging
demand is the current and anticipated supply of competitive
lodging facilities. To evaluate an area's competitive
environment, the following steps should be taken:
o Identify all area lodging facilities and determine which
are directly and indirectly competitive with the subject
property;
o Determine whether additional hotel rooms (net of
attrition) will enter the market in the foreseeable
future;
o Quantify the number of existing and proposed hotel rooms
available in the market area; and
o Review the rate structure, occupancy levels, market
orientation, facilities, and amenities of each competitor.
COMPETITIVE MARKET The subject property competes directly with the resort
OVERVIEW properties on Coronado and some of the full-service hotels
and resorts in the San Diego-La Jolla area. The following
table describes the competitive supply, including estimated
operating results for 1995, 1996, and projected 1997. This
information was compiled through personal interviews and
inspections, as well as our in-house library of operating
data. In the following chart, 1996 and 1997 occupancy and
yield penetration factors are calculated for each hotel.
These penetration factors are calculated by dividing the
subject property's occupancy and RevPAR results by those of
the market. (RevPAR is the product of occupancy and average
rate and is therefore a measure of "yield.")
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
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PRIMARILY COMPETITIVE LODGING FACILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
ESTIMATED 1996 MARKET SEGMENTATION ESTIMATED 1995
-----------------------------------------------------------
YEAR NO. OF MEETING MFG. SPACE GROUP AVERAGE
PROPERTY/LOCATION OPENED ROOMS SPACE /ROOM MEETING COMMERCIAL LEISURE OCCUPANY RATE REVPAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado
1500 Orange Avenue 1888 692 73,000 105.5 63% 0% 37% 79.4% $165.76 $131.61
Loews Coronado Bay Resort
4000 Coronado Bay Road 1991 438 25,041 57.2 70 0 30 68.0 135.00 91.80
Le Meridien
2000 Second Street 1988 300 11,453 38.2 65 5 30 69.0 142.00 97.98
Sheraton Grande Torrey Pines
10950 N. Torrey Pines Road 1990 400 19,985 50.0 57 24 19 71.0 134.00 95.14
Hilton SD Beach and Tennis Resort
1775 E. Mission Bay Drive 1962 357 12,084 33.8 50 25 25 72.0 125.00 90.00
------ ------ ---- -- -- -- ---- ------- -------
SUBTOTAL/AVERAGE 2,187 56.9 61% 9% 30% 72.9% $144.71 $105.56
SECONDARY COMPETITION 1,307 64% 17% 19% 69.3% $146.54 $101.59
TOTAL/AVERAGE 3,494 62% 12% 26% 71.6% $145.37 $104.08
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</TABLE>
<TABLE>
<CAPTION>
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PRIMARILY COMPETITIVE LODGING FACILITIES
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ESTIMATED 1996 PROJECTED 1997
-------------------------------------------------------------------------------------
AVERAGE OCCUPANCY YIELD AVERAGE
PROPERTY/LOCATION OCCUPANCY RATE REVPAR PENETRATION PENETRATION OCCUPANCY RATE REVPAR
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado
1500 Orange Avenue 84.2% $180.25 $151.77 112.2% 129.7% 87.0% $195.00 $169.65
Loews Coronado Bay Resort
4000 Coronado Bay Road 72.0 143.00 102.96 95.9 88.0 71.0 154.00 109.34
Le Meridien
2000 Second Street 71.0 151.00 107.21 94.6 91.6 72.0 159.00 114.48
Sheraton Grande Torrey Pines
10950 N. Torrey Pines Road 68.0 148.00 100.64 90.6 86.0 70.0 163.00 114.10
Hilton SD Beach and Tennis Resort
1775 E. Mission Bay Drive 81.0 135.00 109.35 107.9 93.4 82.0 147.00 120.54
---- ------- ------- ----- ---- ---- ------- ------
SUBTOTAL/AVERAGE 76.5% $156.43 $119.61 101.9% 102.2% 77.8% $169.42 $131.83
SECONDARY COMPETITION 72.7% $155.19 $112.78 96.8% 96.3% 77.2% $160.75 $124.03
TOTAL/AVERAGE 75.0% $155.98 $117.05 100.0% 100.0% 77.6% $166.19 $128.91
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</TABLE>
<PAGE>
[SAN DIEGO COMPETITION MAP]
<PAGE>
[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
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SECONDARILY COMPETITIVE LODGING FACILITIES
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ESTIMATED 1996
MARKET SEGMENTATION ESTIMATED 1995
---------------------- ----------------------------
ACTUAL RM PERCENTAGE WEIGHTED GROUP AVERAGE
PROPERTY COUNT COMPETITIVE RM. COUNT MEETING COM'L LEISURE OCCUPANCY RATE REVPAR
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hyatt Regency San Diego 875 25% 219 77% 10% 13% 73.0% $142.00 $103.66
Marriott Hotel & Marina 1,355 25 339 75 15 10 76.0 140.00 106.40
Hyatt Regency La Jolla 404 85 343 50 37 13 75.0 124.00 93.00
La Costa Resort 478 85 406 60 0 40 57.0 182.00 103.74
----- ----- -- -- -- ---- ------- -------
Total/Average 3,112 1,307 64% 17% 19% 69.3% $146.54 $101.59
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</TABLE>
<TABLE>
<CAPTION>
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SECONDARILY COMPETITIVE LODGING FACILITIES
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ESTIMATED 1996 PROJECTED 1997
------------------------------ ----------------------------
AVERAGE AVERAGE
PROPERTY OCCUPANCY RATE REVPAR OCCUPANCY RATE REVPAR
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hyatt Regency San Diego 78.0% $152.00 $118.56 80.0% 159.00 $127.10
Marriott Hotel & Marina 77.0 155.00 119.35 86.0 157.00 135.02
Hyatt Regency La Jolla 80.0 130.00 104.00 81.0 138.00 111.78
La Costa Resort 60.0 186.00 111.60 65.0 190.00 123.50
---- ------- ------- ---- ------- -------
TOTAL/AVERAGE 72.7 % $155.19 $112.78 77.2 $160.75 $124.03
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</TABLE>
<PAGE>
HVS International, San Francisco, California Competition 60
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[HVS INTERNATIONAL LOGO]
Historically, the subject property has lead the market in
terms of both occupancy and average rate. The hotel's
occupancy rate is projected at 87.0% by year-end 1997,
compared to a marketwide occupancy rate of 77.6%.
Similarly, the subject property's average rate is projected
to be $195 in 1997 compared to the market's $166.19. The
subject property's higher occupancy level and average rate
are attributed to the hotel's location by the Pacific
Ocean, its proximity to area demand generators, its
historic structure, its uniqueness and charm, its
established international reputation, and its good-quality
guestroom and meeting space supply. It is also important to
note, the subject's occupancy and average rate have been
increasing markedly in recent years. This will be discussed
in greater detail later in this report.
Among the primary competitors, Le Meridien and the Loews
Coronado Bay Resort are the most directly comparable to the
subject property in terms of location and facilities.
However, these properties offer fewer guestrooms and
meeting facilities than the subject property. All three
properties are located on Coronado Island. The other
properties in the competitive supply represent both local
and distant competition, all located in Southern
California. In 1996, as mentioned, the subject property led
the market in terms of occupancy and yield penetration, as
it has consistently done historically.
Of the five primarily competitive properties, none have
in-house golf facilities on-site; however, the Hotel del
Coronado, Le Meridien and the Sheraton Grande Torrey Pines
have varying degrees of access to nearby or adjacent
facilities. In terms of meeting space, the subject
property's 105.5 square feet per room is greater than the
market average of 56.9 square feet per room.
The secondary competitors consist of full-service hotels
and resorts located in San Diego County which partially
compete with the subject property in the group meeting and
leisure segments of demand. The 404-unit Hyatt Regency La
Jolla is currently building a 6,400-square-foot
glass-enclosed pavilion for banquets and special events at
the rear of the hotel. Furthermore, all softgoods in the
guestrooms and on the hotel's Regency Club floor are being
replaced. The renovations and additions will total between
$4.5 to $5.0 million, according to management
representatives. The La Costa Resort completed a softgoods
renovation of its guestrooms in 1996. The Hyatt Regency and
the Marriott Hotel and Marina in downtown San Diego are
currently in varying stages of planning for major guestroom
<PAGE>
HVS International, San Francisco, California Competition 61
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[HVS INTERNATIONAL LOGO]
additions to their hotels. These projects will be further
detailed under "Additions to Supply" in this section of the
report.
Each of the subject's direct competitors is reviewed on the
following pages.
<PAGE>
HVS International, San Francisco, California Competition 62
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[HVS INTERNATIONAL LOGO]
[PHOTO OF LOEWS CORONADO BAY RESORT]
LOEWS CORONADO Location: 4000 Coronado Bay Road; Coronado,
BAY RESORT California
Number of Rooms: 438
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HISTORICAL OPERATING PERFORMANCE
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OCCUPANCY YIELD
YEAR OCCUPANCY AVERAGE RATE REVPAR PENETRATION PENETRATION
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1995 68.0% $135.00 $91.80 95.0% 88.2%
1996 72.0 143.00 102.96 95.9 88.0
Proj. 1997 71.0 154.00 109.34 91.5 84.8
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The Loews Coronado Bay Resort is located roughly five miles
south of the subject property. The property opened in 1991
and is the newest hotel in the competitive supply.
<PAGE>
HVS International, San Francisco, California Competition 63
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[HVS INTERNATIONAL LOGO]
This property is located in a sparsely developed area
adjacent to the Naval Facilities of Coronado and a state
park. The subject has historically been hampered by its
removed location from downtown Coronado.
Meeting and banquet facilities at the property total
approximately 25,000 square feet, or roughly 57.2 square
feet per guestroom. Overall, the properties meeting and
banquet facilities, while smaller then the subject's, are
in good condition.
In addition to rooms and meeting space, the Loews offers
four restaurants; five tennis courts; a health club;
recreational rentals; and an outdoor pool and whirlpool.
<PAGE>
HVS International, San Francisco, California Competition 64
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[HVS INTERNATIONAL LOGO]
[PHOTO OF LE MERIDIEN]
LE MERIDIEN Location: 2000 Second Street; Coronado,
California 92118
Number of Rooms: 300
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HISTORICAL OPERATING PERFORMANCE
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OCCUPANCY YIELD
YEAR OCCUPANCY AVERAGE RATE REVPAR PENETRATION PENETRATION
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1995 69.0% $142.00 $97.98 96.4% 94.1%
1996 71.0 151.00 107.21 94.6 91.6
Proj. 1997 72.0 159.00 114.48 92.8 88.8
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Le Meridien is located at the northeastern corner of
Coronado Island, approximately two miles east of the
subject property. The hotel is somewhat removed from the
downtown commercial area of the city of Coronado, but is
located immediately across the bay from downtown San Diego
and is the hotel most proximate to the San Diego-Coronado
Bay Bridge. The hotel was built in the late 1980s and
opened for operation in
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HVS International, San Francisco, California Competition 65
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[HVS INTERNATIONAL LOGO]
1988. The main hotel building is a three-story structure
with a wood exterior. The guestrooms are located along
covered exterior corridors. The meeting and banquet space
and the restaurant space are situated within the main hotel
structure, while the tennis courts, pools, whirlpools, and
health club (as well as several guestroom villas) are
located throughout the 16-acre complex.
The hotel features a total of 11,453 square feet of meeting
and banquet space, or approximately 38 square feet per
guestroom. The hotel's main ballroom, measuring
approximately 7,455 square feet, is divisible into four
sections. The remainder of the meeting and banquet space is
located within several smaller meeting/breakout rooms.
Overall, the hotel's meeting and banquet facilities are
inferior to those of the subject property.
The property features three food and beverage outlets, a
boutique arcade, and a business center. Recreational
amenities at the hotel include six lighted outdoor tennis
courts, three outdoor swimming pools, two outdoor
whirlpools, a trail and bike path, and a full-service spa
and health club (Clarins Institut de Beaute). The hotel is
located adjacent to a 22-acre state park featuring a scenic
beach on the San Diego Bay. Like the Hotel Del Coronado, Le
Meridien is within a short walking distance of the Coronado
Municipal Golf Course.
An additional competitive advantage of the subject property
over Le Meridien is the exterior appearance and style of
construction. Le Meridien's wood facade and exterior
(although covered) corridors detract from its status as a
first-class resort.
In 1996, Le Meridien completed a $3,000-per-guestroom
softgoods renovation of its guestrooms that began in 1992.
According to management representatives, approximately 38
suites are planned for softgoods upgrades by year-end 1997
at a cost of $6,000 to $8,000 per unit. Other renovation
plans in 1997 include replacement of ballroom carpets and
exterior painting.
Le Meridien Hotel is reportedly for sale by the current
owners, Nippon Tolo Finance company. In addition, there
have been rumors that Marriott has expressed interest in
the property. No asking price can be confirmed at this
time.
<PAGE>
HVS International, San Francisco, California Competition 66
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[HVS INTERNATIONAL LOGO]
[PHOTO OF SHERATON GRANDE TORREY PINES]
SHERATON GRANDE Location: 10950 North Torrey Pines Road;
TORREY PINES La Jolla, California
Number of Rooms: 400
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HISTORICAL OPERATING PERFORMANCE
- -------------------------------------------------------------------------------
OCCUPANCY YIELD
YEAR OCCUPANCY AVERAGE RATE REVPAR PENETRATION PENETRATION
- -------------------------------------------------------------------------------
1995 71.0% $134.00 $95.14 99.2% 91.4%
1996 68.0 148.00 100.64 90.6 86.0
Proj. 1997 70.0 163.00 114.10 90.2 88.5
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Originally opened in 1990, the Sheraton Grande Torrey Pines
is located roughly 20 miles north of the subject property,
less than two miles off I-5. It is situated within the
community of La Jolla, in San Diego, and is designed as an
extension of the Palisades. The property features four
guestroom wings that stretch toward the Pacific Ocean and
is located on the 18th
<PAGE>
HVS International, San Francisco, California Competition 67
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[HVS INTERNATIONAL LOGO]
fairway of the 36-hole championship Torrey Pines Municipal
Golf Course, adjacent to the Scripps Clinic and Research
Foundation.
Hotel facilities include four food and beverage outlets,
19,985 square feet of meeting space, three lighted tennis
courts, an outdoor heated pool, a spa offering various
services, an on-site business center, a fitness center,
croquet courts, a putting green, and a volleyball court.
Also, all guests are offered complimentary, personalized
butler service. The hotel is also adjacent to the Shiley
Sports and Health Center, one of the nation's premier
health and fitness facilities; guests are charged for use
of this facility.
The Sheraton's Torrey Pines location features a rugged
coastline, dense vegetation, and a cooler climate compared
to the inland areas of San Diego County. A drawback of the
location is that it is directly below the flight path of
U.S. Marine Corps aircraft from the nearby Miramar Naval
Air Station. The property does not contain its own golf
facilities; however, with 10 days notice, property
management will reserve tee times at the adjacent Torrey
Pines Municipal Golf Course, or at Carmel Mountain Ranch,
Carmel Highlands, East Lake, Carlton Oaks, Whispering
Palms, Aviara Golf Club, or Singing Hills. Nevertheless,
all tee times are subject to availability.
Since 1995, the hotel has completed capital expenditures
totaling approximately $12,000 per guestroom. Of this
amount, approximately $8,000 per room was allocated to a
guestroom softgoods renovation. As a result, the hotel's
guestrooms are currently in good or excellent condition,
and they are expected to remain competitive in the market.
Additionally, the property has received permits to
construct roughly 9,400 square feet of additional meeting
space. The project must be started before May 1998;
however, at the time of our fieldwork, the property owners
had not determined whether to proceed with the project.
The Sheraton Grande Torrey Pines captures roughly 60% of
its demand from the group meeting market and the remainder
from each of the leisure and commercial segments. Even
though the Sheraton enjoys the use of a world-class golf
course adjacent to the property and has a desirable
location among high-technology businesses, it does not
match the subject property's RevPAR.
<PAGE>
HVS International, San Francisco, California Competition 68
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[HVS INTERNATIONAL LOGO]
[PHOTO OF HILTON SAN DIEGO BEACH AND TENNIS RESORT]
HILTON SAN DIEGO Location: 1775 E. Mission Bay Drive
BEACH AND TENNIS Number of Rooms: 357
RESORT
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HISTORICAL OPERATING PERFORMANCE
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OCCUPANCY YIELD
YEAR OCCUPANCY AVERAGE RATE REVPAR PENETRATION PENETRATION
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1995 72.0% $125.00 $90.00 100.6% 86.5%
1996 81.0 135.00 109.35 107.9 93.4
Proj. 1997 82.0 147.00 120.54 105.7 93.5
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Originally opened in 1962, the Hilton San Diego Beach and
Tennis Resort is located roughly 12 miles north of the
subject property, less than one-quarter mile off I-5. The
hotel is situated within Mission Bay in San Diego, a
three-square-mile water park with leisure and recreational
activities including several resort hotels, yacht clubs,
marinas, and family-oriented theme park attractions such as
Boardwalk, Belmont Park, and Sea World.
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HVS International, San Francisco, California Competition 69
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[HVS INTERNATIONAL LOGO]
The 357-unit property features an eight-story guestroom
tower and several low-rise guestroom wings on its 18-acre
waterfront resort complex. Hotel facilities include four
food and beverage outlets, 12,084 square feet of meeting
space, lighted tennis courts, an outdoor heated pool, a spa
offering various services, a fitness center, Lady Hilton
yacht, Hilton Queen Dixieland-style Paddle Wheeler, and a
five-mile bicycle course.
In July 1995, the hotel completed an extensive $25-million
renovation. The project involved upgrading all interiors
and exteriors of guestrooms, meeting space, restaurants,
and lounges,
The Hilton captures roughly 50% of its demand from the
group meeting market and the remainder from each of the
leisure and commercial segments. As a result of its
successful renovation, the Hilton's occupancy and average
rates have steadily increased from 72% and $125 in 1995 to
82% and $147 projected for 1997.
<PAGE>
HVS International, San Francisco, California Competition 70
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[HVS INTERNATIONAL LOGO]
CHANGES IN SUPPLY In order to forecast marketwide occupancy, we have analyzed
potential changes in supply. In addition to analyzing the
existing competitive supply, it is important to define any
other hotel projects that may impact the subject property's
future operating results. Several new properties are in
various stages of the planning and development process in
the San Diego area as well as throughout the West Coast,
though only three additions would be considered worthy of
inclusion in the competitive set.
FOUR SEASONS AVIARA RESORT
The long-awaited 331-unit Four Seasons Resort opened in
August 1997, approximately 35 miles north of the subject
property. Construction for the resort commenced in the late
1980s and stalled due to a partnership disagreement
involving Hillman Properties and a foreign investor. The
partially erected shell of the resort lay dormant for a
number of years until 1996, when construction resumed.
The resort is situated on a hilltop which commands a view
that encompasses much of the Arnold Palmer-designed
championship golf course as well as the Pacific coastline
beyond. The resort is part of a 1,000-acre, master-planned
community of residential, resort, and vacation ownership
properties.
The property consists of separate low-rise, low-density,
buildings designed to conform to the hillside so that the
lobby and reception area are entered on the third level.
The resort features 331 guestrooms, including 44 suites.
All guestrooms feature a private balcony, private bar, and
oversized marble bathrooms. Standard guestroom modules
measure 540 square feet in size, comparable to the subject
property's typical guestroom size of 525 square feet.
The resort features two fine dining rooms and two cocktail
lounges, a 29,000-square-foot conference center with a
12,000-square-foot grand ballroom, a spa and treatment
center, a fitness center, an outdoor swimming pool,
six-lighted tennis courts, the Aviara Golf Academy, and a
7,007-yard par-72 golf course.
It is estimated that the resort will accommodate a demand
mix of 60% group meeting and 40% leisure guests. Due to
the resort's market orientations and facilities, the Four
Season's Aviara Resort is considered to be directly
competitive with the subject property. However, as the only
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HVS International, San Francisco, California Competition 71
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[HVS INTERNATIONAL LOGO]
Four Seasons property in San Diego County, the resort is
anticipated to induce a large component of group meeting
and leisure demand to the hotel. The August 1997 opening of
this property has been assessed quantitatively in our
forecast for the subject property.
HYATT REGENCY ADDITION
Torrey Embarcadero Hotel, Ltd., which is an affiliate of
Manchester Resorts, Inc., and is the owner of the Hyatt
Regency, has received preliminary conceptual approval from
the Port District to construct an 800-unit tower on a
parcel of land currently improved with a parking lot,
located immediately west of the existing tower. In addition
to guestrooms, the expansion is anticipated to include a
30,000-square-foot exhibit hall and a 25,000-square-foot
ballroom, maintaining Hyatt's supremacy in having the
largest meeting space inventory in the San Diego area.
According to Port District officials, the planned opening
date of this project is late 1999 or early 2000. Although
no formal plans have been submitted, lease negotiations
with the Port District have already commenced. According to
Alan Randle, the general manager of the Hyatt Regency, the
project still requires California Coastal Commission
approval and an environmental impact report (EIR). No
financing is reportedly in place. Mr. Randle estimates that
the Hyatt Regency expansion will proceed irrespective of
the convention center expansion, given the strong market
demand levels. Mr. Randle estimates an opening date of
2000. Among the three proposed waterfront hotel projects
(the Hyatt expansion, the Marriott expansion, and the
Campbell Shipyards project), the Hyatt Regency expansion is
considered by all of the individuals we interviewed the
most likely to be developed. Considering the expansion
delay of the convention center and the current status of
the Hyatt Regency expansion project, we anticipate a
January 2001 opening of this addition, which we have
forecast to be 25% competitive with the subject property.
MARRIOTT HOTEL AND MARINA ADDITION
The Marriott Hotel and Marina has proposed building a
550-unit tower with a 40,000-square-foot ballroom, and
other meeting areas and shops. Although the Marriott has
received conceptual design approval from the Port District,
we anticipate that this is unlikely to occur within the
foreseeable future owing to a number of factors. One of the
owners of the Marriott Hotel and Marina also owns the
adjacent Hyatt Regency; according to Marriott management
representatives, government agents,
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[HVS INTERNATIONAL LOGO]
and other developers, the proposed expansion of the Hyatt
and the Campbell Shipyards project are at more advanced
stages than the Marriott expansion. Furthermore, hotel
development along the waterfront area has been intensely
competitive. It has been rumored that the Marriott project
was conceived to squeeze out other interested parties under
consideration by the Port District, such as Hilton.
Moreover, Marriott has not forecast the addition of this
hotel project in their own recent market studies, according
to conversations with Marriott development representatives.
Additionally, no formal plans for the Marriott site have
been submitted to the Port District. Reflecting these
considerations, we consider this project to be highly
speculative at this time and unlikely to occur within our
projection period.
Hilton Hotels Corporation's proposed 1,000-unit hotel, to
be located at the site of an abandoned police station near
the Seaport Village and the Hyatt Regency, was not approved
by the Unified Port District of San Diego; however,
according to Hilton representatives, they remain interested
in the area and are considering other options.
SAN DIEGO DOWNTOWN HOTEL PROJECTS
Other projects in San Diego's downtown area include a
proposed 253-unit compact full-service Courtyard by
Marriott or Hilton Garden Inn hotel at the intersection of
Fifth Avenue and Harbor Drive, just north of the existing
convention center. We anticipate a September 1, 1999
opening of this hotel. Additionally, the Denver,
Colorado-based Amstar Group is testing the feasibility of
converting an existing historical bank building (San Diego
Trust Building), located at the northwest corner of
Broadway and Sixth Street in downtown San Diego, into a
transient lodging facility. The hotel would be a mid-scale
lodging facility containing 225 rentable units, a
restaurant, a lounge, and little meeting space. According
to Amstar officials, the property will most likely be
flagged as a Courtyard by Marriott, as the strong brand
name tends to induce demand into markets. We anticipate
that this property will open by January 1999. Both the
Bridgeworks hotel project and the San Diego Trust Building
conversion are likely to come to fruition; however, due to
the proposed projects' facilities, pricing, and market
orientation, they are not considered to be competitive with
the subject property.
Lastly, developer Kipland Howard, president of Allegis
Development Services, Inc., has received preliminary
approval from the Port to construct
<PAGE>
HVS International, San Francisco, California Competition 73
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[HVS INTERNATIONAL LOGO]
a new 1,006-unit luxury hotel on the Campbell Industries
property next to the San Diego Convention Center, between
the San Diego Bay and Harbor Drive, proximate to Eighth
Street. The hotel will contain 50,000 square feet of
meeting space, about 14,000 square feet of retail space,
35,000 square feet for restaurant uses, a 300-slip marina,
and a public plaza at the end of Eighth Avenue. The
development of this project is predicated upon a number of
factors such as design approvals, environmental
remediation, and expansion of the convention center. As
such, we have included this property in our competitive
supply as of 2001, one year after the proposed convention
center expansion.
SAN DIEGO RESORT HOTEL PROJECTS
In San Diego County, a number of resort projects are in
varying stages of planning; however, no definitive project
has emerged. In the Carmel Valley area just east of Del Mar
and off I-5, approximately 20 miles north of the subject
property, a master-planned residential community
development is in the works. The $160- to $175- million
project, known as Bougainvillea, received approval from San
Diego County voters in December 1996. The development by
Westshaw Associates of Phoenix, located off Carmel Country
Road and State Route 56, calls for a 300-suite resort and
main hotel, an 18-hole championship golf course, a driving
range, a clubhouse, a restaurant, six tennis courts, a
swimming pool, and 134 single-family homes. The resort
component will be developed by Carefree Resorts, the luxury
resort division of Patriot American Hospitality. Further
inland in Spring Valley, approximately 12 miles east of the
subject property, a development project known as "The
Pointe" will feature a 200- to 300-unit resort as part of a
master-planned development with a golf course. In Chula
Vista, across the bay from Coronado Island, a masterplan
and environmental impact report (EER) is under review for
the Chula Vista Bayfront Resort Village, a
mixed-development project that envisions four hotels (2,000
rooms), a park, a lagoon, an amphitheater, 1,500
residential units, shops, and a cultural and sports center.
This project is a long-range development plan to be built
over a 15-year period.
OTHER RESORT HOTEL PROJECTS
On a broader scale, several resort projects are being
considered or are underway in several areas of the country.
<PAGE>
HVS International, San Francisco, California Competition 74
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[HVS INTERNATIONAL LOGO]
In nearby Aliso Viejo in southern Orange County, the AMHC
Corporation of Newport Beach owns roundly 226 acres, and is
negotiating with hotel operators to develop a joint-venture
project that would include a resort hotel and a golf
component.
In Huntington Beach, the Robert Mayer Corporation is
considering plans for a project known as the Waterfront.
The project calls for the addition of 250 rooms to the
existing Waterfront Hilton Beach Resort, the construction
of a 500-room luxury hotel, the building of an
80,000-square-foot oceanfront conference center, upscale
retail shops, and the development of a gate-guarded
residential community. Other less directly competitive
resort projects are in varying stages of development in the
Phoenix-Scottsdale area of Arizona, Northern California,
and Palm Springs. Although several resort and full-service
hotel projects are planned, many of these will face
difficult hurdles in the financing and development process.
As such, we have not included these properties in our
analysis.
Although further improvement in market conditions will
raise the risk of increased competition, as vacant land is
readily available for development, the appraisers'
forthcoming forecast of stabilized occupancy and average
rate is intended to reflect such a risk.
CONCLUSION The subject property is considered to be primarily
competitive with four resorts and less directly with four
hotels and resorts in San Diego. This competitive market
has experienced improving occupancy levels and average rate
growth in recent years. Due to the strong market conditions
in the leisure and group meeting segments of demand and
anticipated eventual expansion of the San Diego Convention
Center, one new resort has recently opened and several new
hotels projects are proposed. Of the proposed additions to
supply, we have accounted for three new hotels in our
analysis. Improving market conditions for resorts
throughout the United States have also fueled resort
development in other competitive markets such as Northern
California, Palm Springs and Phoenix-Scottsdale. However,
even with the addition of the proposed supply, the subject
is expected to remain the market leader.
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 75
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[HVS INTERNATIONAL LOGO]
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10. OCCUPANCY AND AVERAGE RATE ANALYSIS
HISTORICAL The following table sets forth the subject property's
OPERATING annual occupancy and average rate results since 1993.
PERFORMANCE
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HISTORICAL ANNUAL OCCUPANCY AND AVERAGE RATE
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ROOM PERCENT AVERAGE PERCENT CALCULATED PERCENT
YEAR COUNT OCCUPANCY CHANGE RATE CHANGE ROOMS REVENUE CHANGE
- -------------------------------------------------------------------------------
1993 692 74.1% --- $155.01 --- $28,997,000 ---
1994 692 77.0 4.0% 155.82 0.5% 30,302,000 4.5%
1995 692 79.4 3.1 165.76 6.4 33,243,000 9.7
1996 692 84.2 6.0 180.25 8.7 38,334,000 15.3
Proj. 1997 692 87.0 3.3 195.00 8.2 42,850,000 11.8
YTD 8/96 692 84.5% --- $184.12 --- $29,510,000 ---
YTD 8/97 692 90.4 7.0% 194.57 5.7% 33,242,000 12.6%
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As shown the subject property has performed quite well
since the mid 1990s. In 1993, as the country was still
suffering the effects of the national, economic recession
and most hotels and resorts maintained occupancies in the
60.0% range, the subject property managed a 74.1%
occupancy. Since that time, occupancies at the subject
property have increased markedly. Most recently, through
August 1997, the subject property's occupancy equated to an
astounding 90.4%. While this occupancy rate is expected to
moderate by year end, the subject property is still
forecast to achieve an occupancy of 87.0% in 1997. In
addition, like occupancy, the subject property's average
rate has exhibited continued strength since 1993,
increasing by 6.4% in 1995, 8.7% in 1996, and a projected
8.2% in 1997. Improved industry fundamentals such as a lack
of significant new supply, strong lodging demand levels,
led by increased tourism activity and a strong convention
market, have allowed the overall market to increase average
rates.
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 76
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[HVS INTERNATIONAL LOGO]
While new supply is forecast to enter the market and should
place pressure on marketwide occupancy levels, the
aforementioned renovations at the subject property should
enable property management to significantly increase
average rates in the future.
In order to assess the subject hotel's seasonality and more
recent occupancy and average rate results, the following
chart sets forth the historical occupancy and average rate
of the Hotel Del Coronado on a monthly basis for 1994,
1995, 1996, and through August 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
MONTHLY OCCUPANCY AND AVERAGE RATE
- ------------------------------------------------------------------------------------------
1994 1995 1995 1997
------------------- ------------------- ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
MONTH OCCUPANCY RATE OCCUPANCY RATE OCCUPANCY RATE OCCUPANCY RATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 70.3% $148.47 73.2% $155.77 70.1% $160.61 61.9% $171.28
February 83.8 153.97 84.1 150.02 90.9 167.55 91.0 185.18
March 87.7 149.93 88.2 162.14 90.4 176.04 94.0 190.10
April 82.0 154.12 86.8 160.03 81.2 175.57 92.9 186.13
May 53.0 156.79 77.0 170.55 84.3 174.06 85.9 194.63
June 82.7 147.33 80.1 160.53 82.6 185.88 89.8 194.59
July 85.9 167.87 89.7 181.24 93.1 211.44 92.0 215.44
August 80.9 172.12 76.2 163.65 84.2 182.19 96.1 225.15
September 78.0 163.25 81.6 171.45 91.0 174.85 0.0 0.00
October 83.8 163.43 71.7 166.15 78.3 180.17 0.0 0.00
November 69.8 149.94 61.6 154.78 75.4 163.57 0.0 0.00
December 66.9 140.63 79.4 165.76 84.2 180.25 0.0 0.00
---- ------ ---- ------ ---- ------ --- ----
Annual Avg. 77.0% $155.82 79.4% $165.76 84.2% $180.25 NA NA
Year-to-Date 78.2 156.50 81.9 163.37 84.5 184.12 90.4% $194.57
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</TABLE>
The subject property's demand levels tend to peak in the
summer months, when leisure demand augments the existing
base of group meeting demand. Average rate and occupancy
also tend to be strong in the peak group meeting periods of
spring, late summer, and early fall, including February
through May and July through October. November and December
tend to be the slowest occupancy and average rate months.
Year-to-date through August comparisons with year-end
results for 1997 and 1996 would indicate that the subject
property would be expected to achieve a year-end average
rate of roughly $195. Finally, the preceding data indicate
the extent to which subject management has been able to
increase average rate without an appreciable decline in
occupancy, particularly through year-to-date 1997.
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HVS International, San Francisco, California Occupancy and Average
Rate Analysis 77
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[HVS INTERNATIONAL LOGO]
PREMISE OF In the following sections of this report, we set forth a
PROJECTIONS basis for forecasting occupancy and average rate. Occupancy
and average rate attainment, to some degree, may be
manipulated by management. For example, a management
philosophy may focus on cutting rates in order to maximize
volume. In the following forecast, we have projected what
we expect to be the most optimal mix of occupancy and
average rate attainment based on the market conditions,
representing an operating approach that we believe would be
followed by professional management. Occupancy results are
highly dependent upon the pricing strategy employed by
management. In the case of a more aggressive pricing
strategy, a lower occupancy ratio may result, and vice
versa.
OCCUPANCY The projected occupancy rate for a lodging facility may be
PROJECTION calculated through a room night analysis. A room night is a
measure of demand equating to one room occupied by one or
more guests for one night. By estimating the number of room
nights a hotel or motel can be expected to attract during a
12-month period, a level of occupancy is calculated by
dividing the number of room nights of demand captured by
the number of room nights available (room count x 365).
