AS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1997
PRELIMINARY COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
AMENDMENT NO. 1 TO
PRELIMINARY PROXY STATEMENT
FILED ON SCHEDULE 13E-3
RULE 13e-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES AND EXCHANGE ACT
OF 1934)
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
------------------------------------------------
(Name of the Issuer and Person Filing Statement)
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
------------------------------------------------
(Title of Class of Securities)
74429Y103
-------------------------------------
(CUSIP Number of Class of Securities)
Mr. Chester A. Piskorowski Mr. Jeffrey W. Tindell
Prudential-Bache Properties, Inc. Skadden, Arps, Slate, Meagher & Flom LLP
One Seaport Plaza 919 Third Avenue
New York, NY 10292 New York, NY 10022
(212) 214-1339 (212) 735-3380
(Name, Address and Telephone Number of Persons Authorized to Receive Notices and
Communications on Behalf of Person Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. [x]
<PAGE>
Calculation of Filing Fee
----------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
----------------------------------------------------------------------
$43,520,000 $8,704
----------------------------------------------------------------------
* For purposes of calculating fee only.
Based on the aggregate cash to be received by the Issuer from the proposed sale
of assets, which the Issuer believes will be $43,520,000, multiplied by 1/50th
of one percent (1%).
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: $8,704 Filing Party: the Issuer
Form or registration no.: Preliminary Date filed: September 17, 1997
Proxy Statement
2
<PAGE>
CROSS-REFERENCES
The information required to be contained in this Schedule 13E-3 is
incorporated herein by reference from the attached solicitation materials. The
following cross-references indicate where the information called for by each
Item of this Schedule 13E-3 is contained in the enclosed solicitation materials.
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
ITEM 1 ISSUER AND CLASS OF SECURITY SUBJECT TO THE
TRANSACTION
(a) COVER PAGE OF THE STATEMENT FURNISHED IN CON-
NECTION WITH THE SOLICITATION OF CONSENTS;
SUMMARY--The Partnership 1, 4
(b) COVER PAGE OF THE STATEMENT FURNISHED IN CON-
NECTION WITH THE SOLICITATION OF CONSENTS;
SUMMARY--Record Date; Units Entitled to Consent; VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF 1, 5, 32
(c) MARKET PRICES OF UNITS AND DISTRIBUTIONS TO
UNITHOLDERS--Secondary and Market Prices for Units 30
(d) SPECIAL FACTORS CONCERNING THE PLAN--Background
of the Proposed Sale of the Assets; MARKET PRICES OF
UNITS AND DISTRIBUTIONS TO UNITHOLDERS--Distribu-
tions to Unitholders 12, 31
(e) Not applicable.
(f) Not applicable.
3
<PAGE>
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
ITEM 2 IDENTITY AND BACKGROUND
The person filing this statement is the issuer of the class
of equity securities which is the subject of the Rule 13e-3
transaction.
(a) IDENTITY AND BACKGROUND OF CERTAIN PERSONS 32
(b) IDENTITY AND BACKGROUND OF CERTAIN PERSONS 32
(c) IDENTITY AND BACKGROUND OF CERTAIN PERSONS 32
(d) IDENTITY AND BACKGROUND OF CERTAIN PERSONS 32
(e) With respect to PSI, see IDENTITY AND BACKGROUND
OF CERTAIN PERSONS 32
With respect to each other person, natural or otherwise,
identified in the above section, the answer is no.
(f) With respect to PSI, see IDENTITY AND BACKGROUND
OF CERTAIN PERSONS 32
With respect to each other person, natural or otherwise,
identified in the above section, the answer is no.
(g) IDENTITY AND BACKGROUND OF CERTAIN PERSONS 32
ITEM 3 PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a) Not applicable.
(b) SPECIAL FACTORS CONCERNING THE PLAN--Background
of Proposed Sale of the Assets 12
ITEM 4 TERMS OF THE TRANSACTION
(a) SUMMARY--Action by Written Consent, --The Plan; SPECIAL
FACTORS CONCERNING THE PLAN-- The Purchase
Agreement, --Closing of the Sale, --Amendment to
Partnership Agreement, --Liquidation 5, 7, 16,
18, 25, 26
(b) Not applicable.
4
<PAGE>
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
ITEM 5 PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
ITEM 6 SOURCE AND AMOUNT OF FUNDS OR OTHER CONSID-
ERATION
(a) COVER PAGE OF THE STATEMENT FURNISHED IN CON-
NECTION WITH THE SOLICITATION OF CONSENTS;
SPECIAL FACTORS CONCERNING THE PLAN--The Pur-
chase Agreement, --Use of Proceeds and Cash
Distributions, --Liquidation 1, 16, 21, 26
(b) COVER PAGE OF THE STATEMENT FURNISHED IN CON-
NECTION WITH THE SOLICITATION OF CONSENTS;
SPECIAL FACTORS CONCERNING THE PLAN--Use of
Proceeds and Cash Distributions 1, 21
(c) SPECIAL FACTORS CONCERNING THE PLAN--The Pur-
chase Agreement 16
(d) Not applicable.
5
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
<S> <C> <C>
ITEM 7 PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) SUMMARY--Action by Written Consent; SPECIAL FACTORS
CONCERNING THE PLAN--Background of Proposed Sale of
the Assets 5, 12
(b) SPECIAL FACTORS CONCERNING THE PLAN--Background
of Proposed Sale of the Assets 12
(c) COVER PAGE OF THE STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS; SPECIAL FACTORS CONCERNING THE
PLAN--Background of Proposed Sale of the Assets,
--Recommendation of the General Partners, --Advantages of Plan,
--Amendment to Partnership Agreement 1, 12, 22,
23, 25
(d) COVER PAGE OF THE STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS; SUMMARY--Action by Written Consent,
--Certain Conflicts of Interest, --Final Distributions and
Liquidation; SPECIAL FACTORS CONCERNING THE PLAN-- Background
of Proposed Sale of the Assets, --Certain Conflicts of
Interest, --Use of Proceeds and Cash Distributions, --Liquidation,
--Certain Federal Income Tax Consequences of The Plan; 1, 5, 7, 12,
ACCOUNTING TREATMENT 16, 21, 26,
29
ITEM 8 FAIRNESS OF THE TRANSACTION
(a) SPECIAL FACTORS CONCERNING THE PLAN--Recommen-
dation of the General Partners 22
(b) SPECIAL FACTORS CONCERNING THE PLAN--Advantages
of Plan 23
(c) COVER PAGE OF THE STATEMENT FURNISHED IN CONNECTION WITH
THE SOLICITATION OF CONSENTS; SUMMARY--Action by Written
Consent; SPECIAL FACTORS CONCERNING THE PLAN--Background
of Proposed Sale of the Assets,--Amendment to the
Partnership Agreement 1, 5, 12, 15
(d) SPECIAL FACTORS CONCERNING THE PLAN--Recommen-
dation of the General Partners 22
(e) SPECIAL FACTORS CONCERNING THE PLAN--Recommen-
dation of the General Partners 22
(f) SPECIAL FACTORS CONCERNING THE PLAN--Background
of Proposed Sale of the Assets 12
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
<S> <C> <C>
ITEM 9 REPORTS, OPINIONS, APPRAISALS AND CERTAIN NE-
GOTIATIONS
(a) SPECIAL FACTORS CONCERNING THE PLAN--C&W
Reports 20
(b) SPECIAL FACTORS CONCERNING THE PLAN--C&W
Reports 20
(c) SPECIAL FACTORS CONCERNING THE PLAN--C&W
Reports 20
ITEM 10 INTEREST IN SECURITIES OF THE ISSUER
(a) SUMMARY--The Plan; VOTING SECURITIES AND PRINCI-
PAL HOLDERS THEREOF 7, 32
(b) Not applicable.
ITEM 11 CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS
WITH RESPECT TO THE ISSUER'S SECURITIES
SUMMARY--The Plan; VOTING SECURITIES AND PRINCI-
PAL HOLDERS THEREOF 32
ITEM 12 PRESENT INTENTION AND RECOMMENDATION OF
CERTAIN PERSONS WITH REGARD TO THE TRANSAC-
TION
(a) SUMMARY--The Plan; VOTING SECURITIES AND PRINCI-
PAL HOLDERS THEREOF 7, 32
(b) COVER PAGE OF THE STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS; SUMMARY--The Plan; SPECIAL FACTORS
CONCERNING THE PLAN--Recommendation of the General Partners,
--Advantages of Plan; VOTING SECURITIES AND PRINCIPAL 1, 7, 22,
HOLDERS THEREOF 23, 32
ITEM 13 OTHER PROVISIONS OF THE TRANSACTION
(a) SUMMARY--The Plan; SPECIAL FACTORS CONCERNING
THE PLAN--No Appraisal Rights. 7, 30
(b) AVAILABLE INFORMATION 36
(c) Not applicable.
</TABLE>
7
<PAGE>
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
ITEM 14 FINANCIAL INFORMATION
(a)(1-2) The Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996 and its Quarterly Report on Form 10-
Q/A for the period ended June 30, 1997 filed by the
Partnership with the Securities and Exchange Commission (File
No. 0-14271) and included as exhibits hereto are hereby
incorporated by this reference.
(a)(3) Not applicable
(a)(4) SUMMARY--Selected Historical Financial Data 11
(b) After the Rule 13e-3 transaction, the Issuer will have
liquidated its assets and dissolved.
ITEM 15 PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) Certain executive officers of Prudential-Bache Properties,
Inc., as managing general partner of the Issuer, will engage
in solicitation activities in connection with the Rule 13e-3
transaction.
(b) COVER PAGE OF THE STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS. William O'Sullivan, an employee of
Prudential Securities Incorporated, an affiliate of
Prudential-Bache Properties, Inc., will engage in certain
solicitation activities in connection with the
Rule 13e-3 transaction. Mr. O'Sullivan will receive no addition-
al compensation for engaging in such activities beyond his salary
as an employee of Prudential Securities Incorporated. 1
ITEM 16 ADDITIONAL
Not applicable.
8
<PAGE>
ITEM NO. SECTION TITLE(S) IN SOLICITATION MATERIALS PAGE(S)
- - -------- ------------------------------------------ -------
ITEM 17 MATERIAL TO BE FILED AS EXHIBITS
(a) Credit Agreement (Revolver), dated as of July 11, 1996, among
Glenborough Properties, L.P., as Borrower, and Wells Fargo
Bank and Imperial Bank together with certain Assignees, as
Lenders, and Wells Fargo Bank, National Association, as Agent;
First Amendment to Credit Agreement, entered into as of No-
vember 1, 1996, by and among Glenborough Properties, L.P.,
Wells Fargo Bank, National Association, Imperial Bank, Fleet
National Bank, and Wells Fargo Bank, National Association as
Agent; Amendment to Credit Agreement, dated as of April __,
1997, among Glenborough Properties, L.P., Wells Fargo Bank,
National Association, Fleet National Bank, and Wells Fargo
Bank, National Association as Agent.
(b) Limited Appraisal in a Restricted Report--Poplar Towers Office
Building, as of October 21, 1996, prepared by Cushman &
Wakefield of Georgia, Inc.; Complete Appraisal of Real Proper-
ty--Gateway Professional Center, as of May 21, 1997, prepared
by Cushman & Wakefield of California, Inc.; Complete Apprais-
al of Real Property--Park Plaza Professional Center, as of May
21, 1997, prepared by Cushman & Wakefield of California,
Inc.; Complete Appraisal of Real Property--Montrose Office
Park, as of May 20, 1997, prepared by Cushman & Wakefield
of Washington, D.C., Inc.; Complete Appraisal of Real Proper-
ty--Totem Valley Business Center, as of May 9, 1997, prepared
by Cushman & Wakefield of Oregon, Inc.
(c) Not applicable.
(d) LETTER TO UNITHOLDERS; NOTICE TO UNITHOLDERS; STATEMENT
FURNISHED IN CONNECTION WITH THE SOLICITATION OF CONSENTS;
CONSENT CARD. Certain additional documents shall be filed as
exhibits as required by Regulation 14A but are not required
to be distributed to Unitholders.
(e) Not applicable.
(f) Not applicable.
9
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: October 14, 1997
PRUDENTIAL-BACHE/EQUITEC
REAL ESTATE PARTNERSHIP
By: Prudential-Bache Properties, Inc.
in its capacity as managing general partner
By: /s/ BRIAN J. MARTIN
--------------------------------------
Brian J. Martin
President
Prudential-Bache Properties, Inc.
10
<PAGE>
PRELIMINARY COPY
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
ONE SEAPORT PLAZA
NEW YORK, NY 10292
OCTOBER , 1997
Dear Unitholders:
As you know, Prudential-Bache/Equitec Real Estate Partnership (the
"Partnership") was formed in June 1984 to acquire, operate and then ultimately
dispose of income-producing real estate or interests therein. It was originally
anticipated that the Partnership would hold the real properties or interests
therein it acquired until such time as disposition appeared advantageous from
the viewpoint of the Partnership's investment objectives. Although no mandatory
time frame was set forth within which such sales were anticipated to occur, it
was anticipated that the Partnership would own such real properties and
interests therein for approximately three to seven years after acquisition.
The Partnership acquired certain real properties, and held direct and
indirect interests in a joint venture which owns another real property, between
May 1986 and June 1989 and is now in its thirteenth year of operations. At the
Partnership's formation, its managing general partner was Equitec Financial
Group, Inc. ("Equitec") and its general partner was Prudential-Bache Properties,
Inc. ("PB Properties"). PB Properties has since become the managing general
partner of the Partnership; in 1991, Equitec filed for reorganization under the
federal bankruptcy laws, and by a vote of the limited partners of the
Partnership was replaced as co-general partner by Glenborough Corporation and
Robert Batinovich, each a general partner of the Partnership (together,
"Glenborough") (together with PB Properties, the "General Partners").
The General Partners have been considering when and how to effect the
disposition of all of the Partnership's real properties (the "Properties") and
all of the Partnership's direct and indirect interests in a joint venture whose
sole asset is one real property (the "Interests") (the Interests, together with
the Properties, the "Assets") in the best interests of the Partnership and the
holders (the "Unitholders") of the beneficial ownership interest in the limited
partnership interests of the Partnership (the "Units"). The General Partners
believe that, given current market conditions and the existence of certain other
factors identified below, now is the appropriate time to sell all of the Assets.
In order to effectuate this strategy, the Partnership has entered into a
Purchase Agreement (the "Purchase Agreement") with Glenborough Realty Trust
Incorporated and a subsidiary partnership, Glenborough Properties, L.P., which
are affiliates of Glenborough (together, the "Purchaser"). Pursuant to the
Purchase Agreement, the Partnership intends to
<PAGE>
sell to the Purchaser (the "Sale") all of the Assets of the Partnership for
$43,520,000 in cash. This amount equals the sum of the individual appraised fair
market values of all of the Properties, plus the Partnership's estimate of the
fair market values of the Interests, which estimate is wholly based on and
equals the appraised fair market value of the one real property to which the
Interests relate (the "Related Property") (the sum of all such values, the "Fair
Market Value of the Assets"). This price will be reduced by certain credits to
the Purchaser (which, in addition to any credits for secured obligations which
are assumed by the Purchaser, could equal up to approximately $867,000 if
certain items of deferred maintenance at the Properties and the Related Property
are not completed prior to the closing of the Sale), and the net proceeds
available for distribution will further be reduced by certain selling costs and
liquidation expenses estimated by the General Partners to equal approximately
$645,000. The Purchase Agreement is subject to few conditions, with no studies
or reports required to be provided by the Partnership, few representations or
warranties required to be made by the Partnership and the acquisition of the
Properties to occur on an "as is/where is/with all faults" basis. If the Sale is
consummated, PB Properties, as the managing general partner of the Partnership,
will make one or more liquidating distributions to the Unitholders and the
General Partners and, after providing for the payment of the Partnership's
obligations and the establishment of a reserve to cover unexpected claims,
dissolve and terminate the Partnership and liquidate (together with the Sale and
amendments to the partnership agreement to effectuate the above, the "Plan").
Based upon the terms and conditions of the Sale, after repayment of the
Partnership's existing obligations and after crediting the Purchaser to the
extent the Purchaser assumes such obligations (including borrowings secured by
the Properties and the Related Property, which obligations totalled $26,650,000
as of June 30, 1997), the Partnership estimates that liquidating distributions
would total approximately $220 per Unit.
CERTAIN ELEMENTS OF THE PLAN REQUIRE THE CONSENT OF HOLDERS OF A MAJORITY
OF THE UNITS, AND YOUR APPROVAL IS VERY IMPORTANT. Please return your consent
card as soon as possible, because failure to return a consent card has the same
effect as a "NO" vote.
If the Sale is consummated, the Partnership will pay cash distributions to
the Unitholders and the General Partners from the net sales proceeds, after
providing for the payment of all expenses and liabilities of the Partnership and
the establishment of a reserve account to cover unexpected claims. Any amount
remaining in the reserve account will be distributed to the Unitholders and the
General Partners within approximately 30 days from the date of the closing of
the Sale, whereupon the Partnership will be dissolved. If possible, it is the
goal of the General Partners to complete the dissolution of the Partnership
prior to January 1, 1998 in order to minimize Partnership operating costs and to
avoid the necessity of preparing income tax returns and Schedules K-1 for
calendar year 1998. However, there can be no assurances that the closing of the
Sale and the consummation of the Plan in its entirety will occur by December 31,
1997.
2
<PAGE>
The General Partners believe that the Plan at this time is in the best
interests of the Partnership and the Unitholders and recommend that you complete
and return the consent card with a vote "FOR" the Plan. The General Partners
have based their recommendation on, among other things, the following factors:
o The Partnership's entire mortgage debt of $26,650,000 will mature on
December 9, 1997, and the General Partners desire to avoid, if possible,
the costs and uncertainty of refinancing such debt in light of the
circumstances discussed below. If the Partnership's Assets are sold
pursuant to the Sale, such debt will either be retired on the closing date
of the Sale (the "Closing Date"), or the Partnership will obtain a release
of its obligations under the documents evidencing or securing such debt
effective as of the Closing Date.
o The Plan permits the Assets to be sold under market conditions
which, given current mortgage interest rates and the availability of
investor capital, the General Partners believe are favorable for such a
sale.
o If the Plan is approved, the Partnership will be able to consummate
the Sale of all of the Assets for an amount equal to the Fair Market Value
of the Assets and on terms which the General Partners believe will entail
minimal costs and will permit an expeditious consummation of the Sale.
o The Properties and the Related Property generally have shown a trend
of improved occupancies and revenues over the past few years, which the
General Partners believe enhances the salability of the Assets at the
present time.
o By selling the Assets now, the Partnership would eliminate the risks
inherent in the direct and indirect ownership of real property, including,
among other things, the decline in value that can occur as a result of
rising interest rates, increasing real estate investor expectations and
changing competition factors in local rental markets.
o The Partnership has not made any distributions to Unitholders in the
past several years and does not anticipate being in a position to do so in
the foreseeable future.
o The Plan would provide liquidity to Unitholders. At present, there
is no established public trading market for the Units, and liquidity has
been limited to sporadic sales which have occurred within an informal
secondary market.
The General Partners estimate that, if the closing of the Sale cannot be
completed by December 9, 1997 and/or the Plan cannot be consummated in its
entirety by December 31, 1997, distributions to Unitholders may be reduced by up
to approximately $5 per Unit to cover additional costs, to operate the
Partnership and refinance the mortgage debt referenced above (assuming the Plan,
which includes the closing of the Sale, is consummated by March 31, 1998). At
the present time, however, the General Partners believe that no
3
<PAGE>
impediment presently exists to closing the Sale by December 9, 1997 and/or
consummating the Plan in its entirety by December 31, 1997.
The principal disadvantage which would result to Unitholders from the
approval of the Plan is that the Partnership would not benefit from any future
improvements in economic and market conditions, which improvements could produce
increased cash flow and possibly increase the sales price of all or any of the
Assets in the future. Another disadvantage is that, pursuant to the Purchase
Agreement, although the Partnership is permitted to accept superior offers, it
is not permitted to actively market the Assets or solicit superior offers. Thus,
it is possible that the price being received by the Partnership from the
Purchaser via the Sale may be less than the Partnership may be able to obtain
with an active public marketing of all or any of the Assets.
The General Partners contemplate that the Sale of the Assets, the
termination and dissolution of the Partnership and the subsequent liquidation
will be completed by the end of 1997. Each of these actions, however, require
Unitholder approval. Furthermore, because the Purchaser is affiliated with
Glenborough, the Plan necessitates amending the Partnership Agreement to permit
an affiliate of Glenborough to purchase the Assets from the Partnership, which
also requires Unitholder approval. Accordingly, the Partnership is soliciting
the written consent of each Unitholder to these elements of the Plan, which are
more fully described in the attached Statement.
YOU ARE URGED TO READ CAREFULLY THE ATTACHED STATEMENT IN ITS ENTIRETY FOR
A COMPLETE DESCRIPTION OF THE PLAN. If you have any questions, please feel free
to contact the Client Services Department at 1-800-535-2077.
Very truly yours,
Brian J. Martin
President
Prudential-Bache Properties, Inc.
Andrew Batinovich
Chairman and Chief Executive Officer
Glenborough Corporation
Robert Batinovich
in his individual capacity as General Partner
4
<PAGE>
PRELIMINARY COPY
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
ONE SEAPORT PLAZA
NEW YORK, NY 10292
NOTICE OF CONSENT SOLICITATION
OCTOBER , 1997
To the Unitholders of Prudential-Bache/Equitec Real Estate Partnership:
NOTICE IS HEREBY GIVEN to the holders (the "Unitholders") of the beneficial
ownership interest in the limited partnership interests (the "Units") in
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership (the "Partnership"), that Prudential-Bache Properties, Inc., the
managing general partner of the Partnership ("PB Properties"), is soliciting
written consents (the "Consents") on behalf of the Partnership to approve a plan
of action (the "Plan"), which consists of (i) the sale of all of the real
properties of the Partnership (the "Properties") and all of the Partnership's
direct and indirect interests in a joint venture whose sole asset is one real
property (the "Interests") (the Interests, together with the Properties, the
"Assets") for an amount equal to the sum of the individual appraised fair market
values of the Properties, plus the Partnership's estimate of the fair market
values of the Interests, which estimate is wholly based on and equals the
appraised fair market value of the one real property to which the Interests
relate (the "Related Property") to an affiliate of Glenborough (as defined
below) (the "Sale"); such price will be reduced by certain credits to such
affiliate (which, in addition to any credits for secured obligations which are
assumed by such affiliate, could equal up to approximately $867,000 if certain
items of deferred maintenance at the Properties and at the Related Property are
not completed prior to the closing of the sale of the Assets), and the net
proceeds available for distribution will further be reduced by certain selling
costs and liquidating expenses estimated by the Partnership to equal
approximately $645,000, (ii) the amendment of the Amended and Restated Agreement
of Limited Partnership, dated as of February 11, 1985 and as subsequently
amended, by and among the General Partners and Limited Partners of the
Partnership (as defined therein) (the "Partnership Agreement") to permit (a) the
purchase by an affiliate of Glenborough Corporation and/or Robert Batinovich,
each a general partner of the Partnership (together, "Glenborough") (together
with PB Properties, the "General Partners"), of all or any of the Assets and (b)
the effectuation of the Plan by the General Partners on behalf of the
Partnership (together, the "Amendments") and (iii) one or more liquidating
distributions to the Unitholders and the General Partners and, after providing
for the payment of all expenses and other liabilities of the Partnership, the
dissolution and termination of the Partnership and subsequent liquidation (the
"Plan of Liquidation"), all as more fully described in the attached Statement
Furnished in Connection
<PAGE>
with the Solicitation of Consents (the "Statement"). The Plan is a single
proposal which must be approved by Unitholders holding a majority of the Units.
Subject to the assumptions and qualifications set forth in the attached
Statement, the Partnership estimates that liquidating distributions would total
approximately $220 per Unit. However, the General Partners estimate that, if the
closing of the Sale cannot be completed by December 9, 1997 and/or the Plan
cannot be consummated in its entirety by December 31, 1997, distributions to
Unitholders may be reduced by up to approximately $5 per Unit to cover
additional costs, to operate the Partnership and refinance the mortgage debt
referenced above (assuming the Plan, which includes the closing of the Sale, is
consummated by March 31, 1997). At the present time, however, the General
Partners believe that no impediment presently exists to closing the Sale by
December 9, 1997 and/or consummating the Plan in its entirety by December 31,
1997.
Only Unitholders who own Units on the close of business on October 1, 1997
are entitled to notice of the solicitation of Consents and to give their consent
to the Plan. In order to be valid, all Consents must be received before 10:00
a.m., New York City time on November 24, 1997 (unless such date and/or time is
extended, in the sole discretion of PB Properties acting on behalf of the
Partnership). The approval will be obtained through the solicitation of written
Consents, and no meeting of Unitholders will be held. Morrow & Co., Inc.
("Morrow") has been retained as a soliciting agent to assist in soliciting
Consents. A Consent may be revoked by written notice of revocation or by a later
dated action containing different instructions received by Morrow until 10:00
a.m., New York City time on November 24, 1997 (unless such date and/or time is
extended, in the sole discretion of PB Properties acting on behalf of the
Partnership). Unitholders will be notified as soon as practicable as to the
results of this solicitation.
YOUR APPROVAL IS IMPORTANT. PLEASE READ THE STATEMENT CAREFULLY AND THEN
COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN IT IN THE
SELF-ADDRESSED PREPAID ENVELOPE. Any Consent card which is signed and does not
specifically disapprove the Plan will be treated as approving the Plan. Your
prompt response is appreciated.
PB Properties
Managing General Partner
Glenborough Corporation
General Partner
Robert Batinovich
in his individual capacity as General Partner
2
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
3
<PAGE>
PRELIMINARY COPY
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
ONE SEAPORT PLAZA
NEW YORK, NY 10292
OCTOBER , 1997
STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS
This Statement Furnished in Connection with the Solicitation of Consents
(the "Statement") is furnished to the holders ("Unitholders") of the beneficial
ownership interest in the limited partnership interests (the "Units") in
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership (the "Partnership"), in connection with the solicitation of written
consents ("Consents") by Prudential-Bache Properties, Inc., in its capacity as
the managing general partner of the Partnership ("PB Properties") and on behalf
of the Partnership, to approve a plan of action (the "Plan"), which consists of
(i) the sale of all of the real properties of the Partnership (the "Properties")
and all of the Partnership's direct and indirect interests in a joint venture
whose sole asset is one real property (the "Interests") (the Interests, together
with the Properties, the "Assets") for an amount equal to the sum of the
individual appraised fair market values of the Properties, plus the
Partnership's estimate of the fair market values of the Interests, which
estimate is wholly based on and equals the appraised fair market value of the
one real property to which the Interests relate (the "Related Property") (the
sum of all such values, the "Fair Market Value of the Assets"), to an affiliate
of Glenborough (as defined below) (the "Sale"); such price will be reduced by
certain credits to such affiliate (which, in addition to any credits for secured
obligations which are assumed by such affiliate, could equal up to approximately
$867,000 if certain items of deferred maintenance at the Properties and at the
Related Property are not completed prior to the closing of the sale of the
Assets), and the net proceeds available for distribution will further be reduced
by certain selling costs and liquidation expenses estimated by the General
Partners to equal approximately $645,000, (ii) the amendment of the Amended and
Restated Agreement of Limited Partnership, dated as of February 11, 1985 and as
subsequently amended, by and among the General Partners and Limited Partners of
the Partnership (as defined therein) (the "Partnership Agreement") to permit (a)
the purchase by an affiliate of Glenborough Corporation and/or Robert
Batinovich, each a general partner of the Partnership (together, "Glenborough")
(together with PB Properties, the "General Partners"), of all or any of the
Assets and (b) the effectuation of the Plan by the General Partners on behalf of
the Partnership (together, the "Amendments") and (iii) one or more liquidating
distributions to the Unitholders and the General Partners and, after providing
for the payment of all expenses and other liabilities of the Partnership, the
dissolution and termination of the Partnership and subsequent liquidation (the
"Plan of Liquidation").
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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The Plan is a single proposal, and consent to the Plan will constitute
consent to each of the Sale, the Amendments and the Plan of Liquidation. If
approved and consummated, the Plan will result in the sale of all of the Assets
to an entity affiliated with Glenborough, one or more liquidating distributions
to the Unitholders and the General Partners of the Partnership and, after
providing for the payment of all liabilities, expenses and certain attorneys'
fees of the Partnership, the dissolution and termination of the Partnership and
subsequent liquidation.
AFTER CONSUMMATION OF THE PLAN, THE PARTNERSHIP WILL NO LONGER BE SUBJECT
TO REGISTRATION UNDER THE SECURITIES AND EXCHANGE ACT OF 1934 AND THEREFORE WILL
NOT BE A REPORTING COMPANY WITH RESPECT TO ITS UNITHOLDERS.
Subject to the assumptions and qualifications set forth in the attached
Statement, the Partnership estimates that liquidating distributions would total
approximately $220 per Unit. However, the General Partners estimate that, if the
closing of the Sale cannot be completed by December 9, 1997 and/or the Plan
cannot be consummated in its entirety by December 31, 1997, distributions to
Unitholders may be reduced by up to approximately $5 per Unit to cover
additional costs, to operate the Partnership and refinance the mortgage debt
referenced above (assuming the Plan, which includes the closing of the Sale, is
consummated by March 31, 1997). At the present time, however, the General
Partners believe that no impediment presently exists to closing the Sale by
December 9, 1997 and/or consummating the Plan in its entirety by December 31,
1997.
Neither PB Properties nor Glenborough intends to call a meeting of the
Unitholders in connection with this solicitation of Consents. Approval or
disapproval by a Unitholder of the Plan is to be indicated by marking and
signing the enclosed form of Unitholder Consent and returning it to Morrow &
Co., Inc., which has been engaged on behalf of the Partnership to act as
soliciting agent (the "Soliciting Agent"), in the enclosed self-addressed
envelope, which requires no postage if mailed in the United States. The Plan as
described herein can be effected only after Unitholders owning a majority in
interest of the outstanding Units have consented to the Plan. The enclosed form
of Unitholder Consent permits a Unitholder to indicate approval, disapproval or
abstention with respect to the Plan.
Consents of the Unitholders to the Plan will be solicited until 10:00 a.m.,
New York City time on November 24, 1997 (unless such date and/or time is
extended, in the sole discretion of PB Properties acting on behalf of the
Partnership). The close of business on October 1, 1997 (the "Record Date") has
been fixed for determining the Unitholders entitled to notice of the
solicitation of Consents and to consent to the Plan. On the Record Date, there
were 68,795 outstanding Units entitled to vote on the Plan, which Units were
held by 5,834 Unitholders. Unitholders will be notified as soon as practicable
as to the results of this solicitation.
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Pursuant to the Partnership Agreement, the consent of Unitholders holding a
majority of the outstanding Units is required to approve the Sale. Under
California law and the Partnership Agreement, any matter upon which the
Unitholders are entitled to act may be submitted for a vote by written consent
without a meeting. Any Consent given pursuant to this solicitation may be
revoked by the person giving it until 10:00 a.m., New York City time on November
24, 1997 (unless such date and/or time is extended, in the sole discretion of PB
Properties acting on behalf of the Partnership) by sending a written notice of
revocation or a later dated Consent containing different instructions to the
Soliciting Agent before such date. Any written notice of revocation or
subsequent Consent should be sent to the Soliciting Agent, Morrow & Co., Inc.,
at 909 Third Avenue, New York, NY 10022-4799.
In addition to solicitation by use of the mails, directors, officers and
employees of PB Properties may solicit Consents in person or by telephone,
facsimile or other means of communication. Such directors, officers and
employees will not receive additional compensation for such services but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. In addition, the Soliciting Agent has been retained to assist PB
Properties in the solicitation of Consents for a base fee of $5,000, plus
reimbursement of expenses and additional fees based on the number of telephone
calls placed and the number of tabulations made, estimated at approximately
$8,000 in the aggregate. Arrangements have been made with custodians, nominees
and fiduciaries for the forwarding of Consent solicitation materials to
beneficial owners of Units held of record by such custodians, nominees and
fiduciaries and the Partnership will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
The General Partners recommend that Unitholders consent to the Plan. See
"SPECIAL FACTORS CONCERNING THE PLAN--Recommendation of the General Partners".
This Statement and the accompanying form of Consent card are first being
mailed to Unitholders on or about October , 1997.
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SUMMARY
The following is a summary (the "Summary") of certain information contained
elsewhere in this Statement, including the Exhibits hereto, which are a part of
this Statement. This Summary does not purport to be complete and is qualified in
its entirety by the more detailed information contained in this Statement.
Unless otherwise defined herein, terms used in this Summary have the respective
meanings ascribed to them elsewhere in this Statement or, if not defined herein,
in the Partnership Agreement. Unitholders are urged to read this Statement,
including the Exhibits hereto, in its entirety.
The Partnership
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Prudential-Bache/Equitec
Real Estate Partnership.......................... The Partnership is a California limited partnership
which owns and operates four commercial real
properties (the "Properties") consisting of three
office buildings and one industrial park. Two of
the three office buildings are located in
California, with the third located in Tennessee.
The industrial park is located in Washington.
The Partnership also directly and indirectly holds
all ownership interests (the "Interests") relating to
an office building complex located in Maryland
(the "Related Property") (the Interests, together
with the Properties, the "Assets"). The Interests
consist of a general partnership interest in
Montrose Office Park Joint Venture, a Maryland
single purpose general partnership (the "Joint
Venture") and the entity whose sole asset is the
Related Property; a general partnership interest in
Montrose Office Park Limited Partnership, a
Maryland limited partnership (the "Montrose
Partnership"); and ownership of all of the issued
and outstanding shares of common stock of
Equitec Venture Corp. III, Inc., a California
corporation ("EVC"). The Joint Venture, which
owns the Related Property, is wholly owned and
controlled by the Partnership both directly and
through its interests in the Montrose Partnership
and EVC.
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At the Partnership's formation, its managing
general partner was Equitec Financial Group, Inc.
("Equitec") and its general partner was PB
Properties. PB Properties has since become the
managing general partner of the Partnership; in
1991, Equitec filed for reorganization under the
federal bankruptcy laws, and by a vote of the
limited partners of the Partnership, Equitec was
replaced as co-general partner by Glenborough
Corporation and Robert Batinovich, each a
general partner of the Partnership (together,
"Glenborough") (together with PB Properties, the
"General Partners").
The principal offices of the Partnership are
located at One Seaport Plaza, New York, NY
10292, and its telephone number is (212) 214-
1016.
Action by Written Consent
- - -------------------------
Purpose of the
Solicitation..................................... Consents are being solicited by PB Properties to
approve a plan of action (the "Plan"), which
consists of (i) the sale of all of the Assets for an
amount equal to the Fair Market Value of the
Assets (the "Sale"); this price will then be
reduced by certain credits (the "Credits") to the
Purchaser (as such term is defined below) (which,
in addition to any credits for secured obligations
assumed by the Purchaser, could equal up to
approximately $867,000 if certain items of
deferred maintenance at the Properties and at the
Related Property are not completed prior to the
closing of the sale of the Assets), and the net
proceeds available for distribution will further be
reduced by certain selling costs and liquidation
expenses estimated by the General Partner to
equal approximately $645,000 (the "Costs"), (ii)
the amendment of the Partnership Agreement to
permit (a) the purchase by an affiliate of
Glenborough of all of the Assets and (b) the
effectuation of the Plan by the General Partners
on behalf of the Partnership (together, the
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"Amendments") and (iii) one or more liquidating
distributions to the Unitholders and the General
Partners and, after providing for the payment of
all expenses and other liabilities of the
Partnership, the dissolution and termination of
the Partnership and subsequent liquidation (the
"Plan of Liquidation").
Record Date; Units Entitled
to Consent....................................... Unitholders who own Units at the close of
business on October 1, 1997 (the "Record Date")
are entitled to vote by written Consent. At the
Record Date, there were outstanding 68,795 Units
held by 5,834 Unitholders, each Unit of which
will entitle the record owner thereof to one vote.
Vote Required.................................... The Plan, which consists of the Sale, the
Amendments and the Plan of Liquidation, is
presented as a single proposal and requires the
written Consents of Unitholders of record holding
a majority of all outstanding Units. Such
approval shall constitute the approval of the
Partnership.
Termination of Consent
Solicitation..................................... Consents may be solicited until, and must be
received by, no later than November 24, 1997 at
10:00 a.m., New York City time (unless such
date and/or time is extended, in the sole
discretion of PB Properties).
The Purchaser
- - -------------
Glenborough Realty Trust
Incorporated and
Glenborough Properties, L.P.
(together, the "Purchaser")...................... Glenborough Realty Trust Incorporated ("GLB")
is a Maryland corporation whose shares trade on
the New York Stock Exchange under the symbol
"GLB."
GLB is the general partner of Glenborough
Properties, L.P., a Delaware limited partnership.
The principal offices of GLB are located at 400
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<S> <C>
South El Camino Real, San Mateo, California
94402. GLB's telephone number is (415) 343-
9300.
The Plan
- - --------
General.......................................... The Plan is a single proposal consisting of the
Sale, the Amendments and the Plan of Liquidation.
In connection with the Plan, the Partnership has
entered into a Purchase Agreement, dated as of
the Effective Date (as defined therein), with the
Purchaser (the "Purchase Agreement"), pursuant
to which the Purchaser would purchase all of the
Assets for $43,520,000 in cash (which equals the
Fair Market Value of the Assets), which price
will be reduced by the Credits and then which net
proceeds available for distribution will be reduced
by the Costs.
Background of the Plan........................... See "SPECIAL FACTORS CONCERNING THE
PLAN--Background of Proposed Sale of the Assets."
Recommendation of
the General Partners............................. The General Partners have concluded that the
Plan is at this time in the best interests of the
Partnership and the Unitholders and recommend
the approval of the Plan. See "SPECIAL
FACTORS CONCERNING THE PLAN--Recommendation of the
General Partners.
Security Ownership and Voting
of the General Partners.......................... As of the Record Date, neither any General
Partner nor any executive officer or director of a
General Partner owned directly or beneficially
any Units. Prudential Securities Incorporated
("PSI"), an affiliate of PB Properties, beneficially
owned 180 of the outstanding Units as of June 30,
1997. PSI has advised PB Properties that it
intends to vote in favor of the Plan. PSI has
made no recommendation with respect to the
Plan.
7
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Certain Conflicts of Interest.................... Under the terms of the Partnership Agreement,
the Partnership reimburses PB Properties for
expenses incurred by PB Properties in connection
with the business of the Partnership. Because the
Partnership has not generated sufficient cash flow
from operations to make necessary building and
tenant improvements to the Properties and the
Related Property, PB Properties has allowed the
Partnership to defer the reimbursement of certain
expenses, other than printing costs. As of June
30, 1997, a total of $640,000 in reimbursements
had been deferred. If the Partnership continues to
operate, it is uncertain when such deferred
reimbursements will be repaid and PB Properties
may defer additional amounts for which it is owed
reimbursement. However, once the Partnership is
terminated, PB Properties will incur no additional
expenses on the Partnership's behalf and intends
to be reimbursed for all of its deferred expenses
from the proceeds of the Sale.
In connection with the Plan, the Purchaser, which
is affiliated with Glenborough, has entered into
the Purchase Agreement with the Partnership with
respect to the Sale.
See "SPECIAL FACTORS CONCERNING THE
PLAN--Certain Conflicts of Interest," "--The
Purchase Agreement."
The Purchase Agreement........................... In connection with the Plan, the Partnership has
entered into the Purchase Agreement with the
Purchaser to purchase all of the Assets for
$43,520,000 in cash (which equals the Fair
Market Value of the Assets), which price will be
reduced by the Credits, and then which net
proceeds available for distribution will be reduced
by the Costs.
. See "SPECIAL FACTORS CONCERNING THE
PLAN--The Purchase Agreement."
Appraisal........................................ Cushman & Wakefield, Inc. ("C&W") has
prepared individual appraisals of each of the
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<S> <C>
Properties and the Related Property, which appraisals are
based in part on the future prospects of the Properties and
the Related Property in their respective markets (the
"Appraisals"). Based on the Appraisals, the sum of the
appraised fair market values of the Properties and the
Related Property, as of the dates set forth therein (i.e.,
May 1997 (except for the Poplar Tower appraisal, which is
dated October 1996)) is $43,520,000. See "SPECIAL FACTORS
CONCERNING THE PLAN--C&W Reports."
Consummation of the
Plan of Sale..................................... The Partnership currently anticipates that the Sale
will be consummated as soon as practicable after
obtaining the requisite approval of the Unitholders
to the Plan. Regardless of whether or not the
Plan is approved, it is not anticipated that
Unitholders will receive aggregate distributions,
including distributions from sales of the Assets
and any remaining contingency reserve, which are
less than amounts originally invested in the
Partnership.
No Appraisal Rights.............................. Unitholders have no appraisal rights in connection
with the Plan. See "SPECIAL FACTORS
CONCERNING THE PLAN--No Appraisal Rights."