The essential factors for developing an accurate room night
analysis are the proper quantification of the room night
demand within a given market area and the allocation of
this demand to the subject and competitive properties. HVS
International has formulated two approaches for estimating
an area's room night demand.
1. Build-Up Approach Based on Analysis of Demand
Generators
2. Build-Up Approach Based on Analysis of Lodging
Activity
The build-up approach based on analysis of demand
generators utilizes interviews and statistical
sampling-type market research to estimate an area's lodging
demand by totaling the room nights generated from local
sources of transient visitation. This approach starts with
an overall review of various generators of transient
visitation located within a defined market area. Drawing
from a sample of the major transient generators, interviews
and surveys are conducted to determine the amount of demand
each source attracts on a weekly or monthly basis, along
with other important visitor characteristics such as length
of stay, number in party, and spending habits. By employing
statistical sampling techniques, an area's room night
demand can be quantified based on an extrapolation from the
sample surveyed.
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 78
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[HVS INTERNATIONAL LOGO]
The build-up approach based on analysis of lodging activity
recognizes that an area's transient demand can be estimated
by totaling the rooms actually occupied in local hotels and
motels. Through interviews with hostelry operators,
investors, and other knowledgeable hotel people, occupancy
levels for individual lodging operations and/or area
occupancy trends can be established. Multiplying the
percentage of occupancy for each property by its available
number of rooms by 365 produces the total number of room
nights actually occupied on an annual basis. After
combining these estimates of room nights occupied for each
property within a market area, and adding a factor for
unaccommodated or induced demand, an area's total room
night lodging demand is quantified.
In markets where the occupancy levels of transient lodging
facilities can be readily ascertained, we generally find
that a more supportable estimate of an area's total room
night lodging demand is obtained through an analysis of
lodging activity. The analysis of demand generators
incorporates the possibility of inadvertently omitting one
or more transient generators and thereby misjudging the
actual size of the local lodging market. For the purpose of
this study, we will utilize the build-up approach based on
lodging activity.
To project future occupancy levels for the subject
property, the build-up approach based on lodging activity
utilizes the following steps:
1. The individual occupancy levels for the subject
property's primary competitors are estimated. The number
of room nights actually accommodated in each of the
three market segments (commercial, leisure, and group
meeting) is then derived.
2. The amount of demand which cannot be presently satisfied
(unaccommodated demand), or is not presently attracted to
the area (induced demand), is estimated for each market
segment.
3. Growth rates for each market segment are forecast.
4. The supply of guestrooms available to the subject
property's market is projected for several years.
5. The overall occupancy is calculated based upon the total
projected room night demand and the supply of existing
and proposed guestrooms. The subject property's fair
share in all projection years
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Rate Analysis 79
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[HVS INTERNATIONAL LOGO]
can be calculated by dividing its room count by the
total forecasted hotel room supply in the market for
that year.
6. An analysis of the subject property's competitiveness
is made via a penetration factor analysis within each
market segment.
7. Based on how the subject property is expected to
interact with the existing and proposed competitive
lodging facilities, an estimate of the percentage
market share captured for each segment is made for
the projected years. The number of room nights
captured is derived by multiplying the percentage
market share by the market demand.
8. The subject property's occupancy for the first
several projection years is calculated based upon its
estimated market share captured divided by its total
available room nights.
FORCAST OF The forecast of marketwide occupancy is based upon a
MARKETWIDE forecast of marketwide demand and supply. Based on our
OCCUPANCY market research and discussions with hotel operators, we
have estimated the year-end 1996 occupancy rates of the
subject's competitors. By multiplying each property's room
count by the number of days in the year that it was open
and the occupancy percentage that is achieved, the total
number of room nights that were accommodated by the
competitive supply has been projected.
A weighted average of the market mix of each competitive
property has then been calculated to determine the overall
market segmentation of the lodging facilities within the
subject property's market. The 1996 areawide estimate of
room night demand, by market segment, forms the historical
base demand to which the annual growth factors are applied.
In the following table, segmented demand levels are
projected using base demand growth. Total demand is then
divided by the forecast of market supply, rendering an
overall estimate of areawide occupancy. As noted in the
"Competition" section of this report, three changes in
supply are anticipated. An additional 331 units will be
added to market supply in 1997 and 1998 as a result of the
August 1997 opening of the Four Seasons - Aviara Resort. In
January 2000, the 800 room Hyatt Regency addition has been
projected to enter the market at a competitive rate of 25%.
Similarly, the 25% competitive Campbell Shipyards project
is anticipated to open a 1006-unit property in January
2001. Thus, the forecast of marketwide occupancy is
calculated as follows.
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 80
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
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FORECAST OF MARKETWIDE OCCUPANCY
- ------------------------------------------------------------------------------------------------------------------------------
HISTORICAL 1997 1998 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP MEETING
Growth Rate --- 6.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accommodated Demand 597,027 632,848 651,833 658,351 664,935 671,584 678,300 685,083
Latent Demand 11,774 28,257 28,257 45,330 66,800 66,800 66,800
COMMERCIAL
Growth Rate --- 5.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accommodated Demand 111,711 117,296 120,815 122,023 123,243 124,475 125,720 126,977
Latent Demand 0 0 0 0 0 0 0
LEISURE
Growth Rate --- 6.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accommodated Demand 248,038 262,921 270,809 273,517 276,252 279,015 281,805 284,623
Latent Demand 4,124 9.898 9,898 15,879 23,400 23,400 23,400
TOTALS
Group Meeting 597,027 644,622 680,090 686,608 710,265 738,384 745,100 751,883
Commercial 111,711 117,296 120,815 122,023 123,243 124,475 125,720 126,977
Leisure 248,038 267,045 280,707 283,415 292,131 302,415 305,205 308,023
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DEMAND 956,776 1,028,963 1,081,612 1,692,046 1,125,639 1,165,274 1,176,025 1,186,883
Annual Forecasted Growth --- 7.5% 5.1% 1.0% 3.1% 3.5% 0.9% 0.9%
Existing Supply 3,494 3,494 3,494 3,494 3,494 3,494 3,494 3,494
Four Seasons Aviara Resort 138 331 331 331 331 331 331
Hyatt Regency Addition 0 0 0 200 200 200 200
Campbell Shipyards 0 0 0 0 252 252 252
Available Rooms/Night 3,494 3,632 3,825 3,825 4,025 4,277 4,277 4,277
Nights per Year 365 365 365 365 365 365 365 365
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL SUPPLY 1,275,383 1,325,723 1,396,198 1,396,198 1,469,198 1,560,996 1,560,996 1,560,996
Overall Supply Growth --- 3.9% 5.3% 0.0% 5.2% 6.2% 0.0% 0.0%
MARKETWIDE OCCUPANCY 75.0% 77.6% 77.5% 78.2% 76.6% 74.6% 75.3% 76.0%
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</TABLE>
As shown, the marketwide occupancy is projected to remain
in the mid 70% range through the projection period. The
planned additions to supply will be matched with similar
increases in demand, due to factors such as the anticipated
expansion of the San Diego Convention Center in 2000.
PENETRATION FACTOR The subject property's forecasted market share and
ANALYSIS occupancy levels are based upon its anticipated competitive
posture within the market, as quantified by its penetration
factor. The penetration factor is the ratio between a
property's market share and its fair share. If a property
with a fair share of 5% is capturing 5% of the market
demand in a given year, then its occupancy will equal the
marketwide occupancy, and its penetration factor will equal
100% (5% (divided by) 5% = 100%). If the same property
achieves a
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HVS International, San Francisco, California Occupancy and Average
Rate Analysis 81
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[HVS INTERNATIONAL LOGO]
market share in excess of its fair share, then its
occupancy will be greater than the marketwide occupancy,
and its penetration factor will be greater than 100%. For
example, if a property's fair share is 5% and its market
share is 7%, then its penetration factor is 140% (7%
(divided by) 5% = 140%). Conversely, if the property
captures less than its fair share, then its occupancy win
be below the marketwide average, and its penetration factor
will be less than 100%.
Penetration factors can be calculated for each market
segment of a property, and for the property as a whole. For
example, leisure segment penetration can be determined by
dividing the subject property's leisure room nights
captured (property's total room nights captured multiplied
by property's leisure segment percentage) by the hotel's
fair share of total areawide leisure demand (property's
fair share percentage multiplied by the market's total
leisure room night demand).
In the following chart, the penetration factors attained by
the primary competitors and the aggregate of secondary
competition are set forth, by segment, for 1996.
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1996 ESTIMATED PENETRATION FACTORS
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PROPERTY GROUP MEETING COMMERCIAL LEISURE OVERALL
- -------------------------------------------------------------------------------
Hotel Del Coronado 113.3% 0.0% 160.2% 112.2%
Loews Coronado Bay Resort 107.7 0.0 111.1 96.0
Le Meridien 98.6 40.5 109.5 94.6
Sheraton Grande Torrey Pines 82.8 186.3 66.4 90.6
Hilton SD Beach and Tennis Resort 86.5 231.2 104.1 108.0
Secondary Competition 99.7 137.8 71.4 96.9
- -------------------------------------------------------------------------------
In 1996, the subject property accommodated 112.2% of its
fair share of market demand, ranking it at the top of the
competitive market set. Unlike its competitors, the subject
does not accommodate commercial demand. According to
property management, the subject does accommodate some
commercial demand, however most of it is associated with a
group in some way. As such, we have included any commercial
demand generated by the subject property in the group
category. The only other property among the competitive set
that successfully penetrates the overall market is the
Hilton Beach and Tennis Resort, due primarily to its high
favorable commercial penetration and its moderately
favorable leisure penetration.
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 82
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[HVS INTERNATIONAL LOGO]
In preparing our forecast of the subject property's
occupancy, we have considered management's reports of
leisure and group meeting bookings for 1998, as well as the
addition of the Four Seasons Aviara and other secondary
competitors, and the subject's impending refurbishment and
the possible problems it may cause. As such, group meeting
penetration is forecast to decrease to a stabilized level
of 110%. In addition, leisure penetration is expected to
decrease to a stabilized level of 151%.
The following chart shows how this penetration forecast
results in a forecast of occupancy for the subject property
on a calendar-year basis. The hotel's overall penetration
factor is expected to stabilize at 108.6%, lower than its
historical levels. However given the additions to supply,
the lower stabilized penetration level is warranted.
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 83
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PROJECTION OF SUBJECT PROPERTY'S OCCUPANCY
- -------------------------------------------------------------------------------------------------
HISTORICAL 1997 1998 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP MEETING
Demand 597,027 644,622 680,090 686,608 710,265 738,384 745,100 751,883
Penetration Factor 113.3% 113.0% 110.0% 110.0% 110.0% 110.0% 110.0% 110.0%
Capture 133,984 138,781 135,335 136,632 134,317 131,423 132,619 133,826
LEISURE
Demand 248,038 267,045 280,707 283,415 292,131 302,415 305,205 308,023
Penetration Factor 160.2% 160.0% 155.0% 151.0% 151.0% 151.0% 151.0% 151.0%
Capture 78,689 81,405 78,711 77,420 75,836 73,889 4,570 75,259
------ ------ ------ ------ ------ ------ ----- ------
TOTAL CAPTURE 212,672 220,186 214,047 214,052 210,153 205,312 207,189 209,085
AVAILABLE ROOM NIGHTS 252,580 252,580 252,580 252,580 252,580 252,580 252,580 252,580
OCCUPANCY 84.2% 87.2% 84.7% 84.7% 83.2% 81.3% 82.0% 82.8%
ROUNDED 84% 87% 85% 85% 83% 81% 82% 83%
FISCALIZED 85 85 83 82 82 83 83
OVERALL PENETRATION
Fair Share 19.8% 19.1% 18.1% 18.1% 17.2% 16.2% 16.2% 16.2%
Market Share 22.2 21.4 19.8 19.6 18.7 17.6 17.6 17.6
Overall Penetration 112.2 112.3 109.4 108.3 108.6 108.9 108.9 108.9
MARKET MIX
Group Meeting 63% 63% 63% 64% 64% 64% 64% 64%
Commercial 0 0 0 0 0 0 0 0
Leisure 37 37 37 36 36 36 36 36
-- -- -- -- -- -- -- --
Total 100% 100% 100% 100% 100% 100% 100% 100%
- -------------------------------------------------------------------------------------------------
</TABLE>
In that the date of value for this appraisal is October 28,
1997, we have converted the preceding calendar-year
forecast to a fiscal-year basis.
Based on this analysis, we have chosen to use a stabilized
occupancy level of 82%, considering 2000/01 to be the
stabilized year. The stabilized occupancy is intended to
reflect the anticipated results of the property over its
remaining economic life, given any and all changes in the
life cycle of the hotel. Thus, the stabilized occupancy
excludes from consideration any abnormal relationship
between supply and demand, as well as any nonrecurring
conditions that may result in unusually high or low
occupancies. Although the subject property may operate at
occupancies above this stabilized level, we believe it
equally possible for new
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 84
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[HVS INTERNATIONAL LOGO]
competition and temporary economic downturns to force the
occupancy below this selected point of stability.
AVERAGE RATE Our forecast of average rate is based upon the subject
ANALYSIS property's historical segmented average rates, and
projected growth rates applied to this indicator. In 1996,
the subject property's average rate increased by 8.7%. This
rate of growth is followed by expected growth of 8.2% in
1997. In recent years, the market at large has been
characterized by steadily increasing average rate levels, a
positive trend attributed to a lack of full-service and
resort development and healthy increases in group meeting
and leisure demand.
Local operators were confident about future prospects for
rate gain, citing improved fundamentals such as a growing
diversified economy, strong tourism and convention
infrastructure, and moderate new hotel construction on the
horizon. In terms of the subject property, the pending
renovation and refurbishment is expected to greatly enhance
attainable average rates. As mentioned, the subject's main
building will receive a new HVAC system providing air
conditioning for the lobby and the property's most
desirable rooms. In addition, all guestrooms will receive
softgood replacements and case good refurbishments and
upgrades. Meeting space will also be renovated. Overall,
the improvements to the subject's guestrooms, meeting
space, and public areas will enhance the subject property
and allow management to build on the property's historic
reputation.
In this appraisal, we have applied a base underlying
inflation rate of 3.0% for all years of the projection
period. For the group meeting segment, we have forecast
base growth of 7.0% in 1997, reflecting year-to-date
results, 12.0% in 1998, 9.0% in 1999, and 7.0% in 2000,
10.0% in 2001, and 3.0% in 2002 and thereafter. The
stronger rate growth in 1999 and 2000 reflects the year
after guestroom refurbishments. The strong rate growth in
1998 reflects an increase in group and leisure rates of
roughly $20 that is already being booked. In the leisure
segment, we have forecast base growth of 9.5% in 1997
reflecting year-to-date results, 12.0 in 1998 due to
prebooking statistics, 9.0% in 1999, 7.0% in 2000, 10.0% in
2001, and 3.0% in 2002 and thereafter. Similar to growth
in group meeting average rates, leisure average rates are
expected to benefit from the subject's guestroom and
meeting room refurbishments in 1999 and 2000.
The following table illustrates the methodology we have
used for projecting the subject's average rate. In the
table, various growth rates are applied to
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 85
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[HVS INTERNATIONAL LOGO]
the segmented average rate levels. The segmented average
rates are then multiplied by the number of room nights
projected for each segment. An overall forecast of rooms
revenue results, from which an overall average rate may be
calculated. Final calculations convert the calendar year
forecast to a fiscal year basis and re-express the average
rate in 1997 dollars by deflating the indications at an
assumed underlying inflation rate of 3.0%. The procedure is
as follows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FORECAST OF AVERAGE RATE BY MARKET SEGMENT
- ------------------------------------------------------------------------------------------------------
HISTORICAL 1997 1998 1999 2000 2001 2002
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEGMENTED ADR GROWTH RATES
Group Meeting N/A 7.0% 12.0% 9.0% 7.0% 10.0% 3.0%
Leisure N/A 9.5 12.0 9.0 7.0 10.0 3.0
SEGMENTED ADR
Group Meeting $161.25 $172.61 $193.32 $210.72 $225.47 $248.02 $255.46
Leisure 212.60 232.80 260.73 284.20 304.09 334.50 $344.54
SEGMENTED ROOMS CAPTURED
Group Meeting 133,984 138,781 135,335 136,632 134,317 131,423 132,619
Leisure 78,689 81,405 78,711 77,420 75,836 73,889 74,570
------- ------- ------- ------- ------- ------- -------
Total 212,672 220,186 214,047 214.052 210,153 205,312 207,189
SEGMENTED ROOMS REVENUE (000s)
Group Meeting $21,605 $23,955 $26,163 $28,791 $30,285 $32,595 $33,879
Leisure 16,729 18,951 20,523 22,003 23,061 24,716 25,692
------- ------- ------- ------- ------- ------- -------
Total $38,334 $42,906 $46,686 $50,794 $53,346 $57,311 $59,571
Imputed ADR $180.25 $194.86 $218.11 $237.30 $253.84 $279.14 $287.52
Overall Growth N/A 8.1% 11.9% 8.8% 7.0% 10.0 10%
FISCAL YEAR: 1997/98 1998/99 1999/00 2000/01 2001/02
------------------------------------------------
AVERAGE RATE $214.03 $233.93 $250.94 $2,74.71 $286.05
Expressed in Base-Year Dollars $202.80 $215.19 $224.12 $238.20 $240.81
- ------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this analysis, we have used 2001/02 as the
stabilized year. The stabilized average daily rate deflated
to 1997 dollars equates to $240.81. This average rate
compares with the forecasted 1997 result of $180.25,
indicating significant real growth in average rate, due
primarily to the aforementioned improvements planned at the
subject property. Considering historical trends in average
rate and our selected stabilized occupancy rate, this
forecast appears to be reasonable. The following chart
<PAGE>
HVS International, San Francisco, California Occupancy and Average
Rate Analysis 86
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
summarizes our forecast of occupancy and average rate for
the subject property.
-----------------------------------------------------------
FORECAST OF OCCUPANCY AND AVERAGE RATE
-----------------------------------------------------------
1997/98 1998/99 1999/00 2000/01 Stabilized
-----------------------------------------------------------
Occupancy 85.0% 85.0% 83.0% 82.0% 82.0%
Average Rate $214.03 $233.93 $250.94 $274.71 $286.05
-----------------------------------------------------------
<PAGE>
HVS International, San Francisco, California Highest and Best Use 87
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[HVS INTERNATIONAL LOGO]
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11. HIGHEST AND BEST USE
The Appraisal Institute recognizes the concept of highest
and best use as a fundamental element in the determination
of value of real property, either as if vacant or as
improved. Highest and best use is defined as follows:
The reasonably probable and legal use of vacant land or
an improved property, which is physically possible,
appropriately supported, financially feasible, and that
results in the highest value. The four criteria the
highest and best use must meet are legal
permissibility, physical possibility, financial
feasibility, and maximum profitability(7).
AS IF VACANT An analysis as to the highest and best use of the land
should be made first and may be influenced by many factors.
In estimating highest and best use, there are four stages
of analysis:
1. Physically possible use. What uses of the site are
physically possible?
Because of the size of the subject site ((plus or minus)
27.00 acres), a number of singular or combined uses are
possible. The topography is generally flat, and the site
offers direct access to the Pacific Ocean. The site's
size makes it appropriate for most legal uses.
2. Legally permissible use. What uses are permitted by
zoning and deed restrictions?
According to the City of Coronado Planning Department,
uses permitted on the subject site include hotels and
motels with ancillary retail development, provided it
is conducive to the hotel use.
The property is under the jurisdiction of the Coastal
Commission and would require an Environmental Impact
Report. In addition,
---------------
(7) Appraisal Institute. The Dictionary of Real Estate
Appraisal. 3rd ed. Chicago: Author, 1992, p.149.
<PAGE>
HVS International, San Francisco, California Highest and Best Use 88
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[HVS INTERNATIONAL LOGO]
the development of a massive property such as the
subject may not be possible in today's environment.
3. Financially feasible use. Which possible and
permissible uses will produce a net return to the owner
of the site?
Economic conditions in the subject market area
currently support the feasibility of new hotel
development.
4. Maximally productive use. Among the feasible uses,
which use will produce the highest net return or the
highest present worth?
In consideration of the foregoing factors
influencing development in the subject's immediate
area, it is the appraisers' opinion that the highest
and best use of the subject site as if vacant is for
development of a first-class resort hotel.
AS IMPROVED After determining the highest and best use of the land, an
analysis and opinion indicating the highest and best use of
the property should be made.
It is important to recognize the possibility that the
highest and best use of the land could differ from the
highest and best use of the property. This may occur where
a site has existing improvements and the highest and best
use of the land differs from the property's current use.
Nevertheless, the current property use will continue
until the value of the land under its highest and best use,
less existing improvement demolition costs, exceeds the
total value of the property in its present use.
As noted above, in estimating highest and best use, there
are four stages of analysis:
1. Physically possible use. What uses of the site are
physically possible?
2. Legally permissible use. What uses are permitted by
zoning and deed restrictions?
3. Financially feasible use. Which possible and
permissible uses will produce a net return to the
owner of the site?
4. Maximally productive use. Among the feasible uses,
which use will produce the highest net return or the
highest present worth?
<PAGE>
HVS International, San Francisco, California Highest and Best Use 89
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[HVS INTERNATIONAL LOGO]
Based on a review of the economic considerations and
alternatives of the subject property, since the value of
the land does not exceed the value of the hotel less the
cost of demolition, it is our opinion that the highest and
best use of the subject property, as currently improved,
continues to be as a hotel resort. In addition, it is
important to note that the subject site is currently
underutilized and the market will support additional hotel
facilities on the property. However, as mentioned
previously, there is currently a great deal of public
resistance to any expansion of the subject property. As
such, development of the property's excess land is unlikely
and no contributory value has been placed on the excess
land.
<PAGE>
HVS International, San Francisco, California Approaches to Value 90
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[HVS INTERNATIONAL LOGO]
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12. APPROACHES TO VALUE
In appraising real estate for market value, the
professional appraiser has three approaches from which to
select: the cost, sales comparison, and income
capitalization approaches. Although all three valuation
procedures are given consideration, the inherent strengths
of each approach and the nature of the subject property
must be evaluated to determine which will provide
supportable estimates of market value. The appraiser is
then free to select one or more of the appropriate
approaches in arriving at a final value estimate.
THE COST APPROACH The cost approach estimates market value by computing the
current cost of replacing the property and subtracting any
depreciation resulting from physical deterioration,
functional obsolescence, and external (or economic)
obsolescence. The value of the land, as if vacant and
available, is then added to the depreciated value of the
improvements to produce a total value estimate.
The cost approach may provide a reliable estimate of value
in the case of new properties; however, as buildings and
other improvements grow older and begin to deteriorate, the
resultant loss in value becomes increasingly difficult to
quantify accurately. We find that knowledgeable hotel
buyers generally base their purchase decisions on economic
factors such as projected net income and return on
investment. Because the cost approach does not reflect
these income-related considerations and requires a number
of highly subjective depreciation estimates, this approach
is given minimal weight in the hotel valuation process.
THE SALES The sales comparison approach estimates the value of a
COMPARISON property by comparing it to similar properties sold on the
APPROACH open market. To obtain a supportable estimate of value, the
sales price of a comparable property must be adjusted to
reflect any dissimilarities between it and the property
being appraised.
<PAGE>
HVS International, San Francisco, California Approaches to Value 91
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[HVS INTERNATIONAL LOGO]
The sales comparison approach may provide a useful value
estimate in the case of simple forms of real estate such as
vacant land and single-family homes, where the properties
are homogeneous and the adjustments are few and relatively
simple to compute. In the case of complex investments such
as shopping centers, office buildings, restaurants, and
lodging facilities, where the adjustments are numerous and
more difficult to quantify, the sales comparison approach
loses much of its reliability.
Hotel, investors typically do not employ the sales
comparison approach in reaching their final purchase
decisions. Factors such as the numerous insupportable
adjustments that are necessary and the general inability to
determine the true financial terms and human motivations of
comparable transactions often make the results of the sales
comparison approach questionable. Although the sales
comparison approach may provide a range of values that
supports the final estimate, reliance on this approach
beyond the establishment of broad parameters is rarely
justified by the quality of the sales data.
The market-derived capitalization rates sometimes used by
appraisers are susceptible to the same shortcomings
inherent in the sales comparison approach. To substantially
reduce the reliability of the income capitalization
approach by employing capitalization rates obtained from
unsupported market data weakens the final value estimate
and ignores the typical investment analysis procedures
employed by hotel purchasers.
THE INCOME The income capitalization approach takes a property's
CAPITALIZATION projected net income before debt service and allocates this
APPROACH future benefit to the mortgage and equity components based
on market rates of return and loan-to-value ratios. Through
a discounted cash flow and income capitalization procedure,
the value of each component is calculated. The total of the
mortgage component and the equity component equals the
value of the property. This approach is often selected as
the preferred valuation method for income-producing
properties because it most closely reflects the investment
rationale of knowledgeable buyers.
RECONCILIATION The final step in the valuation process is the
reconciliation and correlation of the value indications.
Factors that are considered in assessing the reliability of
each approach include the purpose of the appraisal, the
nature of the subject property, and the reliability of the
data used. In reconciliation, the applicability and
supportability of each approach are considered and the
range of value indications is examined. The most
<PAGE>
HVS International, San Francisco, California Approaches to Value 92
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[HVS INTERNATIONAL LOGO]
significant weight is given to the approach that produces
the most reliable solution and most closely reflects the
criteria used by typical investors.
Our nationwide experience with numerous hostelry buyers and
sellers indicates that the procedures used in estimating
market value by the income capitalization approach are
comparable to those employed by the hotel and motel
investors who constitute the marketplace. For this reason,
the income capitalization approach produces the most
supportable value estimate, and it is generally given the
greatest weight in the hotel valuation process.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 93
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[HVS INTERNATIONAL LOGO]
- -------------------------------------------------------------------------------
13. INCOME CAPITALIZATION APPROACH
The income capitalization approach is based on the
principle that the value of a property is indicated by the
net return to the going concern or what is also known as
the present worth of future benefits. The future benefits
from income-producing properties, such as hotels and
motels, are the net income before debt service and
depreciation, derived from a forecast of income and
expense. These future benefits can then be converted into
an indication of market value through a capitalization
process and discounted cash flow analysis.
Using the income capitalization approach, the subject
property has been valued by analyzing the local market for
transient accommodations, examining existing and proposed
competition, and developing a forecast of income and
expense that reflects current and future anticipated income
trends, as well as area cost components, up through a
stabilized year of operation.
The forecast of income and expense is expressed in current
dollars as of the date of each forecasted year. The last
forecasted year, or what is referred to as the stabilized
year, is intended to reflect the anticipated operating
results of the property over its remaining economic life,
given any and all applicable stages of build-up, plateau,
and decline in the life cycle of the hotel. Therefore, such
income and expense estimates from the stabilized year
forward exclude from consideration any abnormal relation of
supply and demand, and also any transitory or nonrecurring
conditions which may result in unusual revenue or expenses
of the property.
As stated in the textbook entitled Hotels and Motels: A
Guide to Market Analysis, Investment Analysis, and
Valuations, published by the Appraisal Institute, "of the
three valuation approaches available to the appraiser, the
income capitalization approach generally provides the most
persuasive and supportable conclusions when valuing a
lodging facility." This text notes that using a 10-year
forecast and an equity yield rate "most accurately reflects
the actions of typical hotel buyers, who purchase
properties based
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 94
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[HVS INTERNATIONAL LOGO]
on their leveraged discounted cash flow." The simpler
procedure of using a 10-year forecast and a discount rate
is "less reliable because the derivation of the discount
rate has little support. Moreover, it is difficult to
adjust the discount rate for changes in the cost of
capital."(8)
The subject property has been valued using a 10-year
discounted cash flow analysis in which the cash flow to
equity and the equity reversion are discounted to the
present value at the equity yield rate and the income to
the mortgagee is discounted at a mortgage interest rate.
The sum of the equity and mortgage values is the total
property value.
To convert the forecasted income stream into an estimate of
value, the anticipated net income (before debt service and
depreciation) is allocated to the mortgage and equity
components based on market rates of return and
loan-to-value ratios. The total of the mortgage component
and the equity component equals the value of the property.
The process of estimating the value of the mortgage and
equity components is described as follows.
1. The terms of typical hotel financing are set forth,
including interest rate, amortization term, and
loan-to-value ratio.
2. An equity yield rate of return is established. Many
hotel buyers base their equity investments on a 10-year
equity yield rate projection that takes into account
ownership benefits such as periodic cash flow
distributions, residual sale or refinancing
distributions that return any property appreciation and
mortgage amortization, income tax benefits, and various
non-financial considerations such as status and
prestige. The equity yield rate is also known as the
internal rate of return on equity.
3. The value of the equity component is calculated by
first deducting the annual debt service from the
projected net income before debt service, leaving the
net income to equity for each projection year. The net
income as of the 11th year is capitalized into a
reversionary value. After deducting the mortgage
balance at the end of the 10th year and the typical
brokerage and legal costs, the equity residual is
discounted back to the date of value at the equity
yield rate. The net income to equity for each of the 10
projection years is also
----------------
(8) Rushmore, S. Hotels and Motels: A Guide to Market
Analysis, Investment Analysis, and Valuations, Chicago:
Appraisal Institute, 1992, p. 236.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 95
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[HVS INTERNATIONAL LOGO]
discounted to the present value. The sum of these
discounted values equates to the value of the equity
component. Adding the equity component to the initial
mortgage balance yields the overall property value.
Because the mortgage and the debt service amounts are
unknown but the loan-to-value ratio was determined in step
#1, the preceding calculation can be solved through an
iterative process or by use of a linear algebraic equation
that computes the total property value. The algebraic
equation that solves for the total property value using a
10-year mortgage/equity technique was developed by Suzanne
R. Mellen, CRE, MAI, managing director of the San Francisco
office of HVS International. A complete discussion of the
technique is presented in her article entitled,
"Simultaneous Valuation: A New Technique."(9)
4. The value is proven by allocating the total property
value between the mortgage and equity components and
verifying that the rates of return set forth in steps
#1 and #2 can be met from the forecasted net income.
REVIEW OF Historical operating statements for the subject property
OPERATING HISTORY were obtained from property management and Morgan Stanley
Mortgage Capital, Inc. These statements have been reviewed
and used as a basis in our formation of a forecast of
income and expense. The following statements span calendar
years 1993 to 1996; also presented are year-to-date
statements through August for 1996 and 1997. Please note
that the year-to-date statements for 1997 run from January
1 to August 27, the date the subject property was sold to
Lowe Enterprises, representing three days less than the
year-to-date 1996 statements.
---------------
(9) Mellen, S. "Simultaneous Valuation. A New Technique."