Federal Income
Tax Consequences................................. See "SPECIAL FACTORS CONCERNING THE
PLAN--Certain Federal Income Tax Consequences of the Plan."
Final Distributions and
Liquidation...................................... As promptly as practicable following the Sale,
after payment or reserving for payment of all
costs of the Sale and this Consent solicitation, the
General Partners will determine the amount of
funds which they believe will be sufficient to
provide for the Partnership's remaining expenses
and liabilities, including the costs of liquidation of
the Partnership and any contingent liabilities. The
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<S> <C>
balance of the Partnership's funds remaining after
establishment of the contingency reserve will be distributed
to Unitholders and the General Partners in accordance with
the Partnership Agreement. Once all liabilities have been
satisfied, the Partnership will distribute its remaining net
assets and terminate.
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Selected Historical Financial Data
- - ----------------------------------
The following selected financial data of the Partnership for each of the
last five fiscal years of the Partnership have been derived from the
Partnership's financial statements audited by the Partnership's independent
public accountants. The following selected financial data for the six months
ended June 30, 1997 and June 30, 1996 have been derived from the Partnership's
unaudited financial statements. The selected financial data set forth below
should be read in conjunction with the audited financial statements and related
notes thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1996 and the unaudited financial statements and notes
thereto included in the Partnership's Quarterly Report on Form 10-Q/A for the
quarter ended June 30, 1997, copies of which are attached hereto as Exhibits C
and D, respectively.
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<CAPTION>
NOVEMBER 1
YEAR ENDED THROUGH SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED OCTOBER 31, JUNE 30,
------------------- ----------- ------------------------------- ------------------
1996 1995 1994 1994 1993 1992 1997 1996
---- ---- ---- ---- ---- ---- ---- ---
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue .................. $ 6,414 $ 6,541 $ 1,125 $ 6,544 $ 6,841 $ 7,917 $ 3,410 $ 3,270
Provision for loss on impairment
of assets ..................... $ -- $ -- $ -- $ -- $ (250) $ (614) $ -- $ --
Gain (loss) on disposition of
property ....................... $ 33 $ -- $ -- $ -- $ 338 $ (97) $ -- $ --
Net loss ....................... $ (1,138) $ (1,032) $ (122) $ (794) $ (1,898) $ (3,820) $ (486) $ (519)
Net loss per Unit .............. $ (16.38) $ (14.86) $ (1.76) $ (11.43) $ (27.31) $ (54.97) $ (6.99) $ (7.47)
Total assets ................... $ 33,346 $ 34,388 $ 35,737 $ 36,110 $ 37,402 $ 45,046 $ 32,958 $ 33,915
Notes payable .................. $ 26,650 $ 26,621 $ 26,862 $ 26,917 $ 27,328 $ 32,578 $ 26,650 $ 26,518
Unitholders' capital ........... $ 5,587 $ 6,714 $ 7,736 $ 7,857 $ 8,643 $ 10,522 $ 5,106 $ 6,200
Unitholders' capital per Unit .. $ 81.21 $ 97.59 $ 112.45 $ 114.21 $ 125.63 $ 152.95 $ 74.22 $ 90.12
Total cash distributions ....... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
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SPECIAL FACTORS CONCERNING THE PLAN
The Partnership was formed in June 1984 to acquire, operate and then
ultimately dispose of income-producing real estate or interests therein. It was
originally anticipated that the Partnership would hold the real properties or
interests therein it acquired until such time as disposition appeared
advantageous from the viewpoint of the Partnership's investment objectives.
Although no mandatory time frame was set forth within which such sales were
anticipated to occur, it was originally anticipated that the Partnership would
own such real properties and interests therein for approximately three to seven
years after acquisition.
In February 1986, the Partnership completed the offering of Units
representing assignments of all the economic rights and substantially all of the
ownership rights attributable to the limited partnership interests in the
Partnership. A total of 68,795 Units were sold, representing gross proceeds to
the Partnership of $34,397,500. Twelve years later, the Partnership now owns
three office buildings and one industrial park (the "Properties"). The
Partnership also holds ownership interests (the "Interests") relating to an
office building complex located in Maryland (the "Related Property") (the
Interests, together with the Properties, the "Assets"). The Interests consist of
the following: a 93.9% general partnership interest in Montrose Office Park
Joint Venture, a Maryland single purpose general partnership (the "Joint
Venture") and the entity whose sole asset is the Related Property; a 99.992%
general partnership interest in Montrose Office Park Limited Partnership, a
Maryland limited partnership (the "Montrose Partnership") which owns a 6.1%
limited partnership interest in the Joint Venture; and ownership of all of the
issued and outstanding shares of common stock of Equitec Venture Corp. III,
Inc., a California corporation ("EVC") which owns a 0.008% limited partnership
interest in the Montrose Partnership. Thus, the Joint Venture, which owns the
Related Property, is wholly owned and controlled by the Partnership both
directly and through its interests in the Montrose Partnership and EVC.
Under the terms of the Partnership Agreement, the Partnership will
terminate on December 31, 2009 unless terminated sooner under the provisions
thereof. For some time now, the General Partners have been considering when and
how to effect the disposition of the Assets in the best interests of the
Partnership and the Unitholders. The General Partners believe that, given
current market conditions and the other factors identified in "SPECIAL FACTORS
CONCERNING THE PLAN--Recommendation of the General Partners" below, now is the
appropriate time to sell the Assets.
Background of Proposed Sale of the Assets
- - ------------------------------------------
As noted above, the General Partners have, in the ordinary course of
administration of the Partnership's affairs, been considering when and how to
effect the disposition of the Assets in the best interests of the Partnership
and the Unitholders. In the opinion of the General Partners, the ability to sell
direct and indirect interests in real
12
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properties generally has been enhanced by improvements in the national real
estate investment market. Pension funds, real estate investment trusts ("REITs")
and other institutional buyers are now actively seeking new investment
properties, as compared to the early 1990s, when there were fewer institutional
buyers. The emergence of securitized mortgage financing and lower mortgage
interest rates have also contributed to an improved market for direct and
indirect interests such as the Properties and the Related Property, as
entrepreneurial buyers who require debt financing to purchase real properties
are able to borrow funds at attractive rates.
More specifically, the General Partners believe that, with respect to the
Properties and the Related Property, improvements in the real estate capital
markets have enhanced the prospects for selling the Assets at attractive prices.
During the early 1990s, the Properties and the Related Property experienced
devaluation due to a nationwide slump in real estate values. As a result of
general improvement in the real estate capital markets, the General Partners
believe that now is an appropriate time to sell the Assets. See "SPECIAL FACTORS
CONCERNING THE PLAN--Description of Assets" for additional information regarding
the Properties and the Related Property.
Although future economic conditions are difficult to predict, the
Partnership believes that it is unlikely that continuing to hold the Assets
would significantly enhance the Partnership's ultimate realization on a sale of
the Assets, or that the relative economic benefits of continued ownership by the
Partnership would justify the risks of such continued ownership.
Furthermore, the Partnership's $26,650,000 mortgage debt matures on
December 9, 1997. This debt was placed by Wells Fargo Bank, National Association
("Wells Fargo") in December 1996 to replace mortgage debts of the Partnership
which had matured. Significantly, the exceptions to the non-recourse provisions
of such debt are guaranteed by Glenborough Corporation and personally by Robert
Batinovich. There can be no assurances that such debt can be extended or
refinanced, or that Glenborough Corporation and/or Mr. Batinovich will renew
such guarantee with respect to an extension or refinancing of such debt.
Moreover, in terms of expenditures, during the year ended December 31,
1996, the Partnership disbursed approximately $810,000, and during the six
months ended June 30, 1997, the Partnership disbursed approximately $336,000,
for building and tenant improvements on the Properties and the Related Property.
In order to keep such real properties competitive in their respective markets,
additional building and tenant improvements will be required on such real
properties. Building and tenant improvements are currently budgeted at $800,000
for calendar year 1997. For the next four years, it is anticipated that an
additional $1.2 million would be required to be expended on capital improvements
if the Sale is not consummated.
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In order to allow the Partnership to pay for necessary building and tenant
improvements, PB Properties has deferred reimbursement by the Partnership of
certain general and administrative expenses (other than printing expenses)
incurred by PB Properties on the Partnership's behalf. As of June 30, 1997, PB
Properties has deferred approximately $640,000 of expense reimbursements. As of
June 30, 1997, the Partnership had cash of approximately $1,222,000. PB
Properties does not expect that the Partnership's cash on hand and cash
generated by its operations will be sufficient to allow the Partnership to pay
for necessary building and tenant improvements and pay deferred general and
administrative expenses. If the Assets are not sold, it is unlikely that the
Partnership would be able to borrow the money for building and tenant
improvements because the Partnership is already leveraged and is not profitable
at this time. Accordingly, if the Assets are not sold, PB Properties presently
intends to continue deferring reimbursement of additional general and
administrative expenses in order to provide the Partnership with enough cash to
make such building and tenant improvements. There can be no assurances, however,
that PB Properties will continue to defer reimbursement of such expenses.
In addition, the Partnership has paid no cash distributions to Unitholders
during its eight most recent fiscal years and, due to the matters described
above, it is unlikely that the Partnership will make any cash distributions to
Unitholders in the foreseeable future if the Partnership continues to hold the
Assets because any cash flow generated by the Assets will be needed to make
building and tenant improvements and to reimburse PB Properties for deferred and
ongoing general and administrative expenses.
The General Partners have from time to time considered the advisability of
offers made for one or more of the Assets, and of offers made directly to the
Unitholders for the purchase of Units. In November 1995, Hallwood Realty
Partners L.P. ("Hallwood") submitted to the Partnership an unsolicited offer to
purchase the Properties for $29,000,000. After engaging in preliminary
discussions with Hallwood and its broker, Unger Equities, the Partnership
rejected such offer because, in the opinion of the General Partners, such offer
was inadequate from a financial point of view.
In August 1996, Equity Resource Fund XIX commenced an offer to purchase
directly from Unitholders up to 3,000 Units of the Partnership at a price of $25
per Unit. After examining such offer, the General Partners recommended that
Unitholders reject the offer because of, among other things, its financial
inadequacy. 2,930 Units were tendered pursuant to such offer.
In September 1996, Perrin I, LLC and R. Molitor Ford, Sr.
("Perrin/Molitor"), through its representative, Trammell Crow Company, submitted
an offer to purchase Poplar Tower from the Partnership for $3,900,000. The
Partnership and Perrin/Molitor engaged in preliminary discussions, and in March
1997, Perrin/Molitor reoffered to purchase Poplar Tower, again for $3,900,000.
After engaging in further discussions with Perrin/Molitor, the Partnership
rejected such offer because, in the opinion of the General Partners, such offer
was inadequate from a financial point of view.
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<PAGE>
In December 1996, Peachtree Partners commenced an offer to purchase
directly from Unitholders up to four percent of the then outstanding Units of
the Partnership at a price of $52 per Unit. After examining such offer, the
General Partners recommended that Unitholders reject the offer because of, among
other things, its financial inadequacy. 1,529 Units were tendered pursuant to
such offer.
On April 1, 1997, the Crow Family Trust, through its representative, the
Trammell Crow Company, expressed an interest in purchasing Poplar Tower for
approximately $5,000,000. The Crow Family Trust, however, did not express an
interest in purchasing any of the other Properties of the Partnership.
Immediately thereafter, on April 4, 1997, the Purchaser, an affiliate of
Glenborough, made an all-cash offer of $38 million (subject to certain credits
of up to $987,000 if certain items of deferred maintenance at the Properties and
the Related Property were not completed prior to the closing of such sale) to
purchase all of the Properties and the Interests. PB Properties, as managing
general partner of the Partnership, decided to pursue this offer rather than the
Crow Family Trust offer both because of the positive attributes of the
Purchaser's initial offer and the benefits of a bulk sale to the Purchaser
versus isolated sales to the Crow Family Trust or other entities. See "SPECIAL
FACTORS CONCERNING THE PLAN--Advantages of Plan." PB Properties advised the
Purchaser that the Partnership could not respond to such an offer without first
obtaining fair market value appraisals of the Properties and the Related
Property. Subsequently, the Partnership retained C&W for the purpose of
conducting an appraisal of each of such properties. All of the appraisals (the
"Appraisals") of the Properties and the Related Property were dated May 1997
(except the Poplar Tower property appraisal, which was dated October 1996). As
discussed below, the Appraisals rendered by C&W indicate that the sum of the
individual appraised fair market values of the Properties and the Related
Property, as of the dates of such Appraisals, is $43,520,000. Following
completion of such Appraisals, the Purchaser increased its offer price to 100%
of such appraised fair market values. As a result of this increased offer and
such other factors as the General Partners deemed appropriate and which are
described elsewhere in this Statement, the Partnership and the Purchaser entered
into the Purchase Agreement, which agreement permits the Partnership to
entertain other offers as described under "SPECIAL FACTORS CONCERNING THE
PLAN--Advantages of Plan" and "--The Purchase Agreement." See "SPECIAL FACTORS
CONCERNING THE PLAN--C&W Reports."
Prior to entering into the Purchase Agreement on behalf of the Partnership,
the General Partners additionally considered conducting a public auction to sell
all of the Assets. The General Partners rejected this alternative, however,
because they believed that conducting a public auction would require the
incurrence of certain auction-related expenses (including, but not limited to,
payment of a fee to an auction agent, expenditures to gather and reproduce due
diligence materials, costs of commissioning environmental and engineering
reports and certain refinancing costs and legal fees) that the Partnership will
be able to avoid by proceeding with the Plan. Moreover, the General Partners
believe that,
15
<PAGE>
because the Sale likely will be consummated more rapidly than sales pursuant to
a public auction could have been consummated, certain Partnership overhead costs
will be avoided as well.
On October 10, 1997, Smithtown Bay, LLC ("Smithtown") contacted the
Partnership to communicate its intention to offer to purchase from Unitholders
up to 3,330 Units for a cash price of $70 per Unit. According to a draft
document provided to the Partnership, such offer also would expire no later than
November 14, 1997.
A sale of all or substantially all of the assets of the Partnership
requires the consent of the Unitholders. Neither the Partnership Agreement nor
California law requires that Unitholders vote on the sale of any one of the
Assets or on the actual terms of specific sales. If the Plan is approved, the
Sale will take place as promptly as is practicable, as described below under
"SPECIAL FACTORS CONCERNING THE PLAN--Closing of the Sale."
Certain Conflicts of Interest
- - -----------------------------
Under the terms of the Partnership Agreement, the Partnership reimburses PB
Properties for expenses incurred by PB Properties in connection with the
business of the Partnership. Because the Partnership has not generated
sufficient cash flow from operations to make necessary building and tenant
improvements to the Properties and the Related Property, PB Properties has
allowed the Partnership to defer the reimbursement of certain expenses, other
than printing costs. As of June 30, 1997, a total of $640,000 in reimbursements
had been deferred. If the Partnership continues to operate, it is uncertain if
or when such deferred reimbursements will be repaid, or if PB Properties will
continue to defer any amounts, including additional amounts, for which it is
owed reimbursement. However, once the Partnership is terminated, PB Properties
will incur no additional expenses on the Partnership's behalf and intends to
receive all of the deferred expense reimbursement from the proceeds of the Sale.
As noted elsewhere in this Statement, each of the General Partners
recommends approval of the Plan. In connection with the Plan, the Purchaser, an
affiliate of Glenborough, has entered into the Purchase Agreement with the
Partnership to purchase all of the Assets. If, in the opinion of PB Properties
as managing general partner of the Partnership and acting on behalf of the
Partnership, no alternative offer for any of the Assets is rendered which is
superior to the terms of the Purchase Agreement, or unless certain fiduciary
duties so require, then the Partnership will sell all of the Assets to the
Purchaser if the Plan receives the requisite Unitholder approval. See "SPECIAL
FACTORS CONCERNING THE PLAN--The Purchase Agreement."
The Purchase Agreement
- - ----------------------
In connection with the Plan, the Partnership has entered into the Purchase
Agreement with the Purchaser, pursuant to which the Purchaser intends to
purchase all of the Assets for $43,520,000 in cash (which equals the Fair Market
Value of the Assets), which price will be reduced by the Credits, and then which
net proceeds available for distribution will be reduced by the Costs. The
Purchase Agreement may be terminated by the Partnership if, prior to end of the
Solicitation Period (as defined in the Purchase Agreement),
16
<PAGE>
it receives a superior offer for the purchase of the Assets from a bona fide
third party. The Purchase Agreement prohibits the Partnership from actively
seeking a superior offer, but allows the Partnership to negotiate in good faith
in the event that it receives an unsolicited superior offer. The Purchase
Agreement provides that the closing of the Sale must occur on or before December
9, 1997. There can be no assurances, however, that the closing of the Sale will
occur on or before December 9, 1997.
The Purchaser's obligations under the Purchase Agreement with respect to
the Properties and the Related Property to which the Interests relate are not
contingent on physical inspection, environmental review, engineering and
structural analysis, seismic evaluation, lease review, survey, lender estoppels,
beneficiary statements or receipt of financing. Furthermore, the Purchase
Agreement does not require the Partnership to provide due diligence materials
such as copies of leases, rent rolls, delinquency reports (if any), loan
documents, permits, surveys, operating budgets, historical operating statements,
tax and other invoices, service contracts, environmental reports, engineering
reports, construction plans and other materials. Because an affiliate of
Glenborough manages the Properties and the Related Property, the Purchaser,
which is affiliated with Glenborough, already has access to all of this
information. The Purchase Agreement additionally does not require either the
Partnership or PB Properties to make many of the representations, warranties or
covenants that are routinely made in sales to third parties, such as with
respect to title matters including adverse claimants, physical defects,
compliance with laws, absence of regulatory proceedings, adequacy of utilities,
environmental matters, accuracy of rent roll, enforceability of leases, tenant
delinquencies, landlord defaults, contracts for improvements, and absence of
litigation. Moreover, no disclosure is required to be made either by the
Partnership or the General Partner with respect to, if any, physical defects,
lease defaults, litigation or contracts for work in progress, among others.
Finally, the Purchase Agreement does not contemplate requiring the Partnership
to obtain tenant estoppel certificates, or necessitating the Partnership to pay
any brokerage commission with respect to the Sale.
Under the Purchase Agreement, the conditions precedent to the Purchaser's
obligation to acquire the Assets are that (i) a title policy shall have been
issued at closing for each Property showing title to such insured Property
vested in the Purchaser, subject to certain exceptions; (ii) either the
Partnership shall have completed certain items of deferred maintenance at the
Properties and the Related Property, or the purchase price to be paid by the
Purchaser for the Assets shall be reduced by the Credits; (iii) no stay, order,
judgment or decree shall enjoin, materially restrain or prohibit consummation of
the Sale of the Assets; (iv) all material authorizations, consents, permits and
approvals of governmental entities required for the consummation of the Sale of
the Assets shall have been obtained; and (v) the Partnership shall have
delivered into escrow certain evidences of ownership of the Assets and certain
other related documents as set forth in the Purchase Agreement. The Purchase
Agreement also contemplates typical closing adjustments and prorations in favor
of the Purchaser with respect to the Properties and the Related Property for
rents collected by the Partnership prior to the closing which relate to the
period after the closing date, and certain
17
<PAGE>
non-delinquent unpaid taxes and expenses incurred by the Partnership with
respect to the Properties and the Related Property relating to the period prior
to the closing date.
The Purchase Agreement requires the Partnership to make certain
representations and warranties with respect to, among other things, its due
organization and authorization to sell the Assets, and with respect to its tax
status. The Purchase Agreement expressly states that each Property is being sold
and conveyed to the Purchaser "AS IS, WHERE IS, WITH ALL FAULTS." With respect
to indemnification, the Purchaser has agreed to indemnify the Unitholders, the
Partnership and certain of its affiliates with respect to certain claims,
demands, liabilities, costs, expenses, penalties, damages and losses resulting
from or arising out of, among other things, (i) the Purchaser's inspection of
the Properties and the Related Property prior to or on the closing date; (ii)
the Partnership's operation of the Properties and the Related Property prior to
or on the closing date; and (iii) certain other acts or omissions of the
Partnership.
With respect to the Interests, the Purchase Agreement requires the
Purchaser to purchase all of the Partnership's interest in each of the Joint
Venture, the Montrose Partnership and EVC. The Purchase Agreement contains few
representations and warranties by the Partnership with respect to the Interests,
requiring general representations and warranties with respect to due
organization and authorization, the absence of transfer restrictions or claims
of creditors with respect to the Interests.
As noted above, the Purchaser has agreed to keep its offer open until
December 9, 1997. The Partnership cannot sell any of the Assets to the Purchaser
unless the Plan receives the requisite Unitholder approval.