Appraisal Journal, April, 1983.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 96
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
HISTORICAL OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
YEAR: 1996 1995
TOTAL ROOMS: 692 692
OCCUPIED ROOMS: 212,647 200,422
OCCUPANCY: 84.2% 79.4%
AVERAGE RATE: $180.25 $165.76
$(000s) % OF GROSS PAR(1) POR(2) $(000s) % OF GROSS PAR(1) POR(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $38,330 49.0% $55,391 $180.25 $33,221 47.6% $48,008 $165.76
Food 21,044 26.9 30,410 98.96 19,049 27.3 27,527 95.04
Beverage 6,701 8.6 9,683 31.51 6,372 9.1 9,209 31.80
Telephone 1,146 1.5 1,656 5.39 1,167 1.7 1,686 5.82
Retail 4,869 6.2 7,037 22.90 4,395 6.3 6,351 21.93
Minor Op. Depts. 4,031 5.2 5,825 18.96 3,493 5.0 5,048 17.43
Other Income 2,114 2.7 3,055 9.94 2,124 3.0 3,069 10.60
------ ----- ------- ------- ------ ----- ------- ------
Total 78,236 100.1 113,058 367.91 69,820 100.0 100,896 348.37
DEPARTMENTAL EXPENSES*
Rooms 8,367 21.8 12,090 39.34 7,903 23.8 11,421 39.43
Food & Beverage 19,570 70.5 28,281 92.03 19,470 76.6 28,135 97.14
Telephone 466 40.7 673 2.19 530 45.4 766 2.64
Retail 3,773 77.5 5,452 17.74 3,576 81.4 5,168 17.84
Minor Op. Depts. 2,007 49.8 2,900 9.44 1,764 50.5 2,549 8.80
------ ----- ------- ------- ------ ----- ------- ------
Total 34,183 43.7 49,397 160.75 33,244 47.6 48,040 165.87
DEPARTMENTAL INCOME 44,053 56.4 63,660 207.16 36,577 52.4 52,857 182.50
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 6,745 8.6 9,747 31.72 6,908 9.9 9,983 34.47
Management Fee 406 0.5 587 1.91 0 0.0 0 0.00
Marketing 3,131 4.0 4,524 14.72 3,311 4.7 4,784 16.52
Property Oper. & Maint. 3,881 5.0 5,608 18.25 3,969 5.7 5,736 19.80
Energy 1,588 2.0 2,295 7.47 1,549 2.2 2,239 7.73
------ ----- ------- ------- ------ ----- ------- ------
Total 15,751 20.1 22,761 74.07 15,738 22.5 22,743 78.52
HOUSE PROFIT 28,302 36.3 40,899 133.09 20,839 29.9 30,114 103.98
FIXED EXPENSES
Property Taxes 1,624 2.1 2,346 7.63 1,548 2.2 2,237 7.72
Insurance 499 0.6 721 2.35 348 0.5 503 1.74
Capital Leases 231 0.3 334 1.09 178 0.3 257 0.89
------ ----- ------- ------- ------ ----- ------- ------
Total 2,354 3.0 3,401 11.07 2,073 3.0 2,996 10.35
NET INCOME 25,949 33.3% $37,498 $122.02 $18,765 26.9% $27,118 $93.63
====== ===== ======= ======= ======= ===== ======= ======
Food to Rooms 54.9% 57.3%
Beverage to Food 31.8 33.5
Food & Bev to Rooms 72.4 76.5
Telephone to Rooms 3.0 3.5
Retail to Rooms 12.7 13.2
Minor Operated Depts. to Rooms 10.5 10.5
Other Income to Rooms 5.5 6.4
</TABLE>
* Departmental expenses expressed as a percentage of departmental revenues
(1) Per Available Room
(2) Per Occupied Room
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 97
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
HISTORICAL OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------
YEAR: 1994 1993
TOTAL ROOMS: 692 692
OCCUPIED ROOMS: 194,461 187,162
OCCUPANCY: 77.0% 74.1%
AVERAGE RATE: $155.82 $155.01
$(000s) % OF GROSS PAR(1) POR(2) $(000s) % OF GROSS PAR(1) POR(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $30,302 46.7% $43,788 $155.82 $29,012 46.3% $41,925 $155.01
Food 15,797 24.3 22,828 81.24 15,234 24.3 22,014 81.39
Beverage 5,882 9.1 8,501 30.25 5,817 9.3 8,406 31.08
Telephone 1,148 1.8 1,660 5.91 1,208 1.9 1,745 6.45
Retail 4,529 7.0 6,544 23.29 4,001 6.4 5,782 21.38
Minor Op. Depts. 6,851 10.6 9,900 35.23 6,934 11.1 10,020 37.05
Other Income 392 0.6 566 2.01 497 0.8 719 2.66
------ ---- ------ ------ ------ ---- ------ ------
Total 64,901 100.1 93,787 333.75 62,703 100.1 90,611 335.02
DEPARTMENTAL EXPENSES*
Rooms 6,581 21.7 9,511 33.84 6,324 21.8 9,139 33.79
Food & Beverage 15,607 72.0 22,553 80.26 15,159 72.0 21,906 80.99
Telephone 701 61.1 1,013 3.61 698 57.8 1,009 3.73
Retail 3,415 75.4 4,935 17.56 3,139 78.5 4,536 16.77
Minor Op. Depts. 3,354 49.0 4,847 17.25 3,511 50.6 5,073 18.76
------ ---- ------ ------ ------ ---- ------ ------
Total 29,659 45.7 42,859 152.52 28,830 46.0 41,662 154.04
DEPARTMENTAL INCOME 35,242 54.4 50,928 181.23 33,873 54.1 48,949 180.98
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 9,164 14.1 13,242 47.12 8,484 13.5 12,261 45.33
Management Fee 0 0.0 0 0.00 0 0.0 0 0.00
Marketing 3,984 6.1 5,757 20.49 3,408 5.4 4,924 18.21
Property Oper. & Maint. 4,097 6.3 5,921 21.07 4,026 6.4 5,817 21.51
Energy 2,237 3.4 3,232 11.50 2,209 3.5 3,192 11.80
------ ---- ------ ------ ------ ---- ------ ------
Total 19,482 29.9 28,153 100.18 18,126 28.8 26,194 96.85
HOUSE PROFIT 15,760 24.5 22,775 81.05 15,746 25.3 22,755 84.13
FIXED EXPENSES
Property Taxes 1,446 2.2 2,090 7.44 1,679 2.7 2,426 8.97
Insurance 0 0.0 0 0.00 0 0.0 0 0.00
Capital Leases 0 0.0 0 0.00 0 0.0 0 0.00
------ ---- ------ ------ ------ ---- ------ ------
Total 1,446 2.2 2,090 7.44 1,679 2.7 2,426 8.97
NET INCOME $14,314 22.3% $20,685 $73.61 $14,067 22.6% $20,329 $75.16
====== ==== ====== ====== ====== ==== ====== ======
Food to Rooms 52.1% 52.5%
Beverage to Food 37.2 38.2
Food & Bev to Rooms 71.5 72.6
Telephone to Rooms 3.8 4.2
Retail to Rooms 14.9 13.8
Minor Operated Depts. to Rooms 22.6 23.9
Other Income to Rooms 1.3 1.7
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Departmental expenses expressed as a percentage of departmental revenues
(1) Per Available Room
(2) Per Occupied Room
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 98
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
HISTORICAL OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
PERIOD: YTD AUG. 27 1997 YTD AUG. 1996
TOTAL ROOMS: 692 692
OCCUPIED ROOMS: 150,136 142,092
OCCUPANCY: 90.4% 84.5%
AVERAGE RATE: $194.57 $184.12
$(000s) % OF GROSS PAR(1) POR(2) $(000s) % OF GROSS PAR(1) POR(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $29,212 50.7% $42,214 $194.57 $26,162 49.7% $37,807 $184.12
Food 14,490 25.2 20,939 96.51 13,762 26.1 19,887 96.85
Beverage 4,861 8.4 7,025 32.38 4,403 8.4 6,363 30.99
Telephone 1,031 1.8 1,490 6.87 805 1.5 1,164 5.67
Retail 3,497 6.1 5,053 23.29 3,412 6.5 4,931 24.01
Minor Op. Depts. 2,937 5.1 4,244 19.56 2,768 5.3 4,001 19.48
Other Income 1,570 2.7 2,269 10.46 1,336 2.5 1,930 9.40
------- ---- ------- ------- ------- ---- ------- -------
Total 57,599 100.0 83,235 383.64 52,649 100.0 76,082 370.53
DEPARTMENTAL EXPENSES*
Rooms 5,930 20.3 8,569 39.50 5,648 21.6 8,162 39.75
Food & Beverage 12,639 65.3 18,264 84.18 12,684 69.8 18,330 89.27
Telephone 310 30.1 449 2.07 327 40.6 473 2.30
Retail 2,517 72.0 3,637 16.76 2,569 75.3 3,713 18.08
Minor Op. Depts. 1,280 43.6 1,850 8.53 1,342 48.5 1,939 9.44
------- ---- ------- ------- ------- ---- ------- -------
Total 22,676 39.4 32,769 151.04 22,570 42.9 32,616 158.84
DEPARTMENTAL INCOME 34,923 60.6 50,466 232.61 30,079 57.1 43,466 211.68
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 3,835 6.7 5,542 25.54 4,745 9.0 6,857 33.40
Management Fee 1,173 2.0 1,696 7.82 0 0.0 0 0.00
Marketing 1,838 3.2 2,657 12.25 2,064 3.9 2,982 14.52
Property Oper. & Maint. 2,294 4.0 3,316 15.28 2,637 5.0 3,810 18.56
Energy 1,022 1.8 1,477 6.81 1,080 2.1 1,561 7.60
------- ---- ------- ------- ------- ---- ------- -------
Total 10,164 17.7 14,687 67.70 10,526 20.0 15,211 74.08
HOUSE PROFIT 24,759 42.9 35,779 164.91 19,553 37.1 28,255 137.60
FIXED EXPENSES
Property Taxes 1,383 2.4 1,999 9.21 1,067 2.0 1,542 7.51
Insurance 410 0.7 592 2.73 282 0.5 408 1.99
Capital Leases 122 0.2 176 0.81 152 0.3 220 1.07
------- ---- ------- ------- ------- ---- ------- -------
Total 1,915 3.3 2,767 12.76 1,502 2.8 2,171 10.57
NET INCOME $22,844 39.6% $33,012 $152.15 $18,050 34.3% $26,084 $127.03
======= ==== ======= ======= ======= ==== ======= =======
Food to Rooms 49.6% 52.6%
Beverage to Food 33.6 32.0
Food & Bev to Rooms 66.2 69.4
Telephone to Rooms 3.5 3.1
Retail to Rooms 12.0 13.0
Minor Operated Depts. to Rooms 10.1 10.6
Other Income to Rooms 5.4 5.1
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Departmental expenses expressed as a percentage of departmental revenues
(1) Per Available Room
(2) Per Occupied Room
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 99
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
HISTORICAL ANALYSIS It is important to note that prior to 1995, several of the
property's previous owner's personal expenses were carried
on the hotel's statements. As such, the historical
statements for 1993 and 1994 are not considered germane to
this analysis.
Since 1995, the subject property has shown extensive
profitability increases. Specifically, net income has
increased from $18,765,000 or 26.9% of total revenue in
1995 to $25,949,000 or 33.3% of total revenue. In addition,
through August 1997, net income at the subject has
increased to $22,844,000 or 39.6% of total revenue from
$18,050,000 or 34.3% of total revenue for the same period
prior year, an increase of roundly $4.8 million. The
stunning increases in the subject's profitability are
attributable to increased revenues and good expense
control. Rooms revenue at the subject property has been
boosted via increases in both occupancy and average rate.
In 1995, the subject's occupancy equated to 79.4% and
average rate equated to $165.76. In 1996, the subject
posted an occupancy of 84.2% at an average rate of $180.25.
Through August 1997, occupancy equated to 90.4%, while
average rate equated to $194.57. This compares favorably to
the occupancy of 84.5% and average rate of $184.12 achieved
through August 1996. Other departmental revenues increased
as well due primarily to the increases in guest patronage.
In terms of departmental expenses, most have increased in
relation to revenue, but have decreased as a result of the
aforementioned revenue increases. Overall, departmental
profit increased to 56.4% of total revenue in 1996 from
52.4% in 1995. In addition, departmental profit increased
to 60.6% of total revenue through August 1997 from 57.1%
through August 1996. Undistributed operating expense ratios
have also shown decreasing trends since 1995 due to
increased revenues. Overall, undistributed operating
expenses decreased from 22.5% of total revenue in 1995 to
20.1% of total revenue in 1996. Through August 1997, these
expenses decreased to 17.7% of total revenue from 20.0%
of total revenue through August 1996. As such, house profit
has increased markedly. Specifically, house profit equated
to 29.9% in 1995 and 36.3% in 1996. Through August 1997,
house profit equated to 42.9% of total revenue as compared
to 37.1% through August 1996.
Fixed expenses historically included property taxes,
insurance, and capital lease expense. Overall, fixed
charges have increased minimally since 1995. The basis for
the projection of these expenses is set forth later in this
section.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 100
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
INFLATION ANALYSIS To forecast income and expense levels, we must establish a
general rate of inflation. The following table shows
inflation estimates made by economists at some noted
institutions and corporations.
<PAGE>
[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RATE OF INFLATION ESTIMATES
- -------------------------------------------------------------------------------
PROJECTED INCREASE IN CONSUMER PRICE INDEX
------------------------------------------
NOVEMBER MAY
SOURCE 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Maureen Allyn, Scudder Stevens Clark 3.1% 2.3%
Wayne Angell, Bear Steams 3.0 3.2
Richard Berner, Mellon Bank 2.9 2.8
David Berson, Fannie Mae 2.9 2.8
David Blitzer, S&P 3.0 2.7
Paul Boltz, T. Rowe Price 3.2 3.5
David Bostian, Herzog, Heine, Geduld 2.9 2.5
Philip Braverman, DKB Securities 3.0 2.8
William Brown, J.P. Morgan 3.3 3.2
Rosanne Cahn, CS First Boston 3.1 2.6
James Coons, Huntington National Bank 3.2 3.0
Michael Cosgrove, The Economist 3.2 3.3
Dewey Daane, Vanderbilt University 3.4 3.6
Robert Dederck, Northern Trust 3.1 3.4
William Dudley, Goldman Sachs 3.4 3.2
Michael Englund, MMS International 3.2 3.3
Michael Evans, Evans Group 3.0 3.0
Gail Fosler, Conference Board 3.5 3.6
Maury Harris, PaineWebber, Inc. 2.8 2.8
Tracy Herrick, Jefferies & Co. 3.2 3.6
Stuart G. Hoffman, PNC Bank Corporation 3.1 2.8
William Hummer, Wayne Hummer 2.9 3.0
Edward Hyman, ISI Group 2.8 2.1
Saul Hymans, University of Michigan 2.7 1.7
Mieczyslaw Karczmar, Deutsche Bank 2.8 3.2
Kurt Karl, WEFA Group 2.6 2.3
Irwin Kellner, Chase Manhattan Bank 2.6 2.3
D. Laufenberg, American Express Financial Advisors 3.2 3.4
Michelle Laughlin, Sanwa Securities 3.0 3.2
Carol Leisenring, CoreStates Financial 2.7 2.5
Richard Lemmon, General Motors 3.0 3.0
Mickey D. Levy, Nations Bank Capital Markets 2.6 2.4
David Littmann, Comerica Bank 3.1 3.0
John Lonski, Moody's Investors Service 3.3 3.2
Paul McCulley, UBS Securities 3.0 2.8
John McDevitt, 3M 2.6 2.5
Arnold Moskowitz, Moskowitz Capital 3.1 3.5
John Mueller, LBMC, Inc. 3.2 2.5
David Munro, High Frequency Economics 3.0 2.5
Cad Palash, MCM MoneyWatch 3.0 3.0
Nicholas Perna, Fleet Finl. Group 3.3 3.3
Elliott Platt, Donaldson Lufkin & Jenrette 2.8 2.0
Mafia F. Ramirez, MF Ramirez, Inc. 3.0 3.0
Donald Ratajczak Georgia State University 3.0 3.3
David Reser, Nomura Securities International 2.9 2.6
Allan Reynolds, Hudson Institute 3.3 3.6
Richard Rippe, Prudential Securities 3.1 3.3
A. Gary Schilling, Schilling & Go 3.0 3.0
Allen Sinai, Lehman Brothers 3.2 3.4
James Smith, University of Noah Carolina 2.1 1.9
Susan Sterne, Economic Analysis Assoc. 2.5 2.5
Donald Straszheim, Merrill Lynch 2.7 2.3
Thomas Synott 3rd, U.S. Trust Co. 3.3 3.4
John Williams, Bankers Trust 3.0 3.1
Raymond Worseck, A.G. Edwards 3.6 3.3
David Wyss, DRI/McGraw-Hill 3.0 2.5
Edward Yardeni, Deutsche Margan Grenfell 2.2 2.0
Mark Zandi, Reginal Finl Associates 3.0 3.2
--- ---
Average 3.0% 2.9%
</TABLE>
Source: The Wall Street Journal, July 1, 1996, p. A2
"A Sampling of Interest-Rate, Economic, and Currency Forecasts"
- -------------------------------------------------------------------------------
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 102
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
The preceding table shows inflation forecasts averaging
3.0% for the second half of 1996 and 2.9% for the first
half of 1997. On a regional basis, the following table
shows how the consumer price index for the urban consumer,
all items, has changed in the San Diego MSA area between
1990 and 1996.
-----------------------------------------------------------
CONSUMER PRICE INDEX - SAN DIEGO MSA
-----------------------------------------------------------
CONSUMER PERCENTAGE
YEAR PRICE INDEX CHANGE
-----------------------------------------------------------
1990 132.1 ---
1991 137.9 4.4 %
1992 142,5 3.3
1993 147.0 3.2
1994 148.7 1.2
1995 151.6 2.0
1996 155.1 2.3
Average Annual Compounded % Change 1990-96 2.7 %
Source: Bureau of Labor Statistics
-----------------------------------------------------------
In consideration of these data, as well as other factors
such as the property's age and our assessment of probable
property appreciation levels, we have applied an underlying
inflation rate of 3.0% to all appropriate revenue and
expense items throughout the projection period. This
stabilized inflation rate takes into account normal,
recurring inflation cycles. Inflation is likely to
fluctuate above and below this level during the projection
period.
FIXED AND VARIABLE In forecasting revenues and expenses for a lodging facility,
COMPONENT ANALYSIS HVS International uses a fixed and variable component model.
The logic behind this model is based on the premise that
hotel revenue and expenses have a component that is fixed
and another component that varies directly with occupancy
and facility use. Therefore, a projection can be made by
taking a known level of revenue or expense and calculating
the fixed component, as well as the variable portion. The
fixed component is then held at a constant level, while the
variable component is adjusted for the percentage change
between the projected occupancy and facility use, which
produces the known level of revenue or expense.
The following table illustrates the revenue and expense
categories that can be projected using this fixed and
variable component model. These percentages show the
portion of each category that is typically fixed and
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 103
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
variable. The last column describes the basis for
calculating the percentage of variability.
- -------------------------------------------------------------------------------
RANGE OF FIXED AND VARIABLE RATIOS
- -------------------------------------------------------------------------------
REVENUE AND EXPENSE CATEGORY PERCENT FIXED PERCENT VARIABLE INDEX OF VARIABILITY
- -------------------------------------------------------------------------------
REVENUES
Food & Beverage 0 - 30% 70 - 100% Occupancy/Local
Demand
Telephone 10 - 40 60 - 90 Occupancy
Other Income 30 - 60 40 - 70 Occupancy
DEPARTMENTAL EXPENSES
Rooms 50 - 70 30 - 50 Occupancy
Food & Beverage 35 - 60 40 - 65 Food & Bev. Revenue
Telephone 55 - 75 25 - 45 Telephone Revenue
Other Income 40 - 60 40 - 60 Other Income
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 65 - 85 15 - 35 Total Revenue
Management Fee 0 100 Total Revenue
Marketing 65 - 85 15 - 35 Total Revenue
Franchise Fees 0 100 Rooms Revenue
Repairs & Maintenance 55 - 75 25 - 45 Total Revenue
Energy 80 - 95 5 - 20 Total Revenue
FIXED EXPENSES
Property Taxes 100 0 Total Revenue
Insurance 100 0 Total Revenue
Reserve for Replacement 0 100 Total Revenue
- -------------------------------------------------------------------------------
This forecast of revenue and expense is accomplished
through a step-by-step approach, following the format of
the Uniform System of Accounts for Hotels. Each category of
revenue and expense is estimated separately and combined at
the end in the final statement of income and expense.
FORECAST OF INCOME The following description sets forth the basis for the
AND EXPENSE forecast of income and expense. We anticipate that it will
take four years for the subject property to reach a
stabilized level of operation. The following text refers
directly to the two subsequent charts where the forecast of
income and expense is shown in greater detail through the
stabilized year (the first chart) and with lesser detail
through the 10-year projection period (the second chart).
In the detailed chart, revenue and expense figures are
shown as ratios to total
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 104
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
revenue, total available rooms (PAR), and total occupied
rooms (POR). In the 10-year chart, the figures are
expressed only as ratios to total revenue.
ROOMS REVENUE Rooms revenue is determined by two variables: occupancy and
average room rate. In the section entitled "Occupancy and
Average Rate Analysis," we projected occupancy and average
rate for the subject property. The subject property is
expected to stabilize in the fourth projection year at an
occupancy rate of 82%. The subject's average rate is
expected to stabilize in the fifth projection year at
$286.05, reflecting improvement over historical levels due
to the extensive renovation. From the stabilized year
forward, the average rate is forecast to increase in line
with inflation, at 3.0% per year.
FOOD AND BEVERAGE The subject property's food and beverage revenue is
REVENUE generated by multiple food and beverage outlets as
discussed previously in this report, and the roughly 73,000
square feet of meeting space where catering charges are
generated. Food revenue at the subject property has
increased markedly in recent years due to the increase in
the subject's occupancy. Specifically, food revenue equated
to $19,049,000 or 57.3% of rooms revenue in 1995,
increasing to roundly $21,000,000 or 54.9% of rooms revenue
in 1996. In addition, food revenue increased through August
1997 to $14,490,000 or 49.6% of rooms revenue from
$13,762,000 or 52.65% of food revenue over the same period
in 1996. It is also important to note that the subject
property derives a large portion of its food and beverage
revenue from banquets and catering of group functions. In
addition, the subject enjoys a high capture rate of
in-house guests during all meal periods in its food and
beverage outlets.
Similar to food revenue, an upward trend in beverage
revenue is currently in evidence. Based on the recent
trends and our forecasted increased in rooms revenue, we
have forecast food revenue to stabilize at 45.2% of rooms
revenue and beverage revenue to stabilize at 34.0% of food
revenue.
TELEPHONE REVENUE Telephone revenue is derived from charges to guests for
local and long distance calls. The subject property's
telephone revenue has historically ranged from 3.0% to 3.5%
of rooms revenue. As we have forecast a significant
increase in rooms revenue, telephone revenue as a
percentage of rooms revenue is forecast to decrease to a
stabilized level of 3.0% in the fifth projection year.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 105
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
RETAIL Revenue Retail revenue at the subject property is generated
by the 11 gift shops and specialty shops the subject
property owns and operates. The subject property has
historically generated a high amount of revenue from these
areas, as Hotel Del Coronado signature merchandise is
popular among guests and visitors. In 1996, retail revenue
equated to $4,869,000. We have forecast retail revenue to
increase at the underlying rate of inflation of 3.0% per
annum throughout the projection period.
MINOR OPERATED Minor operated departments include the subject's valet
DEPARTMENTS service, business center, health club, and tennis club. In
1996, the subject's minor operated departments generated
$4,031,000 in revenue. We have forecast minor operated
departmental revenue at $4,275,000 in the first forecast
year, with inflationary increases expected thereafter.
RENTS AND OTHER The subject property derives rents and other income from
INCOME guest laundry, in-room movies, and from retail leases of
roughly 30 shops located in the property's galleria sector.
According to property management, all of the retail leases
have been occupied by the same tenants for some years and
are long term in nature. Net rents and other income equated
to $2,114,000 in 1996. We have forecast annual inflationary
increases in rents and other income throughout the
projection period.
ROOMS EXPENSE Rooms expense consists of items relating to the sale and
upkeep of guestrooms and public space. Salaries, wages, and
employee benefits account for a substantial portion of this
category. Although the wages paid to maids and housemen
tend to be highly occupancy sensitive, they are somewhat
offset by the relatively fixed payroll for front desk
personnel, public area cleaners, the housekeeper, and the
assistant manager. The overall result is that salaries,
wages, and employee benefits are only moderately occupancy
sensitive.
Commissions and reservation expenses are usually based on
room sales and are, therefore, highly volume sensitive.
Linen, operating supplies, other operating expenses, and
uniforms are only slightly affected by changes in volume
and are classified as very slightly occupancy sensitive.
In 1996, the subject property's rooms departmental expenses
equated to 21.8% of rooms revenue, down from 23.8% in
1995. The decrease in this expense ratio is attributed to
the increase in rooms revenue. In future years, the subject
property's rooms departmental expense ratio is expected to
decrease further due to robust increases in rooms revenue.
Specifically,
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 106
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
we have forecast rooms expense at 21.7% in the first
forecast year, improving to 18.6% in the stabilized year.
FOOD AND BEVERAGE Expenses for this department consist of items related to the
EXPENSE operation of a hotel's food, beverage, and banquet
facilities. Cost of sales and payroll are moderately to
highly volume sensitive and comprise a substantial portion
of this category. Only very slightly volume sensitive are
china, glassware, and linen; operating supplies; other
operating expenses; and uniforms. Although the other
expense items are primarily fixed, they represent a
relatively insignificant factor.
Because of the high portion of total revenues drawn from
banquets and the high capture rate of in-house guests, the
subject property's food and beverage expense ratio
historically has shown positive expense control, largely
due to the high volume of banquet business. In 1996,
departmental expenses decreased to 70.5% from 76.6% in
1995. In addition, through August 1997, food and beverage
expenses decreased to 65.3% from 69.8% through August
1996. As noted previously, overall occupancy is expected to
erode at the subject property in coming years. However,
banquet business is expected to remain strong. As such, we
have forecast food and beverage expenses to equate to 68.0%
of food and beverage revenues throughout the projection
period.
TELEPHONE EXPENSE The subject property's telephone departmental expense has
also decreased of late, equating to 40.7% of departmental
revenue in 1996, down from 45.4% in 1995. In addition,
through August 1997, these expenses again decreased to
30.1% of revenue from 40.6% through August 1996. Based on
the historical results, we have forecast telephone expenses
at a stabilized level of 30.4% of telephone revenue.
RETAIL EXPENSES The expenses of this department are comprised of the costs
of goods sold in the subject's gift and signature shops, as
well as labor costs. This departmental expense equated to
roughly 77.5% of departmental revenues in 1996. As such, we
have forecast a stabilized retail expense ratio of 77.8%.
MINOR OPERATED Minor operated departments expense has historically equated
DEPARTMENTS EXPENSE to roughly 50% of departmental income. Our forecast is
consistent with these trends, with a stabilized expense
ratio of 49.1% projected.
ADMINISTRATIVE AND Administrative and general expenses include the salaries
GENERAL EXPENSE and wages of all administrative personnel not directly
associated with a particular
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 107
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
department. Expense items related to the management and
operation of the property are also normally allocated to
this category.
Most administrative and general expenses are relatively
fixed. The exceptions are cash overages and shortages;
commissions on credit card charges; credit and collection
charges; provision for doubtful accounts, which are
moderately affected by the quantity of transactions or
total revenue; and salaries, wages, and benefits, which are
slightly influenced by volume.
Prior to 1995, as mentioned, the subject's owner carried
several non-hotel related expenses on the hotel's
statements. As such, administrative and general expenses
decreased markedly in 1995 when this practice was stopped.
The subject property's administrative and general expense
ratio decreased to $9,747 per available room in 1996 from
$9,983 per available room in 1995. This decrease is
attributable to the installing of Wyndham as manager of the
property in August 1996. In addition, these expenses again
decreased through August 1997 as Wyndham management
instituted more cost saving measures. As this appraisal
assumes professional management of the subject property, we
are of the opinion that administrative and general expenses
will remain at the most recent historical levels. As such,
we have forecast administrative and general expenses at
$10,051 per available room in the first forecast year,
increasing by 3.0% per annum, the underlying rate of
inflation, throughout the projection period.
MANAGEMENT FEES As mentioned, prior to August 1996, no management fees were
deducted at the subject property as the hotel was owner
operated. In August 1996, Wyndham Hotels was installed as
the manager. Upon the most recent sale of the hotel, the new
owners installed Destination Hotels & Resorts as the
manager. The contract with DH&R calls for a management fee
payment of 1.5% of total revenue. In our experience,
management fees for hotels such as the subject property
typically equate to between 2.0% and 3.0% of total
revenues. As this appraisal assumes continued professional
management of the subject property, we have deducted
management fees at 2.5% of total revenues per year
throughout the projection period, indicative of industry
standards.
MARKETING EXPENSE The marketing category is unique in that all of the expense
items, with the exception of franchise fees and
commissions, are totally controlled by management. Most
lodging facilities establish an annual marketing budget
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HVS International, San Francisco, California Income Capitalization
Approach 108
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[HVS INTERNATIONAL LOGO]
which sets forth all planned expenditures. If the budget is
followed throughout the period, total marketing expenses
can be accurately forecast.
Although there is a lag period before results are realized,
marketing expenditures are unusual because the benefits are
often extended over a long period. Depending on the type
and scope of the advertising and promotion program
implemented, the lag time can be as short as a few weeks or
as long as several years. However, the positive results of
an effective marketing campaign tend to linger, and a
property often enjoys the benefits of a concentrated sales
effort for many months.
Marketing expenses at the subject property have been
decreasing over the past several years. Specifically,
marketing expenses equated to 4.7% of total revenue in 1995
and 4.0% of total revenue in 1996. In addition, through
August 1997, marketing expenses equated to 3.2% of total
revenue as compared to 3.9% of total revenue through August
1996. According to property management, marketing
expenditures have not been warranted due to high
occupancies and superb average rate growth. However, in the
future, we believe the subject property will need to be
continually marketed in order to maintain the forecasted
occupancy and average rate levels. In addition, property
management indicated marketing expenses will increase
subsequent to the property's pending renovation. It is
management's intention to highly publicize the improvements
and upgrades at the property. As such, we have forecast
marketing expenses at 4.0% in the first forecast year,
increasing to a stabilized level of 5.1% per year.
PROPERTY Property operations and maintenance is another expense
OPERATIONS AND category that is largely controlled by management. Except
MAINTENANCE EXPENSE for repairs that are necessary to keep the facility open
and to prevent damage (e.g., plumbing, heating, and
electrical), most maintenance items can be deferred for
varying lengths of time. All expense items in this category
are relatively fixed. Maintenance is an accumulating
expense. If management elects to postpone performing a
required procedure, the expenditure has not been eliminated
or saved, but only deferred payment until a later date.
The age of a lodging facility greatly influences the
required level of maintenance. A new or thoroughly
renovated property is protected for several years by modern
equipment and manufacturers' warranties. A well-organized
preventative maintenance system often helps delay
deterioration, but most facilities face higher property
operations and
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 109
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[HVS INTERNATIONAL LOGO]
maintenance costs each year, regardless of what the
occupancy trend might be.
Given the subject's age, the structure of its facilities,
and the subject's location on the Pacific Ocean and
subsequent exposure to sea water, property operations and
maintenance expenses have been very high historically.
However, the subject property is expected to embark on a
five-year, $53-million renovation and refurbishment project
in 1998. This project is expected to address several
cosmetic and structural issues at the property. As such, we
believe property operations and maintenance expenses will
be more effectively contained at the subject property in
future years. We have forecast these expenses at $5,644 per
available room in the first projection year increasing to
$6,552 per available room in the stabilized year. From the
stabilized year forward, property operations and
maintenance expenses are expected to increase in line with
inflation at 3.0% per annum.
Energy Expense The significance of energy, costs to hotel operators has
increased considerably in the past several years. Public
areas and corridors, must be continually lighted and heated
or air conditioned, whether the house is full or serving
only one guest. The energy cost of an additional occupied
room (i.e., a few hours of light, television, and heat or
air conditioning) is minimal. The design and layout of a
lodging facility have a notable impact on the level of
energy expense it incurs.
The subject property witnessed a large energy expense
decrease in 1995, due primarily to a streamlining and
centralization of the property's energy providing apparatus
in 1995. Specifically, the subject's power plant was
consolidated from two locations to one. Since then energy
expenses have increased only minimally from $2,239 per
available room in 1995 to $2,295 per available room in
1996. We have forecast energy expenses at $2,390 per
available room in the first projection year with
inflationary increases expected each year thereafter
Property Taxes As described in the "Assessed Value and Taxes" section, the
subject property's 1995/96 property tax burden was
calculated iteratively based on the market value conclusion
reached via the income capitalization approach. The
first-year property tax is forecast at 1.00% of
$330,000,000, or $3,549,000. This tax level is projected to
increase by 2.0% per year thereafter, the maximum increase
under state law.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 110
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[HVS INTERNATIONAL LOGO]
INSURANCE The insurance expense category includes the cost of
insuring the building and its contents against damage or
destruction from fire, weather, sprinkler leakage, boiler
explosion, plate glass breakage, and so forth. Insurance
rates are based on many factors, including building design
and construction, fire detection and extinguishing
equipment, fire district, distance from fire house, and the
area's fire experience.
The subject property's historical 1996 insurance expense
equated to $721 per available room, an increase from the
1995 expense level of $503 per available room. The increase
is attributable to Travelers' belief that the property was
underinsured by the former owner of the property. The new
owners of the subject property indicated insurance expenses
are expected to increase to roundly $850,000 or $1,228 per
available room. As such, we have forecast insurance expense
at $1,228 per available room in the first projection year,
with inflationary gains projected thereafter.
RESERVE FOR Furniture, fixtures, and equipment are essential to the
REPLACEMENT operation of a lodging facility, and their quality often
influences the class of a property. Included in this
category are all non-real estate items that are normally
capitalized, not expensed. Furniture, fixtures, and
equipment are exposed to heavy use and must be replaced at
regular intervals. The useful life of these items is
determined by their quality, durability, and the amount of
guest traffic and use. Periodic replacement of furniture,
fixtures, and equipment is essential to maintain the
quality, image, and income of a lodging facility. Since
capitalized expenditures are not included in the operating
statement, but nevertheless affect an owner's cash flow, an
appraisal should reflect these expenses in the form of an
appropriate reserve for replacement. The annual deduction
of a reserve for replacement from the projected income
stream effectively provides for a return of furniture,
fixtures, and equipment.
In the current market, reserves for replacement are
typically deducted at between 3% and 5% of total revenue.
Considering the age and condition of the subject property's
building and personal property, we have deducted a reserve
for replacement equal to 5.0% of total revenues. The
magnitude of the deduction reflects the fact that the hotel
encompasses 692 guestrooms with facilities located in three
separate buildings constructed between 1888 and 1979,
situated over 27 acres of land.
In addition, as discussed in the "Description of the
Improvements" section of this report, the subject property
is scheduled to undergo a roundly
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 111
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[HVS INTERNATIONAL LOGO]
$53,000,000 capital improvement over the next five years.
The present value of this capital improvement (discounted
at a safe rate of 6.0%) was calculated to equate to roundly
$24,900,000, including monies held in the reserve for
replacement account. The $24,900,000 charge has been
deducted from our "as is" value conclusion to arrive at an
"as improved" value conclusion for the subject property.
CAPITAL LEASES The subject property has historically carried capital
leases on phone and computer equipment. According to
property management, these lease expenses are expected to
decrease in the future due to the termination of the
property's phone lease. We have forecast this expense at
$158,000 in the first projection year with inflationary
increases anticipated thereafter.
FORECAST OF INCOME Based on the preceding analyses, the forecast of income
AND EXPENSE and expense has been formulated. The first chart presented
below reflects a detailed presentation of the forecast
through the stabilized year, with the revenue and expense
items expressed in terms of both total available rooms
(PAR) and total occupied rooms (POR). Following the
forecast through the stabilized year is the 10-year
forecast of income and expense, presented with a lesser
degree of detail. The forecasts pertain to fiscal operating
years beginning October 28, 1997, and are expressed in
inflated dollars for each year, assuming an underlying
inflation rate of 3.0%. Note that the departmental expense
ratios are expressed as a ratio to departmental revenues.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 112
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
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FORECAST OF INCOME AND EXPENSE THROUGH STABILIZED YEAR - HOTEL DEL CORONADO - CORONADO
- -------------------------------------------------------------------------------------------------------------
FISCAL YEAR: 1997/98 1998/99
NUMBER OF ROOMS: 692 692
OCCUPANCY: 85.0% 85.0%
AVERAGE RATE: $214.03 $233.93
OCCUPIED ROAMS: 214.623 214,693
$(OOOs) % OF GROSS PAR(1) POR(2) $(000s) % OF GROSS PAR(1) POR(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $45,951 50.0% $66,403 $214.03 $50,223 51.4% $72,577 $233.93
Food 24,448 26.6 35,329 113.87 25,181 25.8 36,389 117.29
Beverage 8,312 9.0 12,012 38.72 8,562 8.8 12,373 39.88
Telephone 1,632 1.8 2,358 7.60 1,681 1.7 2,429 7.83
Retail 5,154 5.6 7,448 24.01 5,309 5.4 7,672 24.73
Minor Op. Depts. 4,275 4.6 6,178 19.91 4,403 4.5 6,363 20.51
Other Income 2,238 2.4 3,234 10.42 2,305 2.4 3,331 10.74
------- ---- ------- ------- ------- ---- ------- -------
Total Revenues 92,010 100.0 132,962 428.57 97,664 100.0 141,133 454.90
DEPARTMENTAL EXPENSES*
Rooms 9,949 21.7 14,377 46.34 10,248 20.4 14,809 47.73
Food & Beverage 22,277 68.0 32,192 103.76 22,945 68.0 33,158 106.87
Telephone 487 29.8 704 2.27 502 29.9 725 2.34
Retail 3,988 77.4 5,763 18.58 4,107 77.4 5,935 19.13
Minor Op. Depts. 2,063 48.3 2,981 9.61 2,125 48.3 3,071 9.90
------- ---- ------- ------- ------- ---- ------- -------
Total Dept. Expenses 38,764 42.1 56,017 180.56 39,927 40.9 57,698 185.97
DEPARTMENTAL INCOME 53,246 57.9 76,945 248.01 57,737 59.1 83,435 268.93
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 6,955 7.6 10,051 32,40 7,232 7.4 10,451 33.69
Management Fee 2,300 2.5 3,324 10.71 2,442 2.5 3,529 11.37
Marketing 3,695 4.0 5,339 17.21 5,122 5.2 7,402 23.86
Property Oper. & Maint. 3,905 4.2 5,644 18.19 4,192 4.3 6,058 19.53
Energy 1,654 1.8 2,390 7.70 1,709 1.7 2,470 7.96
------- ---- ------- ------- ------- ---- ------- -------
Total Operating Expenses 18,509 20.1 26,747 86.21 120,697 21.1 29,909 96.40
HOUSE PROFIT 34,737 37.8 50,198 161.80 37,040 38.0 53,526 172.53
FIXED EXPENSES
Property Taxes 3,550 3.9 5,131 16.54 3,621 3.7 5,233 16.87
Insurance 850 0.9 1,228 3.96 876 0.9 1,266 4.08
Reserve for Replacement 4,601 5.0 6,649 21.43 4,883 5.0 7,056 22.74
Capital Leases 158 0.2 228 0.74 163 0.2 236 0.76
------- ---- ------- ------- ------- ---- ------- -------
Total 9,159 10.0 13,236 42.66 9,543 9.8 13,790 44.45
NET INCOME $25,578 27.8% $36,962 $119.14 $27,497 28.2% $39,736 $128.08
======= ==== ======= ======= ======= ==== ======= =======
* Departmental expenses expressed as a percentage of departmental revenues
(1) Per Available Room
(2) Per Occupied Room
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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FORECAST OF INCOME AND EXPENSE THROUGH STABILIZED YEAR - HOTEL DEL CORONADO - CORONADO
- ---------------------------------------------------------------------------------------------------------
FISCAL YEAR: 1999/00 2000/01
NUMBER OF ROOMS: 692 692
OCCUPANCY: 83.0% $2.0%
AVERAGE RATE: $250.94 $274.71
OCCUPIED ROAMS: 209,641 207,116
$(000s) % OF GROSS PAR(1) POR(2) $(000s) % OF GROSS PAR(1) POR(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $52,607 52.2% $76,022 $250.94 $56,897 53.7% $82,221 $274.71
Food 25,478 25.3 36,818 121.53 26,006 24.5 37,581 125.56
Beverage 8,663 8.6 12,519 41.32 8,842 8.3 12,777 42.69
Telephone 1,695 1.7 2,449 8.09 1,727 1.6 2,496 8.34
Retail 5,429 5.4 7,845 25.90 5,572 5.3 8,052 26.90
Minor Op. Depts. 4,482 4.5 6,477 21.38 4,589 4.3 6,632 22.16
Other Income 2,357 2.3 3,406 11.24 2,419 2.3 3,496 11.68
------- ---- ------- ------- ------- ---- ------- -------
Total Revenues 100,711 100.0 145,536 480.40 106,052 100.0 153,254 512.04
DEPARTMENTAL EXPENSES
Rooms 10,455 19.9 15,108 49.87 10,718 18.8 15,488 51.75
Food & Beverage 23,216 68.0 33,549 110.74 23,697 68.0 34,244 114.41
Telephone 512 30.2 740 2.44 526 30.5 760 2.54
Retail 4,215 77.6 6,091 20.11 4,334 77.8 6,263 20.93
Minor Op. Depts. 2,189 48.8 3,163 10.44 2,255 49.1 3,259 10.89
------- ---- ------- ------- ------- ---- ------- -------
Total Dept. Expenses 40,587 40.3 58,652 193.60 41,530 39.2 60,014 200.52
DEPARTMENTAL INCOME 60,124 59.7 86,884 286.79 64,522 60.8 93,240 311.53
UNDISTRIBUTED OPERATING EXPENSES
Administrative & General 7,452 7.4 10,769 35.55 7,731 7.3 11,172 37.33
Management Fee 2,518 2.5 3,639 12.01 2,651 2.5 3,831 12.80
Marketing 5,278 5.2 7,627 25.18 5,475 5.2 7,912 26.43
Property Oper. & Maint. 4,236 4.2 6,121 20.21 4,394 4.1 6,350 21.22
Energy 1,761 1.7 2,545 8.40 1,818 1.7 2,627 8.78
------- ---- ------- ------- ------- ---- ------- -------
Total Operating Expenses 21,245 21.0 30,701 101.34 22,069 20.8 31,892 106.55
HOUSE PROFIT 38,879 38.7 56,184 185.45 42,453 40.0 61,348 204.97
FIXED EXPENSES
Property Taxes 3,693 3.7 5,337 17.62 3,767 3.6 5,444 18.19
Insurance 902 0.9 1,303 4.30 929 0.9 1,342 4.49
Reserve for Replacement 5,036 5.0 7,277 24.02 5,303 5.0 7,663 25.60
Capital Leases 168 0.2 243 0.80 173 0.2 250 0.84
------- ---- ------- ------- ------- ---- ------- -------
Total 9,799 9.8 14,160 46.74 10,172 9.7 14,699 49.11
NET INCOME $29,080 28.9% $42,023 $138.71 $32,281 30.3% $46,649 $155.86
======= ==== ======= ======= ======= ==== ======= =======
* Departmental expenses expressed as a percentage of departmental revenues
(1) Per Available Room
(2) Per Occupied Room
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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10-YEAR FORECAST OF INCOME AND EXPENSE - HOTEL DEL CORONADO - CORONADO
- -----------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 1997/99 1998/99 1999/00 2000/01 2001/02 2002/03
------------- ------------- ------------- ------------- ------------- ------------
NUMBER OF ROOMS: 692 692 692 692 692 692
OCCUPIED ROOMS: 214,693 214,693 209,641 207,116 207,116 207,116
OCCUPANCY: 85.0% 85.0% 83.0% 82.0% 82.0% 82.0%
AVERAGE RATE: $214.03 $233.93 $250.94 $274.71 $294.63 $294.63
% OF % OF % OF % OF % OF % OF
$(000s) GROSS $(000s) GROSS $(000s) GROSS $(000s) GROSS $(000s) GROSS $(000s) GROSS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $45,951 50.0% $50,223 51.4% $52,607 52.2% $56,897 53.7% $59,245 53.9% $61,023 53.9%
Food 24,448 26.6 25,181 25.8 25,478 25.3 26,006 24.5 26,786 24.4 27,590 24.4
Beverage 8,312 9.0 8,562 8.8 8,663 8.6 8,842 8.3 9,107 8.3 9,381 8.3
Telephone 1,632 1.8 1,681 1.7 1,695 1.7 1,727 1.6 1,779 1.6 1,832 1.6
Retail 5,154 5.6 5,309 5.4 5,429 5.4 5,572 5.3 5,739 5.2 5,911 5.2
Minor Op. Depts. 4,275 4.6 4,403 4.5 4,482 4.5 4,589 4.3 4,726 4.3 4,868 4.3
Other Income 2,238 2.4 2,305 2.4 2,357 2.3 2,419 2.3 2,492 2.3 2,567 2.3
------------- ------------- ------------- ------------- ------------- -------------
Total 92,010 100.0 97,664 100.0 100,711 100.0 106,052 100.0 109,874 100.0 113,172 100.0
DEPT. EXPENSES*
Rooms 9,949 21.7 10,248 20.4 10,455 19.9 10,718 18.8 11,039 18.6 11,370 18.6
Food & Beverage 22,277 68.0 22,945 68.0 23,216 68.0 23,697 68.0 24,407 68.0 25,140 68.0
Telephone 487 29.8 502 29.9 512 30.2 526 30.5 541 30.4 558 30.5
Retail 3,988 77.4 4,107 77.4 4,215 77.6 4,334 77.8 4,464 77.8 4,598 77.8
Minor Op. Depts. 2,063 48.3 2,125 48.3 2,189 48.8 2,255 49.1 2,322 49.1 2,392 49.1
------------- ------------- ------------- ------------- ------------- -------------
Total 38,764 42.1 39,927 40.9 40,587 40.3 41,530 39.2 42,773 38.9 44,058 38.9
DEPT. INCOME 53,246 57.9 57,737 59.1 60,124 59.7 64,522 60.8 67,101 61.1 69,114 61.1
UNDISTRIBUTED OPER. EXPENSES
Admin. & General 6,955 7.6 7,232 7.4 7,452 7.4 7,731 7.3 7,978 7,3 8,217 7.3
Managernent Fee 2,300 2.5 2,442 2.5 2,518 2.5 2,651 2.5 2,747 2.5 2,829 2.5
Marketing 3,695 4.0 5,122 5.2 5,278 5.2 5,475 5.2 5,650 5.1 5,820 5.1
PO&M 3,905 4.2 4,192 4.3 4,236 4.2 4,394 4.1 4,534 4.1 4,671 4.1
Energy 1,654 1.8 1,709 1.7 1,761 1.7 1,818 1.7 1,874 1.7 1,930 1.7
------------- ------------- ------------- ------------- ------------- -------------
Total 18,509 20.1 20,697 21.1 21,245 21.0 22,069 20.8 22,783 20.7 23,467 20.7
HOUSE PROFIT 34,737 37.8 37,040 38.0 38,879 38.7 42,453 40.0 44,318 40.4 45,647 40.4
FIXED EXPENSES
Property Taxes 3,550 3.9 3,621 3.7 3,693 3.7 3,767 3.6 3,842 3.5 3,919 3.5
Insurance 850 0.9 876 0.9 902 0.9 929 0.9 957 0.9 986 0.9
Reserve for Repl. 4,601 5.0 4,883 5.0 5,036 5.0 5,303 5.0 5,494 5.0 5,659 5.0
Capital Leases 158 0.2 163 0.2 168 0.2 173 0.2 178 0.2 184 0.2
------------- ------------- ------------- ------------- ------------- -------------
Total 9,159 10.0 9,543 9.8 9,799 9.8 10,172 9.7 10,471 9.6 10,748 9.6
NET INCOME $25,578 27.8% $27,497 28.2% $29,080 28.9% $32,281 30.3% $33,847 30.8% $34,899 30.8%
============= ============= ============= ============= ============= =============
* Departmental expenses expressed as a percentage of departmental revenues
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
10-YEAR FORECAST OF INCOME AND EXPENSE - HOTEL DEL CORONADO - CORONADO
- ------------------------------------------------------------------------------------------
FISCAL YEAR 2003/04 2004/05 2005/06 2006/07
-------------- ------------- ------------- -------------
NUMBER OF ROOMS: 692 692 692 692
OCCUPIED ROOMS: 207,116 207,116 207,116 207,116
OCCUPANCY: 82.0% 82.0% 82.0% 82.0%
AVERAGE RATE: $303.47 $312.57 $321.95 $331.61
% OF % OF % OF % OF
$(000s) GROSS $(000s) GROSS $(000s) GROSS $(000s) GROSS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPARTMENTAL REVENUE
Rooms $62,853 53.9% $64,739 53.9% $66,681 53.9% $68,682 53.9%
Food 28,417 24.4 29,270 24.4 30,148 24.4 31,052 24.4
Beverage 9,662 8.3 9,952 8.3 10,250 8.3 10,558 8.3
Telephone 1,887 1.6 1,944 1.6 2,002 1.6 2,062 1.6
Retail 6,089 5.2 6,271 5.2 6,459 5.2 6,653 5.2
Minor Op. Depts. 5,014 4.3 5,164 4.3 5,319 4.3 5,479 4.3
Other Income 2,644 2.3 2,723 2.3 2,805 2.3 2,889 2.3
------------- ------------- ------------- -------------
Total 116,566 100.0 120,063 100.0 123,664 100.0 127,375 100.0
DEPT. EXPENSES*
Rooms 11,711 18.6 12,063 18.6 12,425 18.6 12,797 18.6
Food & Beverage 25,894 68.0 26,671 68.0 27,471 68.0 28,295 68.0
Telephone 574 30.4 592 30.5 609 30.4 627 30.4
Retail 4,736 77.8 4,878 77.8 5,024 77.8 5,175 77.8
Minor Op. Depts. 2,464 49.1 2,538 49.1 2,614 49.1 2,692 49.1
------------- ------------- ------------- -------------
Total 45,379 38.9 46,742 38.9 48,143 38.9 49,586 38.9
DEPT. INCOME 71,187 61.1 73,321 61.1 75,521 61.1 77,789 61.1
UNDISTRIBUTED OPER. EXPENSES
Admin. & General 8,464 7.3 8,718 7.3 8,979 7.3 9,248 7.3
Managernent Fee 2,914 2.5 3,002 2.5 3,092 2.5 3,184 2.5
Marketing 5,994 5.1 6,174 5.1 6,359 5.1 6,550 5.1
PO&M 4,811 4.1 4,955 4.1 5,104 4.1 5,257 4.1
Energy 1,988 1.7 2,048 1.7 2,109 1.7 2,172 1.7
------------- ------------- ------------- -------------
Total 24,171 20.7 24,897 20.7 25,643 20.7 26,411 20.7
HOUSE PROFIT 47,016 40.4 48,424 40.4 49,878 40.4 51,378 40.4
FIXED EXPENSES
Property Taxes 3,997 3.4 4,077 3.4 4,159 3.4 4,242 3.3
Insurance 1,015 0.9 1,046 0.9 1,077 0.9 1,109 0.9
Reserve for Repl. 5,828 5.0 6,003 5.0 6,183 5.0 6,369 5.0
Capital Leases 189 0.2 195 0.2 201 0.2 207 0.2
------------- ------------- ------------- -------------
Total 11,029 9.5 11,321 9.5 11,620 9.5 11,927 9.4
NET INCOME $35,987 30.9% $37,103 30.9% $38,258 30.9% $39,451 31.0%
============= ============= ============= =============
* Departmental expenses expressed as a percentage of departmental revenues
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 114
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
CAPITALIZATION OF The forecasted net income has been converted into an
NET INCOME INTO estimate of market value by a discounted cash flow,
MARKET VALUE mortgage-equity capitalization technique. It is the
ESTIMATE opinion of the appraisers that this technique is most
appropriate for valuing the subject property in that it
mirrors the actions of hotel investors who will typically
leverage their purchases with borrowed capital. Equity
generally makes up a smaller percentage (25% to 40%) and
mortgage financing makes up the majority (60% to 75%) of
the purchase price. The amounts and terms of available
mortgage financing and the rates of return that are
required to attract sufficient equity capital form the
basis for allocating the net income between the mortgage
and equity components and deriving a value estimate.
Other investment parameters used by the appraisers in the
income capitalization approach include an overall
capitalization rate and total property yield. An overall
terminal capitalization rate is utilized to calculate the
property's reversionary sales proceeds at the end of the
assumed 10-year holding period in the discounted cash flow
analysis. Once the value of the property is estimated via
the mortgage-equity capitalization technique, the
appraisers perform analyses to cross-check the
appropriateness of the value estimate based upon other
market derived parameters. The overall capitalization rate
equating the subject's historical and first year's net
income to the estimated market value is compared with
overall rates derived from comparable hotel sales. The
total property yield, which is the discount rate equating
the hotel's forecasted net income before debt service to
the estimated market value, is also compared with total
property yields derived from comparable hotel sales.
MORTGAGE COMPONENT Data for the mortgage component may be developed from
statistics of actual hotel mortgages made by long-term
permanent lenders. The American Council of Life Insurance,
which represents 20 large life insurance companies,
publishes quarterly information pertaining to the hotel
mortgages issued by its member companies. The following
table summarizes the average mortgage interest rates of the
hotel loans made by these lenders. In addition, the
corporate bond yield (as reported by Moody's Bond Record)
is shown for the purpose of comparison.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 115
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
-----------------------------------------------------------
AVERAGE INTEREST RATE AND CORPORATE BOND YIELD
-----------------------------------------------------------
AVERAGE A
AVERAGE CORPORATE
PERIOD INTEREST RATE BOND YIELD
-----------------------------------------------------------
4th Quarter 1996 9.49% 7.54%
3rd Quarter 1996 8.96 7.90
2nd Quarter 1996 8.82 7.93
1st Quarter 1996 7.79 7.37
4th Quarter 1995 8.44 7.28
3rd Quarter 1995 8.61 7.67
2nd Quarter 1995 9.25 7.87
1st Quarter 1995 9.14 8.50
3rd Quarter 1994 9.64 8.48
2nd Quarter 1994 9.38 8.28
4th Quarter 1993 9.38 7.80
3rd Quarter 1993 8.41 7.28
2nd Quarter 1993 10.53 9.65
4th Quarter 1992 9.43 8.48
-----------------------------------------------------------
Because of the six to nine-month lag time inherent in
reporting and publishing hotel mortgage statistics, it is
necessary to update this information to reflect current
lending practices. Research by HVS International indicates
that there is a close mathematical relationship between the
average interest rate of a hotel mortgage and the
concurrent yield on an A Corporate bond. Through a
regression analysis, this relationship is expressed as
follows.
Y = 2.776169 + 0.780914 X
Where: Y = Estimated Hotel/Motel Mortgage Interest Rate
X = Current Average A Corporate Bond Yield
Interest rates have fluctuated in recent months. The
average yield on A corporate bonds, as reported by the
Moody's Bond Record, for October 1997, was 7.27%. Using a
factor of 7.27% in the above equation produces an estimated
hotel/motel interest rate (Y) of 8.5%.
In addition to the mortgage interest rate estimate derived
from this regression analysis, HVS International constantly
monitors the terms of hotel mortgage loans made by our
institutional lending clients. In the current market, hotel
projects are typically able to secure mortgage financing at
interest rates ranging from 8.0% to 10%, depending on the
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 116
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[HVS INTERNATIONAL LOGO]
location, affiliation, operator, and loan-to-value ratio.
According to our discussions with lenders and brokers,
current interest rates for lodging properties range from
250 to 350 basis points over the corresponding yield on
U.S. treasury notes. The current 25-year treasury note
yield is 6.2%, indicating an interest rate range from 8.7%
to 9.7%.
Based on the preceding analysis of the current lodging
industry mortgage market and adjustments for specific
factors such as the property's location and local hotel
market conditions, it is our opinion that a 8.0% interest,
25-year amortization mortgage with a 0.092618 constant is
appropriate for the subject property. We are of the opinion
that a loan-to-value ratio of 75% of the hotel's market
value as determined by this appraisal is attainable in the
current lending environment. A direct correlation between
the interest rate and the loan-to-value ratio exists, where
at a lower interest rate, a lower loan-to-value ratio is
applied.
EQUITY COMPONENT The remaining capital required for a hotel investment
generally comes from the equity investor. The rate of
return that an equity investor expects over a 10-year
holding period is known as the equity yield. Unlike the
equity dividend, which is a short-term rate of return, an
equity yield specifically considers a long-term holding
period (generally 10 years), annual inflation-adjusted cash
flows, property appreciation, mortgage amortization, and
proceeds from a sale at the end of the holding period.
It is difficult to quantify the rate of return required by
equity investors who are seeking to purchase hotel
properties. To establish an appropriate equity yield rate,
HVS International uses two sources of data: hotel sales and
investor surveys.
HOTEL SALES - In the following chart, equity yield rates
pertaining to the sales of various hotels are detailed, as
well as total property yields (i.e., discount rates) and
overall capitalization rates based on the forecasted net
income for the first projection year. HVS International
appraised each of these hotels prior to sale and derived
the following indicators based on actual sales price and
our forecast of net income. Debt component variables
(interest rate and loan-to-value ratio) are based on those
assumed for the respective appraisals. Note that a
discussion of the discount rates and overall capitalization
rates is also included in the following narrative.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 117
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SUMMARY OF DERIVED RATES AND YIELDS
- ----------------------------------------------------------------------------------------------------
DATE OF GOING-IN TOTAL PROPERTY EQUITY
HOTEL CITY STATE SALE RATE YIELD YIELD
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ramada Hotel SFO So. San Francisco CA Jul-97 7.7% 13.6% 20.0%
Holiday Inn SFO So. San Francisco CA Jul-97 11.7 14.2 22.8
Hotel Nikko Atlanta GA Feb-97 10.4 13.6 20.1
Hotel Inter-Continental Los Angeles CA Jan-97 6.4 13.4 18.3
Marriott's Casa Marina Resort Key West FL Jan-97 9.2 12.6 18.3
Westwood Marquis Los Angeles CA Jan-97 2.6 12.2 15.1
Grand Hyatt Hotel San Francisco CA Jan-97 7.8 11.2 15.0
Hollywood Palm Hollywood CA Dec-96 5.0 13.8 20.5
Howard Johnson Pickwick San Francisco CA Nov-96 7.3 10.9 12.5
Hilton Hotel Allentown PA Oct-96 10.0 12.2 18.9
Summerhouse Inn La Jolla CA Oct-96 8.8 13.5 19.3
The Marque of Atlanta Atlanta GA Aug-96 10.9 14.8 25.7
Doubletree Grand Hotel Bloomington MN Aug-96 11.3 13.3 22.0
Hotel Park Tucson Tucson AZ Aug-96 7.0 12.3 18.3
Westin Hotel Waltham MA Aug-96 10.8 13.5 20.8
Arlington Park Hilton Arlington Heights IL Aug-96 15.0 15.2 28.9
Doubletree LAX Los Angeles CA Aug-96 10.5 16.4 29.8
Sheraton Metrodome Minneapolis MN Aug-96 11.2 13.1 21.5
Rra Carton Kansas City MO Aug-96 8.2 10.9 14.9
Doubletree Hotel Atlanta GA Aug-96 8.8 10.6 14.2
Ritz Carton Philadelphia PA Aug-96 9.7 13.8 22.8
Sheraton Needham Needham MA Aug-96 12.5 15.0 26.8
Doubletree Horton Plaza San Diego CA Aug-96 9.5 12.1 18.5
Radisson Marque Winston-Salem NC Aug-96 5.5 13.5 20.4
Embassy Suites St. Louis MO Aug-96 10.2 14.7 25.3
Los Angeles Biltmore Hotel Los Angeles CA Jun-96 4.9 13.4 17.4
The Copley Plaza Boston MA Jun-96 8.3 9.9 11.7
Residence Inn Hunt Valley MD Jun-96 12.3 13.6 18.3
Hyatt Newporter Newport Beach CA Apr-96 17.0 19.4 33.6
West Coast Hotel Long Beach CA Apr-96 1.8 13.4 18.6
Hilton Hotel Del Mar CA Mar-96 12.6 18.4 31.7
Embassy Suites Lompoc CA Feb-96 12.8 16.7 25.8
Warner Center Marriott Woodland Hills CA Dec-95 9.1 11.7 14.8
Embassy Suites Schaumburg IL Dec-95 ---- 13.5 18.9
Doubletree Suites Valley Forge PA Dec-95 10.4 15.5 10.7
Westin Bonaventure Los Angeles CA Dec-95 1.9 17.8 24.2
Marriott Hotel Tysons Corner VA Dec-95 8.9 13.1 18.0
Ft. Lauderdale Airport Hilton Dania FL Dec-95 14.5 22.2 36.8
Ft. Lauderdale Airport Sheraton Dania FL Dec-95 7.3 9.0 9.1
Marriott Hotel Andover MA Dec-95 10.2 13.5 19.2
Hilton at the Club Pleasanton CA Dec-95 10.5 13.4 17.0
Terrace Garden Inn Atlanta GA Oct-95 11.2 16.0 26.1
Residence Inn Atlanta GA Oct-95 9.6 10.0 10.2
High Mesa Inn Santa Fe NM Sep-95 13.6 17.7 30.4
DFW Marriott Irving TX Jul-95 12.6 15.3 24.6
Hotel Millenium New York NY Jun-95 9.5 14.1 23.0
Residence Inn Overland Park KS Jun-95 8.9 14.7 20.8
The Plaza New York NY Jun-95 7.0 11.0 14.0
Residence Inn Des Moines IA Jun-95 9.8 14.1 19.6
Residence Inn Baton Rouge LA Jun-95 12.7 14.8 21.2
Residence Inn Lincoln NE Jun-95 ---- 13.7 18.5
Residence Inn Kansas City MO Jun-95 10.4 13.2 19.8
Source: HVS International
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 118
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[HVS INTERNATIONAL LOGO]
Investor Surveys - In the addenda to this appraisal are
photocopied pages from three recent investor surveys:
Korpacz Real Estate Investor Survey for the third quarter
of 1997; Landauer Hospitality Services' Hotel Investment
Outlook for the first half of 1997; and CB Commercial's
National Investor Survey for the first quarter of 1997. The
measured yields and other parameters vary from survey to
survey, but include equity yield rates (alternately known
as "leveraged" yield rates), discount rates (alternately
known as "free and clear" equity internal rates of return),
and terminal capitalization rates (alternately known as
"exit" or "reversion" capitalization rates). The following
chart summarizes the range of equity yield, total property
yield, and terminal capitalization rates indicated by the
hotel sales and the investor surveys included in the
addenda. Where data has been specified, the parameters
apply to full-service hotels. (Change to limited-service or
luxury, if appropriate)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SUMMARY OF INVESTOR PARAMETERS
- -----------------------------------------------------------------------------------
EQUITY YIELD RATE DISCOUNT RATE TERMINAL RATE OVERALL RATE
SOURCE AVERAGE AVERAGE AVERAGE AVERAGE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HVS/Hotel Sales 2.2% - 32.0% 7.2% - 21.1% (1) 1.4% - 17.0
Landauer Survey 15.0% - 25.0% 12.0% - 16.0% 9.0% - 12.0% 7.5% - 13.0
All Hotels - 1997 18.67% 13.50% 10.85% 9.45%
Korpacz Survey 8.0% - 16.0% 8.0% - 12.0% 7.0% - 11.0
Luxury Hotel Market (1) 12.80% 9.50% 8.80%
3rd Quarter, 1997
CB Commercial Survey (1) 12.0% - 13.5% 9.0% - 11.0% 9.0% - 10.5
Class A - 1st Quarter, 1997 12.70% 10.10% 9.90%
(1) Not reported by Survey
- -----------------------------------------------------------------------------------
</TABLE>
EQUITY YIELD RATE
Among the surveys, equity yield rates range from 15.0% to
25.0%, with the Landauer survey reporting an average of
18.67%. Korpacz and CB Commercial did not report equity
yields. Our selection of an equity yield rate is based on
the assumed debt parameters, the risk inherent in achieving
the projected income stream, and the age, condition, and
location of the subject property. It is our opinion that
the equity market would require a
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 119
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[HVS INTERNATIONAL LOGO]
17.0% return over an assumed 10-year holding period.
Implicit in the equity yield rate is the anticipated
receipt of all future before-tax benefits accruing to the
equity position, which include increasing annual dividends
resulting from inflation and, ultimately, equity build-up
resulting from property appreciation and debt amortization.
DISCOUNT RATE
Among the surveys, discount rates range from 8.0% to 16.0%,
with survey averages of 13.5% (Landauer), 12.8% (Korpacz),
and 12.7% (CB Commercial) reported. As will be proven later
in this section, the assumed debt and equity rates of
return result in a discount rate of 11.3%. Both the applied
equity yield rate and the imputed discount rate are
considered to be well supported by the preceding market
data.
TERMINAL CAPITALIZATION RATE
Inherent in this valuation process is the assumption of a
sale at the end of the 10-year holding period. The
estimated reversionary sales price as of this date is
calculated by capitalizing the 11th year's net income by an
overall terminal capitalization rate. An allocation for the
seller's brokerage and legal fees is deducted from this
sales price, and the net proceeds to the equity interest
(also known as the equity residual) are calculated by
deducting the outstanding mortgage balance from the
reversion. Among the surveys, terminal capitalization rates
range from 8.0% to 12.0%, with survey averages of 10.85%
(Landauer), 9.5% (Korpacz), and 10.1% (CB Commercial)
reported for luxury hotels. Based on the subject property's
location, age, condition, and historic nature, we have
applied a terminal capitakation rate of 8.0%.
VALUATION OF The terms and loan-to-value ratio of current financing
MORTGAGE applicable to the subject property have been selected.
AND EQUITY However, the annual debt service and resultant net
COMPONENTS income to equity cannot be calculated without knowing the
property's total value, the very unknown which we are
attempting to calculate. In essence, the property's value
must be determined by forecasting net income available for
debt service, and by calculating, through an iterative
process, the amount of the mortgage which the net income is
capable of supporting at the assumed interest rate and a
specified loan-to-value ratio.
The property's value may also be calculated directly
through the Simultaneous Valuation Formula. Given the known
variables of equity
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 120
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
investor yield requirements, two equations may be set up to
simultaneously solve for the unknown value.
To illustrate the Simultaneous Valuation Formula, the
following symbols are used:
NI = Net income available for debt service
V = Value
M = Loan-to-value ratio
f = Annual debt service constant
n = Number of years in the projection period
d(e) = Annual cash available to equity
d(r) = Residual equity value
b = Brokerage and legal cost percentage
P = Fraction of the loan paid off during the
projection period
f(p) = Annual constant required to amortize the entire
loan during the projection period
R(r) = Overall terminal capitalization rate
applied to the net income to calculate the
total property reversion (sales price at
the end of the projection period)
1/S(n)= Current worth of a $1 factor (discount
factor) at the equity yield rate
*P = (f-i)/(fp-i) where i=interest rate of mortgage
**S = 1 + i where i = equity yield rate
EQUATION #1 Calculation of annual cash flow to equity (equity
dividend and reversion):
NI1 - (f x M x V) de1
NI2 - (f x M x V) de2...
... NI10 - (f x M x V) = de10
(NI11/Rr) - (b (NI11/Rr) - ((1 - P) x M x V) = dr
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 121
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[HVS INTERNATIONAL LOGO]
EQUATION #2 Calculation of equity as sum of discounted cash flows:
(de1 x 1/S1) + (de2 X 1/S2) + ... + (de10 x l/S10) +
(dr x 1/S10) = (1 - M) V
SIMULTANEOUS Combination of Equations #1 and #2:
VALUATION FORMULA
((NI1 - (f x M x V)) 1/S1) + ((NI2 - (f x M x V))
1/S2) + ... ((NI10 - (f x M x V)) 1/S10) +
(((NI11/Rr) - (b (NI11/Rr)) - ((1 - P) x M x V)) 1/S10) =
(1 - M) V
The following values are assigned to the variable
components for the purposes of this valuation,
Loan-To-Value Ratio M 75.0%
Debt Service Constant f 0.092618
Equity Yield 1/Sn 17.0%
Brokerage and Legal Fees b 2.0%
Annual Constant Required to
Amortize the Loan in 10 Years fp 0.145593
Loaded Terminal Capitalization Rate Rr 9.00%
FORECAST OF NET INCOME
-----------------------------------------------------------
YEAR NET INCOME
-----------------------------------------------------------
1 = $25.578,000
2 = 27,497,000
3 = 29,080,000
4 = 32,281,000
5 = 33,847,000
6 = 34,899,000
7 = 35,987,000
8 = 37,103,000
9 = 38,258,000
10 = 39,451,000
11* = 45,004,000
* Net income before property taxes
-----------------------------------------------------------
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 122
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
The Simultaneous Valuation Formula is applied to the
subject property's forecasted net income as follows.