At the present time, the Purchaser intends to fulfill its obligation under
the Purchase Agreement through the use of proceeds from GLB's $50 million
secured line of credit with Wells Fargo. The line of credit bears interest at an
annual rate equal to LIBOR plus 1.75%, and is payable in monthly installments of
interest only. If Wells Fargo terminates the line of credit (other than by
reason of GLB's default thereunder), at GLB's option, any remaining balance
thereunder will be converted to a 10-year term loan, bearing interest at a fixed
rate equal to 275 basis points over the then 10-year treasury rate, with a
10-year amortization schedule. GLB intends to repay any such borrowing through
the proceeds of future unsecured borrowings, either from a commercial bank or
the issuance of public debt, or the proceeds of a public offering of capital
stock.
Closing of the Sale
- - -------------------
It is anticipated that the Sale will be consummated as soon as practicable
following receipt of Unitholder approval of the Plan.
18
<PAGE>
For a general discussion of the tax consequences from the Sale, see
"SPECIAL FACTORS CONCERNING THE PLAN--Certain Federal Income Tax Consequences of
the Plan."
Description of Assets
- - ---------------------
As of June 30, 1997, the Partnership owned the following properties, except
for the Related Property (i.e., Montrose Office Park, with respect to which the
Partnership holds the Interests):
<TABLE>
<CAPTION>
EFFECTIVE
AVERAGE
NET ANNUAL RENTAL
PERCENTAGE RENTABLE RATE PER
LEASED AT LAND SQUARE SQUARE FOOT
LOCATION AND TYPE JUNE 30, 1997 (IN ACRES) FOOTAGE AT JUNE 30, 1997
- - ----------------- ------------- ---------- ------- ----------------
<S> <C> <C> <C> <C>
Poplar Tower
Memphis, TN
Office building 88 3.95 100,901 $11.28
Montrose Office Park
Rockville, MD
Office building complex 91 18.42 186,680 14.95
Totem Valley Business Center
Kirkland, WA
Industrial park 99 10.40 121,645 6.42
Gateway Plaza
Sacramento, CA
Office building 94 .87 50,558 16.07
Park Plaza
Sacramento, CA
Office building 77 1.37 70,113 11.83
----- -------
35.01 529,897
===== =======
</TABLE>
In May 1993, the Partnership and the first mortgage holder of the 399 Market
Street property entered into an agreement related to a deed-in-lieu of
foreclosure with regard to the property, and the Partnership delivered title to
the property to the mortgage holder. Ashby Industrial Center was sold on August
8, 1992 and one of the buildings comprising Totem Valley Business Center was
sold on September 16, 1991.
19
<PAGE>
C&W Reports
- - -----------
C&W is a national commercial real estate company which provides a broad
array of services to its domestic and international clients. C&W and its
affiliates have offices nationwide covering most of the major real estate
markets, including the markets in which the Properties and the Related Property
are located. For these reasons, and because C&W has performed appraisal services
for PB Properties in the past (including with respect to other partnerships in
which PB Properties is a general partner), C&W was selected by PB Properties on
behalf of the Partnership to appraise the Properties and the Related Property.
In appraising such properties, C&W and/or its affiliates estimated the
market value of a leased fee interest in each of such real properties,
disregarding existing financing, which market value was set forth in the
individual Appraisals provided to the Partnership by C&W and dated May 1997
(except the Poplar Tower property appraisal, which was dated October 1996) (the
"Valuation Dates") for each of such real properties (the "Appraisals"). The date
of valuation for each Property and the Related Property was the date of
inspection. C&W's Appraisals were prepared in accordance with the Uniform
Standards of Professional Appraisal Practice of the Appraisal Foundation and the
Code of Ethics of the Appraisal Institute. The appraisal fee for the Appraisals
was approximately $33,000, which fee payment was not conditioned on the
successful sale of all or any of the Assets.
The sum of the individual appraised values of the Properties and the
Related Property as set forth in the Appraisals as of the Valuation Dates was
$43,520,000.
In each of the Appraisals except for Poplar Towers Office Building, C&W
used the Sales Comparison Approach and the Income Approach (as such terms are
used in the applicable Appraisals) to develop a market value estimate for each
Property and the Related Property. Unlike with respect to the other Appraisals,
the Poplar Towers Office Building was appraised in November 1995, at which time
C&W utilized the Sales Comparison Approach and the Income Approach, and
delivered its results in a summary appraisal report. In October 1996, C&W was
provided with updated rent roll and operating expense data, prepared a limited
appraisal (Income Approach only) and delivered same in a restricted appraisal
report (as such term is set forth in the Uniform Standards of Professional
Appraisal Practice). Such property was not reinspected during the October 1996
appraisal. In reaching their fairness determinations, each of the General
Partners utilized the fair market value set forth in the October 1996 Appraisal
(i.e., the more recent appraisal).
Each Appraisal is only an estimate of value, as of the specific date stated
in such Appraisal, and is subject to the assumptions and limiting conditions
stated in such Appraisal. As an opinion, it is not a measure of realizable value
and may not reflect the amount which would be received if the real property that
is the subject of such Appraisal was sold. Reference should be made to the
entire Appraisal for each such real property. Copies may be obtained at the
reasonable cost of document reproduction upon written request by any Unitholder
(or a representative designated for such purpose) to the Partnership at its
principal office address set forth in "SUMMARY--The Partnership."
20
<PAGE>
Use of Proceeds and Cash Distributions
- - --------------------------------------
The following table sets forth the anticipated application of the proceeds
from the Sale. The amount available for distribution to Unitholders shown below
assumes that all of the Assets are sold to the Purchaser for the price and
subject to the other terms and conditions (including a possible reduction in
such price due to the Credits, and then a reduction of the net proceeds
available for distribution due to the Costs) contained in the Purchase
Agreement.
As promptly as practicable following the Sale, the General Partners will
determine the amount of assets that they believe will be sufficient to provide
for the Partnership's contingent liabilities, if any. The remainder of the
Partnership's cash will be distributed to the Unitholders and the General
Partners, in accordance with the Partnership Agreement, in an initial
liquidating distribution. Once all contingent obligations have been satisfied,
the Partnership will distribute its remaining net assets, if any, and dissolve.
As noted elsewhere in this Statement, the General Partners have determined
that, if possible, it would be in the best interests of the Unitholders to
terminate the Partnership by December 31, 1997, in order to eliminate the need
for the Partnership to prepare Schedules K-1 with respect to calendar year 1998.
In order to make reasonable provision to pay all outstanding liabilities of the
Partnership prior to December 31, 1997, the General Partners have agreed to
assume all liabilities of the Partnership, subject to the receipt by the General
Partners of sufficient assets of the Partnership to satisfy the Partnership's
liabilities as set forth on the balance sheet of the Partnership. Such balance
sheet will be prepared by the General Partners following the consummation of the
Sale and in accordance with generally accepted accounting principles, setting
forth the total amount of remaining assets and liabilities of the Partnership.
In the event that the amount necessary to satisfy such liabilities should be
less than the assets transferred to the General Partners for such purpose, the
General Partners would receive additional compensation in an amount equal to the
difference between such assets and liabilities.
The Partnership estimates that the total distribution will be approximately
$220 per Unit. This estimate is based on the factors and other assumptions set
forth below as of June 30, 1997, and assuming a closing as of December 31, 1997.
HOWEVER, THERE CAN BE NO ASSURANCES AS TO THE ACTUAL AMOUNTS DISTRIBUTED, OR AS
TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS MAY VARY MATERIALLY FROM THESE
FIGURES.
Furthermore, the General Partners estimate that, if the closing of the Sale
cannot be completed by December 9, 1997 and/or the Plan cannot be consummated in
its entirety by December 31, 1997, distributions to Unitholders may be reduced
by up to approximately $5 per Unit. At the present time, however, the General
Partners believe that no impediment presently exists to closing the Sale by
December 9, 1997 and/or consummating the Plan in its entirety by December 31,
1997.
21
<PAGE>
Gross Purchase Price $43,520,000
Certain Credits Due to GRTI (867,000)
-----------
Subtotal 42,653,000
Less: Notes Payable on Properties and the Related Property 26,650,000
Less: Expenses of Sale and Liquidation 645,000(1)
Less: Current Liabilities in Excess of Current Assets 112,000(2)
-----------
Net Distributable Amount 15,246,000(3)
Less: Distributions to General Partners 80,000
-----------
Distributions to Unitholders $15,166,000
===========
Distributions to Unitholders per Unit $220
===========
- - ----------------
(1) Sale and liquidation expenses of the Partnership have been estimated by the
General Partners to be the following approximate amounts: filing ($9,000);
legal ($160,000); accounting and tax services ($20,000); appraisal
($33,000); solicitation ($13,000); printing ($75,000); closing ($215,000);
and liquidation-related ($120,000). The Purchaser anticipates incurring and
paying approximately $165,000 of additional closing expenses.
(2) Estimated based upon assets and liabilities as of June 30, 1997. The
estimate of the liabilities includes $640,000 in reimbursements due to PB
Properties which have been deferred by the Partnership.
(3) Of this amount, the General Partners initially will withhold up to $1
million (approximately $15 per Unit) for a period of up to 30 days as a
reserve against future liabilities and unforeseen contingent obligations of
the Partnership.
On the date of liquidation, liquidating distributions shall be made to each
Unitholder that is a beneficial owner of Units.
Recommendation of the General Partners
- - --------------------------------------
The General Partners believe that the advantages of consummating the Sale
at this time exceed any disadvantages and therefore recommend that the
Unitholders approve the Plan. In reaching their conclusions, the General
Partners considered various factors, including the following, as more fully
described below under "SPECIAL FACTORS CONCERNING THE PLAN--Advantages of Plan"
and as described under "--Background of Proposed Sale of the Assets" and
"--Description of Assets": (i) the fact that the Partnership's mortgage debt
matures on December 9, 1997; (ii) the terms and conditions of the Purchase
Agreement, as described under "SPECIAL FACTORS CONCERNING THE PLAN--The Purchase
Agreement"; (iii) the fact that the Partnership has not made any cash
distributions to Unitholders since 1988; (iv) the relative illiquidity of the
Units; (v) the present occupancy rates of the Properties and the Related
Property and the presence of competition in the areas in which such Properties
and the Related Property are located; (vi) the physical condition of
22
<PAGE>
the Properties and the Related Property and the need for expenditures for
repairs, replacements and improvements to be incurred in the future; (vii) the
uncertain potential for future operating performance increases and a possible
increase in the value of the Properties and the Related Property; (viii) the
remote possibility of a resumption of distributions; and (ix) the fact that the
Assets have now been held beyond their originally anticipated holding periods.
Each of the General Partners met separately to consider the fairness of the
Plan, and each of the General Partners determined, by a unanimous vote of its
directors (except that Robert Batinovich, acting in his individual capacity as
General Partner, reached such determination individually) and after considering
the factors listed herein and above in "SPECIAL FACTORS CONCERNING THE
PLAN--Background of Proposed Sale of the Assets" and "--Recommendation of the
General Partners," that the Plan, including the transactions contemplated
thereby, is fair to all Unitholders, both affiliated and unaffiliated.
Thereafter, pursuant to Article V, Section 1 of the Partnership Agreement, the
Investment Committee (which consists of three officers of PB Properties and
three officers of Glenborough) unanimously approved the Plan, including the
transactions contemplated thereby.
Disadvantages of Plan
- - ---------------------
The primary disadvantage of the Sale at this time is that the Partnership
would not benefit from possible further improvements in economic and market
conditions which might produce increased cash flow and possibly increase the
sales prices of the Assets. Another disadvantage is that, pursuant to the
Purchase Agreement, although the Partnership is permitted to accept better
offers, it is not permitted to actively market the Assets or solicit better
offers. Thus, it is possible that the price being received by the Partnership
from the Purchaser via the Sale may be less than the Partnership may be able to
obtain with an active public marketing of the Assets.
Advantages of Plan
- - ------------------
The General Partners have arrived at their recommendations based on the
following factors, in addition to those factors listed above in "SPECIAL FACTORS
CONCERNING THE PLAN--Background of Proposed Sale of the Assets" and
- - --Recommendation of the General Partners" and not listed below:
NEGOTIATED PURCHASE PRICE. The purchase price of the Assets under the
Purchase Agreement was negotiated at arm's length and is equal to the sum of the
individual appraised fair market values of the Properties and the Related
Property, which amount represents a 14.5% increase over the amount of the
Purchaser's original offer and a 50% increase over the amount of the unsolicited
Hallwood offer. See "SPECIAL FACTORS CONCERNING THE PLAN--Background of Proposed
Sale of the Assets."
23
<PAGE>
BENEFITS OF BULK SALE. Based on their business experience, the General
Partners believe that in a sale of all the Assets in one transaction such as
pursuant to the Plan, negotiations (including those relating to price) generally
yield greater net proceeds available for distribution than negotiations
conducted on a property-by-property or asset-by-asset basis, as the case may be.
CERTAINTY OF PRICE. The purchase price for the Assets under the Purchase
Agreement is subject to reduction only for items of deferred maintenance. Thus,
unlike other property sales situations in which the purchase price could
decrease as a result of due diligence uncertainties and other contingencies,
there is no risk of continuing price negotiations with respect to the Sale.
REDUCTION OF ADMINISTRATIVE AND SALES COSTS. Selling all of the Assets at
one time and completing the liquidation and dissolution of the Partnership by
the end of 1997, if possible, would eliminate the need for the Partnership to
incur ongoing administrative and other expenses of continuing to operate the
Partnership during an extended sales period, and would allow the Partnership to
avoid the costs of preparing income tax returns and Schedules K-1 for calendar
year 1998. Additionally, selling all of the Assets at one time would result in
lower aggregate sales costs, unlike selling the Assets piecemeal (such as would
have occurred had the Partnership accepted either the unsolicited Perrin/Molitor
offer or Crow Family Trust offer). See "SPECIAL FACTORS CONCERNING THE
PLAN--Background of Proposed Sale of the Assets."
ELIMINATION OF NEED FOR BROKERAGE COMMISSIONS. No brokerage commissions are
required to be paid by the Partnership in connection with the Sale.
IMPROVED OCCUPANCIES AND REVENUES. General improvement in the occupancies
and revenues of the Assets has occurred recently, which the General Partners
believe enhances their salability.
RISKS OF CONTINUED OWNERSHIP. Retaining the Assets will continue to subject
the Partnership to the risks inherent in the direct or indirect ownership of
rental property, such as fluctuations in occupancy rates, operating expenses and
rental rates (which in turn may be affected by general and local economic
conditions), the supply and demand for properties of the type directly or
indirectly owned by the Partnership, increased competition and federal and local
laws and regulations affecting the ownership and operation of real estate.
THE CONDITION OF THE PROPERTIES AND THE RELATED PROPERTY. The General
Partners believe that it would be advantageous to sell the Assets now before
further aging and wear in the ordinary course occurs at the Properties and the
Related Property, thereby requiring substantially increased expenditures for
repairs and refurbishment.
24
<PAGE>
THE PARTNERSHIP'S ORIGINAL OBJECTIVES AND POLICIES. The Sale of the Assets
at this time is compatible with the Partnership's originally anticipated holding
period.
LIQUIDITY. The Sale will provide liquidity to the Unitholders. At present,
there is no established public trading market for the Partnership's Units, and
one is not expected to develop in the future. Liquidity has been limited to
sporadic sales which have occurred within an informal secondary market. See
"MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS--Secondary and Market
Prices for Units."
THE TERMS OF THE PURCHASE AGREEMENT. See "SPECIAL FACTORS
CONCERNING THE PLAN--The Purchase Agreement."
In reaching a determination that the Plan is fair to all Unitholders, each
of the General Partners accorded added weight to the following factors: the fact
that the Sale price equals the Fair Market Value of the Assets, which price will
be reduced by the Credits and then which net proceeds available for distribution
will be reduced by the Costs; the absence of cash distributions to Unitholders
since 1988; the strength of the present real estate market in general; the
certainty of price to be received pursuant to the Purchase Agreement; and the
savings to Unitholders in administrative and sales costs gained via the Plan.
Failure to Approve Plan
- - -----------------------
If the Unitholders fail to approve the Plan, the Partnership will continue
to own the Assets. In such event, the General Partners expect that the
Partnership would operate the Properties and would cause the Related Property to
be operated for an indefinite period, which over time would likely entail the
need for the Partnership to make substantial expenditures for repairs and
refurbishment of one or more of the Properties and the Related Property.
Consistent with the Partnership Agreement, the General Partners might receive or
solicit offers for the sale of one or more of the Assets as opportunities arise.
In any such sale, the Partnership would benefit from any increase in value of
the affected Assets over the value of a sale at the time pursuant to the Plan,
and would suffer a detriment to the extent of decrease in such value. Failure by
the Unitholders to approve the Plan will not affect their rights under the
Partnership Agreement.
Amendment to Partnership Agreement
- - ----------------------------------
Pursuant to Section V.2.f. of the Partnership Agreement, the General
Partners may not sell substantially all of the assets of the Partnership without
the prior consent of the Unitholders. Additionally, pursuant to V.2.i. of the
Partnership Agreement, neither the General Partners nor any Affiliate (as
defined in the Partnership Agreement) of any of the General Partners is
generally permitted to purchase or lease property (or interests thereon) from
the Partnership. Thus, in order for the Partnership to consummate a sale of all
or any of the Assets, and in order for the Purchaser to be able to purchase the
Assets, the Partnership Agreement must be amended, which requires the approval
of Unitholders holding
25
<PAGE>
a majority of the outstanding Units. Additionally, consent is being solicited to
amend Section V.1. of the Partnership Agreement to specifically permit
effectuation of the Plan.
Liquidation
- - -----------
As soon as practicable following the closing of the Sale, PB Properties, as
managing general partner of the Partnership and on behalf of the Partnership,
will cause the Partnership (i) to pay all costs associated with the Sale,
including the solicitation of Consents from the Unitholders; (ii) to estimate
and reserve for all such costs associated with the Sale for which bills have not
yet been received; and (iii) to provide a further contingency reserve for all
other expenses and liabilities of the Partnership, such reserve to be maintained
for a period not to exceed 30 days from the closing of the Sale. PB Properties
will then cause the Partnership to distribute the balance of the cash from the
Sale to the Unitholders and General Partners as provided in the Partnership
Agreement.
The remaining assets of the Partnership, and any remainder of the
contingency reserve, will be distributed to the Unitholders within 30 days after
the closing of the Sale.
The Partnership will terminate and be dissolved upon the disposition of all
of the net assets of the Partnership.
Certain Federal Income Tax Consequences of the Plan
- - ---------------------------------------------------
General
The following discussion generally summarizes the federal income tax
consequences expected to arise from the consummation of the Plan. This summary
is not intended to and should not be considered an opinion respecting the
federal or state income tax consequences to a particular Unitholder. Due to the
complexity of the tax issues involved, Unitholders are urged to consult with
their personal tax advisors regarding their individual circumstances and the tax
reporting consequences of the transaction.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"); existing final, temporary and proposed Treasury regulations
thereunder (the "Regulations"); published rulings and practices of the Internal
Revenue Service (the "IRS"); and court decisions, each as currently in effect.
There can be no assurance that the IRS will agree with the conclusions herein or
that future legislation or administrative changes or court decisions will not
significantly modify the federal income tax law regarding the matters described
herein, potentially with retroactive effect.
This summary is also based upon the advice of the Partnership's independent
accountants and tax counsel and their interpretation of the recently enacted
1997 tax legislation as such legislation relates to the treatment of gain on the
sale of real and personal
26
<PAGE>
property. This interpretation is also subject to subsequent issuance of Treasury
regulations and procedures for federal income tax reporting.
This summary does not discuss all the federal income tax aspects of the
Plan that may be relevant and material to a particular Unitholder in light of
the Unitholder's personal circumstances, or to certain types of Unitholders
subject to special treatment. For example, insurance companies, subchapter S
corporations, partnerships, pension and profit-sharing plans, tax-exempt
organizations, non-U.S. taxpayers and others may be subject to special rules not
discussed below. This summary also does not address other federal, state, local
or foreign tax consequences of consummation of the Plan.
Based upon the description of the Plan contained in this Statement, and
assuming the Plan is consummated on December 31, 1997 pursuant to the Purchase
Agreement (although a later closing in 1998 is not expected to result in
material differences), the Partnership's independent accountants have advised
the Partnership that the Sale will result in a total gain allocable to the
Unitholders for federal income tax purposes in 1997 of approximately $8.0
million or an average of approximately $116 per Unit, substantially all of which
will represent recapture of depreciation taken in respect of real property
(Section 1250 Gain, as defined below) and will be taxed at a maximum rate of 25%
in the case of non-corporate Unitholders. The amount of Section 291(a) ordinary
income recharacterization for a corporate Unitholder is approximately $21 per
Unit (see discussion below). The amount of gain actually realized by a
Unitholder may differ from the estimates set forth above. In addition, due to
the varying dates of admission of Unitholders to the Partnership, the tax status
of such Unitholders and the operation of the Partnership Agreement, the amount
of gain that is allocated to a Unitholder on a per Unit basis may vary.
Partnership Status
Under current law, a "partnership" is not a taxable entity and incurs no
federal income tax liability. Instead, each partner is required to take into
account in computing such partner's income tax liability such partner's
allocable share of the partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss"). The distribution of cash
attributable to partnership income is generally not a separate taxable event.
This tax treatment, however, depends entirely upon the Partnership's
classification as a "partnership" (rather than as an "association taxable as a
corporation") for federal income tax purposes. This summary assumes, and the
General Partners believe, that the Partnership has been and will continue to be
properly classified as a "partnership" for federal income tax purposes. No
opinion of counsel or of the Partnership's independent accountants or ruling
from the IRS is currently being sought with respect to this partnership status
issue.
27
<PAGE>
Federal Income Tax Consequences
Realization of Gain or Loss. Consummation of the Plan pursuant to the
Purchase Agreement will cause the Partnership to recognize income for federal
income tax purposes, which income will be allocated to the Unitholders. In
general, such income will equal the excess of the "amount realized" over the
Partnership's "adjusted basis" in the Assets. The amount realized will equal the
amount paid by the Purchaser, reduced by any expenses of sale. The "adjusted
basis" of an asset will equal its cost (including nondeductible capital
expenditures made by the Partnership at the time of purchase) with certain
additions or subtractions for expenditures, transaction costs, depreciation and
other items during the period of time from acquisition of the asset until
consummation of the Sale.
Gain realized on the sale of the common stock of EVC will be characterized
as long-term capital gain. In general, under Section 1231 of the Code, a
taxpayer's gain attributable to the disposition of real property used in a trade
or business (such as the Properties and the Related Property) will be treated as
capital gain ("Section 1231 Gain"). However, under Sections 1245 and 1250 of the
Code (which govern recapture of depreciation taken with respect to personal and
real property, respectively), a portion of the amount allowed as depreciation
expense with respect to the Properties will be "recaptured" upon the Sale (and
taxed at different rates) rather than being characterized as capital gain
("Section 1245 Gain" and "Section 1250 Gain," respectively). For this purpose,
it is expected that a sale by the Partnership of the Interests (other than the
common stock of EVC) will have the effect, for federal income tax purposes, of a
direct sale of the Related Property. In the case of non-corporate Unitholders,
Section 1245 Gain will be taxed at ordinary income tax rates and Section 1250
Gain will be taxed at a maximum rate of 25%.
In the instant case, in the case of non-corporate Unitholders, it is
expected that all or substantially all of the Partnership's gain realized upon
consummation of the Sale will constitute Section 1250 Gain taxable at a maximum
rate of 25%; the Partnership will have minimal long-term capital gain, minimal,
(if any) Section 1245 Gain and no Section 1231 Gain. In the case of corporate
Unitholders, the Section 1250 Gain generally will equal the difference between
the accelerated depreciation taken with respect to the Properties and the
Related Property, and the amount of depreciation that would have been available
under the straight-line method. In addition, pursuant to Section 291(a) of the
Code, 20% of the remaining gain on the sale of the Properties and the Related
Property allocated to such corporate Unitholders will be treated as ordinary
income, and the estimates set forth herein assume such treatment. Under Section
702(a)(3) of the Code (which generally deals with the "pass through" of tax
items from a partnership to its partners), the Partnership will be required to
separately state, and the Unitholders will be required to account separately
for, their distributive share of all gains and losses. Each Unitholder's
allocable share of capital gain, Section 1245 Gain, Section 1250 Gain and
Partnership net taxable income or loss will be reflected on the 1997 Schedule
K-1 sent to such Unitholder.
28
<PAGE>
Passive Activity Losses. Under Section 469 of the Code, a non-corporate
taxpayer or personal service corporation generally can deduct "passive activity
losses" in any year only to the extent of the person's passive activity income
for that year. Closely-held corporations may not offset such losses against
so-called "portfolio" income. Substantially all post-1986 losses of Unitholders
from the Partnership should be considered passive activity losses. Unitholders
may have "suspended" passive losses from the Partnership (i.e., post- 1986 net
taxable losses in excess of statutorily permitted "phase-in" amounts which have
not been used to offset income from other passive activities) which may be
available to shelter gain from the Plan. Each Unitholder should consult such
Unitholder's tax advisor regarding the effect that the passive activity loss
rules will have upon such Unitholder's tax situation.
Unrelated Business Income. For most tax-exempt Unitholders, only a portion
of the gain from the sale of the Properties will be treated as unrelated
business income. Under Section 514(a) of the Code, gain from the sale of
"debt-financed property" is treated as unrelated business income generally in an
amount equal to a ratio determined by comparing the property's debt to its cost
basis. If the Properties are sold for the estimated total gain allocable to the
Unitholders of approximately $8.0 million, the portion of the gain that will be
treated as unrelated business income is estimated to be approximately $5.4
million (or approximately $78 per Unit). Additional unrelated business income
may result to a tax-exempt Unitholder which borrowed funds to purchase its
Units. Tax-exempt Unitholders should consult their own tax advisors regarding
the unrelated trade or business income that may result from the sale of the
Properties.
Liquidation of the Partnership. The Partnership expects to make
distributions from the proceeds of the Sale in accordance with the Partnership
Agreement. See "Market Prices and Distributions-Distributions." This
distribution will first reduce a Unitholder's basis in such Unitholder's Units
and, to the extent the amount of the distribution is in excess of that basis,
such excess will be taxed to non-corporate Unitholders as long-term capital
gains at a maximum rate of 20% if the Unitholder's holding period for the Unit
exceeds eighteen months or as mid-term gain at a maximum rate of 28% if the
Unitholder's holding period for the Unit exceeds one year but does not exceed
eighteen months. If upon the subsequent termination of the Partnership a
Unitholder has a basis remaining for such Unitholder's Unit, the amount of such
remaining basis will give rise, in the year of the termination, to a long-term
or short-term capital loss, depending on a Unitholder's holding period.
Accounting Treatment
- - --------------------
For financial reporting purposes, the transaction will be treated as a sale
of properties with respect to the Sale and the gain from such Sale will be
recorded in the Partnership's Statement of Operations, reduced by all expenses
of sale, including appraisals and other professional fees and transfer taxes.
Under generally accepted accounting principles, the Partnership would realize a
gain of approximately $11.9 million on the sale of the Properties assuming the
Plan has been consummated by December 31, 1997.
29
<PAGE>
No Appraisal Rights
- - -------------------
If Unitholders owning a majority of the Units on the Record Date vote in
favor of the Plan, such approval will bind all Unitholders. The Partnership
Agreement and the California Revised Uniform Limited Partnership Act, under
which the Partnership is governed, do not give rights of appraisal or similar
rights to Unitholders who dissent from the vote of the majority in approving or
disapproving the Plan. Accordingly, dissenting Unitholders do not have the right
to have their Units appraised and to have the value of their Units paid to them
because they disapprove of the action of a majority in interest of the
Unitholders.
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS
Secondary and Market Prices for Units
- - -------------------------------------
No established market for the Units was ever expected to develop, and the
secondary market transactions for the Units have been limited and sporadic. It
is not known to what extent the transactions in the secondary market are between
buyers and willing sellers, each having access to relevant information regarding
the financial affairs of the Partnership, expected value of its assets, and its
prospects for the future. Sellers in the secondary market who desire to dispose
of their Units but who have limited means to effectuate such sales are often
willing to accept substantial discounts from what might otherwise be regarded as
the fair value of the interest being sold, to facilitate the sales. Secondary
market prices generally do not reflect the current market of the Partnership's
assets, nor are they indicative of total return, since prior cash distributions
and tax benefits received by the original investor are not reflected in the
price. Nonetheless, notwithstanding these qualifications, the secondary market
prices, to the extent that the reported data are reliable, are indicative of the
prices at which the Units trade in the illiquid secondary market.
The following table sets forth the high and low sales prices at which the
Units traded in the secondary market as reported by Partnership Spectrum in
certain of its semimonthly publications of "The Partnership Spectrum":
30
<PAGE>
PARTNERSHIP SECONDARY TRADING AS REPORTED
IN "THE PARTNERSHIP SPECTRUM"
HIGH LOW
---- ----
08/01/95 - 09/30/95 $40.00 $26.50
10/01/95 - 11/30/95 30.00 30.00 (1 trade)
12/01/95 - 01/31/96 45.00 40.00
02/01/96 - 03/31/96 51.00 30.00
04/01/96 - 05/30/96 40.00 30.00
06/01/96 - 07/31/96 52.00 25.00
08/01/96 - 09/30/96 46.20 20.00
10/01/96 - 11/30/96 62.50 20.00
12/01/96 - 01/31/97 55.00 55.00 (1 trade)
02/01/97 - 03/31/97 63.50 46.00
04/01/97 - 05/30/97 41.00 41.00 (1 trade)
06/01/97 - 07/31/97 58.00 46.00
Partnership spectrum has advised that its methodology for compiling trade
prices is as follows: trade price information reflects per unit transaction
prices for trades involving the purchase of Units by third-party investors
during the applicable period. Firms supplying trade price data are instructed to
provide information only on those transactions whereby third-party investors
acquired Units from or through such firms. If the firm acted as an agent, the
per Unit price is to include any commissions charged the buyer (but not
including commissions paid to retail brokers representing buyers). Due to
commission and mark-ups, sellers of Units typically receive less than the
amounts paid for Units by buyers as set forth in the above table.
Distributions to Unitholders
- - ----------------------------
From the inception of the partnership through January 31, 1988 (the end of
the first quarter of the 1988 fiscal year), the partnership made aggregate cash
distributions to the Unitholders in the amount of $2,367,000, or $38.17 per Unit
(with respect to Unitholders who were admitted to the partnership at the initial
closing of the partnership). Such distributions were made from operating cash
flow. The Partnership has paid no distributions from operations or otherwise
since 1988.
31
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 68,795 Units issued and outstanding and
entitled to vote on matters upon which Unitholders may vote or consent, which
Units were held by 5,834 Unitholders. According to publicly available
information, and to the best knowledge of PB Properties, as of the Record Date,
no person or entity owned more than 5% of the outstanding Units. As of the
Record Date, neither the General Partners nor any officer or director thereof
owned any Units. PSI beneficially owned 180 Units as of June 30, 1997, and has
advised PB Properties that it intends to vote such Units in favor of the Plan.
PSI has made no recommendation with respect to the Plan.
IDENTITY AND BACKGROUND OF CERTAIN PERSONS
PB Properties, a General Partner of the Partnership, is a Delaware
corporation whose principal business is serving as a general partner in various
real estate limited partnerships. The address of its principal executive offices
is One Seaport Plaza, New York, NY 10292.
Glenborough Corporation, a General Partner of the Partnership, is a
California corporation whose principal business is serving as a general partner
in various real estate limited partnerships and providing asset and property
management services for various properties. The address of its principal
executive offices is 400 South El Camino Real, Suite 1100, San Mateo, CA
94402-1708.
GLB (together with Glenborough Properties, L.P., the "Purchaser"), which
owns all of the non-voting preferred stock of Glenborough Corporation, is a
Maryland corporation whose principal business is functioning as a REIT, in
which the operating partnership, Glenborough Properties, L.P., owns and operates
GLB's real estate portfolio. Through its ownership of preferred stock in
Glenborough Corporation and other various entities, GLB also receives economic
benefit from such entities through preferred dividends. The address of its
principal executive offices is 400 South El Camino Real, Suite 1100, San Mateo,
CA 94402-1708.
Glenborough Properties, L.P. (together with GLB, the "Purchaser"), is a
California limited partnership whose principal business is operating a real
estate portfolio as the operating partnership of GLB. The address of its
principal executive offices is c/o Glenborough Realty Trust Incorporated, 400
South El Camino Real, Suite 1100, San Mateo, CA 94402-1708.
Prudential Securities Group Inc., the parent of PB Properties, is a
Delaware corporation whose principal business is as a holding company for PB
Properties and various other subsidiaries, including PSI. The address of its
principal executive offices is One Seaport Plaza, New York, NY 10292.
32
<PAGE>
PSI, an affiliate of PB Properties, is a Delaware corporation. PSI is a
diversified global securities firm with operations pertaining to mutual funds,
capital markets, investment banking, commodities and securities brokerage. The
address of its principal executive offices is One Seaport Plaza, New York, NY
10292.
On October 27, 1994, PSI entered into cooperation and deferred prosecution
agreements (the "PSI Agreements") with the Office of the United States Attorney
for the Southern District of New York (the "U.S. Attorney"). The PSI Agreements
resolved a grand jury investigation that had been conducted by the U.S. Attorney
into PSI's sale during the 1980s of the Prudential-Bache Energy Income Fund oil
and gas limited partnerships (the "Income Funds"). In connection with the PSI
Agreements, the U.S. Attorney filed a complaint charging PSI with a criminal
violation of the securities laws. In its request for a deferred prosecution, PSI
acknowledged having made certain misstatements in connection with the sale of
the Income Funds. Pursuant to the PSI Agreements, the U.S. Attorney will defer
any prosecution of the charge in the complaint for a period of three years,
provided that PSI complies with certain conditions during this period. These
include conditions that PSI not violate any criminal laws; that PSI contribute
an additional $330 million to a pre-existing settlement fund; that PSI cooperate
with the government in any future inquiries; and that PSI comply with various
compliance-related provisions. If, at the end of the three-year period, PSI has
complied with the terms of the PSI Agreements, the U.S. Attorney will be barred
from prosecuting PSI on the charges set forth in the complaint. If, on the other
hand, during the course of the period ending October 27, 1997, PSI violates the
terms of the PSI Agreements, the U.S. Attorney can elect to pursue such charges.
On October 21, 1993 PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions (49 states, the District of
Columbia and Puerto Rico) and the NASD to resolve allegations that had been
asserted against PSI with respect to the sale of interests in more than 700
limited partnerships generated by PSI's Direct Investment Group and sold from
January 1, 1980 through December 31, 1990. Subsequently, PSI reached a
settlement with the remaining state. The partnerships principally involved real
estate, oil and gas producing properties and aircraft leasing ventures.
The allegations against PSI, which were set forth in a Complaint filed by
the SEC on October 21, 1993 and in an Administrative Order issued by the SEC
also on October 21, 1993, asserted that federal and state securities laws had
been violated through sales of limited partnership interests (and a limited
number of certain other securities) to persons for whom such securities were not
suitable and that the safety, potential returns and liquidity of the investments
had been misrepresented. PSI neither admitted nor denied the allegations. The
Administrative Order (to which PSI consented without admitting or denying the
SEC's findings) directed PSI to cease and desist from violating the federal
securities laws and imposed a $10 million civil penalty. The Administrative
Order also required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors.
33
<PAGE>
PSI's settlement with the state securities regulators included an agreement
to pay a penalty of $500,000 per jurisdiction. All fifty-two jurisdictions have
resolved this matter. In settling the NASD disciplinary action, PSI consented to
a censure and paid a $5 million fine to the NASD.
In connection with the settlement of the allegations asserted against it,
and pursuant to a Final Order and Judgment entered on October 21, 1993 in the
action commenced by the SEC, PSI deposited $330 million into a fund to be used
for the resolution of claims for compensatory damages asserted by persons who
purchased limited partnership interests from PSI, and agreed to provide
additional funds, if necessary, for that purpose. The fund and claims resolution
process were administered by a court-approved Claims Administrator.
Brian J. Martin is President, Chief Executive Officer and Chairman of PB
Properties, and a Senior Vice President of PSI. Mr. Martin also serves in
various capacities for other affiliated companies. Mr. Martin joined PSI in
September 1980. He is a U.S. citizen, and his business address is the same as
the address for PB Properties, which is set forth above.
Barbara J. Brooks is the Vice President--Finance and Chief Financial
Officer of PB Properties, and a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. Ms. Brooks has held
several positions within PSI since 1983. She is a U.S. citizen, and her business
address is the same as the address for PB Properties, which is set forth above.
Eugene D. Burak is a Vice President of PB Properties, and a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. He is a U.S. citizen, and his business address is
the same as the address for PB Properties, which is set forth above.
Chester A. Piskorowski is a Senior Vice President of PB Properties, and a
Senior Vice President of PSI. Mr. Piskorowski has held several positions within
PSI since April 1972. He is a U.S. citizen, and his business address is the same
as the address for PB Properties, which is set forth above.
Frank W. Giordano is a director of PB Properties, and a Senior Vice
President and Senior Counsel of PSI. Mr. Giordano also serves in various
capacities for other affiliated companies, and has been with PSI since July
1967. He is a U.S. citizen, and his business address is the same as the address
for PB Properties, which is set forth above.
Nathalie P. Maio is a director of PB Properties, and a Senior Vice
President and Deputy General Counsel of PSI. She joined PSI's Law Department in
1983; presently she also serves in various capacities for other affiliated
companies. She is a U.S. citizen,
34
<PAGE>
and her business address is the same as the address for PB Properties, which is
set forth above.
Robert Batinovich individually is a General Partner of the Partnership.
Since January 1996, Mr. Batinovich has been Chairman and Chief Executive Officer
of GLB. Mr. Batinovich was also President of GLB from January 1996 until
September 1997. From 1978 until December 1995, Mr. Batinovich was Chairman and
President of Glenborough Corpora- tion. Mr. Batinovich is a U.S. citizen. His
business address is the same as the business address of the Purchaser, which is
set forth above.
Andrew Batinovich has been President of GLB since September 1997, and Chief
Operating Officer and a director of GLB since January 1996. He has also been
Chairman and Chief Executive Officer of Glenborough Corporation since January
1996. From 1978 until December 1995, Mr. Batinovich was Chief Operating Officer
and Chief Financial Officer of Glenborough Corporation. Mr. Batinovich is a U.S.
citizen. His business address is the same as the business address of the
Purchaser, which is set forth above.
Sandra Boyle has been Executive Vice President of GLB since September 1997,
and President of Glenborough Corporation since January 1996. From January 1996
until September 1997, Ms. Boyle was Senior Vice President of GLB. From 1989
until December 1995, Ms. Boyle was Vice President of Glenborough Corporation.
Ms. Boyle is a U.S. citizen. Her business address is the same as the business
address of the Purchaser, which is set forth above.
Frank E. Austin has been Senior Vice President and General Counsel of GLB
since January 1996. From 1987 until December 1995, Mr. Austin was Vice President
of Glenborough Corporation. Mr. Austin is a U.S. citizen. His business address
is the same as the business address of the Purchaser, which is set forth above.
Terri Garnick has been Senior Vice President and Chief Accounting Officer
of GLB, and Chief Financial Officer of Glenborough Corporation, since January
1996. From 1991 until December 1995, she was Vice President of Glenborough
Corporation. Ms. Garnick is a U.S. citizen. Her business address is the same as
the business address of the Purchaser, which is set forth above.
35
<PAGE>
AVAILABLE INFORMATION
This Statement does not purport to be a complete description of all
agreements and matters relating to the condition of the Partnership, its Assets
and the transactions described herein. Attached to this Statement as Exhibit C
is the Partnership's Annual Report on SEC Form 10-K for the year ended December
31, 1996, and attached to this Statement as Exhibit D is the Partnership's
Quarterly Report on SEC Form 10-Q/A for the quarter ended June 30, 1997, each of
which provides additional information regarding the Partnership. With respect to
statements contained in this Statement as to the content of any contract or
other document filed as an exhibit to either the Form 10-K or Form 10-Q, each
such statement is qualified in all respects by reference to such report and the
schedules thereto, which may be obtained without charge upon written request to
the Partnership. To make such a request, a Unitholder must write to PB
Properties, One Seaport Plaza, New York, New York 10292-0128.
All documents filed by the Partnership with the Securities and Exchange
Commission after the date of this Statement, but before the Partnership takes
action pursuant to this Consent, shall be deemed to be incorporated by reference
into this Statement. Copies of these documents will be available without charge
upon request to PB Properties, One Seaport Plaza, New York, New York 10292-0128.
Any statement contained in a document incorporated or deemed to be incorporated
by reference in this Statement shall be deemed to be modified or superseded for
purposes of this Statement to the extent that a statement contained in this
Statement (or in any other subsequently filed document that also is or is deemed
to be incorporated by reference in this Statement) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Statement.