Intermediary calculations:
(f x M x V) = 0.092618 x 0.75 x V = 0.069463 V
P = ( 0.092618 - 0.080 ) / ( 0.145593 - 0.080 ) = 0.192367
Expressing formula in terms of V:
(25,578,000 - 0.069463 V) x 0.854701 +
(27,497,000 - 0.069463 V) x 0.730514 +
(29,080,000 - 0.069463 V) x 0.624371 +
(32,281,000 - 0.069463 V) x 0.533650 +
(33,847,000 - 0.069463 V) x 0.456111 +
(34,899,000 - 0.069463 V) x 0.389839 +
(35,987,000 - 0.069463 V) x 0.333195 +
(37,103,000 - 0.069463 V) x 0.284782 +
(38,258,000 - 0.069463 V) x 0.243404 +
(39,451,000 - 0.069463 V) x 0.208037 +
(((45,004,000 / 0.090 )-( 0.02 x ( 45,004,000 / 0.090 )) -
(( 1 - 0.192367 ) x 0.75 x V)) x 0208037 ) = ( 1 - 0.75 )V
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 123
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
Like terms are combined and the equation is solved for "V":
$266,061,923 - 0.499376 V = (1 - 0.75)V
$266,061,923 = 0.74938 V
V = $266,061,923 / 0.74938
V = $355,044,454
Total Property Value as
Indicated by the Income
Capitalization Approach (Say) = $355,000,000
CAPITAL DEDUCTION From the preceding value conclusion, the appraisers are
obligated to deduct necessary capital expenditures in order
to present an "as is" market value. As noted in the
"Description of the Improvements" section of this report,
the subject property is to undergo a capital improvement
spanning five years at a cost of $53,000,000. After taking
into consideration the projection of a 5.0% per year
reserve and discounting the second through fifth years'
estimated capital improvement budget at a safe rate of
6.0%, the total capital deduction equates to roundly
$24,900,000. This expenditure has been deducted from the
preceding value indication as follows in order to calculate
a final market value conclusion via the income
capitalization approach.
"As Improved" Market Value Conclusion $355,044,000
Less: Capital Expenditure 24,900,000
------------
"As Is" Market Value Conclusion 330,144,000
(Say) $330,000,000
The "as improved" value estimate, as determined by the
Simultaneous Valuation Formula, may be mathematically
proven by discounting the net income to equity at the
equity yield rate. Annual deductions for debt service are
derived based on the mortgage terms.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 124
- -------------------------------------------------------------------------------
[HVS INTERNATIONAL LOGO]
Mortgage Component (75%) $266,283,000
Equity Component (25%) 88,761,000
------------
Total $355,044,000
Mortgage Component $266,283,000
Mortgage Constant 0.092618
------------
Annual Debt Service $24,662,585
The 11-year forecast of net income and 10-year forecast of
net income to equity are presented in the following table.
<PAGE>
[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
11-YEAR FORECAST OF NET INCOME AND 10-YEAR FORECAST OF NET INCOME TO EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Occupancy 85% 85% 83% 82% 82% 82% 82% 82% 82% 82% 82%
Average Rate $214.03 $233.93 $250.94 $274.71 $286.05 $294.63 $303.47 $312.57 $321.95 $331.61 $341.56
Net Income Before
Debt Service $25,578 $27,497 $29,080 $32,281 $33,847 $34,899 $35,987 $37,103 $38,258 $39,451 $45,004*
Less: Debt Service 24,663 24,663 24,663 24,663 24,663 24,663 24,663 24,663 24,663 24,663
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Income to Equity $915 $2,834 $4,417 $7,618 $9,184 $10,236 $11,324 $12,440 $13,595 $14,788
Debt Coverage Ratio 1.04 1.11 1.18 1.31 1.37 1.42 1.46 1.50 1.55 1.60
Cash-on-Cash Return 1.0% 12% 5.0% 8.6% 10.3% 11.5% 12.8% 14.0% 15.3% 16.7%
* The 11th year's net income is projected prior to the deduction of real estate
taxes. The overall going-out rate used to capitalize the 11th year's net
income is loaded with the applicable real estate tax rate to derive a
reversionary value estimate, as of the end of year 10, which takes into
account reassessments, of the property upon sale.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 126
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[HVS INTERNATIONAL LOGO]
The debt coverage ratio and cash-on-cash return calculated
in the fifth projection year (stabilized year) are
considered acceptable returns in the current market. It is
important to note, the subject property's pending
renovation is expected to considerably increase its value
as average rate levels are expected to improve. The net
proceeds to equity upon sale of the property are determined
by deducting sales expenses (brokerage and legal fees) and
the outstanding mortgage balance.
The equity residual at the end of the 10th year is
calculated by deducting brokerage and legal fees and the
mortgage balance from the reversionary value. The
reversionary value is calculated as the 11th year's net
income (prior to property taxes, if in California)
capitalized by the terminal capitalization rate (loaded
with the stabilized property tax rate, if in California).
The calculation is shown as follows.
Reversionary Value ( $45,004,000 /0.0900 ) $500,044,000
Less:
Brokerage and Legal Fees 10,001,000
Mortgage Balance 215,059,000
-------------
Net Sale Proceeds to Equity $274,984,000
The overall property yield (before debt service), the yield
to the lender, and the yield to the equity position have
been calculated by computer with the following results.
-----------------------------------------------------------
OVERALL PROPERTY YIELDS
-----------------------------------------------------------
PROJECTED YIELD
(INTERNAL RATE OF RETURN)
POSITION VALUE OVER 10-YEAR HOLDING PERIOD
-----------------------------------------------------------
Total Property $355,044,000 11.3 %
Mortgage 266,283,000 7.9
Equity 88,761,000 17.0
* Whereas the mortgage constant and value are calculated on
the basis of monthly mortgage payments, the yield in this
proof assumes single annual payments. As a result, the
proof's derived yield is slightly less than that actually
input.
-----------------------------------------------------------
Based on the quality of the subject property, its location
and competitive environment, and all factors having an
impact on the economic viability of
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 127
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[HVS INTERNATIONAL LOGO]
the project, we believe that these internal rates of return
are reasonable. The discounted cash flow procedure
substantiating the yield to each position is presented as
follows.
- -------------------------------------------------------------------------------
TOTAL PROPERTY YIELD
- -------------------------------------------------------------------------------
NET INCOME BEFORE PRESENT WORTH OF $1 DISCOUNTED
YEAR DEBT SERVICE FACTOR @ 11.3% CASH FLOW
- -------------------------------------------------------------------------------
1997/98 $ 25,577,555 x 0.898708 $ 22,987,000
1998/99 27,497,000 x 0.807677 22,209,000
1999/00 29,080,000 x 0.725866 21,108,000
2000/01 32,281,000 x 0.652342 21,058,000
2001/02 33,847,000 x 0.586265 19,843,000
2002/03 34,899,000 x 0.526881 18,388,000
2003/04 35,987,000 x 0.473512 17,040,000
2004/05 37,103,000 x 0.425549 15,789,000
2005/06 38,258,000 x 0.382445 14,632,000
2006/07 529,495,000* x 0.343706 181,991,000
-------------
Total Property Value $ 355,045,000
* 1Oth year net income of $39,451,000 plus sales proceeds of $ 490,044,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MORTGAGE COMPONENT YIELD
- -------------------------------------------------------------------------------
TOTAL ANNUAL PRESENT WORTH OF $1 DISCOUNTED
YEAR DEBT SERVICE FACTOR @ 7.9% CASH FLOW
- -------------------------------------------------------------------------------
1997/98 $ 24,663,000 x 0.926530 $ 22,851,000
1998/99 24,663,000 x 0.858458 21,172,000
1999/00 24,663,000 x 0.795387 19,617,000
2000/01 24,663,000 x 0.736950 18,175,000
2001/02 24,663,000 x 0.682806 16,840,000
2002/03 24,663,000 x 0.632640 15,603,000
2003/04 24,663,000 x 0.586160 14,456,000
2004/05 24,663,000 x 0.543095 13,394,000
2005/06 24,663,000 x 0.503194 12,410,000
2006/07 239,722,000* x 0.466224 111,764,000
-------------
Value Of Mortgage Component $ 266,282,000
* 10th year debt service of $24,663,000 plus outstanding
mortgage balance of $ 215,059,000
- -------------------------------------------------------------------------------
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 128
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[HVS INTERNATIONAL LOGO]
- -------------------------------------------------------------------------------
EQUITY COMPONENT YIELD
- -------------------------------------------------------------------------------
NET INCOME PRESENT WORTH OF $1 DISCOUNTED
YEAR TO EQUITY FACTOR @ 17.0% CASH FLOW
- -------------------------------------------------------------------------------
1997/98 $ 915,000 x 0.854699 $ 782,000
1998/99 2,834,000 x 0.730510 2,070,000
1999/00 4,417,000 x 0.624366 2,758,000
2000/01 7,618,000 x 0.533645 4,065,000
2001/02 9,184,000 x 0.456106 4,189,000
2002/03 10,236,000 x 0,389833 3,990,000
2003/04 11,324,000 x 0.333190 3,773,000
2004/05 12,440,000 x 0.284777 3,543,000
2005/06 13,595,000 x 0.243399 3,309,000
2006/07 289,772,000* x 0.208033 60,282,000
-------------
Value of Equity Component $ 88,761,000
* 10th year not income to equity of $14,788,000 plus sales
proceeds of $ 274,984,000
- -------------------------------------------------------------------------------
CAPITALIZATION In the review of rates of return derived from hotel sales,
RATES the overall capitalization rates based on first-year net
income ranged from 1.4% to 17.0%. In Landauer Hospitality
Services' Hotel Investment Outlook for the first half of
1997, a survey of hotel investors rendered a range of
overall capitalization rates from 7.5% to 13.0%, with a
survey average of 9.45%. In the Korpacz Real Estate
Investor Survey, free and clear equity capitalizafion rates
for luxury hotels ranged from 7.0% to 11.0%, with a survey
average of 8.8%. In CB Commercial's National Investor
Survey, going-in overall capitalization rates ranged from
9.0% to 10.5%, with a survey average of 9.9%.
The following chart shows how overall capitalization rates
for the subject property have been derived based on our
estimate of market value via the income capitalization
approach. Note that in the following chart, historical 1996
net income has been adjusted to reflect a management fee
equal to 3.5% of total revenues and a reserve for
replacement equal to 5.0% of total revenues, consistent
with the premise of the forecast. Also, the stabilized
year's net income has been deflated to first-year dollars
at the underlying 3.0% inflation rate.
<PAGE>
HVS International, San Francisco, California Income Capitalization
Approach 129
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[HVS INTERNATIONAL LOGO]
-----------------------------------------------------------
OVERALL CAPITALIZATION RATES
-----------------------------------------------------------
NET OPERATING OVERALL
YEAR INCOME CAPITALIZATION RATE
-----------------------------------------------------------
1996 Historical $19,690,000 5.5%
Forecast 1997/98 25,578,000 7.2
Deflated Stabilized
(1996/97 Dollars) 27,846,000 7.8
-----------------------------------------------------------
The overall capitalization rates are supported by the
previously noted market data. While the capitalization rate
based on the adjusted historical net income appears low,
the capitalization rates based on the unadjusted 1996 net
income equates to 7.9%, in line with the other rates
presented. The subject's profitability is expected to
improve through the stabilized year due to regional
economic recovery. On the whole, the rates are considered
appropriate for a hotel such as the subject property.
CONCLUSION Utilizing the income capitalization approach, the subject
property was valued by estimating the present worth of
future net income before debt service and depreciation for
a 10-year period. Projections were prepared through an
analysis of historical income, an analysis of the subject's
competitive environment, and comparisons with comparable
operations. To convert the forecasted income stream into an
estimate of value, the net income was allocated to mortgage
and equity components based on market rates of return and
loan-to-value ratios. The sum of the mortgage and equity
components equated to $354,855,000. Following the deduction
of $24,900,000 for capital expenditures, our estimate of
the subject property's "as is" market value via the income
capitalization approach is rounded to $330,000,000.
<PAGE>
HVS International, San Francisco, California Cost Approach 130
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[HVS INTERNATIONAL LOGO]
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14. COST APPROACH
Market value is determined via the cost approach by first
estimating the market value of the subject land as if
vacant and available for its highest and best use, and then
estimating the cost to replace or reproduce the subject
improvements. Appropriate deductions are then made for any
physical deterioration and functional and external
obsolescence. Finally, the value of the land is added to
the depreciated replacement cost to provide an estimate of
current market value.
Market participants tend to take into consideration the
cost to develop a new hotel or motel with optimal physical
and functional utility when forming their purchase
decisions regarding existing properties. The principle of
substitution, which is basic to the cost approach, affirms
that no prudent investor would pay more for a property than
the cost to acquire the site and construct comparable
improvements without undue delay.
Land Value The land value may be estimated by the sales comparison
approach through a review of comparable land sales. The
sales comparison approach is typically the most appropriate
technique for valuing land. This technique compares the
sales data to the subject site and adjusts for
discrepancies in the real property rights conveyed,
financing terms, conditions of sale, date of sale, and
physical attributes such as size, topography,
configuration, location, existing entitlement,
accessibility, availability of off-site improvements, and
removal of non-contributory existing improvements. In
addition, the subject is located on beachfront property,
further complicating our data search. In an attempt to
locate comparable land sales for the subject property, we
have used several sources, including real estate brokers,
local appraisers, and county officials. However, land
transactions have been scarce in the subject's area and we
were unable to uncover any comparable land sales.
<PAGE>
HVS International, San Francisco, California Cost Approach 131
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[HVS INTERNATIONAL LOGO]
Due to the lack of comparable land sales, estimating the
land value through a sales approach is insupportable.
Therefore, we have estimated the land value of the subject
site through a ground lease approach.
The ground lease approach is supported by numerous
self-adjusting comparable, as well as the overall economics
of the individual project. Over the past 10 years, hotels
have been routinely constructed on leased land. While the
lease terms differ somewhat from hotel to hotel, the basis
for the rental calculation is often tied to a percentage of
revenue formula. To the subject property's forecasted
stabilized total revenues, we have applied a typical
economic hotel ground lease rental formula; from this
calculation we can determine the hotel's economic rental,
or the income attributed to the land. The land value is
then estimated by dividing the economic rental by an
appropriate capitalization rate.
The self-adjusting aspect of this approach is a key element
to its reliability. Since the rental formula is tied
directly to a percentage of revenue, it inherently reflects
income or value attributable to the subject land as it is
currently improved. We have researched actual long-term
ground leases encumbering hotels, looking in particular for
rental formulas based entirely on a percentage of total
revenue or of rooms revenue. The following chart presents
comparable ground rent terms of hotels.
<PAGE>
HVS International, San Francisco, California Cost Approach 132
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[HVS INTERNATIONAL LOGO]
COMPARABLE GROUND RENT FORMULAS
<TABLE>
<CAPTION>
RENTAL BASED ON
STABILIZED REVENUE
OF THE 692-UNIT
SUBJECT PROPERTY
-----------------------------
DOLLAR PERCENTAGE PERCENTAGE
AMOUNT OF ROOMS OF TOTAL
HOTEL AND LOCATION ROOMS GROUND LEASE FORMULA SUBORDINATION (+000) REVENUE REVENUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Anaheim Hilton 1,578 Years 1-10: 1.5% of gross revenue; $1,708 3.2% 1.8%
Anaheim, CA years 11-15:1.75% of gross revenue;
and years 16+ 2.0% of gross revenue
Pan Pacific Hotel 507 73% of the sum of 2% of food sales, $2,893 5.5% 3.0%
Anaheim, CA 3% of beverage sales, 12% of
concession rentals, and 5% of rooms
sales, against a minimum
Doubletree Desert Princess 289 Years 2-6: 2% of gross revenue: years $2,441 4.6% 2.5%
Cathedral City, CA 7-15: 2.5% of gross revenue; years
16-25: 3% of gross revenue; years
26-50: 4% of gross revenue;
years 51-66: 4.5% of gross revenue
Marriott Courtyard 149 6% of gross sales, against a minimum $5,857 11.1% 6.0%
Cupertino, CA
Marriott Courtyard 146 Year 1: $55.000; year 2-3: $175,000; $5,857 11.1% 6.0%
Fresno, CA year 4: $236,124; year 5+: 6% of gross
revenue, against a minimum
Proposed Doubletree 250 Year 1: $125,000; year 2: $175,000; year 3: $2,106 4.0% 2.2%
Hermosa Beach, CA $225,000; year 4: $350,000; years 4-14: 4%
of rooms revenue; years 15-19: 5% of rooms
revenue; years 20-55: 6% of rooms revenue
Best Western 200 7.5% of rooms revenue G $3,948 7.5% 4.0%
Los Angeles, CA
Monterey Cannery Hotel 242 4% of gross room revenue; 3% of gross food G $4,322 8.2% 4.4%
Monterey, CA and beverage revenue: 3% of gross revenue
other than rooms or commercial lease income;
20% of rentals received on commercial space
Marriott Hotel 377 5% of gross rooms revenue: 2% of beverage sales $2,948 5.6% 3.0%
Newport Beach, CA up to $300K; 3% of gross beverage sales from
$300K to $50OK: 4% of gross beverage sales over
$50OK; 2.5% of gross meeting room sales aganst
a minimum
The Hyatt Newporter 425 6.5% of gross rooms revenue; 2% of food revenue; $4,687 8.9% 4.8%
Newport Beach, CA 5% of beverage revenue; 25% of gross revenue from
specified sublessees and assignees; 2% of gross
gift shop sales; 6% of gross revenue from other
permitted operations
Spa Hotel and Mineral Spgs 432 5% of gross rooms revenue; 5% of gross beverage $3,627 6.9% 3.7%
Palm Springs revenue; 5% of gross spa and other revenue; 1%
of gross food revenue; 2% of gross telephone
revenue
San Francisco Airport 695 Year 1: 5% of rooms revenue; year 2: 5.25% of S $2,895 5.5% 3.0%
Marriott rooms revenue; years 3+: 5.5% of rooms
Burlingame, CA revenue, against a minimum
</TABLE>
<PAGE>
HVS International, San Francisco, California Cost Approach 133
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[HVS INTERNATIONAL LOGO]
COMPARABLE GROUND RENT FORMULAS
<TABLE>
<CAPTION>
RENTAL BASED ON
STABILIZED REVENUE
OF THE 692-UNIT
SUBJECT PROPERTY
-----------------------------
DOLLAR PERCENTAGE PERCENTAGE
NUMBER OF AMOUNT OF ROOMS OF TOTAL
HOTEL AND LOCATION ROOMS GROUND LEASE FORMULA SUBORDINATION (+000) REVENUE REVENUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Holiday Inn 334 Years 1-2: $0; year 3: $25,000; year 4: $30.000; G $3,232 6.1% 3.3%
Palo Alto, CA year 5+: 5% of rooms revenue, 3% of beverage
revenue, 1.5% of food revenue; OR 7% of fair
market value, whichever is greater
Pleasant Hill Inn 49 5% of gross rooms and/or apartment sales: 1% of $3,287 6.2% 3.4%
Pleasant Hill, CA food revenue: 2% of gross beverage revenue: 5%
of gross space rentals; 1 % of gross club dues
Ritz-Carlton Hotel 250 Year 1: 0.5% oftotal revenue; year 2: 1.0% of $4,881 9.3% 5.0%
Rancho Mirage, CA total revenue; year3: 1.5% of total revenue; year
4+: 5.0% of total revenue
Portofino Inn 130 6% of rooms revenue; 3% of food revenue, 3% of G $4,436 8.4% 4.5%
Redondo Beach, CA beverage revenue; 5% of shop revenue; 5% of
vending revenue; 27% of boat slips
Sunrise 111 6% of rooms revenue; 3% of food revenue; 3% of G $4,436 8.4% 4.5%
Redondo Beach, CA beverage revenue; 5% of shop revenue; 5% of
vending revenue; 50% of car rentals
Hyatt Regency 508 Years 1-10: 2% of gross revenue; years 11+: 3% S $2,929 5.6% 3.0%
Sacramento, CA of gross revenue
San Diego Marriott & Marina 1,364 Year 1: $200,000; years 2-5: $400,000; years G $4,436 8.4% 4.5%
San Diego, CA 6-25: 6% of rooms revenue, 3% of food revenue, 3%
of beverage revenue, 5% of shop revenue, 25%
of right to install vending, 20% of boat slips,
and 10% of boat rentals
San Francisco Marriott 1,500 Years 1-8: $1.05 million or 4% of gross rooms $2,106 4.0% 2.2%
San Francisco, CA revenue or 2% of remaining revenue; year 9+:
$1.5 millon
Doubletree Hotel 500 Years 1-3: $0; years 4-5: 3% of rooms revenue G $3,007 5.7% 3.1%
Santa Clara, CA and 2% of food and beverage revenue; years 6-9:
3.5% of rooms revenue and 2% of food and beverage
revenue; years 10-15: 4.5% of rooms revenue and
2% of food and beverage revenue; year 16+: 4.5%
of rooms revenue and 3% of food and beverage
revenue
Airport Hilton 190 3% of rooms revenue and 1% of food and beverage S $1,898 3.6% 1.9%
Santa Maria, CA revenue; OR 11% of fair market value, whichever
is greater
Bishop Ranch Marriott 372 3% of total gross revenues $2,929 5.6% 3.0%
San Ramon, CA
349 Years 1-5: $900,000 annually, thereafter, the $2,632 5.0% 2.7%
Four Seasons greater of
</TABLE>
<PAGE>
HVS International, San Francisco, California Cost Approach 134
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[HVS INTERNATIONAL LOGO]
Application of the comparable ground rent terms to the subject's total
revenue indicates a range of ground rent percentages from 1.8% to 6.0% of
total revenue with most percentage rents clustering around 3 to 4%. After
calculating these comparable ground leases, and taking into consideration
the highly desirable physical and locational attributes of the subject
property, we believe the appropriate economic ground rental formula would
be higher than the typical 3 to 4%, at 6.0% of total revenue. Therefore, an
appropriate ground rent calculation for the subject site is as follows.
Discounted Stabilized Total Revenue $97,621,626
Economic Rental Percentage 6.0%
-----------
Economic Ground Rent $5,857,298
The economic ground rent is capitalized at 8.0%, which in the appraisers'
opinion reflects the low risk associated with the site's attributes, to
yield an estimated market value of the land. The land value of the hotel
site is calculated as follows.
Economic Ground Rent = $5,857,298 = $73,216,219
-----------
Capitalization Rate 8.0%
Estimated Land Value (Say) $73,000,000
As shown, the land value indication via the ground lease approach is
$73,000,000, which equates to $62.07 per square foot. We recognize that the
sales comparison approach is generally the preferred method of determining
land value; however, the sales comparison method of determining the land
value of the subject site is impossible because of the lack of truly
comparable land sales. The ground lease approach, which is based on the
concept that the land value is determined by the economic rental that can
be generated, or the income attributable to the land, provides an
alternative method of estimating land value. However, the business
component of the income to the land is not clearly distinguishable. Based
on these considerations, we are of the opinion that the subject property's
land value is $73,000,000, or roundly $105,500 per guestroom.
<PAGE>
HVS International, San Francisco, California Cost Approach 135
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[HVS INTERNATIONAL LOGO]
REPLACEMENT COST One of the nationally recognized authorities on
replacement cost information is Marshall & Swift. HVS
International uses the Commercial Estimator computer
program produced by Marshall & Swift. The computer cost
program employs the square-foot method in cost estimating,
which approximates the replacement cost of the building's
major components in terms of dollars per unit of area or
volume, based on known costs of similar structures
adjusted for time and physical differences. The estimate
of replacement cost by this method includes all direct
costs plus a portion of indirect costs, such as
construction financing, temporary utilities, and general
conditions.
For the purpose of developing a cost estimate using the
Marshall & Swift Commercial Estimator program, the subject
property has been classified as a hotel with three
separate buildings and a three-story office building.
According to the subject's engineer and appraisers'
estimates, the total building area for all aspects of the
subject property equates to: (plus or minus)658,600
square feet.
Based on these considerations, as well as locational and
time adjustment factors and other criteria related to
building systems, the replacement cost of the building as
if new has been estimated through the Commercial Estimator
program. The replacement cost of the subject property is
estimated to be $80,426,264, or say, $80,400,000.
Besides approximating the replacement cost of the
buildings, we have estimated the cost of the additional
site improvements. The estimated cost of the subject's two
outdoor pools need to be added to the replacement cost of
the building. The subject's swimming pools are large and
have been estimated to cost a total of $486,000 using
Marshall & Swift figures. In addition, the subject's
extensive landscaping has been estimated to cost $80,000,
while the subject's two surface parking lots totaling 978
spaces have been estimated to cost $1,110,000. The
following table summarizes the cost estimates of the site
improvements. Also, indirect costs have been derived based
upon the appraisers' estimate of financing fees, real
estate taxes, and brokerage fees associated with the
subject's development. Indirect costs have been calculated
for this analysis as being equal to 5.076 of the
replacement cost of the total improvements.
<PAGE>
HVS International, San Francisco, California Cost Approach 136
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[HVS INTERNATIONAL LOGO]
Improvement Replacement Cost
ITEM TOTAL
-------------------------------------------------------
Replacement Cost New from M&S $80,426,000
Surface Parking 1,110,000
Landscaping 80,000
Swimming Pool 486,000
-----------
Subtotal 82,102,000
Indirect Costs @ 5.0% (Real Estate
Taxes and Loan Fees) 4,105,000
-----------
Total Improvement Replacement Cost $86,207,000
-------------------------------------------------------
OPENING COSTS In addition to the replacement cost of the improvements,
opening costs must be considered. Opening costs include
the preopening marketing and administrative expenditures
of the hotel and a working capital reserve to maintain
adequate cash flow until the operation achieves a
break-even point. Ranges of these expenses have been
estimated by HVS International. A copy of our most recent
development cost survey is contained in the addenda. The
following table presents the estimated opening costs for
the subject property.
ESTIMATE OF OPENING COSTS
COST PER NO. OF
EXPENSES ROOM ROOMS TOTAL COST
----------------------------------------------------
Preopening Expenses $5,700 692 $3,944,000
Working Capital 3,500 692 2,422,000
----------
Total Opening Costs $6,366,000
Adding this component to the replacement cost of the
improvements, the total replacement cost of the property
is estimated to be roundly $92,600,000.
PERSONAL PROPERTY Our estimate of the cost of furniture, fixtures, and
equipment is based on our inspection and review of the
subject's personal property. Following this survey, we
have estimated the replacement cost of the subject
property's furniture, fixtures, and equipment, as if new,
to be equal to roughly $50,000 per room, or a total of
$34,600,000.
<PAGE>
HVS International, San Francisco, California Cost Approach 137
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[HVS INTERNATIONAL LOGO]
ALLOCATION OF The current construction environment for hotels is such
DEVELOPER'S that developer's profit is at higher levels due to
PROFIT the risk of developing at the beginning of a cycle. The
economic value of new hotels has only begun to exceed
development costs during recent years. Determining the
amount of developer's profit is generally a matter of
judgment. Generally, the exclusion of developer's profit
from a replacement cost analysis is a way of accounting
for external obsolescence in the market. As the appraisers
have calculated external obsolescence later in this
section, we find it reasonable, in this analysis, to
reflect developer's profit. The appraisers have considered
a 20% entrepreneurial profit to be necessary and
appropriate to reflect the financial incentive required
for new hotel development. Developer's profit is applied
to the buildings; the furniture, fixtures, and equipment;
and the land as follows.
ALLOCATION OF DEVELOPER'S PROFIT
<TABLE>
<CAPTION>
PROFIT
COMPONENT COST RATIO PROFIT
-----------------------------------------------------------------------
<S> <C> <C> <C>
Building Improvements $92,573,000 20.0 % $18,514,600
Furniture, Fixtures,
and Equipment 34,600,000 20.0 6,920,000
Land 73,000,000 20.0 14,600,000
-----------
Total Developer's Profit $40,034,600
-----------------------------------------------------------------------
</TABLE>
ACCRUED Accrued depreciation is a loss in value from the
DEPRECIATION reproduction or replacement cost new of the improvements
ESTIMATES due to any cause as of the date of the appraisal. The loss
may result from physical deterioration, functional
obsolescence, external obsolescence, or a combination
thereof. Physical deterioration may be either curable or
incurable.
CURABLE PHYSICAL DETERIORATION
Curable physical deterioration refers to items of deferred
maintenance. The estimate of curable physical
deterioration applies only to items in need of repair as
of the date of value, which will yield an increase in
property value greater than or equal to the cost of the
repair. The amount of depreciation is measured by the cost
of restoring items to a new or reasonably new condition.
As mentioned throughout this report, the subject property
is set to embark on a five-year roundly $53,000,000
renovation of the hotel. In order to account for this
renovation, we have deducted $24,900,000
<PAGE>
HVS International, San Francisco, California Cost Approach 138
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[HVS INTERNATIONAL LOGO]
($53,000,000 less monies held in the reserve for replacement account,
discounted at a 6.0% safe rate per annum) from our "as improved" market
value to arrive at our "as is" market value. The renovation is expected to
address all aspects of the subject property including FF&E upgrades to the
rooms, meeting space, food and beverage outlets, and all public spaces. In
addition, roundly $10,700,000 of the total $24,900,000 has been earmarked
for building and engineering improvements. We have thus deducted a total of
roundly $10,700,000 for curable physical deterioration, which is the
portion attributable to the building improvements.
------------------------------------------------------------------------
REPLACEMENT COST LESS DEPRECIATION DUE TO CURABLE PHYSICAL DETERIORATION
------------------------------------------------------------------------
Replacement Cost of improvements $111,088,000
Less: Curable Physical Deterioration - Improvements 10,707,000
------------
Depreciated Replacement Cost $100,381,000
------------------------------------------------------------------------
INCURABLE PHYSICAL DETERIORATION
The subject property's accrued incurable physical deterioration has been
estimated by a direct method based on estimated economic life. The
following schedule is an estimation of the incurable physical deterioration
of the subject property.
------------------------------------------------------------------------
ESTIMATE OF INCURABLE PHYSICAL DETERIORATION
------------------------------------------------------------------------
Typical Economic Life 60
Chronological Age 50
Effective Age 8
Remaining Economic Life 52
----
Percent Depreciated 13.3 %
Depreciated Replacement Cost of
Improvements $100,381,000
Percent Depreciated 13.3 %
-------------
Estimate of Incurable Physical
Deterioration $13,384,000
-----------------------------------------------------------------------
<PAGE>
HVS International, San Francisco, California Cost Approach 139
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[HVS INTERNATIONAL LOGO]
Adding the estimate of incurable physical
deterioration to that of curable physical
deterioration yields the total estimate of
physical deterioration.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
TOTAL ESTIMATE OF DEPRECIATION DUE TO PHYSICAL DETERIORATION
------------------------------------------------------------------------
<S> <C>
Estimate of Curable Physical Deterioration $10,707,000
Estimate of Incurable Physical Deterioration 13,384,000
-----------
Total Depreciation due to Physical Deterioration $24,091,000
</TABLE>
ACCUMULATED The accrued depreciation due to physical
DEPRECIATION deterioration has been deducted from the estimated
replacement cost to derive the replacement cost
after depreciation of the subject improvements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
REPLACEMENT COST OF IMPROVEMENTS LESS TOTAL DEPRECIATION
------------------------------------------------------------------------
<S> <C>
Replacement Cost of Improvements $111,088,000
Less: Total Depreciation due to Physical Deterioration 24,091,000
------------
Replacement Cost of Improvements After Depreciation $86,997,000
------------------------------------------------------------------------
</TABLE>
FURNITURE, FIXTURES, Personal property is an integral part of a
AND EQUIPMENT transient lodging facility. Without furniture,
fixtures, and equipment, a hotel could not operate
its facilities and rent its guestrooms, and thus
would not be able to generate any income
attributable to the real property. Personal
property and real property are uniquely combined
in a hotel; unlike an office or other commercial
building, a hotel would have to close its doors
without furniture, fixtures, and equipment.
The physical separation of personal property from
real property in a hotel is a theoretical issue
rather than a practical matter. Lodging facilities
are generally sold with their furniture, fixtures,
and equipment in place. While a lender may be
restricted from financing the purchase of personal
property, without personal property a hotel's real
property would have little value.
In accordance with the Uniform Standards of
Professional Appraisal Practice (USPAP), the
appraisers have delineated the market value of the
subject's personal property. The removal of
personal property from a lodging property for sale
would result in a minimal sale price. Furniture,
fixtures, and equipment, once installed,
depreciate very rapidly. Most
<PAGE>
HVS International, San Francisco, California Cost Approach 140
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[HVS INTERNATIONAL LOGO]
furnishings in a lodging property can command little more than a salvage
value substantially lower than the original cost when sold separately from
the improvements.
The following table sets forth a depreciation schedule developed by HVS
International for determining the market or salvage value of a hotel's
furniture, fixtures, and equipment. The depreciation estimates represent
the average depreciation applicable to the entirety of a lodging property's
personal property, and are applied to the original cost of furniture,
fixtures, and equipment. The schedule was prepared subject to ongoing
research and interviews with operators and owners pertaining to their
ability to sell used personal property.