36
<PAGE>
EXHIBITS
EXHIBIT A: PURCHASE AGREEMENT, DATED AS OF THE EFFECTIVE DATE, BY AND
BETWEEN THE PARTNERSHIP AND THE PURCHASER
EXHIBIT B: PROPOSED AMENDMENTS TO AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
EXHIBIT C: ANNUAL REPORT OF PARTNERSHIP ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1996
EXHIBIT D: QUARTERLY REPORT OF PARTNERSHIP ON FORM 10-Q/A FOR THE
QUARTER ENDED JUNE 30, 1997
37
<PAGE>
TABLE OF CONTENTS
Section Page
- - ------- -----
SUMMARY ............................................................... 4
The Partnership................................................ 4
Action by Written Consent...................................... 5
The Purchaser.................................................. 6
The Plan ...................................................... 7
Selected Historical Financial Data............................. 11
SPECIAL FACTORS CONCERNING THE PLAN..................................... 12
Background of Proposed Sale of the Assets...................... 12
Certain Conflicts of Interest.................................. 16
The Purchase Agreement......................................... 16
Closing of the Sale............................................ 18
Description of Assets.......................................... 19
C&W Reports.................................................... 20
Use of Proceeds and Cash Distributions......................... 21
Recommendation of the General Partners......................... 22
Disadvantages of Plan.......................................... 23
Advantages of Plan............................................. 23
Failure to Approve Plan........................................ 25
Amendment to Partnership Agreement............................. 25
Liquidation.................................................... 26
Certain Federal Income Tax Consequences of the Plan............ 26
General ............................................. 26
Partnership Status.................................... 27
Federal Income Tax Consequences....................... 28
Accounting Treatment........................................... 29
No Appraisal Rights............................................ 30
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS................. 30
Secondary and Market Prices for Units.......................... 30
Distributions to Unitholders................................... 31
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF......................... 32
IDENTITY AND BACKGROUND OF CERTAIN PERSONS.............................. 32
AVAILABLE INFORMATION................................................... 36
<PAGE>
EXHIBITS...................................................................37
EXHIBIT A: Purchase Agreement, dated as of the Effective Date, by and
between the Partnership and the Purchaser....................A-1
EXHIBIT B: Proposed Amendments to Amended and Restated Agreement
of Limited Partnership.......................................B-1
EXHIBIT C: Annual Report of Partnership on Form 10-K for the year
ended December 31, 1996......................................C-1
EXHIBIT D: Quarterly Report of Partnership on Form 10-Q/A for the
quarter ended June 30, 1997..................................D-1
ii
================================================================================
PURCHASE AGREEMENT
BETWEEN
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(THE "PARTNERSHIP"),
AND
GLENBOROUGH REALTY TRUST INCORPORATED,
A MARYLAND CORPORATION
AND
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
(COLLECTIVELY, "PURCHASER")
RELATING TO THE PROPERTIES
COMMONLY KNOWN AS
GATEWAY PROFESSIONAL CENTER, SACRAMENTO, CALIFORNIA
PARK PLAZA, SACRAMENTO, CALIFORNIA
POPLAR TOWERS, MEMPHIS, TENNESSEE
AND
TOTEM VALLEY BUSINESS PARK, SEATTLE, WASHINGTON
AND INTERESTS IN THE ENTITIES KNOWN AS
MONTROSE OFFICE PARK LIMITED PARTNERSHIP,
A MARYLAND LIMITED PARTNERSHIP
MONTROSE OFFICE PARK JOINT VENTURE,
A MARYLAND SINGLE PURPOSE GENERAL PARTNERSHIP
AND
EQUITEC VENTURE CORP. III, INC.,
A CALIFORNIA CORPORATION
================================================================================
<PAGE>
PURCHASE AGREEMENT
PRUDENTIAL-BACHE/EQUITEC
TABLE OF CONTENTS
Page
----
List of Addenda........................................................... ii
List of Exhibits.......................................................... iii
List of Schedules......................................................... iv
1. Definitions.......................................................... 1
2. Agreement to Purchase and Sell....................................... 1
3. Consideration........................................................ 1
4. Conditions to Closing/Totem Valley Lease............................. 3
5. Closing and Escrow................................................... 4
6. Closing Adjustments and Prorations................................... 6
7. The Partnership's Representations and Warranties/Property Condi
tion................................................................. 8
8. Purchaser's Representations and Warranties........................... 10
9. Indemnification by Purchaser......................................... 12
10. Risk of Loss......................................................... 12
11. Condemnation......................................................... 13
12. The Partnership's Continued Operation of the Properties.............. 14
13. Cooperation Before Closing........................................... 15
14. Non-Consummation of the Transaction.................................. 15
15. Miscellaneous........................................................ 16
Addenda
Exhibits
Schedules
i
<PAGE>
LIST OF ADDENDA
I. Definitions
ii
<PAGE>
LIST OF EXHIBITS
A. Assignment and Assumption of Leases
B. Bill of Sale
C. Assignment and Assumption of Service Contracts,
Warranties and Guaranties, and Other Intangible Property
D. Certificate of the Partnership Other Than an Individual
(FIRPTA Affidavit)
E. Assignment of Partnership Interests in Montrose Office Park Limited
Partnership
F. Assignment of Joint Venture/General Partnership Interests in Montrose
Office Park Joint Venture
G. Escrow Agreement
iii
<PAGE>
LIST OF SCHEDULES
SCHEDULES REFERENCED IN ADDENDUM I (DEFINITIONS)
1. Description of Land
2. Permitted Exceptions
3. Rent Roll
4. Deferred Maintenance
5. Loan
6. Description of Related Property
iv
<PAGE>
PURCHASE AGREEMENT
PRUDENTIAL-BACHE/EQUITEC
THIS PURCHASE AGREEMENT ("Agreement") is dated as of the Effective Date (as
defined in Addendum I hereto) by and among Prudential-Bache/Equitec Real Estate
Partnership, a California limited partnership (the "Partnership") and
Glenborough Realty Trust Incorporated, a Maryland corporation ("GLB") and
Glenborough Properties, L.P., a California limited partnership ("GPLP")
(collectively, "Purchaser").
RECITALS
A. Purchaser desires to acquire the Property (as defined in Addendum I
below) and the Interests (as defined in Addendum I attached hereto) (the
Interests, together with the Property, the "Assets") from the Partnership and
the Partnership desires to sell the Assets to Purchaser, upon the terms and
subject to the conditions set forth in this Agreement (the "Sale").
B. Following such Sale, the Partnership intends to liquidate itself and
distribute its net assets (including the proceeds of such Sale) to its General
Partners (as defined in Addendum I attached hereto) and the holders of the
beneficial ownership interest in the limited partnership interests of the
Partnership (the "Unitholders").
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants and agreements hereinafter contained, and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound, the parties hereby agree
as follows:
1. DEFINITIONS. Terms used in this Agreement shall have the meanings set
forth in Addendum I attached hereto.
2. AGREEMENT TO PURCHASE AND SELL. Subject to and upon the terms and
conditions herein set forth and the representations and warranties contained
herein, the Partnership agrees to sell the Assets to Purchaser, and Purchaser
agrees to acquire the Assets from the Partnership.
3. CONSIDERATION. The Partnership and Purchaser agree that the total
Consideration for the Assets shall be Forty Three Million Five Hundred Twenty
Thousand
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<PAGE>
Dollars ($43,520,000), subject to adjustment for Deferred Maintenance and other
matters as provided herein.
(a) The Consideration shall be comprised of the following components:
(i) EARNEST MONEY DEPOSIT. Within one (1) business day of the
Effective Date, Purchaser shall deposit the Earnest Money in escrow
with the Title Company and shall cause the Title Company to provide
the Partnership with written confirmation on such date that it has
received same. The Earnest Money shall be held in a federally insured
interest-bearing account and interest accruing thereon shall be for
the party entitled thereto pursuant to the terms of this Agreement and
the Escrow Agreement. The Earnest Money shall be in the form of cash.
In the event the transaction contemplated hereby is consummated, the
Earnest Money plus interest accrued thereon shall be credited against
Purchaser's payment obligations hereunder.
(ii) THE LOAN. Provided that the Partnership receives, at
Purchaser's expense, the written consent of the holder of the Loan to
the Sale not less than thirty (30) days prior to the Closing Date, and
subject to delivery of the Release as provided herein, at the Closing,
there shall be credited against the Consideration an amount equal to
the greater of (i) all amounts claimed by the holder of the Loan as of
the Closing Date (other than prepayment fees or similar charges
including but not limited to the Fixed Rate Price Adjustment) under a
payoff demand submitted to the Title Company and approved by the
Partnership, or (ii) the outstanding principal balance of the Loan,
together with all accrued unpaid interest thereon as of the Closing
Date, and all late charges, penalties or other charges (other than
prepayment fees or similar charges including but not limited to the
Fixed Rate Price Adjustment) owing under the Loan. In such event, the
Loan shall be the responsibility of Purchaser, which may, at its
option, acquire the Property subject to the Loan, seek to assume the
Loan, refinance the Loan contemporaneously with or after the Closing,
retire the Loan at the Closing, or take any other actions with respect
to the Loan in whatever manner it sees fit. Should Purchaser assume
the Loan, the cost of any assumption fee or related costs shall be the
obligation of Purchaser. Any costs related to the Release shall be the
obligation of Purchaser. Should Purchaser refinance the Loan, any
costs related to such refinancing shall be the obligation of
Purchaser. Should Purchaser retire the Loan, any
2
<PAGE>
prepayment penalty or similar charge including but not limited to the
Fixed Rate Price Adjustment shall be the obligation of Purchaser. In
no event shall the Release or the Purchaser's ability to assume,
retire or refinance the Loan be a condition to Purchaser's obligations
hereunder.
(iii) CASH. On the Closing Date, Purchaser shall deliver to the
Partnership, immediately available funds in an amount equal to the
Consideration less (i) the Earnest Money Deposit, as more fully
described above and (ii) the amount of the Loan credit as calculated
above, and subject to closing adjustments and prorations pursuant to
Subsection 6(c) hereof.
(b) WITHHOLD IF THE PARTNERSHIP A FOREIGN PERSON. The Partnership
acknowledges and agrees that, if the Partnership is a foreign person,
Purchaser may be required to withhold a portion of the Consideration
pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended
(the "Code") or Sections 18805 and 26131 of the California Revenue and
Taxation Code or similar laws or regulations of other states.
(c) ALLOCATION OF CONSIDERATION. The Partnership and Purchaser agree
to allocate the Consideration as follows, subject to adjustment as provided
herein, in accordance with Section 1060 of the Code: Gateway Professional
Center - $4,250,000; Park Plaza - $6,670,000; Poplar Towers - $5,000,000;
Totem Valley Business Park - $7,200,000; Interest in Montrose Office Park
Joint Venture - $19,155,600; Interest in Montrose Office Park Limited
Partnership - $1,244,300; Interest in Equitec Venture Corp. III, Inc. -
$100. Neither the Partnership nor Purchaser shall file any tax return or
other document or otherwise take any position which is inconsistent with
the allocation determined pursuant to this Subsection.
4. CONDITIONS TO CLOSING/TOTEM VALLEY LEASE.
(a) PURCHASER'S CONDITIONS PRECEDENT. Purchaser's Conditions Precedent
as set forth below are precedent to Purchaser's obligation to acquire the
Assets. The Purchaser's Conditions Precedent are intended solely for the
benefit of Purchaser. If any of the Purchaser's Conditions Precedent are
not satisfied, Purchaser shall have the right in its sole discretion either
to waive such Purchaser's Condition Precedent and proceed with the Sale or
terminate this Agreement by written notice to the Partnership and the Title
Company.
3
<PAGE>
(i) DELIVERIES BY PARTNERSHIP. The Partnership shall fulfill
in all material respects its obligations under Section 5(c)
hereof, except as otherwise set forth herein.
(ii) TITLE POLICY. Title Company shall be committed to issue
a Title Policy at Closing for each Property showing fee or
leasehold title, as applicable, to such insured Property vested
in Purchaser, subject to the Permitted Exceptions.
(iii) DEFERRED MAINTENANCE. The Partnership shall have
completed or shall cause to be completed the Deferred Maintenance
on the Properties and the Related Property, or, to the extent
such work has not been completed, Purchaser shall receive a
credit at Closing, which credit shall be calculated based upon
the agreed valuations set forth in Schedule 4.
(iv) NO ORDERS, ETC. No stay, order, judgment or decree
shall have been entered, and not vacated, by a court or
administrative agency or other governmental body, in any action
which enjoins, materially restrains or prohibits the consummation
of the Sale.
(v) REQUIRED CONSENTS. All material authorizations,
consents, permits and approvals of all federal, state and local
governmental agencies and authorities required to be obtained in
order to permit consummation of the Sale shall have been
obtained.
(b) THE PARTNERSHIP'S CONDITIONS PRECEDENT. The Partnership's
Conditions Precedent as set forth below are precedent to the
Partnership's obligation to transfer the Assets, and are intended
solely for the benefit of the Part nership. If any of the
Partnership's Conditions Precedent are not satisfied, the Partnership
shall have the right in its sole discretion either to waive such
Partnership's Condition Precedent and proceed with the Sale or
terminate this Agreement by written notice to Purchaser and the Title
Company.
(i) LIMITED PARTNER CONSENT. The Partnership shall have
received the Consents on or before December 4, 1997.
(ii) AMENDMENTS. The Amendment shall have been approved by
the Unitholders and executed by the General Partners before
Closing.
4
<PAGE>
(iii) RELEASE. If the Loan is not retired at Closing, the
Partner ship shall have received a duly executed release in form
and substance acceptable to the Partnership, pursuant to which
Purchaser and the holder of the Loan as of the Closing Date shall
release the Partnership, PB Properties and the Unitholders from
any and all obligations and liabilities under the Loan Documents
whether arising before, on or after the Closing Date (the
"Release").
(iv) NO ORDERS, ETC. No stay, order, judgment or decree
shall have been entered, and not vacated, by a court or
administrative agency or other governmental body, in any action
which enjoins, restrains or prohibits the consummation of the
Sale.
(v) REQUIRED CONSENTS. All authorizations, consents, permits
and approvals of all federal, state and local governmental
agencies and authorities required to be obtained in order to
permit consummation of the Sale shall have been obtained.
(vi) DELIVERIES BY PURCHASER. The Partnership shall have
received the balance of the total Consideration and the duly
executed docu ments to be delivered by Purchaser pursuant to
Section 5 hereof.
(vii) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser shall have been true and correct in
all material respects when made and shall be true and correct in
all material respects as of the Closing Date, as if made at and
as of such date.
(c) TOTEM VALLEY LEASE. Notwithstanding anything to the contrary
contained herein, (i) the consent of the landlord under the Totem Valley
Lease to an assignment of such lease shall in no event be a condition to
Purchaser's obligation to close hereunder, and (ii) in the event that the
landlord under the Totem Valley Lease exercises its right to terminate such
lease without cause prior to or after Closing, no such termination shall
effect the obligations of Purchaser hereunder or entitle the Purchaser to
any credit or offset against the Consideration. The provisions of clause
(ii) of this subparagraph shall survive the Closing.
5
<PAGE>
5. CLOSING AND ESCROW.
(a) CLOSING DATE. The Closing shall be conducted through, and all
items to be delivered shall be delivered to, the Title Company, on or
before the Closing Date, which may be extended upon mutual written
agreement of the parties.
(b) ESCROW INSTRUCTIONS. Title Company shall hold the Earnest Money in
accordance with the provisions of the Escrow Agreement. The Partnership and
Purchaser hereby designate Title Company as the Reporting Person for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code and
the regulations promulgated thereunder.
(c) THE PARTNERSHIP'S DELIVERIES TO ESCROW. At or before the Closing,
the Partnership shall deliver to escrow the following, to the extent they
have not already been delivered:
(i) the duly executed and acknowledged Deeds for each Property
(except with respect to the portion of one of the Properties leased
by the Partnership under the Totem Valley Lease);
(ii) a duly executed and acknowledged Assignment and Assumption
of Lease with respect to the Totem Valley Lease;
(iii) duly executed Assignments of Leases for each Property;
(iv) duly executed Bills of Sale for each Property;
(v) duly executed Assignments of Contracts for each Property;
(vi) a FIRPTA affidavit (in the form attached as Exhibit E)
pursuant to Section 1445(b)(2) of the Internal Revenue Code of 1986
(the code), and on which Purchaser is entitled to rely, that the
Partnership not a foreign person within the meaning of Section
1445(f)(3) of the Code;
(vii) a California Form 590 (or equivalent form for another
appropriate state) from Purchaser certifying that the Partnership has
a permanent place of business in California or such other state and is
qualified to do business in California or such other state;
(viii) the certificates representing 100% of the issued and
outstanding shares of Equitec Venture Corp. III, Inc., duly endorsed
by the Partnership in blank, or accompanied by stock powers duly
executed by the Partnership in blank;
6
<PAGE>
(ix) the Interests Transfer Documents, duly executed by the
Partnership as indicated; and
(x) such original resolutions, authorizations, bylaws or other
corporate and/or partnership documents or agreements relating to the
Partnership as shall be reasonably required by Purchaser and/or the
Title Company in connection with its issuance of each Title Policy.
(d) PURCHASER'S DELIVERIES TO THE PARTNERSHIP. At or before the
Closing, Purchaser shall deliver or cause to be delivered to escrow the
following:
(i) a duly executed and acknowledged Assignment and Assumption of
Lease with respect to the Totem Valley Lease;
(ii) a duly executed Assignment of Leases for each Property;
(iii) such original resolutions, authorizations, bylaws or other
corporate and/or partnership documents or agreements relating to
Purchaser as shall be reasonably required by the Partnership;
(iv) a duly executed Assignment of Service Contracts for each
Property;
(v) if the Loan is not retired at Closing, the Release; and
(vi) the Cash.
(e) PAYMENT OF TAXES. Purchaser shall obtain any stock transfer stamps
required and shall properly file, with the cooperation of the Partnership,
on a timely basis all necessary tax returns, reports and forms and other
documentation with respect to any stamp, transfer, notarial, documentary,
sales, use, registration and other similar taxes or fees incurred in
connection with the transfer of the Interests, and shall provide to the
Partnership appropriate invoices evidencing all payments in connection
therewith.
(f) DEPOSIT OF OTHER INSTRUMENTS. The Partnership and Purchaser shall
each deposit such other instruments as are reasonably required by Title
Company in connection with its issuance of each Title Policy, provided,
however, the Partnership shall have no obligation to execute any owner's
affidavits or any indemnity required in order to remove "gap" or
"creditors' rights" exceptions.
6. CLOSING ADJUSTMENTS AND PRORATIONS. With respect to each Property and
the Related Property, the following adjustments shall be made to the
Consideration, and the following procedures shall be followed:
7
<PAGE>
(a) BASIS OF PRORATIONS. All prorations shall be calculated as of
12:01 a.m. on the Closing Date, on the basis of a 360-day year.
(b) ITEMS NOT TO BE PRORATED. The Partnership will not assign to
Purchaser any of the hazard insurance policies affecting the Properties or
the Related Property in force as of the Closing Date. Therefore, there
shall be no prorations or adjustments of any kind with respect to insurance
premiums.
(c) CLOSING ADJUSTMENTS. Prior to Closing, Purchaser shall prepare for
review, comment and agreement by the Partnership a proration statement for
each Property and the Related Property, and each party shall be credited or
charged at the Closing, in accordance with the following:
(i) RENTS. The Partnership shall account to Purchaser for any
Rents actually collected by the Partnership or its affiliates for the
rent period in which the Closing occurs, and Purchaser shall be
credited for its share.
(ii) EXPENSES.
a) PREPAID EXPENSES. To the extent Expenses have been paid
prior to the Closing Date for the payment period in which the
Closing occurs, the Partnership shall account to Purchaser for
such prepaid Expenses, and the Partnership shall be credited for
its pro rata share thereof for the period after the Closing Date.
b) NON-DELINQUENT UNPAID EXPENSES. To the extent
non-delinquent Expenses relating to the payment period in which
the Closing occurs are unpaid as of the Closing Date but have
been billed or are subject to reasonably accurate estimation as
outlined below, Purchaser shall be credited for the Partnership's
pro rata share of such non-delinquent Expenses for the period
prior to the Closing Date (unless already credited pursuant to
Section 3(a)(ii)). Purchaser agrees to attempt to obtain partial
bills which detail such unpaid Expenses through the Closing Date.
To the extent Purchaser is unable to obtain such partial bills,
Purchaser agrees to prepare an estimate of such Expenses relating
to the payment period in which the Closing occurs, provided that
such an estimate may be made with reasonable accuracy based upon
prior bills and courses of
8
<PAGE>
dealing, and provided further that the Partnership approves the
estimate.
c) PROPERTY TAXES. For purposes of this Subsection 6(c)(ii)
hereof, the Title Company shall pro-rate property taxes based on
the most recent available tax bills.
d) DELINQUENT EXPENSES. Delinquent Expenses shall not be
adjusted or prorated and shall be borne by the Purchaser.
(iii) SECURITY DEPOSITS. The Partnership shall deliver
to Purchaser all security deposits, letters of credit and
other collateral given to the Partnership under any of the
Leases to the extent not applied pursuant to the terms of
the Leases prior to the Closing Date.
(iv) TOTEM VALLEY LEASE. All rents, charges and other sums
due under the Totem Valley Lease shall be prorated as of the
Closing Date. Purchaser acknowledges that rent under the Totem
Valley Lease is payable annually in advance and that the
Partnership shall be entitled to a credit for its pro rata share
of such prepaid rent.
(d) POST-CLOSING ADJUSTMENTS. After the Closing Date and
continuing for a period of thirty (30) days thereafter, but in no
event after December 26, 1997, the Partnership and Purchaser shall
meet from time to time to discuss adjust ments in accordance with the
following;
(i) NON-DELINQUENT RENTS. If Purchaser collects any
non-delinquent Rents applicable to the month in which the Closing
occurred, the Partnership's pro rata share of such Rents shall be
paid to the Partnership immediately upon receipt.
(ii) DELINQUENT RENTS. If Purchaser collects from any Tenant
Rents that were delinquent as of the Closing Date, then such
Rents shall be applied in the following order of priority: first,
to reimburse Purchaser for all reasonable out-of-pocket
third-party collection costs actually incurred by Purchaser in
collecting such Rents; second, to satisfy such Tenant's
delinquent Rent obligations relating to the period before the
Closing Date; and third, to satisfy such delinquent Rent
obligations relating to the period including and after the
Closing Date. The Partnership shall have no right
9
<PAGE>
to pursue the collection of such delinquent Rents. Purchaser
agrees to actively pursue collection of such delinquent Rents.
(iii) SURVIVAL OF OBLIGATIONS. The obligations of the
Partnership and Purchaser under Subsection 6(d) hereof shall
survive the Closing for a period of thirty (30) days, but in no
event later than December 26, 1997, and all such adjustments and
payments to the entitled party shall be made prior to that time.
(e) ALLOCATION OF CLOSING COSTS. Closing costs shall be allocated as
set forth below; provided, however, that in the event that any real
property transfer taxes which would be due in connection with the transfer
of the Related Property are due with respect to the transfer of the
Interests, such real property transfer taxes shall be the responsibility of
Purchaser, notwithstanding any contrary local custom:
<TABLE>
<CAPTION>
=================================================================================================
Responsible Party
-----------------------------------------------------------------------------
Gateway
Closing Prof. Poplar Totem
Expense Center Park Plaza Towers Valley Interests
- - ------- ------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Escrow Charges Equal Split Equal Split Equal Split Equal Split Equal
Split
Title Charges Partnership Partnership Purchaser Partnership Purchaser
Transfer Taxes Equal Split Equal Split Purchaser Partnership Equal
Split
Recording Fees Purchaser Purchaser Purchaser Purchaser N/A
=================================================================================================
</TABLE>
The provisions of this Subsection 6(e) shall survive the Closing.
(f) ADJUSTMENTS REGARDING INTERESTS. Except as specifically set forth
herein with respect to adjustments, prorations or credits to the Consider
ation based upon operations related to the Related Property, there shall be
no adjustments, credits or prorations to the Consideration with respect to
the transfer of Interests. On and after the Closing all liabilities, debts,
obligations, expenses and payables of Montrose Office Park Joint Venture,
Montrose Office Park Limited Partnership and Equitec Venture Corp. III,
Inc., and of the
10
<PAGE>
Partnership with respect to the Interests, whether accruing on, before or
after the Closing Date, including but not limited to liabilities for Taxes,
shall be borne by Purchaser, and Purchaser shall indemnify and hold the
Partnership, PB Properties and the Unitholders harmless with respect
thereto, provided, however, that the Partnership shall remain liable for
any taxes with respect to the Partnership's income or capital gains derived
from the transfer of the Interests. The provisions of this Subsection 6(f)
shall survive the Closing.
7. THE PARTNERSHIP'S REPRESENTATIONS AND WARRANTIES/PROPERTY CONDITION.
(a) ORGANIZATION AND AUTHORIZATION. The Partnership hereby represents
and warrants to Purchaser the matters set forth below:
(i) The Partnership is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of
California, and is qualified to do business in the State of
California.
(ii) The Partnership has full partnership power and authority to
execute and deliver this Agreement and to perform all of the terms and
conditions hereof to be performed by the Partnership and to consummate
the transactions contemplated hereby. This Agreement and all documents
executed by the Partnership which are to be delivered to Purchaser at
Closing are or as of the Closing Date will be duly executed and
delivered by the Partnership and are or at the time of Closing will be
the legal, valid and binding obligation of the Partnership and is
enforceable against the Partnership in accordance with its terms,
except as the enforcement thereof may be limited by applicable
Creditors' Rights Laws. The Partnership is not presently subject to
any bankruptcy, insolvency, reorganization, moratorium, or similar
proceeding.
(iii) The individuals executing this Agreement and the
instruments referenced herein on behalf of the Partnership and its
constituent entities, if any, have the legal power, right and actual
authority to bind the Partnership to the terms and conditions hereof
and thereof.
(iv) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement, nor
the compliance with the terms and conditions hereof will (a) violate
or
11
<PAGE>
conflict, in any material respect, with any provision of the
Partnership's organizational documents or any statute, regulation or
rule, or, to the Partnership's actual knowledge, any injunction,
judgment, order, decree, ruling, charge or other restrictions of any
government, governmental agency or court to which the Partnership is
subject, and which violation or conflict would have a material adverse
effect on the ownership and operation of the Property, or (b) to the
Partnership's actual knowledge result in any material breach or
termination of any agreement or other instrument or obligation to
which the Partnership is a party (other than any lease) or cause a
lien or other encumbrance to attach to any of the Property, or violate
the terms and provisions of the organizational documents of Montrose
Office Park Limited Partnership, Montrose Office Park Joint Venture or
Equitec Venture Corp. III, Inc., a California corporation, which would
have a material adverse effect on the ownership of the Property. To
the Partnership's actual knowledge, the Partnership is not a party to
any contract or subject to any other legal restriction that would
prevent fulfillment by the Partnership of all of the material terms
and conditions of this Agreement or compliance with any of the
material obligations under it.
(v) The Partnership is not a "foreign person" within the meaning
of Section 1445(f)(3) of the Code.
(b) PROPERTY CONDITION. The Property is being sold and conveyed by
Purchaser to the Partnership "AS IS, WHERE IS, WITH ALL FAULTS", in such
condition as the same may be on the Closing Date, without any
representations and warranties by the Partnership as to any conditions of
the Property, including, without limitation, surface and subsurface
environmental conditions, whether latent or patent. The Partnership makes
no guarantee, warranty or representation, express or implied, as to the
quality, character, or condition of the Property (or any part thereof) or
the fitness of the Property (or any part thereof) for any use or purpose or
any representation as to the nonexistence of any toxic or hazardous waste.
Purchaser shall have no claim, in law or in equity against the Partnership,
PB Properties or the Unitholders, based upon the condition of the Property
or the failure of the Property to meet any standards. In no event shall the
Partnership, PB Properties or the Unitholders be liable for any incidental,
special, exemplary or consequential damages, including, without limitation,
loss of profits or revenue, interference with business operations, loss of
tenants, lenders, investors, buyers, diminution in
12
<PAGE>
value of the Property, or inability to use the Property, due to the
condition of the Property. Purchaser represents and warrants to the
Partnership that Purchaser has had ample opportunity to make a proper
inspection, examination and investigation of the Property to familiarize
itself with its condition. Purchaser agrees that it accepts the condition
of the Property hereunder, and it shall purchase and accept title to the
Property including any and all environmental conditions. In the event that
any hazardous substances are discovered on, at or under the Property,
Purchaser shall not maintain any action or assert any claim against the
Partnership, its successors and their respective members, employees and
agents or PB Properties or the Unitholders arising out of or relating to
any such hazardous substances, including, without limitation, any action or
claim for contribution or the generation, use, handling, treatment,
removal, storage, decontamination, cleanup, transport or disposal thereof.
(c) TITLE TO INTERESTS. To the Partnership's actual knowledge, the
Interests are not subject to any liens, encumbrances or claims of creditors
other than restrictions on transfer, if any, arising out of federal and
state securities laws.
(d) NO OTHER REPRESENTATIONS OR WARRANTIES. Except as may be expressly
set forth herein, neither the Partnership nor any of its affiliates, agents
or representatives has made, and neither are making any representation or
warranty, written or oral, express or implied, whether of merchantability,
quality, suitability or fitness for a particular purpose, with respect to
the Property, the Loan, the Related Property, the Interests, any assets,
properties, liabilities, business, financial condition or prospects of the
entities related to the Interests or any other matter whatsoever, and in
making its decision to enter into this Agreement and consummate the Sale,
Purchaser has not relied upon any representation, warranty, statement,
advice, document, projection or other information of any type provided by
the Partnership or its affiliates, agents or representatives other than the
representations, warranties, covenants and other agreements expressly set
forth in this Agreement, provided, however, the Partnership makes no
representation or warranty with respect to the accuracy of Schedules 3, 4,
5 and 6 hereto, or to any Schedule which may be attached to Exhibits B or C
hereto.
8. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser hereby represents
and warrants to the Partnership as follows:
13
<PAGE>
(a) GPLP is a duly organized and validly existing limited partnership
in good standing under the laws of the State of California, and GLB is a
duly organized and validly existing corporation under the laws of the State
of Maryland. This Agreement and all documents executed by Purchaser which
are to be delivered to the Partnership at the Closing are or at the time of
Closing will be duly authorized, executed and delivered by Purchaser, and
are or at the Closing will be legal, valid and binding obligations of
Purchaser enforceable against Purchaser in accordance with their terms,
except as the enforcement thereof may be limited by applicable Creditor's
Rights Laws, and do not and at the time of Closing will not violate any
provisions of any agreement or judicial order to which Purchaser is
subject. Purchaser is not presently subject to any bankruptcy, insolvency,
reorganization, moratorium or similar proceeding.
(b) Purchaser has made an independent investigation with regard to the
Assets and Purchaser's intended use thereof.
(c) There is no litigation pending or, to Purchaser's knowledge after
reasonable inquiry, threatened, against Purchaser or any basis therefor
that might materially and detrimentally affect the ability of Purchaser to
perform its obligations under this Agreement. Purchaser shall notify the
Partnership promptly of any such litigation of which Purchaser becomes
aware.
(d) Purchaser has adequate funds or available credit resources
(independent of the existing Loan) to pay the Consideration (without credit
for the Loan) on the Closing Date as provided herein.
(e) The individuals executing this Agreement and the instruments
referenced herein on behalf of Purchaser and its constituent entities, if
any, have the legal power, right and actual authority to bind Purchaser to
the terms and conditions hereof and thereof.
(f) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement, nor the
compliance with the terms and conditions hereof will (a) violate or
conflict with any provision of Purchaser's organizational documents or any
statute, regulation or rule, or, to Purchaser's knowledge after reasonable
inquiry, any injunction, judgment, order, decree, ruling, charge or other
restrictions of any government, governmental agency or court to which
Purchaser is subject, or (b) result in any breach or the termination of any
lease, agreement or other instrument or
14
<PAGE>
obligation to which Purchaser is a party or by which any of the Property
may be subject, or cause a lien or other encumbrance to attach to any of
the Property, or violate the terms and provisions of the organizational
documents of Montrose Office Park Limited Partnership, Montrose Office Park
Joint Venture, Equitec Venture Corp. III, Inc. or Purchaser. Purchaser is
not a party to any contract or subject to any other legal restriction that
would prevent fulfillment by Purchaser of all of the terms and conditions
of this Agreement or compliance with any of the obligations under it.
(g) All representations and warranties set forth herein shall be true
as of the Effective Date and the Closing Date.
9. INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify the
Partnership, PB Properties and the Unitholders and defend and hold the
Partnership, PB Properties and the Unitholders harmless from any claims, losses,
demands, liabilities, costs, expenses, penalties, damages and losses, including,
without limitation, attorneys fees, asserted against, incurred or suffered by
the Partnership resulting from or arising out of (i) Purchaser's inspection of
the Properties and the Related Property prior to or on the Closing Date; (ii)
the operation and maintenance of the Property and the Related Property by
Purchaser on and after the Closing Date, including but not limited to any
personal injury or property damage first occurring in, on or under the Property
or the Related Property during Purchaser's ownership thereof, from any cause
whatsoever; (iii) the failure of Purchaser to perform any obligations under the
Loan Documents to be performed by the borrower after the Closing Date; (iv) any
act or omission to act whether before or after Closing with respect to the
Interests; (v) provided the Partnership maintains all insurance currently
maintained by the Partnership with respect to the Properties and the Related
Property through the Closing Date, the operation and maintenance of the Property
and the Related Property prior to the Closing Date, including but not limited to
any personal injury or property damage from any cause whatsoever, and (vi) any
claim of default or breach of lease, and any acts or omissions by the landlord
under the Totem Valley Lease which relate to or arise out of the assignment of
such lease hereunder without the consent of the landlord. The provisions of this
Section shall survive the Closing or in the case of clause (i) any termination
of this Agreement.
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10. RISK OF LOSS.
(a) NOTICE OF LOSS. If, prior to the Closing Date, any portion of the
of the Property or the Related Property suffers a Minor or Major Loss,
Purchaser shall immediately notify the Partnership of that fact, which
notice shall include sufficient detail to apprise the Partnership of the
current status of the Property or the Related Property, as applicable,
following such loss.
(b) MINOR LOSS. Purchaser's obligations hereunder shall not be
affected by the occurrence of a Minor Loss, provided that: (i) upon the
Closing, there shall be a credit against the Consideration equal to the
amount of any insurance proceeds collected by the Partnership or its
affiliates as a result of such Minor Loss. If the proceeds have not been
collected as of the Closing, then the Partnership's or its affiliates'
right, title and interest to such proceeds shall be assigned to Purchaser.
(c) MAJOR LOSS. In the event of a Major Loss, the Partnership shall
have the option to adjourn the Closing Date for such reasonable period as
may be required to repair the Major Loss, or if the Partnership elects not
to repair the Property, Purchaser may, at its option to be exercised by
written notice to the Partnership within twenty (20) days of the
Partnership's notice to Purchaser of its election, elect to either (i)
terminate this Agreement, or (ii) consummate the acquisition of the Assets
in accordance with the terms hereof for the full Consideration, subject to
the following. If Purchaser elects to proceed with the acquisition of the
Assets in accordance with the terms hereof, then the Closing shall be
postponed to the later of the Closing Date or the date which is five (5)
days after Purchaser makes such election and, upon the Closing, Purchaser
shall be given a credit against the Consideration equal to the amount of
any insurance proceeds collected by the Partnership or its affiliates as a
result of such Major Loss. If the proceeds have not been collected as of
the Closing, then the Partnership's or its affiliates' right, title and
interest to such proceeds shall be assigned to Purchaser, and the
Partnership will cooperate with Purchaser as reasonably requested by
Purchaser in the collection of such proceeds. If
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Purchaser fails to give the Partnership notice within such 20-day period,
then Purchaser will be deemed to have elected to terminate this Agreement.
11. CONDEMNATION
If, prior to the Closing Date, all or any portion of any Property or the
Related Property is condemned or taken by eminent domain, then this
Agreement shall nevertheless remain in full force and effect without any
abatement of the Consideration. In such event, the Partnership shall convey
such Property to Purchaser at the Closing in its then condition, and,
subject to the rights of the holder of the Loan, Purchaser shall be
entitled to receive all net or condemnation awards otherwise payable to
the Partnership or its affiliates as a result of such loss or damage and,
in full satisfaction of any claims by Purchaser against the Partnership,
the Partnership or its affiliates shall assign to Purchaser, without
recourse or warranty of any nature whatsoever, all of the Partnership's or
its affiliates' right, title and interest in and to any claims the
Partnership may have to any condemnation awards, as well as all rights or
pending claims of the Partnership or its affiliates with respect to such
condemnation or taking of such Property, and the Partnership or its
affiliates shall pay to Purchaser all payments theretofore made by such
condemning authorities as a result of such loss after deducting therefrom
the costs of collection thereof.
12. THE PARTNERSHIP'S CONTINUED OPERATION OF THE PROPERTIES.
(a) GENERAL. Except as otherwise contemplated or permitted by this
Agreement or approved by Purchaser in writing, from the Effective Date to
the Closing Date, the Partnership or its affiliates will operate, maintain,
repair and lease each of the Properties and the Related Property in a
prudent manner, in the ordinary course of business, on an arm's-length
basis and consistent with its past practices (and without limiting the
foregoing, the Partnership or its affiliates shall, in the ordinary course,
negotiate with prospective tenants and enter into leases of the Property
and the Related Property, enforce leases in all material respects including
eviction proceedings against all Tenants with delinquencies in excess of 30
days, pay all costs and expenses of the Property and the Related Property,
including, without limitation, debt service, real estate taxes and
assessments, and maintain insurance and pay and perform obligations under
the Loan Documents) and will not dispose of or encumber any of the
Properties or the Related Property or any part thereof or of the Interests,
except for dispositions of personal property in the ordinary course of
business.
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Between the Effective Date and the Closing, the Partnership or its
affiliates shall continue to undertake those capital improvements listed on
Schedule 4 with respect to the Properties and the Related Property in the
ordinary course of business.
(b) ACTIONS REQUIRING PURCHASER'S CONSENT. Notwithstanding the above
terms of this Section, the Partnership shall not, without the prior written
approval of Purchaser, take any of the following actions:
(i) LEASES. Execute or renew any Lease; or terminate any Lease;
or modify or waive any material term of any Lease;
(ii) CONTRACTS. Except as otherwise required under this
Agreement, enter into, execute or terminate any operating agreement,
reciprocal easement agreement, management agreement or any lease,
contract, agreement or other commitment of any sort (including any
contract for capital items or expenditures), with respect to the
Property.
(iii) LOAN DOCUMENTS. Waive or modify any material term under any
Loan Document.
(c) COST OF TENANT IMPROVEMENTS AND LEASING COMMISSIONS. In connection
with any new leases or modifications of existing Leases entered into
between the Effective Date and the Closing and approved by Purchaser, the
cost of tenant improvement work and leasing commissions shall be prorated
between Purchaser and the Partnership in proportion to the ratio between
the portion of the new lease term prior to the Closing Date and the portion
of the new lease term after the Closing Date.
13. COOPERATION BEFORE CLOSING. The Partnership and Purchaser shall
cooperate and do such acts as may be reasonably required or requested by the
other with regard to the fulfillment of any Condition Precedent or the
consummation of the transactions contemplated hereby. The Partnership shall not
be required to pay any sums whatsoever in connection with obtaining the consent
of the landlord under the Totem Valley Lease to the assignment of such lease
contemplated hereunder, and the Purchaser shall be primarily responsible for
obtaining such consent. Prior to the Closing, Purchaser will execute and file,
or join in the execution and filing of any application or other document
(including, but not limited to, any filing with the Securities Exchange
Commission) that may be necessary in order to obtain the
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authorization, approval or consent of any governmental entity that may be
required in connection with the consummation of the Sale, and will use its best
efforts to obtain, or, as applicable, to assist the Partnership in obtaining,
all such authorizations, approvals and consents.
14. NON-CONSUMMATION OF THE TRANSACTION. If the transaction is not
consummated on or before the Closing Date, the following provisions shall apply:
(a) NO DEFAULT. If the transaction is not consummated for a reason
other than a default by one of the parties, then (i) Title Company and each
party shall return to the depositor thereof the Earnest Money and all other
funds and items which were deposited hereunder; (ii) the Partnership and
Purchaser shall each bear one-half of any Escrow cancellation charges. Any
return of funds or other items by the Title Company or any party as
provided herein shall not relieve either party of any liability it may have
for its wrongful failure to close.
(b) DEFAULT BY THE PARTNERSHIP. If the transaction is not consummated
as a result of a default by the Partnership, then Purchaser may as its sole
recourse either (i) terminate this Agreement by delivery of notice of
termination to the Partnership, whereupon (A) the Earnest Money plus
interest accrued thereon shall be immediately returned to Purchaser, and
(B) the Partnership shall pay to Purchaser any actual title, escrow, and
legal fees incurred by Purchaser, but in no event to exceed $15,000, in
which case neither party shall have any further rights or obligations
hereunder; or (ii) continue this Agreement pending Purchaser's action for
specific performance.