---------------------------------------------------------------------------
FF&E DEPRECIATION SCHEDULE
---------------------------------------------------------------------------
AVERAGE AGE (YEARS) PERCENT DEPRECIATED
---------------------------------------------------------------------------
1 40 %
2 60
3 70
4 75
5 80
6 85
7 89
8 92
9 95
10 98
---------------------------------------------------------------------------
The subject property's furniture, fixtures, and equipment are in fair
condition and are considered the equivalent of five years old. The current
replacement cost of the hotel's furniture, fixtures, and equipment is
estimated to be $50,000 per room, or a total of $34,600,000. Including
developer's profit of 20%, the total replacement cost of the furniture,
fixtures, and equipment is estimated to be $41,520,000. Of the assumed
capital expenditure of $24,900,000, roughly $14,200,000 is for
refurbishment of the furniture, fixtures, and equipment. After deducting
for curable furniture, fixtures, and equipment deterioration of
$14,200,000, the depreciable furniture, fixtures, and equipment base is
$27,300,000. Applying the five-year depreciation factor of 80% to the
$27,300,000 estimated depreciable base results in an estimated value in
exchange of the
<PAGE>
HVS International, San Francisco, California Cost Approach 141
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[HVS INTERNATIONAL LOGO]
hotel's personal property of $5,470,000. Depreciation of the personal
property thus equates to $21,860,000.
---------------------------------------------------------------------------
VALUE IN EXCHANGE OF THE SUBJECT'S PERSONAL PROPERTY
---------------------------------------------------------------------------
Replacement Cost of Furniture, Fixtures, and Equipment $41,520,000
Less: Curable FF&E Deterioration 14,193,000
-----------
Depreciated Replacement Cost of FF&E 27,327,000
Percent Depreciated 80%
Incurable Physical Deterioration of FF&E 21,862,000
------------
Estimated Value in Exchange of Personal Property $ 5,470,000
---------------------------------------------------------------------------
The personal property of a lodging facility may alternately be valued as a
critical component of an ongoing business. The "value in use" recognizes
that the personal property of a hotel has an economic value greater than
its salvage value due to its contribution to the income generating
capability of the property as a whole.
An estimation of the value of personal property in use is also based upon
an appraiser's judgment of the average age or remaining life of a hotel's
personalty. However, depreciation is estimated on a straight-line basis,
assuming that the personalty must be replaced every two to twenty-five
years (or seven years on average) and will lose value at a constant annual
rate throughout its useful life. This approach recognizes that the personal
property will continue to contribute to the value of the total property
until it is retired and replaced. This contrasts with value in exchange, or
salvage value, which considers the personal property to be separate from
the improvements for sale.
The depreciated book value of a hotel's personal property provides a basis
for determining the value of furniture, fixtures, and equipment, because it
considers the original cost and annual book depreciation of the personalty.
However, the actual years remaining in the life of a hotel's furniture,
fixtures, and equipment are generally greater than that expressed in the
depreciation schedule utilized for tax purposes. The longevity of personal
property depends upon its original quality and durability, timeliness of
style, and consistent cleaning and maintenance. The valuation of personal
property in use requires that the depreciated book value be adjusted to
<PAGE>
HVS International, San Francisco, California Cost Approach 142
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[HVS INTERNATIONAL LOGO]
reflect the appraisers' judgment of the condition and
remaining useful life of a hotel's furniture, fixtures,
and equipment.
Based upon our inspection of the subject property, we
estimate the value in use of the subject's furniture,
fixtures, and equipment to be roughly 12% of the total
value estimate for the subject hotel. The value of the fee
simple interest in the subject property via the income
capitalization approach is $330,000,000. Multiplying a
ratio of 10% by the value of the subject property equates
to a value in use of, say, $33,000,000. Based upon the
preceding analysis, the value in use estimate for the
personal property of the subject property is as follows.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
VALUE IN USE OF SUBJECT'S PERSONAL PROPERTY
---------------------------------------------------------------------------
<S> <C>
Market Value of Subject Property via Income Approach $330,000,000
Personal Property Ratio 10.0%
------------
Estimated Value in Use of Personal Property $33,000,000
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</TABLE>
CONCLUSION In the estimation of value according to the cost approach,
the values of several components of the total property
were quantified. The value of the land was estimated via
the ground lease approach. The estimated replacement cost
of the building improvements was calculated according to
the square-foot cost method using a computer program
developed by Marshall & Swift. From the replacement cost,
incurable physical deterioration and external and
incurable functional obsolescence were subtracted. The
depreciation of the shorter-lived furniture, fixtures, and
equipment was estimated separately from that of the
improvements. The market value estimate via the cost
approach may be summarized as follows.
<PAGE>
HVS International, San Francisco, California Cost Approach 143
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[HVS INTERNATIONAL LOGO]
<TABLE>
<CAPTION>
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SUMMARY OF VALUE VIA THE COST APPROACH
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<S> <C> <C>
Replacement Cost of Improvements $92,573,000
Replacement Cost of Furniture, Fixtures, and Equipment 34,600,000
Land Value 73,000,000
Developer's Profit 40,034,600
-------------
Total Replacement Cost New $240,207,600
Less: Curable Physical Deterioration - Building (10,707,000)
Less: Incurable Physical Deterioriation- Building (13,384,000)
Less: Curable Physical Deterioration-FF&E (14,193,000)
Less: Incurable Physical Deterioriation-FF&E (21,862,000)
Total Depreciation (60,146,0OO)
-------------
Depreciated Replacement Cost $180,061,600
Estimated Value via the Cost Approach (Say) (Say) $180,100,000
---------------------------------------------------------------------------------------
</TABLE>
Although generally reliable, the data used to compile this
estimate provide only a rough indication of what the
development cost may be. Individuals who require an
accurate cost estimate should retain the services of a
professional construction cost estimator. In addition,
Marshall & Swift figures do not consider the historic
nature and charm of the Hotel Del Coronado. Moreover, the
development of the subject property took over 100 years
from the initial development of the main building to its
current orientation. Such associated development costs are
not reflected in the above cost figures. Although
generally reliable, the data used to compile this estimate
provide only a rough indication of what the development
cost of a functional equivalent may be, not a reliable
indication of market value. Thus we have concluded that
the cost approach is not applicable in determining the
market value of the subject property.
BUSINESS VALUE A hotel is composed of real property, personal property,
and business components. The deduction of a management fee
from the forecasted net income stream effectively removes
the value of the business from the subject's market value
via the income capitalization approach. It is assumed that
purchasers of hotel properties would anticipate the cost
of management in their investment decision and that the
sales prices of comparable properties in the sales
comparison approach do not include
<PAGE>
HVS International, San Francisco, California Cost Approach 144
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[HVS INTERNATIONAL LOGO]
business value. Consideration of business value need not be made in the
cost approach.
<PAGE>
HVS International, San Francisco, California Sales Comparison Approach 145
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[HVS INTERNATIONAL LOGO]
15. SALES COMPARISON APPROACH
The sales comparison approach estimates the value of a
property by comparing it to similar properties recently
sold or being offered in the open market. Market value is
indicated by the price at which equally desirable
properties have sold, or for which they can be purchased.
The sales comparison approach is based on the principle of
substitution, which asserts that when a property is
replaceable, its value is limited to the cost of acquiring
an equally desirable substitute (assuming that no costly
delay is incurred in making the substitution).
Hotel investors typically do not employ the sales
comparison approach in reaching their final purchase
decisions. Factors such as the lack of recent sales data,
the numerous insupportable adjustments that are necessary,
and the general inability to determine the true financial
terms and human motivations of comparable transactions
often make the results of the sales comparison approach
questionable. Although the sales comparison approach may
provide a range of values that supports the final
estimate, reliance on this approach beyond the
establishment of broad parameters is rarely justified by
the quality of the sales data.
HOTEL MARKET The market for hotel investments nationwide is currently
OVERVIEW very robust as buyers perceive a window of opportunity to
purchase lodging facilities below replacement cost.
Barriers to entry remain relatively high for new
full-service hotel development due to a lack of
feasibility and financing. Improving economic conditions
and limited new supply create opportunity for existing
hotels. Furthermore, the numerous publicly traded hotel
companies and hotel REITs are competing for the
acquisition of properties, which is driving up values and
lowering return requirements. In addition, the difficulty
in developing hotels in California makes acquiring a
property such as the subject especially attractive.
COMPARABLE
SALES DATA The following sales represent transactions of high-end
hotel and resort properties located in Northern and
Southern California that have occurred in the past two
years. Although they are not considered directly
comparable to the subject property, they do serve to give
an indication of sales activity for general informational
purposes. They are presented in order of recency.
<PAGE>
HVS International, San Francisco, California Sales Comparison Approach 146
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[HVS INTERNATIONAL LOGO]
SALE #1:
--------
Property: Hotel Del Coronado
Location: Coronado, California
Number of Rooms: 692
Date of Sale: August 1997
Grantor: Travelers Group
Grantee: Lowe Enterprises Investment Management, Inc.
Sales Price: $330,000,000
Terms: All cash
Price per Room: $476,879
Interest Conveyed: Fee simple
Overall Cap. Rate: 7.9% (Based on 1996 net income of $25,949,000)
Confirmed by: Lowe Enterprises
Comments: This represents the recent sale of the subject
property as discussed throughout this report.
<PAGE>
HVS International, San Francisco, California Sales Comparison Approach 147
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[HVS INTERNATIONAL LOGO]
SALE #2:
--------
Property: Ritz-Carlton Laguna Niguel
Location: 1 Ritz Carlton Drive
Dana Point, California
Number of Rooms: 393
Date of Sale: August 1997
Grantor: Prudential Insurance Co.
Grantee: Security Capital Group
Sales Price: $225,000,000
Terms: All cash
Price per Room: $572,519
Comments: The hotel is a Mediterranean-style resort
perched on a bluff overlooking the Pacific
Ocean. The Ritz-Carlton features 393
guestrooms, meeting space accommodating up
to 700 people, six food and beverage outlets,
four tennis courts, a fitness center, business
center, and two pools and Jacuzzis. The
property recorded an occupancy of 81% and an
average rate of $236, resulting in a RevPAR of
$191.16 in 1996.
<PAGE>
HVS International, San Francisco, California Sales Comparison Approach 148
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[HVS INTERNATIONAL LOGO]
SALE #3:
--------
Property: Ritz-Carlton Marina del Rey
Location: 4375 Admiralty Way
Los Angeles, California
Number of Rooms: 306
Date of Sale: January 1997
Grantor: Shimizu Bank, Mitsui Bank, and Ritz-Carlton
Grantee: Host Marriott
Sales Price: $56,600,000
Terms: Not disclosed
Price per Room: $184,967
Interest Conveyed: Leasehold
Overall Cap. Rate: 11.7% (based on estimated net operating
income of $6.6 million)
Confirmed by: Patrick Deming, Secured Capital Corporation
Comments: The hotel is located on the waterfront in Marina
del Rey. The Ritz-Carlton features 306 guestrooms,
approximately 14,790 square feet of meeting space, four
food and beverage outlets, three tennis courts, a fitness
center, 12 yacht slips, and a private English garden.
Although the hotel has a Mobil four-star/AAA five-diamond
rating, the hotel has underachieved in terms of average
rate relative to its primary competitors. The property is
encumbered by a ground lease with the county of Los
Angeles, which reportedly resulted in the higher
capitalization rate applied. The property recorded an
occupancy of 83% and an average rate of $168, resulting
in a RevPAR of $139 in 1996.
<PAGE>
HVS Intemational, San Francisco, California Sales Comparison Approach 149
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[HVS INTERNATIONAL LOGO]
REVIEW OF SALES The unadjusted sales prices from the three transactions
range from roundly $185,000 to $573,000 per room. The
high end of the range is formed by the Ritz-Carlton
Laguna Niguel which sold in August 1997. As mentioned,
this property is located on the Pacific Ocean and
overlooks a bluff, providing breathtaking views of the
beach and water. In addition, the subject property sold
in August 1997 for roundly $477,000 per room. The
subject is an historic property containing an extensive
resort complex combined with a rich history and
heritage. The Hotel Del Coronado's RevPAR achievement of
$151.77 in 1996 as significantly lower than that of the
Ritz-Carlton Laguna Niguel. The sales prices of both the
subject property and the Ritz-Carlton Laguna Niguel are
considered to be exceptional due to their California
waterfront locations, international reputations, and
irreplaceable assets. The remaining sale equated to
roundly $185,000 per room. This sale represents a
property which is less desirable than the subject, being
comparable in facilities and setting to the subject's
competitors located on Coronado Island, the Loews
Coronado Bay Resort and Le Meridian, and is encumbered
with an onerous ground lease.
CONCLUSION Although the sales comparison approach may be useful in
providing a value range and reflecting certain market
characteristics, its applicability is limited by the
numerous possible points of difference between the
subject Property and other hotels that have sold in
recent years. However, given that the subject property
sold on August 27, 1997, roughly two months before our
date of value, the sales price most likely represents
the subject's true market value. As such, we have
concluded the subject property's value via the sales
comparison approach equates to $330,000,000 or $476,879
per room.
<PAGE>
HVS International,
San Francisco, California Reconciliation of Value Indications 150
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[HVS INTERNATIONAL LOGO]
16. RECONCILIATION OF VALUE INDICATIONS
The reconciliation, which is the last step in the
appraisal process, involves summarizing and correlating
the data and procedures employed throughout the analysis.
The final value conclusion is arrived at after reviewing
the estimates indicated by the cost, sales comparison, and
income capitalization approaches. The relative
significance, applicability, and defensibility of each
indicated value are considered, and the greatest weight is
given to that approach deemed most appropriate for the
property being appraised. The purpose of this report is to
estimate the market value of the fee simple interest in
the subject property; our appraisal involves a careful
analysis of the property itself and the economic,
demographic, political, physical, and environmental
factors that influence real estate values. Based on the
data set forth in this report, the following value
indications were developed.
APPROACH VALUE INDICATION
-------- ----------------
Cost Not Applicable
Sales Comparison $330,000,000
Income Capitalization $330,000,000
COST APPROACH Because the cost approach does not reflect the economic
factors that motivate knowledgeable hotel investors (i.e.,
projected net income and return on investment), the cost
approach is given limited weight in the valuation of
income-producing properties. Furthermore, the difficulty
in estimating and substantiating a number of highly
subjective variables (such as effective age, accrued
depreciation, and the remaining economic life of the
improvements) limits the applicability of the cost
approach as an effective valuation method. Moreover,
lodging facilities are rarely sold or purchased on the
basis of depreciated cost. Considering the property's age
condition, historic nature, and unique charm we consider
this approach inapplicable in the valuation of the subject
property.
<PAGE>
HVS International,
San Francisco, California Reconciliation of Value Indications 151
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[HVS INTERNATIONAL LOGO]
SALES COMPARISON The sales comparison approach uses actual sales of
APPROACH similar properties to provide an indication of the
subject property's value. Although we have
investigated a number of sales in an attempt to
develop a range of value indications, we have not
performed adjustments necessary to render these sales
prices comparable to the subject property. The
adjustments, which tend to be subjective, diminish the
reliability of the sales comparison approach;
furthermore, typical hotel investors employ a sales
comparison procedure only to establish broad value
parameters. However, given the subject property sold
approximately two months prior to our date of value,
the price paid for the subject property at this time
does give a strong indication of market value.
INCOME CAPITALIZATION To estimate the subject property's value via the
APPROACH income capitalization approach, we have analyzed the
local market for transient accommodations, examined
the competitive environment, projected occupancy and
average rate levels, and developed a forecast of
income and expense that reflects anticipated income
trends and cost components through a stabilized year
of operation. The subject property's projected net
income before debt service was allocated to the
mortgage and equity components based on market rates
of return and loan-to-value ratios. Through a
discounted cash flow and income capitalization
procedure, the value of each component was calculated;
the total of the mortgage and equity components
equates to the value of the property.
Our nationwide experience indicates that the
procedures used in estimating market value by the
income capitalization approach are comparable to those
employed by the hotel investors who constitute the
marketplace. For this reason, we believe that the
income capitalization approach produces the most
supportable value estimate, and it is given the
greatest weight in our final estimate of the subject
property's market value.
VALUE CONCLUSION Careful consideration has been given to the strengths
and weaknesses of the three approaches to value
discussed above. In recognition of the purpose of this
appraisal, we have given primary weight to the value
indicated by the income capitalization approach. Based
on our analysis, it is our opinion that the market
value of the fee simple interest in the Hotel Del
Coronado, as of October 28, 1997, is:
$330,000,000
THREE HUNDRED THIRTY MILLION DOLLARS
<PAGE>
HVS International,
San Francisco, California Reconciliation of Value Indications 152
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[HVS INTERNATIONAL LOGO]
This value estimate equates to $476,879 per room, which is supported by
market sales.
<PAGE>
HVS International
San Francisco, California Statement of Assumptions and Limiting Conditions 153
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[HVS INTERNATIONAL LOGO]
17. STATEMENT OF ASSUMPTIONS AND LIMITING
CONDITIONS
1. This report is to be used in whole and not in part.
2. No responsibility is assumed for matters of a legal nature, nor do we
render any opinion as to title, which is assumed to be marketable and
free of any deed restrictions and easements. The property is valued as
though free and clear unless otherwise stated.
3. There are no hidden or unapparent conditions of the property, sub-soil
or structures, such as underground storage tanks, that would render it
more or less valuable. No responsibility is assumed for these
conditions or any engineering that may be required to discover them.
4. We have not considered the existence of potentially hazardous materials
used in the construction or maintenance of the building, such as
asbestos, urea formaldehyde foam insulation, or PCBs, nor have we
considered the presence of any form of toxic waste. Furthermore, we
have also not considered polychlorinated biphengyls, pesticides, and
lead-based paints. The appraisers are not qualified to detect any
hazardous substances and urge the client to retain an expert in this
field if desired.
5. We have made no survey of the property, and assume no responsibility in
connection with such matters. Sketches, photographs, maps, and other
exhibits are included to assist the reader in visualizing the property.
It is assumed that the use of the land and improvements is within the
boundaries of the property described, and that there is no encroachment
or trespass unless noted.
<PAGE>
HVS International,
San Francisco, California Statement of Assumptions and Limiting Conditions 154
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[HVS INTERNATIONAL LOGO]
6. All information, financial operating statements, estimates, and
opinions obtained from parties not employed by HVS International are
assumed to be true and correct. We can assume no liability resulting
from misinformation.
7. Unless noted, we assume that there are no encroachments, zoning
violations, or building violations encumbering the subject property.
8. The property is assumed to be in full compliance with all applicable
federal, state, local, and private codes, laws, consents, licenses, and
regulations (including a liquor license where appropriate), and that
all licenses, permits, certificates, franchises, and so forth can be
freely renewed or transferred to a purchaser.
9. All mortgages, liens, encumbrances, leases, and servitudes have been
disregarded unless specified otherwise.
10. No portions of this report may be reproduced in any form without our
permission, and the report cannot be disseminated to the public through
advertising, public relations, news, sales, or other media.
11. We are not required to give testimony or attendance in court by reason
of this analysis without previous arrangements, and only when our
standard per diem fees and travel costs are paid prior to the
appearance.
12. If the reader is making a fiduciary or individual investment decision
and has any questions concerning the material presented in this report,
it is recommended that the reader contact us.
13. We take no responsibility for any events or circumstances that take
place subsequent to either the date of value or the date of our field
inspection, whichever occurs first.
14. The quality of a lodging facility's on-site management has a direct
effect on a property's economic viability and value. The financial
forecasts presented in this analysis assume continued professional
management by Destination Hotels and Resorts or an alternate
professional management company with management fees deducted at market
rates. Any variance from this assumption may have a significant impact
on the projected operating results and value estimate.
<PAGE>
HVS International,
San Francisco, California Statement of Assumptions and Limiting Conditions 155
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[HVS INTERNATIONAL LOGO]
15. The estimated operating results presented in this report are based on
an evaluation of the overall economy, and neither take into account nor
make provision for the effect of any sharp rise or decline in local or
national economic conditions. To the extent that wages and other
operating expenses may advance during the economic fife of the
property, we expect that the prices of rooms, food, beverages, and
services will be adjusted to at least offset these advances. We do not
warrant that the estimates will be attained, but they have been
prepared on the basis of information obtained during the course of this
study and are intended to reflect the expectations of typical
investors.
16. This analysis assumes continuation of all Internal Revenue Service tax
code provisions as stated or interpreted on either the date of value or
the date of our field inspection, whichever occurs first.
17. Many of the figures presented in this report were generated using
sophisticated computer models that make calculations based on numbers
carried out to three or more decimal places. In the interest of
simplicity, most numbers have been rounded to the nearest tenth of a
percent. Thus, these figures may be subject to small rounding errors.
18. Any distribution of the total value between the land and improvements
or between partial ownership interests applies only under the stated
use. Moreover, separate allocations between components are not valid if
this report is used in conjunction with any other analysis.
19. The Americans with Disabilities Act (ADA) became effective on January
26,1992. We have conducted no specific compliance survey to determine
whether the subject property is in conformity with the various detailed
requirements of the ADA. It is possible that the property does not
comply with the requirements of the act, and this could have an
unfavorable effect on the property value. Because we have no direct
evidence regarding this issue, our estimate of value does not consider
possible non-compliance with the ADA.
20. This study was prepared by HVS International, a division of M&R
Valuation Services, Inc. All opinions, recommendations and conclusions
expressed during this assignment have been rendered
<PAGE>
HVS International,
San Francisco, California Statement of Assumptions and Limiting Conditions 156
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[HVS INTERNATIONAL LOGO]
by the staff of M&R Valuation Services, Inc., acting solely as
employees and not as individuals.
21. Our estimate of market value reflects a deduction of roundly
$24,900,000 for capital expenditures that, in the opinion of the
appraisers, a prudent buyer would deem necessary. The value assumes
that of the $53,000,000 renovation budget, approximately $25,300,000 is
funded out of annual FF&E reserves. The appraisal also assumes that the
renovations are completed as described in a good workmanlike manner.
<PAGE>
HVS International,
San Francisco, California Statement of Assumptions and Limiting Conditions 157
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[HVS INTERNATIONAL LOGO]
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18. CERTIFICATION
We, the undersigned appraisers, hereby certify:
1. that the statements and opinions presented in this report, subject to
the limiting conditions set forth, are correct to the best of our
knowledge and belief;
2. that Mark D. Capasso personally inspected the property described in
this report and that Elaine Sahlins and Suzanne R. Mellen, CRE, MAI did
not personally inspect the property but did actively participate in the
analysis and conclusions;
3. that the appraisers have extensive experience in the valuation of
hotels and believe that they are competent to undertake this appraisal;
4. that we have no current or contemplated interests in the real estate
that is the subject of this report;
5. that we have no personal interest or bias with respect to the subject
matter of this report or the parties involved;
6. that this report sets forth all of the limiting conditions (imposed by
the terms of this assignment) affecting the analyses, opinions, and
conclusions presented herein;
7. that the fee paid for the preparation of this report is not contingent
upon the amount of the value estimate;
8. that this report has been prepared in accordance with and is subject to
the requirements of the Code of Professional Ethics and Standards of
Professional Appraisal Practice of the Appraisal Institute;
<PAGE>
HVS International,
San Francisco, California Statement of Assumptions and Limiting Conditions 158
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[HVS INTERNATIONAL LOGO]
9. that the use of this report is subject to the requirements of the
Appraisal Institute relating to review by its duly authorized
representatives;
10. that this report has been prepared in accordance with the Uniform
Standards of Professional Appraisal Practice (as adopted by the
Appraisal Foundation);
11. that no one other than the undersigned prepared the analyses,
conclusions, and opinions concerning real estate that are set forth in
this appraisal report;
12. that as of the date of this report, Suzanne R. Mellen, CRE, MAI, has
completed the requirements of the continuing education program of the
Appraisal Institute;
13. that this appraisal is not based on a requested minimum value, a
specific value, or the approval of a loan.
/s/ Mark D. Capasso
----------------------------------
Mark D. Capasso, as an employee of
M&R Valuation Services, Inc.
/s/ Elaine Sahlins
---------------------------------
Elaine Sahlins, as an employee of
M&R Valuation Services, Inc.
/s/ Suzanne R. Mellen
----------------------------------------
Suzanne R. Mellen, CRE, MAI, as an
employee of M&R Valuation Services, Inc.
<PAGE>
HVS International, San Francisco, California Addenda
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[HVS INTERNATIONAL LOGO]
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ADDENDA
Accepted Proposal
Legal Description
Photographs of Subject Property
<PAGE>
[HVS INTERNATIONAL LOGO]
- -------------------------------------------------------------
PROPOSAL
-----------------------------------------
FOR AN
-----------------------------------------
ECONOMIC STUDY AND APPRAISAL
-----------------------------------------
HOTEL DEL CORONADO
-----------------------------------------
SAN DIEGO, CALIFORNIA
-----------------------------------------
SUBMITTED TO:
Mr Marc Childress
Morgan Stanley Mortgage Capital, Inc.
1585 Broadway
New York, NY 10036
(212)790-7212 Phone
(212)761-0509 Fax
PREPARED BY:
Hospital Valuation Services
A Division of Hotel Consulting Services, Inc.
372 Willis Avenue
Mineola, NY 11501
(516)248-8828 Phone
(516)742-3059 Fax
Web Site: www.hvs-intl.com
October 21, 1997
<PAGE>
Hospitality Valuation Services, Mineola, New York PROPOSAL 1
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[HVS INTERNATIONAL LOGO]
PROPOSAL FOR AN ECONOMIC STUDY AND APPRAISAL REPORT
Pursuant to our conversation, we are pleased to submit this
proposal for services of the Hospitality Valuation Services
division of Hotel consulting Services, Inc. in connection
with the Hotel Del Coronado, San Diego, California. This
letter sets forth a description of the objectives and scope
of the assignment, along with the methodology to be employed,
an estimate of the time requirements and a schedule of
professional fees.
OBJECTIVE The objective of this assignment is to perform an economic
study and appraisal for the purpose of evaluating the marked
demand, analyzing the economics, projecting income and
expense and estimating the market value of the
above-captioned property. Our valuation will be as of the
date specified by you and will consist of one overall value
incorporating the land, improvements and personal property
components.
In order to accomplish the objective described above, our
work will be conducted in three phases, which typically
include the following steps:
PHASE ONE: 1. We will meet with you and/or your representatives to
FIELDWORK discuss our study in more detail and formulate a schedule
for performing the fieldwork. At this time, we will gather
any information from you which may assist us in performing
this assignment (a list of necessary information is set
forth in this proposal).
2. An on-site inspection of the subject property will be
made to determine the current physical condition and
functionality of the improvements, as well as the
furniture, fixtures and equipment. We will view and
evaluate the public areas, back-of-the-house space, a
sample of the guestrooms and the mechanical equipment.
<PAGE>
Hospitality Valuation Services, Mineola, New York PROPOSAL 2
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[HVS INTERNATIONAL LOGO]
3. The physical orientation of the subject site with respect
to access and visibility to highways, other forms of
transportation and the local demand for accommodations
will be analyzed. We will also review the supportive
nature of surrounding land uses as they relate to the
subject property.
4. The demand for transient accommodations will be
investigated to identify the various generators of
visitation operating within the local market. The current
and anticipated potential of each of these market segments
will be evaluated to determine the extent of existing and
future demand. Interviews with officials of business and
government, as well as statistical data collected during
the fieldwork, are useful in locating and quantifying
transient demand. In conjunction with the identification
of potential demand, an investgation will be made of the
respective strengths of these markets in terms of
seasonality, weekly demand fluctuations, vulnerability to
economic trends and changes in travel patterns and other
related factors. When appropriate, similar market
research procedures are utilized in estimating the demand
for food, beverage, banquet and other facilities.
5. The market orientation of nearby lodging facilities will
be evaluated to determine their competitive position with
respect to the subject. Those properties displaying
similar market attributes will receive a physical
inspection, along with selective management interviews, to
estimate levels of occupancy, room rates, market
segmentation and other pertinent operational
characteristics. Some of the competitive factors that will
be specifically reviewed include: location, type and
quality of facilities, physical condition, management
expertise and chain affiliation.
6. Statistical data relating to general economic and
demographic trends often foreshadows future potential for
market area and neigborhoods. Interviews with local
Chambers of Commerce, economic development agencies and
other related organizations, along with an investigation
of the subject's primary market area will reveal patterns
reflecting growth, stability or decline.
<PAGE>
Hospitality Valuation Services, Mineola, New York PROPOSAL 3
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[HVS INTERNATIONAL LOGO]
7. Expense factors relating to local conditions such as
labor, food and beverage costs, energy rates, assessed
values and taxes will be researched. In most instances, we
will attempt to utilize actual expense experience from
either the subject or comparable properties in the
economic portion of our appraisal.
8. Through interviews with hotel operators, developers,
governmental officials and others, we will ascertain the
status of projects under construction, purposed or rumored
which might be competitive with the subject property.
9. Depending on the nature of the assignment and the
individual characteristics of the subject's market, our
field work may also include:
o Interviews with zoning and building officials;
o Meetings with local planners, highway officials and
property assessors;
o Discussions with other appraisers, counselors, real
estate and mortgage brokers, bankers, architects,
builders and developers.
PHASE TWO: 1. Based on the data and information gathered during the
ANALYSIS fieldwork phase, along with our extensive library of
actual hotel operating statements, financial statistics,
area hotel trends and investor requirements, we will first
perform a supply and demand analysis for the subject
property to determine its market orientation and
competitive position with respect to other lodging
facilities. The supply and demand analysis typically
encompasses the following eight steps:
a. Using the occupancy levels and market segmentations of
the competitive properties, the number of room nights
actually accommodated in each segment is calculated by
multiplying each property's room count by its
occupancy, market segmentation and 365 days. This
yields the accommodated room night demand. The annual
number of room nights occupied per room in each
segment is also calculated (room nights occupied per
year divided by the room count), and the resulting
figure serves as a competitive index.
<PAGE>
Hospitality Valuation Services, Mineola, New York PROPOSAL 4
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[HVS INTERNATIONAL LOGO]
b. Latent demand (which consists of unaccommodated and
induced demand) is estimated for each market segment.
c. Growth rates are projected for each of the market
segments.
d. The total usable room night demand (which consists of
usable latent demand and accommodated demand) is
projected.
e. The area's guestroom supply and total room nights
available are quantified for each projection year.
f. The overall competitive occupancy is calculated for
each projection year.
g. Using competitive indexes, the relative competitiveness
of each of the area hotels is evaluated.
h. The subject property's market share, number of room
nights captured, and occupancy levels are quantified
based on its perceived competitiveness relative to the
other lodging facilities in the market.
This analysis will result in a quantification and
documentation of probable future trends in the subject's
occupancy, average rate and overall rooms revenues. A
similar procedure will be utilized in projecting food,
beverage and other revenues.
2. Using actual income and expenses statements of the subject
property (if available), as well as operating data from
comparable lodging facilities, we will develop income and
expense estimates corresponding to the level of activity
and quality of operations indicated by the projected
occupancy and average rate.
3. A projection of income and expense representing future
expectations of income potential will be made for a
ten-year period of time. This analysis will utilize HVS
Software, a sophisticated computerized financial analysis
package, developed by Stephen Rushmore and Suzanne
Mellen. The logic behind the projection of income and
expense is based on the premise that hotel revenue and
expenses have one component that is fixed and another
that varies directly with occupancy and facility usage.
The software takes a known level of revenue or expense
and calculates the
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Hospitality Valuation Services, Mineola, New York PROPOSAL 5
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fixed and variable component. The fixed component is then
held constant while the variable component is adjusted for
the percent change between the projected occupancy and
facility usage that produced the known level of revenue or
expense. Our projected income statements conform with the
Uniform System of Accounts for Hotels and include a
detailed line-by-line account of all revenue sources and
expenses.
4. The current market for hotel/motel transfers, mortgage
rates and hostelry equity investment requirements will be
researched. Using these market indicators as a base and
adjusting for potential investment benefits and risks
displayed by the subject property, we will formulate an
appropriate capitalization rate.
5. Following the recommended procedures and industry
standards set forth in the textbooks The Valuation of
Hotel and Motels, Hotels, Motels, and Restaurants:
Valuation and Market Studies, The Computerized Income
Approach to Hotel-Motel Valuations, and Hotels and Motels:
A Guide to Market Analysis, Investment Analysis, and
Valuations that we authored for The Appraisal Institute,
an estimate of market value will be developed by the
Income Capitalization Approach. When relevant, comparable
data is available, either the Cost Approach and/or Sales
Comparison Approach will be utilized as a valuation cross
check.
PHASE THREE Complete documentation of our fieldwork, analyses and value
WRITTEN REPORT: conclusions will be set forth in our narrative report.
Conforming to the standards of The Appraisal Institute (MAI),
the appraisal will contain the following sections:
1. Purpose of the appraisal and definition of value
2. Description of the site and physical improvements and
amenities
3. Reviews of the area and neighborhood
4. Analysis of the market for transient accommodations
5. Examination of existing and proposed competition
6. Projection of income and expenses
7. Development of an appropriate capitalization rate
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Hospitality Valuation Services, Mineola, New York PROPOSAL 6
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8. Review of other valuation approaches
9. Value conclusion
10. Signed MAI certificate
When appropriate, we will include graphics such as
photographs, maps, surveys, plans and charts assist in
visualizing our findings. The final reports will be
individually laser printed utilizing a state-of-the-art
desktop publishing system.
REQUESTED To aid us in performing this assignment, we request that you
INFORMATION provide us with the following information (when applicable):
1. Income and expense statements and balance sheets with
full supporting schedules for the past three years; a
summary of occupancy and average rate, by month, for
the past two years;
2. Any leases, management contracts, franchise agreements,
mortgages, title reports, stock or partnership
agreements, union agreements, service contracts,
reservation reports, inspection reports, engineering
reports, etc.;
3. Architectural/floor plans and plot plans, survey and
legal description;
4. Operating budgets, projections, marketing plans, etc.;
5. Past appraisals, market and feasibility studies, impact
studies, prospectuses, Smith Travel STAR reports; any
Phase I or Phase II environmental audit reports;
6. The latest real and personal property tax bills and
name of legal owner;
7. List of capital expenditures for the past three years
and capital budget (cost) projections;
8. Terms of purchase or sale of the subject property
including options and listings. Terms required:
price, date, and financing. Include a copy of the
contract and closing statement;
9. Detailed ownership history for the subject property for
the last five years.
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Hospitality Valuation Services, Mineola, New York PROPOSAL 7
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SATISFACTION We are confident that you will find our report to be
GUARANTEE comprehensive, thorough and complete. Upon submission of our
first draft, we will incorporate any suggestions you may
have that would enhance the effectiveness of our
presentation.
PERSONALIZED Upon submission of our study, members of Hospitality
SUPPORT Valuation Services will be available to meet with you and/or
any third party to go over our analysis and conclusions. This
personalized support enhances the credibility of our
findings and assists you in achieving your objectives.
UNIQUE Your assignement will be performed by HVS associates who
QUALIFICATION specialize exclusively in hospitality-related consulting. All
CONSULTING possess a unique combination of actual industry operating
experience and real estate valuation cross training. Most have
degrees from leading hotel management schools.
SYNDICATIONS Unlike accounting firms, Hotel Consulting Services, Inc. will
AND PUBLIC allow this report to be utilized in syndications and public
OFFERINGS offerings provided that its contents and conclusions are not
communicated in a misleading manner. Hotel Consulting Services,
Inc. will also give permission for an electronic copy of the
report to be filed with the SEC. There is no additional charge
for this service.
TIMING We anticipate that our fieldwork, analysis and preparation of
the economic study and appraisal report can be completed
within approximately 20 days of your execution of this
agreement and receipt of all requested information. We
understand that you require a draft copy by November 7, 1997
and anticipate no diffculty in meeting this deadline, assuming
the requested information is received in a timely manner.
PROFESSIONAL Our fee for the fieldwork, analysis and preparation of the
FEES economic study and appraisal report will be , payable
upon execution of this agreement and prior to delivery
of the economic study and appraisal report in its final,
signed format. It is our normal policy to provide a draft copy
of our final report for your review. Upon you approval of this
draft, we will commence printing the final report, which will
be delivered to you when our invoice for services has been
paid in full. This fee covers all report preparation costs,
such as graphics, photographs, typing, proofreading, printing
and binding, and includes five copies of the final report
which will be delivered to you.
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Hospitality Valuation Services, Mineola, New York PROPOSAL 8
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Payment must be made in U.S. dollars, using either a check
drawn on a U.S. bank or write transfer of funds to the account
of Hotel Consulting Services, Inc.
In addition to our professional fees, you agree to reimburse
us for reasonable out-of-pocket travel and related expenses
incurred while traveling on your behalf. You also agree to pay
the cost of Smith Travel Research market occupancy reports if
this information is not available from the property, along
with the cost of any Federal Express charges incurred in
connection with this assignment. You will be billed
periodically for these expenses, which will be due and payable
upon presentation of our bills. Such expenses are not to
exceed $2,500 without the prior consent of Morgan Stanley.
If payment professional fees and out-of-pocket travel and
related expenses is not received within thirty (30) days of
the billing date, the Hospitality Valuation Services division
of Hotel Consulting Services, Inc. reserves the right to
suspend all work until payment is made and apply a service
charge of 1.5 percent per month or fraction thereof to the
total unpaid sum. It is further agreed that in the event any
type of action becomes necessary to enforce collection of
bills rendered, you will be responsible for all collection
costs, including but not limited to court costs and reasonable
legal fees. It is understood that Hospitality Valuation
Services may extend the time for payment on any part of
billings rendered without affecting the understanding outlined
above.
If any dispute, controversy or claim arises in connection with
the performance or breach of this agreement then such dispute,
controversy or claim shall be settled by arbitration in
accordance with the laws of the State of New York and the then
current Commercial Arbitration Rules of the American
Arbitration Association, and shall take place in Mineola, New
York, unless the parties agree to a different locale.
Such arbitration shall be conducted before a panel of three
persons, one chosen by each party and the third selected by
the two party-selected arbitrators. The arbitration panel
shall have no authority to award nonmonetary or equitable
relief, and any monetary award shall not include punitive
damages.
The award issued by the arbitration panel may be confirmed in
a judgment by any federal of state court of competent
jurisdiction. All reasonable costs of both parties, as
determined by the arbitrators, including (1) the fees and
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Hospitality Valuation Services, Mineola, New York PROPOSAL 9
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expenses of the AAA and the arbitrators and (2) the costs,
including reasonable attorneys' fees, necessary to confirm the
award in court shall be borne entirely by the non-prevailing
party (to be designated by the arbitration panel in the award)
and may not be allocated between the parties by the
arbitration panel.
It is agreed that the liability of the Hospitality Valuation
Services division of Hotel Consulting Services, Inc., its
employees and anyone else associated with this assignment is
limited to the amount of the fee paid is liquidated damages.
You acknowledge that any opinions, recommendations and
conclusions expressed during this assignment will be rendered
by the staff of Hotel Consulting Services, Inc. acting solely
as employees and not as individuals. Any responsibility of
Hospitality Valuation Services is limited to the client, and
use of our product by third parties shall be solely at the
risk of the client and/or third parties.
The study described in this proposal will be made subject to
certain assumptions and limiting conditions. A copy of our
normal assumptions and limiting conditions will be provided
upon request.
Contents from the report described in this proposal may be used
for a syndication after obtaining approval from Hotel
Consulting Services, Inc. Approval will be granted if our
information and conclusions are not communicated in a
misleading manner.
If the foregoing proposal meets with your acceptance, please
sign and return one copy of this agreement, together with your
retainer check in the amount of $10,000. Your signature
beneath the words "Agreed to and Accepted," together with your
remittance, signify your agreement to employ the Hospitality
Valuation Services division of Hotel Consulting Services, Inc.
for these services.
In order to schedule our assignments and perform your study in
accordance with the limiting set forth above, we ask that you
return an executed copy of this agreement on or before October
24, 1997.
In addition to the services set forth in this proposal,
Hospitality Valuation Services offers environmental
consulting and executive search. HVS Eco Services evaluates a
hotel's environmental sensitivity with respect to solid waste
management, energy and water conservation, governmental
compliance and employee education. Its environmental audit is
designed to reduce operating expenses and promote
environmental awareness.
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Hospitality Valuation Services, Mineola, New York PROPOSAL 10
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Environmentally sensitive hotels are awarded the ECOTEL
Certification--the green seal of the hotel industry. HVS
Executive Search is a human resource consulting practice
dedicated to the recruitment of senior lodging industry
executives. For futher information on these services, please
contact the undersigned.
We appreciate the opportunity of submitting this proposal and
look forward to working with you on this assignment.
Very truly yours,
The Hospitality Valuation Services division of
HOTEL CONSULTING SERVICES, INC.
/s/ Anne R. Lloyd-Jones
Anne R. Lloyd-Jones, CRE
Senior Vice President
/s/ Stephen Rushmore
Stephen Rushmore, CRE, MAI, CHA
President
AGREED TO AND ACCEPTED:
Morgan Stanley Mortgage Capital, Inc.
re: Hotel Del Coronado, San Diego, California
By: /s/
----------------------------
DATE: October 21, 1997
--------------------------
ARL-J:SR:wm
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Consent of Consultant
---------------------
We consent to the inclusion of any form (whether in paper or digital format,
including any electronic media such as CD-ROM or the Internet) of the
Prospectus Supplement relating to Morgan Stanley Capital I Inc., Commercial
Pass-Through Certificates, Series 1998-XL1, of our market study and/or
appraisal with respect to the property Hotel Del Coronado and we consent to the
reference of our firm under the caption "Experts" in such Prospectus
Supplement.
HOSPITALITY VALUATION SERVICES
By: /s/ Anne R. Lloyd-Jones
------------------------------
Name: Anne R. Lloyd-Jones
Title: Senior Vice President
Signed on October 21, 1997
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Partnership Grant Deed
[ILLEGIBLE TEXT]
<PAGE>
All those portions of Block 2 and 2-A, and portion of Street (vacated by
Resolution No. 1521, recorded November 25, 1941 as Instrument No. 72956 in the
office of the County Recorder of said County) in Resubdivision of Blocks 1, 2,
2-A and 3 of Coronado Beach South Island, according to Map thereof No. 1161
filed in the office of the County Recorder of said County, and that portion of
the Island or Peninsula of San Diego, according to General Land Office Map
approved June 11, 1863, included in the 5.962 acre parcel shown on the Record
of Survey Map No. 7623 filed in the office of said County Recorder, described
as follows:
Beginning at the most Southeasterly corner of Parcel 4 of Parcel Map No. 2112
filed in the office of the County Recorder, thence along the Southwesterly line
of said Parcel 4, North 52(degree) 24' 30" West 311.69 feet to an angle point
therein; thence North 34(degree) 59' 50" West 122.68 feet; thence leaving said
line South 35(degree) 44' 25" West 77.19 feet; thence South 54(degree) 15' 35"
East 226.00 feet; thence South 35 (degree) 44' 25" West 75.00 feet; thence
South 54 (degree) 15' 35" East 69.00 feet; thence South 36(degree) 41'29" West
171.07 feet to a point in the Northeasterly line of the land described in deed
to the City of Coronado, recorded August 14, 1972 at file page No. 213766 of
official Records; thence along said Northeasterly line South 49 (degree) 23'
42" East 186.30 feet to the Southeasterly line of said 5.962 Acre Parcel of
land above mentioned; thence along said Southeasterly line Northerly along the
arc of a non-tangent curve concave Westerly a distance of 35.32 feet; thence
tangent to said curve North 25 (degree 32' 55" East 249.93 feet to a tangent
530 foot raidus curve concave Southeasterly; thence Northerly along the arc of
said curve 7.66 feet to the Point of Beginning.
Containing 1.436 Acres
RJ/lbp
A-6595
2/14/78
EXHIBIT A
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Page 1 of 2.
62,563 SQ.FT.
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That portion of Parcel 3 of Parcel Map No. 2112, in the City of Coronado,
County of San Diego, State of California, according to Map thereof filed in
Book of Parcel Maps as File No. 73-330044 of Official Records in the office of
the County Recorder of said County being a division of Block 2 and 2A of
Resubdivision of Blocks 1, 2, 2A and 3, Coronado Beach, South Island, Map No.
1161, and a portion of the island or peninsula of San Diego, according to
General Land Office Map approved June 11, 1868, described as follows:
Beginning at the southwesterly corner common to Parcels 2 & 3 of said Parcel
Map 2112; thence along the boundary line of said Parcel 3, North 68(degree) 26'
26" East 320.65 feet to a tangent curve concave Southerly; thence Easterly
along the arc of said curve 20.68 feet through an angle of 13(degree) 09' 46";
thence leaving said said curve South 36(degree) 14' 48" West 317.49 feet to a
point in the arc of 119 foot radius curve concave Northwesterly, a radial line
of said curve bears South 59(degree) 51' 28" West to said point; thence
Northwesterly along the arc of said curve 74.12 feet through an angle of
35(degree) 41' 17"; thence leaving said North 70(degree) 58' 04" West 48.25
feet to a tangent 75 foot radius curve concave northerly; thence westerly along
the arc of said curve 30.26 feet through an angle of 23 (degree) 06' 47";
thence tangent to said curve North 47(degree) 51' 17" West 48.62 feet to the
point of beginning.
Containing 0.635 Acres
RJ/lbp
A-6595
2/14/78
EXHIBIT A
Page 2 of 2.
27,626 SQ.FT.
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HVS International, San Francisco, California Qualifications
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QUALIFICATIONS
Mark D. Capasso
Elaine Sahlins
Suzanne R. Mellen, CRE, MAI
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HVS International, San Francisco, California Qualifications of Mark D. Capasso
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MARK D. CAPASSO
EMPLOYMENT
1994 to present HVS GAMING SERVICES
San Francisco, California
(Casino Valuations, Market Studies, Feasibility
Reports, and Gaming Analysis)
1994 to present HOSPITALITY VALUATION SERVICES
San Francisco, California
(Hotel/Motel Valuations, Market Studies, Feasibility
Reports, and Investment Counseling)
1993 to 1994 LAS VEGAS HILTON
Las Vegas, Nevada
1993 to 1994 CALIFORNIA CASINO HOTEL
Las Vegas, Nevada
1990 to 1993 QUALITY INN SUNRISE SUITES HOTEL
Las Vegas, Nevada
1988 to 1990 BRISTOL SUITES HOTEL
Dallas, Texas
EDUCATION BS - School of Hotel Administration, University of
Nevada, Las Vegas
Scuola Administratione di Aziendale; Turin, Italy,
European Economic Community Studies
Courses: 310 Income Capitalization; SPPA; SPPB -
Appraisal Institute
TEACHING AND LECTURE University of Nevada, Las Vegas: Hotel Feasibility
ASSIGNMENTS Analysis - Guest Lecturer
PUBLISHED HVS Gaming Services Industry Profile. "The
ARTICLES AND Metamorphosis and of Glitter Gulch," July, 1996
CHAPTERS
Casino Executive Magazine. "Managing the Casino/Hotel,"
Bi-Monthly Column
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HVS International, San Francisco, California Qualifications of Mark D. Capasso
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<TABLE>
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CORPORATE AND INSTITUTIONAL Bank of San Francisco Manor Care
CLIENTS SERVED Bank of the West Marriott International
Banker's Trust N & S Development
Boyd Gaming Corporation Nations Credit Commercial
CIBC Wood Gundy Corporation
CS First Boston Nomura Asset Capital Corporation
Caesar's World Gaming Northwest Lodging, Inc.
Canadian Imperial Bank of Park Lane Hotels
Commerce Patriot American Hospitality
Citicorp Real Estate, Inc. Piccadilly Inn Hotels
Colorado Casino Resorts, Inc. The Prudential Real Estate Group
Coopers & Lybrand Red Lion Hotels and Inns
Credit Lyonnais Redwood Bank
Cupertino National Bank & Trust San Jose National Bank
Dai-Ichi Kangyo Bank, Ltd. The Shaner Hotel Group
Evergreen Associates Starwood Lodging
First Security Commercial Mortgage Summerfield Suites Hotel
Glendale Redevelopment Agency Corporation
Hospitality Franchise System Teacher's Insurance & Annuity
(Ramada) Association
Host Marriott U.S. Bancorp
IMPAC Hotels Union Bank of California
International Bank of California Wells Fargo Bank
K & S Enterprises (USA) Corporation West L.B.
Legacy Hospitality Windsor Capital
Lehman Brothers Yasuda Trust
M & M Development
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HVS International, San Francisco, California Qualifications of Elaine Sahlins
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ELAINE SAHLINS
EMPLOYMENT HVS INTERNATIONAL
1997 to present San Francisco, California
Director
(Hotel-Motel Valuations, Market Studies)
1989 to 1997 BANK OF AMERICA
San Francisco, California
Review Appraiser
(Hotel-Motel, Casino, and Commercial Real Estate
Valuations, Appraisal Management)
1987 to 1989 VMS REALTY PARTNERS
Chicago, Illinois
Senior Acquisition Analyst
(Hotel-Resort Market Studies, Due Diligence, Operation
Studies, Investment Analysis)
1984-1985 JUDSON HOTELS
New York, New York
Credit/Collection Manager/Paymaster
(Credit Policies and Procedures, Payroll Administration)
1983-1984 PIERRE HOTEL
New York, New York
Guest History Supervisor
(Marketing and MIS Administration)
PROFESSIONAL Certified General Real Estate Appraiser - States of
AFFILIATIONS California and Nevada
EDUCATION AB - Barnard College, Columbia University
MPS - School of Hotel Administration, Cornell University
Professional Coursework - Appraisal Institute
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HVS International, San Francisco, California Qualifications of Elaine Sahlins
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PARTIAL LIST OF HOTELS, MOTELS AND CASINOS APPRAISED OR EVALUATED
BY ELAINE SAHLINS
<TABLE>
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ALASKA DISTRICT OF COLUMBIA MONTANA
<S> <C> <C>
Cusack's Ramada Inn, Anchorage Comfort Inn, Washington D.C. Sheraton Hotel, Billings
Westmark Hotel, Anchorage Holiday Inn-Parkside, Missoula
Best Western Bidarka inn, Homer FLORIDA
NEW JERSEY
ARIZONA Boca Raton Hotel and Resort, Boca Raton
Holiday Inn, Ft. Lauderdale Holiday Inn, Jamesburg
E-Z Metro Center, Phoenix Pier 66 Hotel & Marina, Ft. Lauderdale
Scottsdale Princess Resort, Scottsdale Proposed Resort, Key Biscayne NEVADA
Hyatt Resort, Key West
CALIFORNIA Howard Johnson Inn, Kissimmee Ormsby House, Carson City
Knights Inn-Kissimmee, Kissimmee Crystal Park Casino Hotel, Crystal City
Cambell Inn, Campbell Ramada Inn-Jacksonville, Jacksonville Gem Casino, Henderson
Pruneyard, Campbell Best Western, Orlando Tom's Sunset Casino, Henderson
Pine Inn Hotel & Retail, Carmel Days Inn, Orlando Boardwalk Hotel & Casino, Las Vegas
The Trees Inn, Concord Orlando Twin Towers, Orlando Boulder Station, Las Vegas
Red Lion Hotel, Costa Mesa Comfort Inn, Pensacola El Morocco Motel, Las Vegas
Singing Hills Ranch, El Cajon Eureka Saloon Casino, Las Vegas
Days inn Emeryville, Emeryville HAWAII Hacienda Casino Hotel, Las Vegas
Holiday Inn, Foster City La Concha Motel, Las Vegas
Blackstone Plaza Inn, Fresno Westin Kauai, Kalapaki Beach, Lihue MGM Grand, Las Vegas
Days Inn-LAX, Inglewood Monte Carlo Casino Hotel, Las Vegas
Springtown Motel, Livermore IDAHO New York, New York Hotel & Casino, Las
Hilton-LAX, Los Angeles Vegas Palace Station, Las Vegas
Holiday inn, Marina Del Rey Super 8, Coeur D'Alene Proposed Sunset Station, Las Vegas
Marriott, Marina Del Rey Super 8, Lewiston Rio Hotel, Las Vegas
Jack London Inn, Oakland Motels of America, Lewiston Santa Fe Casino Hotel, Las Vegas
Resort at Squaw Greek, Olympic Valley Super 8, Ponderay Texas Station, Las Vegas
Comfort Inn Rancho Cordova, Rancho Cordova Peppermill Resort Hotel, Mesquite
Bay Club Hotel & Marina, San Diego INDIANA Whiskey Pete's, Primm
Comfort Suites, San Diego Holiday Inn, Reno
Holiday Inn Miramar, San Diego Omni Severin Hotel, Indianapolis Hobey's Casino, Sun Valley
Pacific Terrace Inn, San Diego Nevada Crossing Casino, Wendover
Radisson Suite Hotel, San Diego LOUISIANA
Kensington Park Hotel, San Francisco NEW YORK
Powell West Hotel, San Francisco Boomtown New Orleans, Harvey
Sir Francis Drake Hotel, San Francisco Days Inn, New Orleans Omni Park Central Hotel, New York
San Jose Fairmont, San Jose Proposed Soho Hotel, New York
Days Inn Hotel Seaside, Seaside MASSACHUSETTS
OREGON
COLORADO Copley Plaza Hotel, Boston
Sheraton Tara Lexington, Lexington Monarch Hotel & Convention Ctr., Clackamas
Hyatt Regency BeaverCreek, Avon Execulodge, Salem
Old Towne Guesthouse Inn, Colorado Springs MISSISSIPPI Gateway Motor Inn
Denver Embassy Suites, Denver Nendels Morto Inn, Springfield
Days Inn at Vail, Vail Boomtown Biloxi, Blioxi TEXAS
University Inn, Oxford
CONNECTICUT Proposed Hotel, Tunica Amarillo Super 8 Motel, Amarillo
The Crescent Hotel, Dallas
Stamford Tara Hotel, Stamford MISSOURI
RiverFront Station, St. Charles
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HVS International, San Francisco, California Qualifications of Elaine Sahlins
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VIRGINIA
Holiday Inn, Arlington
Sheraton Inn Coliseum
Richmond Holiday Inn, Richmond
WASHINGTON
Pony Soldier Inn, Chehalis
Homecourt All Suite Hotel, Kent
University Plaza Motor, Seattle
WYOMING
Executive Inn, Evanston
Super 8, Jackson
BRITISH VIRGIN ISLANDS
Little Dix Bay, Virgin Gorda
CANADA
Tritel Hotel "Ramada" Montreal
L'Emerillon Hotel, Quebec City
U.S. VIRGIN ISLANDS
Caneel Bay Resort, St. John
Frenchman's Reef Resort, St.
Thomas
Grand Palazzo Hotel, St. Thomas
EUROPE
Proposed Monte Carlo Resort, Monaco
Proposed Dordogne Resort, France
Hanbury Manor, Great Britain
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HVS International,
San Francisco, California Qualifications of SUZANNE R. MELLEN, CRE, MAI
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SUZANNE R. MELLEN, CRE, MAI
EMPLOYMENT HVS INTERNATIONAL
1985 to present San Francisco, California
Managing Director
(Hotel-Motel Valuations, Market Studies, Feasibility
Reports, and Investment Counseling)
1981 to 1985 HOSPITALITY VALUATION SERVICES
Mineola, New York
Director of Consulting and Valuation Services
(Hotel-Motel Valuations, Market Studies, Feasibility
Reports, and Investment Counseling)
1980 to 1981 MORGAN GUARANTY TRUST COMPANY
New York, New York
Real Estate Appraiser and Consultant
(Real Estate Investment Valuation and Analysis)
1980 LAVENTHOL & HORWATH
New York, New York
Senior Consultant
(Management Advising Services - Market and Feasibility
Studies)
1978 to 1980 HELMSLEY-SPEAR HOSPITALITY SERVICES
New York, New York
Senior Consultant
(Management Advising Services - Market and Feasibility
Studies)
1976 to 1978 WESTERN INTERNATIONAL HOTELS
The Plaza, New York City
Management Trainee
(Rooms Operations and Accounting)
1976 HARLEY, LITTLE ASSOCIATES
Toronto, Canada
Junior Consultant
(Food Facilities Design, Market Studies)
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Professional Affiliations Appraisal Institute - Member (MAI)
*Board of Directors - San Francisco Bay Area Chapter (1994, 1995)
*Education Commitee Chairperson - Northern California Chapter 11
*Workshop Commitee Chairperson - Northern California Chapter 11
*Division of Courses - National Committee
*Continuing Education Committee - New York Committee
*Director, Real Estate Computer Show - New York Chapter
American Society of Real Estate Counselors - Member (CRE)
*Vice Chair - Northern California Chapter (1994, 1995)
*Chair - Northern California Chapter (1996)
National Association of Review Appraisers & Mortgage Underwriters (CRA)
International Society of Hotel Consultants - Member (ISHC)
Cornell Society of Hotelmen
San Francisco Board of Realtors
American Hotel and Motel Association
California Hotel and Motel Association
National Trust for Historic Preservation
Urban Land Institute
EDUCATION BS - School of Hotel Administration, Cornell University
Liberal Arts Undergraduate Study - Carnegie Mellon University
Completion of MAI course work - Appraisal Institute
New York University - School of Continuing Education - Real Estate Division
STATE CERTIFICATION Arizona, California, Colorado, Hawaii, Michigan, Nevada
TEACHING AND LECTURE American Institute of Real Estate Appraisers - Approved Instructor -
ASSIGNMMENTS Hotel/Motel Valuations
California Hotel and Motel Association, 1985 Annual Convention -
Development Overview
1995 - Annual Meeting - The Capital Expenditure Requirements
Citibank, N.A. - Hotel/Motel Valuations
Cornell University - Real Estate Finance
<PAGE>
TEACHING AND LECTURE Cornell Center for Professional Development - Hotel Workouts Country
ASSIGNINMENTS (CONT'D) Hospitality Conference - Hotel Development, Challenges in the Nineties
Econo-Travel Motor Hotel Corp., Annual Financial Seminar - Hotel Valuation
Institute of Property Taxation, 1984 Real Estate Symposium - Simultaneous
Valuation
National Association of Review Appraisers and Mortgage Underwriters -
Reviewing a Hotel Appraisal Report 1990
National Conference of State Tax Judges - Valuation and the Hospitality Industry
Northwest Center for Professional Development - 1986-87 Hotel Development
Seminars
Southhampton College - Feasibility Studies and Appraisals
University of Denver - Hotel/Motel Valuation
American Bar Association - Property Tax '92 - Income Approach
UCLA Hotel Industry Investment Conference, 1995, 1996
NYU Hospitality Industry Investment Conference, 1991, 1992,1993, 1994,
1995
Jeffer, Mangels, Butler & Marmaro Forum - Answers to Three of the Most
Provocative Questions in Hotel Valuation Today
PUBLISHED ARTICLES
The Appraisal Journal "Simultaneous Valuation: A New Technique," April 1983
Appraisal Review & Mortgage "How to Review a Hotel Appraisal," November 1989
Underwriting Journal
California Inntouch Magazine "Value and Proper Use of Feasibility Studies," December 1990
The Hotel Valuation Journal "The Future of Full-Service Hotel Development"
COMPUTER SOFTWARE
"Simultaneous Capitalization Software for the capitalization of a variable income stream
Software"
APPEARANCE AS AN EXPERT Superior Court of the State of Arizona, County of Maricopa
WITNESS Superior Court of the State of California, City and County of San Francisco
Superior Court of the State of California, County of Los Angeles (Deposition)
Superior Court of the State of California, County of San Diego, North County
Branch
Federal Tax Court, New York, New York
U.S. District Court, Eastern District of Arkansas, Little Rock, Arkansas
U.S. District Court, Central District of California (Deposition)
U.S. District Court, Southern District of California
Federal Bureau of Investigation, New York, New York (Deposition)
U.S. Bankruptcy Court, Northern District of California
U.S. Bankruptcy Court, Eastern District of California
U.S. Bankruptcy Court, Colorado (Deposition)
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U.S. Bankruptcy Court, Southern District of Texas, Houston Division
U.S. Bankruptcy Court, Utah, Salt Lake City
U.S. Bankruptcy Court, Southern District of California
American Arbitration Association, Los Angeles
American Arbitration Association, San Francisco
Tax Appeal Board
Los Angeles County, California
Contra Costa County, California
Orange County, California
San Francisco County, California
San Mateo County, California
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CORPORATE AND INSTITUTIONAL Aegon USA Realty Advisors, Inc. Citicorp Real Estate, Inc.
CLIENTS SERVED Aetna Life Insurance Co. City and County of San Francisco
Aetna Real Estate Investment City of Boulder, Colorado
American Realcorp Cleary, Gottlieb, Steen & Hamilton
American Savings and Loan Coast Commercial Bank
Amfac Parks & Resorts Column Financial, Inc.
Bank of America Comerica Bank - California
Bank of Boston Commercial Bank of Korea, Ltd.
The Bank of New York Coudert Brothers
Bank of San Francisco Credit Lyonnais
Bank of the West Cupertino National Bank and Trust
Bankers Trust Company Dai-Ichi Kangyo Bank, Ltd.
Banque Nationale de Paris Daiwa Bank
Barclay's Bank Days Inns
The Beacon Companies Disney Development Company
Boykin Management Co. Dollar Savings and Loan
Broad, Schultz, Larson & Wineberg Doubletree Inns
Burlingame Bank and Trust Comp. Drury Inns
Caesars World Gaming EDA, U.S. Government
California Federal Bank Duckor & Spradling
California Department EPAM Corporation
of Transportation Equitable Life Assurance Society
Canadian Imperial Bank of Equitable Real Estate Investment
Commerce Management
Carpenters Pension Trust for Estate of James Campbell
Southern California Farmers National Bank
CASC Corp. Fidelity Federal Savings & Loan
Case, Knowlson, Mobley, Burnett First Boston
and Luber First Federal Savings and Loan
Chase Manhattan Bank First Interstate Bank
Chemical Bank Fox Hotel Investors
CIGNA Capital Advisors, Inc. Fuji Bank
Citibank Gibraltar Savings and Loan
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CORPORATE AND INSTITUTIONAL Gibson, Dunn & Crutcher Miramar Asset Management, Inc.
CLIENTS SERVED (CONT'D) Graham Taylor Hospitality Group Mitsui Trust & Banking Co., Ltd.
Gray, Cary, Ames & Frye The Money Store Commercial
Gray, Cary, Ware & Freidenrich Mortgage, Inc.
Great Western Bank Morgan Guaranty Trust
HMG Lodging Management Morgan Stanley & Co.
Hardage Suite Hotels Morrison &Foerster
Hare, Brewer & Kelley, Inc. NS Development Co.
Haruyoshi Kanko K.K. Nations Credit Commercial Corp.
Heller, Ehrman, White & McAuliffe Nations Financial Capital Corp.
Heller Real Estate Financial Services Network Mortgage Services
Hibernia Bank Nomura Securities International, Inc.
Hodges Ward Elliott Northwinds N.V.
Holiday Inns Ny-West Development
Hong Kong Bank Octavian, Inc.
Hongkong Bank Alliance ORIX USA Corp.
Host Marriott Orrick, Herrington & Sutcliffe
Hotel Investors Trust OZ Resorts and Entertainment
Howard Johnson's The Pacific Bank
Huntington Bank Pannell Kerr Forster
Hyatt Development Corporation Parabas Bank
Inter-Continental Patrick M. Nesbitt Associates, Inc.
International Bank of California Paul, Hastings, Janofsky & Walker
International Bank of Singapore Presideo Group
ITT Sheraton Corporation Property Capital Trust
Japan Airlines Prudential Realty Group
J.E. Robert Company, Inc. Punjab National Bank
John B. Coleman & Co. Ramada Inns
John Q. Hammons Real Estate Capital Markets
John Hancock Life Insurance Red Lion Hotels & Inns
Key Bank of New York The RIM Corp.
Kwong Hing Investment Center RT Capital Corporation
Lake County Business Outreach and San Francisco International Airport
Response Team San Leandro Development Services
Latham & Watkins Department
Local Federal Bank, F.S.B. Seafirst Bank
Long-Term Credit Bank of Security Pacific National Bank
Japan, Ltd. Salomon Brothers
Lehman Brothers, Inc. Seven Seas Associates, LLC
Leisure Sports, Inc. Shearman & Sterling
Lovitt & Hannan, Inc. Simpson, Thatcher & Bartlett
M&M Development Co. Societe General
The Maher Company Southern California Savings
Marriott Hotels Ssang Yong Engineering and
Mercury Savings and Loan Construction Company, Limited
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Starwood Lodging
Stephen W. Noey & Associates
Strategic Realty Advisors, Inc.
Streich Lang
Sumitomo Bank
Sunriver Resort
TCF Bank
Teachers Insurance and Annuity
Association
Transamerica Realty Services, Inc.
The Travelers Companies
Treadway Hotels
Tully & Wezelman, P.C.
Union Bank
U.S. Bancorp
U.S. Trust Company
VMS Realty, Inc.
Wailua Associates
Wells Fargo Bank
West LB
Windsor Capital Group
Wolf, Rifkin & Shapiro
Wrather Corporation
Yasuda Trust and Banking Co., Ltd.
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PARTIAL LIST OF HOTELS AND MOTELS APPRAISED OR EVALUATED
BY SUZANNE R. MELLEN, CRE, MAI
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ALABAMA Sunburst Resort Hotel & Conference Center, Economy Inn, Barstow
Scottsdale Proposed Holiday Inn Express, Belmont
Fairfield Inn, Birmingham L'Auberge de Sedona, Sedona Proposed Surnmerfield Suites, Belmont
Ramada Inn, Gadsden Los Abrigados, Sedona Berkeley Marina Marriot, Berkeley
Proposed Hotel, Mobile Orchard's Inn & Grill, Sedona Shattuck Hotel, Berkeley
Fairfield Inn, Montgomery Motel 6, Sierra Vista Beverly Hills Country Club, Beverly Hills
Holiday Inn, Montgomery Doubletree Inn, Tucson Beverly Hilton, Beverly Hills
Howard Johnson's, Montgomery Loews Ventana Canyon Resort, Tucson Beverly Wilshire, Beverly Hills
Radisson Suite Hotel, Tucson L'Ermitage, Beverly Hills
ALASKA Rodeway Inn, Tucson Peninsula Beverly Hills, Beverly Hills
Shilor Inn, Yuma Best Western, Big Bear Lake
Best Western Barratt Inn, Anchorage Motel 6, Big Bear Lake
Hotel Captain Cook, Anchorage ARKANSAS Proposed hotel, Big Bear Lake
Sheraton Anchorage Hotel, Anchorage Post Ranch Inn, Big Sur
Hilton, Hot Springs Ventana Inn, Big Sur
ARIZONA Holiday Inn, Little Rock Rodeway Inn, Blythe
Red Carpet Inn, Little Rock Holiday Inn, Brentwood
Motel 6, Flagstaff Fairfield Inn, Buena Park
Rodeway Inn, Flagstaff CALIFORNIA Hampton Inn, Buena Park
Woodlands Plaza Hotel, Flagstaff Marriott Courtyard, Buena Park
Bright Angel Lodge, Grand Canyon Radisson Hotel, Agoura Hills Ramada Inn, Burbank
El Tovar Hotel, Grand Canyon Ramada Inn, Agoura Hills Hyatt Regency, Burlingame
Kachina Lodge, Grand Canyon Anaheim Marriott, Anaheim Airport Marriott, Burlingame
Maswik Lodge, Grand Canyon Anaheim Park Motor Inn, Anaheim Radisson Plaza-Proposed, Burlingame
Moqui Lodge, Grand Canyon Best Western Anaheim Inn, Anaheim Good Nite Inn, Buttonwillow
Phantom Ranch, Grand Canyon Best Western Stovall's Inn, Anaheim Country Inn, Calabassas
Thunderbird Lodge, Grand Canyon Best Western Pavillions Inn, Anaheim Good Nite Inn, Calabassas
Yavapai Lodge, Grand Canyon Boulevard Inn, Anaheim Del Norte Inn, Camarillo
Hampton Inn-Proposed, Holbrook Carousel Inn, Anaheim Good Nite Inn, Camarillo
Rodeway Inn, Kingman Disneyland Hotel, Anaheim Cambria Pines Lodge, Cambria
Nautical Inn, Lake Havasu Golden Forest Motel, Anaheim Best Western Fireside Inn, Cambria
Bobby McGee's Conglomeration, Phoenix Hilton Hotel, Anaheim Pruneyard Inn, Campbell
Caravan Inn, Phoenix Holiday Inn, Anaheim Proposed Hotel, Capitola
Crescent Hotel, Phoenix Howard Johnson Hotel, Anaheim Allstar Inn, Carlsbad
Doubletree Inn, Phoenix Marriott Courtyard, Anaheim Carlsbad lnn,Carlsbad
Embassy Suites-Camelback, Phoenix Pan Pacific Hotel, Anaheim Inn of America, Carlsbad
Embassy Suites-Camelhead, Phoenix Pitcairn Inn, Anaheim La Costa Resort and Spa, Carlsbad
Fountain Suites Hotel, Phoenix Ramada Maingate Hotel, Anaheim Olympic Resort, Carlsbad
Granada Royale Camelhead, Phoenix Raffles Inn & Suites, Anaheim Proposed Hotel, Casa de Fruita
Holiday Inn, Phoenix Station Inn, Anaheim Royce Hotel, Cathedral City
Holiday Inn Crowne Plaza, Phoenix Travelodge Inn at the Park, Anaheim Sheraton Cerritos Towne Center,Cerritos
Hyatt Regency, Phoenix Auburn Inn, Auburn Neighborhood Inn-Proposed, Chatsworth
Knights Inn, Phoenix Sleep Inn, Auburn Holiday Inn, Chico
Omni Adams Hotel, Phoenix Ramada, Augora Hills Red Lion Hotel, Chico
Quality Inn, Phoenix Allstar Inn, Bakersfield Otay Valley Travel Lodge, Chula Vista
Doubletree Inn, Scottsdale Clarion Suites, Bakersfield Howard Johnson's, Colton
Marriott Camelback Inn, Scottsdale Economy Inn, Bakersfield (2) Concord Hilton, Concord
Phoenician Resort, Scottsdale Marriott Courtyard, Bakersfield Trees Inn, Concord
Red Lion-La Posada, Scottsdale Red Lion Hotel, Bakersfield Motel 6, Corona
Rodeway Inn, Scottsdale Sheraton Hotel, Bakersfield Loews Coronado Bay Resort, Coronado
Scottsdale Conference Resort, Hilton Hotel, Baldwin Park Ha' Penny Inn, Costa Mesa
Scottsdale Allstar Inn, Barstow Marriott Suites, Costa Mesa
Scottsdale Princess, Scottsdale
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Red Lion Hotel, Costa Mesa Residence Inn, La Jolla Silverado, Napa Valley
Residence Inn, Costa Mesa Hilton Lodge, Lake Arrowhead Newark/Fremont Hilton, Newark
Pacifica Hotel & Conference Center, Lake Arrowhead Resort, Lake Arrowhead Marriott Suites, Newport Beach
Culver City Proposed Hotel, Lake Country Proposed Newport Coast Development, Newport
Ramada Inn, Culver City Resort at Squaw Creek, Lake Tahoe Beach
Marriott Courtyard, Cupertino Marriott Courtyard, Larkspur Newporter Resort Hotel, Newport Beach
Proposed Spa, Danville Proposed 50-Unit Motel, Little Lake Sheraton Hotel, Newport Beach
Furnace Creek Inn, Death Valley Residence Inn, Livermore Shilo Inn, Oakhurst
Furnace Creek Resort, Death Valley Breakers Hotel, Long Beach Holiday Inn Oakland Airport, Oakland
Stove Pipe Wells Village, Holiday Inn, Long Beach Parc Oakland Hotel, Oakland
Death Valley Marriott Hotel, Long Beach Resort at Squaw Greek, Olympic Valley
Hilton Hotel-Proposed, Del Mar Residence Inn, Long Beach Clarion Hotel, Ontario
Marriott Resort & Spa, Airport Park Hotel, Los Angeles Holiday Inn, Ontario
Desert Springs Biltmore Hotel, Los Angeles Red Lion Hotel, Ontario
Days Inn Diamond Bar, Diamond Bar Checkers Hotel, Los Angeles Woodfin Suites, Orange
Carlos Murphy's Restaurant, Doubletree Hotel at LAX, Los Angeles Holiday Inn, Oxnard
Emeryville Econolodge-Proposed, Los Angeles Super 8 Motel, Palmdale
Days Inn, Emeryville Embassy Suites, Los Angeles Embassy Suite, Palm Desert
Hardage Suites Hotel Site, Four Seasons, Los Angeles Canyon Resort Hotel, Palm Springs
Emeryville Hilton Hotel & Towers, Los Angeles Desert Princess, Palm Springs
Lyon's Restaurant, Emeryville Hilton LAX, Los Angeles Palm Canyon, Palm Springs
Proposed Woodtin Suites, Emeryville Holiday Inn-LAX, Los Angeles Palm Springs Spa Hotel, Palm Springs
Budget Motel, Encinitas Holiday Inn Crowne Plaza-LAX, Spa Hotel & Mineral Springs, Palm Springs
Marriott Tenaya Lodge, Fish Camp Los Angeles Holiday Inn, Palo Alto
All-Suites-Proposed, Foster City Holiday Inn Express-Van Nuys, Stanford Terrace Inn, Palo Alto
Clubtel-Proposed, Foster City Los Angeles Holiday Inn Express, Pasadena
Holiday Inn, Foster City Hotel Inter-Continental, Los Angeles Cascade Ranch Lodge, Pescadero
Marriott Courtyard, Foster City Hotel Sofitel Ma Malson, Los Angeles Elks Lodge, Petaluma
Hilton, Fremont Marriott Courtyard-LAX, Los Angeles Best Western Grande Arroyo, Pismo Beach
Marriott Courtyard, Fremont Playa Vista Development, Los Angeles Proposed Hilton, Pismo Beach
Motel 6, Fremont Sofitel Ma Maison, Los Angeles Fairfield Inn, Placentia
Quality Inn, Fremont Westin Bonaventure, Los Angeles Pleasant Hill Inn, Pleasant Hill
Proposed Westin Clubsport, Fremont Los Gatos Lodge, Los Gatos Black Angus Restaurant, Pleasant Hill
Allstar Inn, Fresno (2) Economy Inns of America Motel, Madera Savoy Restaurant, Pleasant Hill
Chateau Inn, Fresno Marriott Courtyard, Mira Mesa Hilton Hotel, Pleasanton
Economy Inn, Fresno (2) Barnabeys Hotel, Manhattan Beach Holiday Inn, Pleasanton
Hacienda Resort and Conference Center, Doubletree Hotel, Marina del Rey Marriott Courtyard, Pleasanton
Fresno Holiday Inn Express, Marina del Rey Shilo Inn, Pomona
Holiday Inn, Fresno Marina Suites Hotel, Marina del Rey Country Inn, Port Hueneme
Marriott Courtyard, Fresno Marina Beach Hotel, Marina del Rey Economy Inn, Rancho Cordova
Picadilly Inn Airport, Fresno Marriott Hotel, Marina del Rey Marriott Courtyard, Rancho Cordova
Travelers Inn, Fresno (3) Holiday Inn, Milpitas Quality Suites, Rancho Cordova
Sierra Sport and Racquet Club, Fresno Motel Orleans, Modesto Marriot's Rancho Las Palmas,
Griswold's Hotel, Fullerton Red Lion Hotel, Modesto Rancho Mirage
Marriott Hotel, Fullerton Doubletree Fisherman's Wharf, Monterey Grand Manor Inn, Redding
Hyatt Regency-Proposed, Goleta Doubletree Inn, Monterey Motel Orleans East, Redding
Motel 6, Gilroy Monterey Plaza Hotel, Monterey Motel 6, Redding
Red Lion Hotel, Glendale Sheraton Hotel, Monterey Park Terrace, Redding
Proposed Healdsburg Plaza Hotel, Inn at Morro Bay, Morro Bay Red Lion Inn, Redding
Healdsburg Best Western Inn, Napa Valley Shasta Inn, Redding
Hollywood Palm Hotel, Hollywood Clarion Inn, Napa Valley Good Nite Inn, Redlands
Waterfront Hilton, Huntington Beach Inn at Napa Valley, Napa Valley Sheraton Redondo Beach, Redondo Beach
Grand Champions Resort, Indian Wells Sheraton Inn Napa Valley, Napa
Marriott Courtyard, Irvine Proposed Windmill Inn, Napa Valley
Registry Hotel, Irvine
Amador Inn, Jackson
Proposed Hotel, Kern Co.
Lafeyette Park Hotel, Lafeyette
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Hotel Sotftel at Redwood Shores, Town and Country Hotel, San Diego Sheraton Fisherman's Wharf, San Francisco
Redwood City U.S. Grant Hotel, San Diego Sir Francis Drake Hotel, San Francisco
Carriage Inn, Ridgecrest Bellevue Hotel, San Francisco Stanford Court, San Francisco
Good Nite Inn, Rohnert Park Campton Place, San Francisco Super 8 Motel at Fisherman's Wharf
Red Lion Hotel, Rohnert Park Cartwright Hotel, San Francisco Proposed Inn at 2961 Pacific Avenue,
Mission Inn, Riverside Chancellor Hotel, San Francisco San Francisco
Allstar Inn, Sacramento (4) The Clift Hotel, San Francisco Tuscan Inn, San Francisco
Arco Arena, Sacramento Comfort Inn by the Bay, San Francisco Marriott Courtyard, San Francisco Airport
Clarion Hotel, Sacramento Donatello Hotel, San Francisco Fairmont Hotel, San Jose
Proposed Hilton Inn, Sacramento Embarcadero Inn, San Francisco Holiday Inn, San Jose
Holiday Inn, Sacramento Fairmont Hotel, San Francisco Hyatt St. Claire, San Jose
Hyatt Regency at Capitol Park, Four Seasons Clift, San Francisco Ramada Renaissance Hotel, San Jose
Sacramento Grand Hyatt, San Francisco Red Lion-San Jose, San Jose
Marriott Courtyard, Sacramento Harbor Court Hotel, San Francisco Islander Lodge Motel, San Leandro
Motel Orleans, Sacramento Holiday Inn-Civic Center, San Francisco Apple Farm Inn, San Luis Obispo
Peregrine Real Estate Trust, Holiday Inn-Fisherman's Wharf, Pacific Suites Hotel, San Luis Obispo
Sacramento San Francisco Benjamin Franklin Hotel, San Mateo
Radisson Hotel, Sacramento Holiday Inn-Golden Gateway, San Francisco Dunfey Hotel, San Mateo
Red Lion Hotel-Sacramento, Sacramento Holiday Lodge, San Francisco Holiday Inn, San Mateo
Red Lion-Sacramento Inn, Sacramento Hotel Diva, San Francisco Holiday Inn Express, San Mateo
Sacramento Hilton, Sacramento Hotel Griffon & Roti Restaurant, Embassy Suites, San Rafael
Sacramento Inn, Sacramento San Francisco Marriott Hotel, San Ramon
Sierra Inn, Sacramento Hotel Nikko California Palms, Santa Ana
Sterling Hotel, Sacramento Hotel Union Square, San Francisco Compri Hotel, Santa Ana
Travelers Inn, Sacramento Howard Johnson's Pickwick Hotel, Executive Inn, Santa Ana
Proposed Vizcaya Catering Hall, San Francisco Executive Lodge, Santa Ana
Sacramento Hyatt at Fisherman's Wharf, San Francisco Orange County Ramada Hotel, Santa Ana
Woodlake Inn, Sacramento Hyatt Regency Embarcadero, San Francisco El Encanto Hotel, Santa Barbara
Proposed 60-Unit Hotel, Sacramento Proposed Inn at Fisherman's Wharf, Fess Parkers Red Lion Resort,
Marriott Courtyard, San Brune San Francisco Santa Barbara
Best Western Seven Seas Lodge, Inn at the Opera, San Francisco Santa Barbara Inn, Santa Barbara
San Diego Juliana Hotel, San Francisco San Ysidro Ranch, Santa Barbara
Clarion Bay View, San Diego King George Hotel, San Francisco Budget Inn, Santa Clara
Comfort Inn Old Town, San Diego Lamboume Hotel, San Francisco Embassy Suites-Santa Clara, Santa Clara
Doubletree Hotel at Horton Plaza, Le Meridien Hotel, San Francisco Marriott Hotel, Santa Clam
San Diego The Majestic, San Francisco Quality Suites, Santa Clara
Embassy Suites-La Jolla, San Diego Mark Twain Hotel, San Francisco Hilton Garden Inn, Santa Clarfta
Executive Lodge, San Diego Marriott Fisherman's Wharf, San Francisco Hillon Town Center, Santa Clarita
Hanalei Hotel, San Diego Orchard Hotel, San Francisco Inn at Pasatiempo, Santa Cruz
Holiday Inn, San Diego Parc Fitty-Five, San Francisco Dream Inn, Santa Cruz
Howard Johnson, San Diego Park Hyatt, San Francisco Motel 6, Santa Made
Hyatt Islandia, San Diego Portman Hotel, San Francisco Santa Maria Airport Hilton, Santa Maria
Hyatt Regency, San Diego Prescott Hotel, San Francisco Holiday Inn at the Pier, Santa Monica
Intercontinental Hotel, San Diego Queen Anne Hotel, San Francisco Loews Santa Monica Beach Hotel, Santa
Kings Inn, San Diego Ramada Hotel, San Francisco Monica
La Jolla Village Inn, San Diego Ramada Plaza Hotel, San Francisco Ocean Avenue Hotel, Santa Monica
Marriott Hotel, San Diego Regis Hotel, San Francisco Proposed EconoLodge, Santa Monica
Marriott Mission Valley, San Diego Ritz Carlton-Proposed, San Francisco Park Hyatt Hotel, Santa Monica
Marriott Suites, San Diego San Francisco Airport Hilton, San Francisco Santa Monica Beach Hotel, Santa Monica
Mission Valley Inn, San Diego San Francisco Hilton, San Francisco Holiday Inn, Santa Nella
Radisson Hotel, San Diego San Francisco Hotel, San Francisco Fountain Grove Inn, Santa Rosa
Ramada Limited Suites, San Diego San Francisco Marriott, San Francisco Holiday Inn, Santa Rosa
Red Lion Hotel, San Diego Savoy Hotel, San Francisco Days Inn Seaside, Seaside
Summer House Inn, San Diego
Sheraton Harbor Island East, San Diego
Sheraton Grand, San Diego
Super 8 Motel-Point Loma, San Diego
Symphony Towers, San Diego
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Embassy Suites, Seaside Holiday Inn Southeast, Aurora Fairfield Inn, Gainesville
Seaside 8, Seaside Downtown Boulder Hotel, Boulder Holiday Inn-Madeira, Madeira Beach
Radisson Valley Center Hotel, Hilton Harvest House, Boulder Fairfield Inn, Miami
Sherman Oaks Holiday Inn, Boulder Holiday Inn-Calder, Miami
Ramada Inn, Solana Beach Best Western Le Baron Hotel, Fairfield Inn International, Miami
Danish Country Inn, Solvang Colorado Springs Fairfield Inn South, Miami
Red Lion Inn, Sonoma Proposed Double Eagle Casino Hotel, Holiday Inn-International Drive, Orlando
Hardage Suites Hotel Site, Colorado Springs
Sorrento Mesa Embassy Suites, Colorado Springs Holiday Inn-Lee Road, Orlando
Timberwoff Lodge, South, Lake Tahoe Hilton, Colorado Springs Peabody Hotel, Orlando
Crown Sterling Suites, South Proposed Double Eagle Casino Hotel, Sheraton Jetport Inn, Orlando
San Francisco Cripple Creek Sheraton Lakeside, Orlando
Holiday Inn, South San Francisco Le Baron Hotel, Denver Holiday Inn, Palm Beach Gardens
La Quinta Inn, South San Francisco Brown Palace, Denver Holiday Inn-Lido Beach, Sarasota
Proposed 390-Room Hotel, Days Inn-Arapahoe, Denver Holiday Inn-Airport, Tampa
South San Francisco Days Inn-Colfax, Denver Ramada Inn, Tampa
Harvest Inn, St Helena Embassy Suites, Denver
Meadowood Resort, St. Helena Radisson, Denver GEORGIA
Motel Orleans, Stockton Denver Hilton, Englewood
Sheraton Hotel-Proposed, Stockton Proposed Summerfield Suites, Greenwood Fairfield Inn Northlake, Atlanta
Stockton Hilton, Stockton Village Proposed Hyatt-Airport, Atlanta
Holiday Inn, Sunnyvale Proposed Hampton Inn, Lakewood Motel 6, Atlanta
Neighborhood Suites Hotel, Sunnyvale Westin Hotel, Vail Neighborhood Inn, Atlanta
Residence Inn Silicon Valley 11, Stouffer's Hotel-Proposed, Atlanta
Sunnyvale CONNECTICUT Fairfield Inn, College Park
Sunnyvale Hilton, Sunnyvale Holiday Inn-Crowne Plaza, College Park
Super 8, Sunnyvale Holiday Inn, Darien Fairfield Inn-Gwinnett, Duluth
Good Nite Inn, Sylmar Proposed Days Inn, Enfield Howard Johnson's Forsyth
Embassy Suites-Temecula, Temecula Hartford Hilton, Hartford Fairfield Inn, Marrietta
Temecula Inn, Temecula Motel 6, Hartford Fairfield Inn, Morrow
Holiday Inn - Torrance, Torrance Executive Hotel, Stamford Fairfield Inn, Norcross
MCA Hotel-Proposed, Universal City Harley Hotel, Stamford Motel 6, Norcross
Holiday Inn, Van Nuys Holiday Inn-Crowne Plaza, Stamford Fairfield Inn, Savannah
Habortown Marina Resort, Ventura
Ocean Resorts/Harbortown Hotel, DISTRICT OF COLUMBIA HAWAII
Ventura
Sheraton Hotel, Ventura Fairmont Hotel, Washington Ritz-Carlton Mauna Lani
Holiday Inn, Walnut Creek Harambee House, Washington Royal Sea Cliff Resort, Hawaii
Parkside Hotel, Walnut Creek Hyatt Regency, Washington
Proposed Royce Hotel, Walnut Greek Ritz-Carlton, Washington Coco Palms Resort Kauai
Walnut Creek Marriott, Walnut Creek River Inn, Washington Westin Kauai at Kauai Lagoons Resort, Kauai
Proposed Westin ClubSport, St. James, Washington Grand Wailea Resort Maui
Walnut Creed Maui Lu Resod, Maui
Le Bel Age, West Hollywood FLORIDA Royal Hawaiian Hotel, Oahu
Le Dufy, West Hollywood Waikiki Gateway Hotel, Oahu
Le Mondrian, West Hollywood Holiday Inn, Altamonte Springs Waikiki Sand Villa Hotel, Oahu
Le Montrose, West Hollywood Embassy Suites, Boca Raton
Whither Hilton, Whittier Petite Suites, Boca Raton IDAHO
Woodland Hotel & Conference Center- Holiday Inn, Clearwater
Proposed, Woodland Holiday Inn Gulfview, Clearwater Motel 6, Coeur d'Alene
Warner Center Marriott, Woodland Hills Holiday Inn Surfside, Clearwater Beach Cotton Tree Inn, Pocatello
Skylonda Retreat, Woodside Holiday Inn-Airport, Ft. Lauderdale
Marriott Tenaya Lodge-Proposed, Holiday Inn-Beach, Ft. Lauderdale ILLINOIS
Yosemite Holiday Inn-North, Ft. Lauderdale
Motel Orleans, Yuba City
COLORADO
Hampton Inn, Aurora
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Indian Lakes Resort, Bloomingdale LOUISIANA Holiday Inn, Troy
Super 8 Motel, Bloomington Fairfield Inn, Warren
Super 8 Motel, Champagne Howard Johnson's, Alexandria Holiday Inn, Warren
Mayfair Regent, Chicago, Embassy Suites, Baton Rouge Motel 6, Warren
Super 8 Motel, Crystal Lake Hilton Hotel, Baton Rouge Super 8 Motel, Wyoming
Super 8 Motel, Decatur Sheraton At New Orleans Airport, Kenner
Proposed Hotel, Des Plaines Harrah's Jazz Casino, New Orleans MINNESOTA
Radisson Suites, Downers Grove The lberville Hotel, New Orleans
Hampton Inn, Elk Grove Ramada Inn St. Charles, New Orleans Holiday Inn, Duluth
Holiday Inn, Elmhurst Motel 6, Minneapolis
Orrington Hotel, Evanston MAINE Proposed Motel, Montevideo
Drury Inn, Fairview Heights Motel 6, Rochester
Nordic Hills Resort, Itasca Inn by the Sea, Cape Elizabeth Radisson Plaza Hotel, Rochester
Holiday Inn, Joliet
Fairfield Inn, Lansing MARYLAND MISSISSIPPI
Fairfield Inn, Normal
Fairfield Inn, Peoria Holiday Inn, Aberdeen Motel 6, Hattesburg
Super 8 Motel, Peru Maryland Inn, Annapolis Howard Johnson's, Jackson
Fairfield Inn, Rockford Best Western Motor Lodge, Chicopee Quality Inn, Oxford
Super 8 Motel, Waukegan Abbey, College Park Sam's Town Hotel & Gambling Hall
Holiday Inn, Laurel Robinsonville
INDIANA Days Inn, Rockville
Holiday Inn Crowne Plaza, Rockville MISSOURI
Super 8 Motel, Columbus Ramada Inn, Rockville
Sheraton Hotel, Gary Fairfield Inn, Hazelwood
Caesars Riverboat Casino MASSACHUSETTS Holiday Inn, Kansas City
Complex-Proposed, Harrison County Sam's Town Hotel & Gambling Hall,
Fairfield Inn, Indianapolis Marriott Copley Place, Boston Kansas City
Motel 6, Indianapolis Meridien Hotel, Boston Holiday Inn, Springfield
Wyndham Garden Hotel, Indianapolis Federal House Inn, South Lee Clarion Hotel, St. Louis
Hilton Inn, Jeffersonville Holiday Inn, Springfield Executive Inn, St Louis
Brown County Inn, Nashville Sheraton, Sturbridge Holiday Inn Sports Complex, St. Louis
Proposed Surnmerfield Suites Hotel, Waltham Sheraton Airport, St Louis
IOWA Proposed Hotel, Unity Village
MICHIGAN
Holiday Inn, Cedar Falls Fairfield Inn, Auburn Hills
Collins Plaza, Cedar Rapids Super 8 Motel, Battle Greek MONTANA
Fairfield Inn, Clive Howard Johnson's, Belleville
Fairfield Inn, Canton Holiday Inn, Bozeman
KANSAS Holiday Inn, Detroit Holiday Inn, Missoula
Golden Harp-Proposed, Detroit Red Lion Hotel, Missoula
Proposed Emerald City Resort, Fairfield Inn, Kalamazoo
Kansas City Super 8 Motel, Kalamazoo
Fairfield Inn, Merriam Embassy Suites-Proposed, Livonia NEBRASKA
Fairfield Inn, Overland Park Embassy Suites, Livonia
Canterbury Inn/Knights Inn, Wichita Fairfield Inn, Madison Heights Marriott Hotel, Omaha
Super 8 Motel, Muskegon Red Lion Inn, Omaha
Inn at the Bridge, Port Huron
KENTUCKY Fairfield Inn, Romulus NEVADA
Super 8 Motel, Saginaw
Holiday Inn-Central. Louisville Comfort Suites, Sterling Heights Ormsby House Hotel and Casino,
Holiday Inn-Northeast, Louisville Carson City
Ramada Inn East, Louisville Airport Inn, Las Vegas
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Aladdin Hotel & Casino, Las Vegas Hilton Hotel, Albany Proposed Embassy Suites, Cincinnati
Alexis Park Hotel, Las Vegas Buffalo Hotel, Buffalo Howard Johnson's, Cincinnati
California Hotel & Casino, Las Vegas Proposed Airport Hotel, Buffalo Marriott Inn, Cincinnati
Fremont Hotel & Casino, Las Vegas Nevele Hotel, Ellenville Radisson Inn, Cincinnati
Proposed Homewood Suites, Las Vegas Howard Johnson's, Elmsford Vernon Manor, Cincinnati
Hotel & Casino El Rancho, Las Vegas Ramada Inn, Hauppauge Holiday Inn Lakeside, Cleveland
Howard Johnson Hotel & Casino, Hilton Hotel, Lake Placid Sheraton Hopkins, Cleveland
Las Vegas Proposed Hotel, New Rochelle Fairfield Inn, Columbus
Jockey Club, Las Vegas Ramada Plaza, New Rochelle Holiday Inn, Columbus
Paradise Resort Hotel, Las Vegas Sheraton Inn, New Rochelle Woodfin Hotel, Columbus
Residence Inn, Las Vegas Barbizon Plaza Hotel, New York Daytonian Hilton, Dayton
Sam's Town Hotel & Gambling Hall, Berkshire Place, New York Fairfield Inn, Dayton
Las Vegas Century Paramount Hotel, New York Motel 6, Dayton
Stardust Resort and Casino, Las Vegas Executive Hotel, New York Fairfield Inn, Holland
Sunrise Hotel & Casino, Las Vegas Halloran House, New York Holiday Inn, Toledo
Hampton House, New York
NEW JERSEY Holland Hotel, New York OKLAHOMA
Howard Hotel, New York
Deauville Hotel, Atlantic City Mayfair Regent, New York Fountainhead Resort McIntosh County
Harrah's Marina Hotel Casino, Nova-Park Gotham, New York Arrowhead Resort, Pittsburgh County
Atlantic City Parker Meridien Hotel, New York
Sands Hotel & Casino, Atlantic City Proposed Soho Hotel, New York
Tropicana Hotel & Casino, Tudor Hotel, New York OREGON
Atlantic City York Club, New York
Cherry Hill Inn, Cherry Hill Sheraton Inn, Ossining Red Lion Inn, Astoria
Proposed Ramada Inn, Elizabeth Proposed Hotel, Saratoga Inn at Face Rock, Bandon
Proposed Ramada Inn, Franklin Howard Johnson's, Smithtown Shilo Inn, Beaverton
Township Hampton Inn, Syracuse Red Lion Inn - North, Bend
Proposed Surnmerfield Suites Sheraton Nassau Hotel, Uniondale Red Lion Inn - Coos Bay, Coos Bay
Morristown, Hanover Turning Stone Casino, Verona Econolodge, Eugene
Proposed Surnmerfield Suites Roger Smith Hotel, White Plains Execulodge, Eugene
Parsippany, Hanover Red Lion Inn, Eugene
Holiday Inn, Jamesburg NORTH CAROLINA Big Creek Resort, Florence
Headquarters Plaza, Morristown Salishan Lodge, Gleneden Beach
Howard Johnson's Mount Holly Fairfield Inn, Charlotte Shilo Inn, Grains Pass
Mt. Laurel Hilton, Mt. Laurel Fairfield Inn, Durham Proposed Courtyard Hotel, Hillsboro
Holiday Inn, Newark Motel 6, Durham Proposed Residence Inn, Hillsboro
Howard Johnson's, Saddle Brook Fairfield Inn, Fayetteville Red Lion Inn, Medford
Marriott Hotel, Somerset Embassy Suites, Greensboro Residence Inn, Lake Oswego
Motel, Wrightstown Fairfield Inn, Greensboro Red Lion Hotel, Pendleton
Five Churches Chicken Restaurants, Hilton Inn, Greensboro Columbia River Red Lion, Portand
Various Locations Fairfield Inn, Raleigh Embassy Suites, Portland
Hilton Inn, Raleigh Holiday Inn, Portland
Motel 6, Rocky Mount Proposed Sheraton Suites, Portland
NEW MEXICO Fairfield Inn, Wilmington Red Lion Hotel-Portland Downtown,
Hilton Inn, Winston-Salem Portland
Doubletree Hotel, Albuquerque Red Lion Inn-Lloyd Center, Portland
Hampton Inn, Albuquerque OHIO Residence Inn-Lloyd Center, Portland
Ramada Hotel Classic, Albuquerque Vintage Plaza Hotel, Portland
Las Cruces Hilton, Las Cruces Holiday Inn Cascade, Akron Wells Building, Portland
Homewood Suites, Santa Fe Embassy Suites, Blue Ash Capitol Inn, Salem
Inn at Loretto, Santa Fe Fairfield Inn, Brook Park Execulodge, Salem
Sheraton de Santa Fe, Santa Fe Red Lion Inn, Seaside
Rancho Ramada Inn de Taos, Taos Red Lion Inn, Springfield
Skamanla Lodge, Stevenson
NEW YORK
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Sunriver Resort, Sunriver Summit Hotel, DallasRed Lion Inn, Spokane Valley
Red Lion Inn, Tigard Howard Johnson's, East Dallas Park Shore Inn, Tacoma
Allstar Inn, El Paso Red Lion Inn, Tacoma
PENNSYLVANIA Embassy Suites, El Paso Sheraton Hotel, Tacoma
Travelers Inn, El Paso Doubletree Suites, Tukwila
Embassy Suites - Pittsburgh, Metro Center Hotel, Fort Worth Hampton Inn, Tukwila
Coraopolis Red Lion Inn at the Quay, Vancouver
Days Inn, Danville Embassy Suites, Houston Red Lion Inn, Wenatchee
Rittenhouse Towers, Philadelphia Holiday Inn-Hobby, Houston Red Lion Inn, Yakima
Motel 6, Pittsburgh Houston House, Houston
Hilton At Lackawanna Station, Houstonian Hotel, Houston
Scranton WEST VIRGINIA
Motel 6, Houston
SOUTH CAROLINA Stouffer Rennaisance, Houston Holiday Inn Charleston House, Charleston
Proposed Hampton Inn, Irving Holiday Inn, Huntington
Holiday Inn, Charleston Holiday Inn, Lubbock Howard Johnson's, Wheeling
Holiday Inn, Charleston-Riverview Crockett Hotel, San Antonio
Embassy Suites, Columbia WISCONSIN
Motel 6, Columbia UTAH
Fairfield Inn, Greenville Fairfield Inn, Brookfield
Ramada Inn, Greenville Utah Trails Resort, Kanab Wyndham Garden Hotel, Brookfield
Fairfield Inn, Florence Seven Peaks Resort Hotel, Provo Super 8 Motel, Jamesville
Fairfield Inn, Hilton Head Red Lion Hotel, Salt Lake City Super 8 Motel, Kenosha
Hilton Head Inn, Hilton Head Fairfield Inn, Madison
Hyatt Regency, Hilton Head VIRGINIA Holiday Inn-Airport, Milwaukee
Save Inn, Lake Hartwell Holiday Inn-West, Milwaukee
Howard Johnson's, Alexandria
TENNESSEE Hyatt Arlington, Arlington WYOMING
Holiday Inn Crowne Plaza, Crystal City
Motel 6, Chattanooga Motel 6, Fredericksburg Days Inn, Casper
Holiday Inn, Jackson Fairfield Inn, Hampton Flying L Skylel, Cody
Fairfield Inn, Johnson City Omni International Hotel, Norfolk
Holiday Inn, Memphis Holiday Inn West End, Richmond CANADA
Motel 6, Memphis
Days Inn, Nashville WASHINGTON EconoLodge, Hull, Quebec
Hampton Inn, Nashville Sutton Place Hotel & Apartments Toronto
Embassy Suites, Bellevue
Hampton Inn, Bellevue
Red Lion Inn Bellevue Center, Bellevue GUAM
TEXAS Motel 6, Issaquah
Red Lion Inn, Kelso Royal Palm Resort Tumon
Proposed Summerfield Suites Hotel, Embassy Suites, Lynwood Proposed Hotel, Tamuning
Addison Red Lion Inn, Pasco
Days Inn, Amarillo Red Lion Inn, Richland MEXICO
Motel 6, Amarillo Best Western Tower Inn, Richland
Super 8 Motel, Amarillo Hampton Inn, Sea-Tac Omni Hotel, Ixtapa
Holiday Inn, Austin Holiday Inn Sea-Tac, Sea-Tac La Jolla de Mismaloya, Puerto Vallarta
Days Inn, Corpus Christ Red Lion Hotel, Sea-Tac
Doubletree Inn, Dallas Doubletree Inn, Seattle PUERTO RICO
Fairmont Hotel, Dallas Hampton Inn, Seattle
Marriott Park Central, Dallas Holiday Inn Crowne Plaza, Seattle Carib Inn, San Juan
Marriott Quorum, Dallas Red Lion Hotel, Seattle
Melrose Hotel, Dallas Proposed Seattle Hotel, Seattle
Motel 6, Dallas Red Lion Inn, Spokane
Park Plaza, Dallas
Ramada Inn Convention Center, Dallas
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