(c) DEFAULT BY PURCHASER. If the Closing does not occur as a result of
a default by Purchaser, then (i) Purchaser shall pay all escrow
cancellation charges, (ii) Title Company shall deliver the Earnest Money
together with interest earned thereon to the Partnership as its full and
complete liquidated damages and its sole and exclusive remedy for
Purchaser's default. If the transaction is not consummated because of a
default by Purchaser, the Earnest Money together with the interest accrued
thereon shall be paid to and retained by the Partnership as liquidated
damages. THE PARTIES HAVE AGREED THAT THE PARTNERSHIP'S ACTUAL DAMAGES, IN
THE EVENT OF A DEFAULT BY PURCHASER, WOULD BE EXTREMELY DIFFICULT OR
IMPRACTICABLE TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS BELOW,
THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON, AFTER
NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF THE PART
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NERSHIP'S DAMAGES AND AS THE PARTNERSHIP'S EXCLUSIVE REMEDY AGAINST
PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS
AGREEMENT ON THE PART OF PURCHASER.
INITIALS: Partnership ___ Purchaser ___
15. MISCELLANEOUS.
(a) DISCLOSURE OF TRANSACTION. Except as may be required to comply
with the requirements of any applicable laws (including, but not limited
to, the Securities Act of 1933, as amended from time to time (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended from
time to time (the "Securities Exchange Act")), neither party shall publicly
announce or discuss the execution of this Agreement or the transaction
contemplated hereby except in accordance with the following. The
Partnership shall not publicly announce or discuss the execution of this
Agreement or the transaction contemplated hereby without the prior written
consent of Purchaser, which shall not be unreasonably withheld. Purchaser
shall not publicly announce or discuss the execution of this Agreement or
the transaction contemplated hereby unless Purchaser has obtained the prior
written consent of the Partnership, which shall not be unreasonably
withheld.
(b) POSSESSION. Possession of the Real Property and the Personal
Property shall be delivered to Purchaser upon the Closing.
(c) NOTICES. Any notice, consent or approval required or permitted to
be given under this Agreement shall be in writing and shall be deemed to
have been given upon (i) hand delivery, (ii) one (1) day after being
deposited with Federal Express, DHL Worldwide Express or another reliable
overnight courier service or transmitted by facsimile telecopy, or (iii)
two (2) days after being deposited in the United States mail, registered or
certified mail, postage prepaid, return receipt required, and addressed as
indicated below, or such other address as either party may from time to
time specify in writing to the other.
If to Purchaser: If to the Partnership:
Glenborough Realty Trust Incorporated Prudential-Bache/Equitec
400 South El Camino Real, 11th Floor Real Estate Partnership
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San Mateo, CA 94402-1708 One Seaport Plaza, 28th Floor
Attention: Andrew Batinovich New York, NY 10292-0128
Attention: Mr. Brian J. Martin
with a copy to: with a copy to:
Glenborough Realty Trust Incorporated Skadden, Arps, Slate, Meagher
400 South El Camino Real, 11th Floor & Flom LLP
San Mateo, CA 94402-1708 919 Third Avenue
Attention: Stephen Saul New York, NY 10022
Attention: Wallace L. Schwartz
(d) BROKERS AND FINDERS. Neither party has had any contact or dealings
regarding the Assets, or any communication in connection with the subject
matter of this transaction through any real estate broker or other person
who can claim a right to a commission or finder's fee in connection with
the Sale contemplated herein. In the event that any broker or finder
perfects a claim for a commission or finder's fee based upon any such
contact, dealings or communication, the party through whom the broker or
finder makes its claim shall be responsible for said commission or fee and
shall indemnify and hold harmless the other party from and against all
liabilities, losses, costs and expenses (including reasonable attorneys'
fees) arising in connection with such claim for a commission or finder's
fee. The provisions of this Subsection shall survive the Closing.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors,
heirs, administrators and assigns. Neither Purchaser nor the Partnership
shall have the right to assign its interest in this Agreement. The
Partnership's obligations hereunder and under any document executed by the
Partnership pursuant to this Agreement shall be joint and several.
(f) AMENDMENTS. Except as otherwise provided herein, this Agreement
may be amended or modified only by a written instrument executed by the
Partnership and Purchaser.
(g) GOVERNING LAW. This Agreement has been negotiated and executed in
New York County, New York and the substantive laws of the State of New
York, without reference to its conflict of laws provisions, will govern the
validity, construction, and enforcement of this Agreement.
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(h) MERGER OF PRIOR AGREEMENTS. This Agreement and the Addenda,
Exhibits and Schedules hereto constitute the entire agreement between the
parties and supersede all prior agreements and understandings between the
parties relating to the subject matter hereof.
(i) ARBITRATION OF DISPUTES. Any controversy, claim, counterclaim, or
disputes between or among the parties hereto arising out of or relating to
the interpretation, application, breach or enforcement of this Agreement or
any related agreements or instruments ("Subject Documents") ("Dispute"),
shall, at the option of any party, and at that party's expense, be
submitted to mediation, using either the American Arbitration Association
(AAA) or Judicial Arbitration and Mediation Services, Inc. (JAMS). If
mediation is not used, or if it is used and it fails to resolve the Dispute
within 30 days from the date AAA or JAMS is engaged, then the Dispute shall
be determined by neutral binding arbitration in accordance with the
Commercial Arbitration Rules then in effect of either JAMS or AAA (at the
option of the party initiating the arbitration) and Title 9 of the U.S.
Code, notwithstanding any other choice of law provision(s) herein or in the
Subject Documents. Any controversy concerning whether a Dispute is
arbitrable shall be determined by the arbitrator(s). The parties agree that
related arbitration proceedings may be consolidated. The arbitrator shall
prepare written reasons for the award. The parties hereto agree that the
arbitrator shall be empowered to grant equitable, as well as legal, relief,
including, without limitation, the power to compel specific performance of
this Agreement. The parties further consent that the initiation of
mediation and/or arbitration pursuant to these provisions shall constitute
an action or the equivalent for purposes of determining a party's right to
file a lis pendens in the official records of the jurisdiction where the
Property is/are located. The parties consent that judgment on the award
rendered may be entered in any state court sitting in New York County, New
York, and that any mediation and/or arbitration shall take place in New
York, New York.
(j) ENFORCEMENT. If either party fails to perform any of its
obligations under this Agreement or if a dispute arises between the parties
concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such
dispute shall pay any and all costs and expenses incurred by the other
party on account of such default and/or in enforcing or establishing its
rights hereunder, including, without limitation, arbitration or court costs
and attorneys' fees and disbursements. Any such attorneys' fees and other
expenses incurred by either party in enforcing a judgment in its favor
under this Agreement shall be recoverable separately from and in addition
to any other amount
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included in such judgment, and such attorneys' fees obligation is intended
to be severable from the other provisions of this Agreement and to survive
and not be merged into any such judgment.
(k) TIME OF THE ESSENCE. Time is of the essence of this Agreement.
(l) SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by
a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other
persons, places and circumstances shall remain in full force and effect.
(m) MARKETING. The Partnership agrees not to market the Assets or
actively solicit competing offers from any other prospective purchasers,
unless the Partnership determines, in its sole discretion, that its
fiduciary duties or applicable law require it to take such actions.
(n) CONFIDENTIALITY. Purchaser and, except as permitted under Section
15(m) above, the Partnership shall each maintain as confidential any and
all material or information about the other or, in the case of Purchaser
and its agents, employees, consultants and contractors, about the Property,
and shall not disclose such information to any third party, except, in the
case of information about the Property and the Partnership, to Purchaser's
investment bankers, lender or prospective lenders, insurance and
reinsurance firms, attorneys, environmental assessment and remediation
service firms and consultants, as may be reasonably required for the
consummation of the transaction contemplated hereunder and/or as required
by law (including, but not limited to, the Securities Act and the
Securities Exchange Act).
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
(p) ADDENDA, EXHIBITS AND SCHEDULES. All addenda, exhibits and
schedules referred to herein are, unless otherwise indicated, incorporate
herein by this reference as though set forth herein in full.
(q) CONSTRUCTION. Headings at the beginning of each section and
subsection are solely for the convenience of the parties and are not a part
of the Agreement. Whenever required by the context of this Agreement, the
singular shall
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include the plural and the masculine shall include the feminine and vice
versa. This Agreement shall not be construed as if it had been prepared by
one of the parties, but rather as if both parties had prepared the same. In
the event the date on which the Partnership or Purchaser is required to
take any action under the terms of this Agreement is not a business day,
the action shall be taken on the next succeeding business day.
(r) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS.
Except as otherwise expressly set forth herein, none of the
representations, warranties and indemnifications contained in this
Agreement shall survive the Closing.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
PARTNERSHIP
Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership
By Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By /s/ BRIAN J. MARTIN
------------------------------
Brian J. Martin
President
Date: October 13, 1997
PURCHASER
Glenborough Realty Trust Incorporated,
a Maryland corporation
By /s/ ANDREW BATINOVICH
-----------------------------------
Andrew Batinovich
President
Glenborough Properties, L.P.,
a California limited partnership
By Glenborough Realty Trust Incorporated, a Maryland corporation,
its General Partner
By /s/ ANDREW BATINOVICH
--------------------------------
Andrew Batinovich
President
25
<PAGE>
Date: October 9, 1997
26
<PAGE>
ADDENDUM I
DEFINITIONS
Terms used in this Agreement shall have the meanings set forth below:
1. ADDITIONAL RENTS. All amounts, other than Fixed Rents, due from any Tenant
under any Lease, including without limitation percentage rents, escalation
charges for real estate taxes, parking charges, marketing fund charges,
reimbursement of operating expenses or common area expenses, maintenance
escalation rents or charges, cost-of-living increases or other charges of a
similar nature, if any, and any additional charges and expenses payable
under any Lease.
2. AGREEMENT. This Agreement between the Partnership and Purchaser, including
all Addenda, Schedules and Exhibits attached hereto and incorporated herein
by reference.
3. AMENDMENTS. The amendment of the Amended and Restated Agreement of Limited
Partnership, dated as of February 11, 1985 and as subsequently amended, by
and among the General Partners and Limited Partners of the Partnership (as
defined therein) to permit (a) the purchase by an affiliate of Glenborough
of the Assets, and (b) the effectuation of the Plan by the Partnership's
General Partners on behalf of the Partnership.
4. ASSIGNMENT AND ASSUMPTION OF LEASE. An Assignment and Assumption of Lease,
without recourse, in form acceptable to the Partnership in its sole
discretion, with respect to the Partnership's interest, as tenant, under
the Totem Valley Lease.
5. ASSIGNMENT OF CONTRACTS. An Assignment and Assumption of Service Contracts,
Guaranties and Warranties and Other Intangible Property in the form of
Exhibit D attached hereto.
6. ASSIGNMENT OF LEASES. An Assignment and Assumption of Leases in the form of
Exhibit B attached hereto.
7. ASSETS. The Property, together with the Interests.
8. BILL OF SALE. A Bill of Sale in the form of Exhibit C attached hereto.
ADDENDUM I-1
<PAGE>
9. CASH. Immediately available funds to be paid by Purchaser at the Closing,
as provided in Section 3 hereof.
10. CODE. As defined in Section 3(b) hereof.
11. CLOSING. The delivery of the Deeds, and the Assignment and Assumption of
Lease, and the other documents required to be delivered hereunder and the
payment of the Consideration.
12. CLOSING DATE. The first Tuesday that is not less than five days after the
Partnership's receipt of the Consents, subject to extension as provided
herein, but in no event later than December 9, 1997.
13. CONSENTS. The written consent of the Unitholders to the Plan pursuant to
the Solicitation of Consents.
14. CONSIDERATION. The total consideration to be paid by Purchaser to the
Partnership as described in Section 3 hereof.
15. CONTRACTS. The service contracts, construction contracts for work in
progress, any warranties thereunder, management contracts, unrecorded
reciprocal easement agreements, operating agreements, maintenance
agreements, franchise agreements and other similar agreements relating to
the Property or the Related Property, if any.
16. CREDITORS' RIGHTS LAWS. All bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally, as
well as general equitable principles whether or not the enforcement thereof
is considered to be a proceeding at law or in equity.
17. DEED. A quit claim deed or deed without covenants if a quit claim deed can
not be utilized in a jurisdiction where a Property is located; so long as
the Title Company is willing to issue a policy of title insurance which is
customary in the applicable jurisdiction containing no exceptions from
coverage solely out of the delivery by the Partnership of a quit claim deed
or deed without covenants).
18. DEFERRED MAINTENANCE. Those items of deferred maintenance for the
Properties and the Related Property, as shown on Schedule 4 attached.
ADDENDUM I-2
<PAGE>
19. EARNEST MONEY. An earnest money deposit paid by Purchaser pursuant to
Section 3 hereof, in the amount of $1,000,000.
20. EFFECTIVE DATE. The date this Agreement is signed by the Partnership or
Purchaser, whichever signs last.
21. ESCROW AGREEMENT. The Escrow Agreement attached hereto as Exhibit G, to be
executed by Title Company, the Partnership and Purchaser simultaneously
with the execution of this Agreement.
22. EXPENSES. All operating expenses normal to the operation and maintenance of
the Property and the Related Property, including without limitation real
property taxes and assessments; current installments of any improvement
bonds or assessments which are a lien on the Property or the Related
Property or which are pending and may become a lien on the Property or the
Related Property; water, sewer and utility charges; amounts payable under
any Contract for any period in which the Closing occurs; permits, licenses
and inspection fees; and interest on the Loan.
23. FIXED RATE PRICE ADJUSTMENT. As defined in the Loan Documents.
24. FIXED RENTS. The fixed periodic rental payments under any Lease.
25. GENERAL INTANGIBLES. To the extent assignable, all general intangibles
relating to design, development, operation, management and use of the Real
Property; all certificates of occupancy, zoning variances, building, use or
other permits, approvals, authorizations, licenses and consents obtained
from any governmental authority or other person in connection with the
development, use, operation or management of the Real Property and all
payment and performance bonds or warranties or guarantees relating to the
Real Property; and all of the Partnership's right, title and interest in
and to any and all of the following to the extent assignable: trademarks,
service marks, logos or other source and business identifiers, used at or
relating to the Real Property.
26. GENERAL PARTNERS. Collectively, Glenborough Corporations, Robert
Batinovich, and Prudential-Bache Properties, Inc.
27. GLB. Glenborough Realty Trust Incorporated, a Maryland corporation.
28. GPLP. Glenborough Properties, L.P., a California limited partnership.
ADDENDUM I-3
<PAGE>
29. GLENBOROUGH. Glenborough Corporation, together with Robert Batinovich.
30. IMPROVEMENTS. All buildings, parking lots, signs, walks and walkways,
fixtures and equipment and all other improvements located at or on or
affixed to the Land to the full extent that such items are owned by the
Partnership and constitute realty under the laws of the state in which the
Land is located.
31. INTERESTS. All of the Partnership's direct and indirect interests in a
joint venture whose sole asset is the Related Property, said Interests
being more particularly described as follows: all right, title and interest
of the Partnership in and to Montrose Office Park Limited Partnership, a
Maryland limited partnership, Montrose Office Park Joint Venture, a
Maryland single purpose general partnership, and Equitec Venture Corp. III,
Inc., a California corporation.
32. INTERESTS TRANSFER DOCUMENTS. An Assignment of Partnership Interests in
Montrose Office Park Limited Partnership and An Assignment of Joint
Venture/General Partnership Interest in Montrose Office Park Joint Venture,
in the form set forth in Exhibits E and F attached hereto.
33. LAND. The land described in Schedule I attached hereto, together with all
appurtenances thereto, including without limitation easements and mineral
and water rights.
34. LEASES. The leases listed in the Rent Roll, together with any leases
approved by Purchaser pursuant to Section 12 hereof.
35. LOAN. The mortgage loan or loans described in Schedule 5 attached hereto.
36. LOAN DOCUMENTS. All notes or other evidence of indebtedness, loan
agreements, mortgages, guaranty agreements, and any and all other documents
entered into by the Partnership and all amendments, modifications and
supplements thereto relating to the Loan.
37. MAJOR LOSS is defined as any damage or destruction to any Real Property or
to the Related Property as to which the cost to repair exceeds 10% of the
Consideration.
38. MINOR LOSS is defined as any such damage or destruction that is not a Major
Loss.
39. PARTNERSHIP. As defined in the recitals hereto.
ADDENDUM I-4
<PAGE>
40. PARTNERSHIP'S CONDITIONS PRECEDENT. Conditions precedent to the
Partnership's obligations to consummate this transaction, as set forth in
Section 4 hereof.
41. PB PROPERTIES. Collectively, Prudential-Bache Properties, Inc. and its
affiliates.
42. PERMITTED EXCEPTIONS. The Leases and the exceptions to title set forth on
Schedule 2 hereto.
43. PERSONAL PROPERTY. All of the Partnership's right, title and interest in
and to the personal property and any interest therein owned by the
Partnership, if any, located on the Real Property and used in the operation
or maintenance of the Real Property, including, without limitation, all
licensed software and any personal computer based security system.
44. PLAN. The plan of action, which consists of (i) the Sale, (ii) the
Amendments, and (iii) one or more liquidating distributions to the
Unitholders and the General Partners and, after providing for the payment
of all expenses and other liabilities of the Partnership, the dissolution
and termination of the Partnership and subsequent liquidation.
45. PROPERTY. The Partnership's fee or leasehold interest, as applicable, in
the Real Property, together with the Leases, the Personal Property, the
General Intangibles, and the Contracts.
46. PURCHASER. As defined in the recitals hereto.
47. PURCHASER'S CONDITIONS PRECEDENT. Conditions precedent to Purchaser's
obligation to consummate this transaction, as set forth in Section 4
hereof.
48. REAL PROPERTY. The Land and Improvements.
49. RELATED PROPERTY. That certain real property and improvements located in
Rockville, Maryland, and commonly known as the Montrose Office Park, as
more particularly described on Schedule 6.
50. RELEASE. As defined in Subsection 4(b)(ii) hereof.
51. RENT ROLL. The list of each of the Leases as of the date of this Agreement,
attached hereto as Schedule 3.
ADDENDUM I-5
<PAGE>
52. RENTS. Fixed Rents and Additional Rents.
53. SALE. As defined in the recitals hereto.
54. SECURITIES ACT. As defined in Section 15(a) hereof.
55. SECURITIES EXCHANGE ACT. As defined in Section 15(a) hereof.
56. SERVICE CONTRACTS. All Contracts involving ongoing services and periodic
payment therefor, as distinguished from franchise agreements, easements,
guarantees, warranties and the like.
57. SOLICITATION OF CONSENTS. The solicitation of written consents by
Prudential-Bache Properties, Inc. in its capacity as the managing general
partner of the Partnership.
58. TAXES. All net income, capital gains, gross income, gross receipt, sales,
use, transfer, ad valorem, franchise, tariffs, profits, license, capital,
withholding, payroll, employment, excise, goods and services, severance,
stamp, occupation, premium, property, windfall profits or other tax or
customs duties, or any interest, any penalties, additions to tax or
additional amounts incurred or accrued under applicable tax law or assessed
or charged by any taxing authority.
59. TENANT(S). Each and all tenants as listed on the Rent Roll.
60. TITLE COMPANY. Chicago Title Insurance Company, whose address is: 700 South
Flower Street, Suite 900, Los Angeles, CA 90017.
61. TITLE POLICY. A policy of extended coverage American Land Title Association
Policy of Owner's Title Insurance (Form B, rev. 10/17/70), issued by Title
Company in the amounts set forth below, subject to adjustment in accordance
with any adjustments in the portion of the Consideration applicable to such
Properties, showing fee or leasehold title, as applicable, vested in
Purchaser subject only to the Permitted Exceptions: Gateway Professional
Center - $4,250,000; Park Plaza - $6,670,000; Totem Valley Business Park -
$7,200,000; Poplar Towers - $5,000,000.
62. TOTEM VALLEY LEASE. Lease dated March 15, 1987, by and between Burlington
Northern Railroad Company, as landlord, and the Partnership, as tenant, as
amended by agreement by and between The Burlington Northern And Santa Fe
Railway Company and the Partnership, a memorandum of which amendment was
recorded on
ADDENDUM I-6
<PAGE>
April 9, 1997, which lease relates to "Parcel H" on the legal description
for Totem Valley Business Park, Seattle Washington, set forth on Schedule 1
attached hereto.
63. UNITHOLDERS. As defined in the recitals hereto.
ADDENDUM I-7
<PAGE>
EXHIBIT A
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES ("Assignment") dated as of
______________, 1997, is entered into by and between Prudential-Bache/Equitec
Real Estate Partnership, a California limited partnership ("Assignor"), and
Glenborough Properties, L.P., a California limited partnership ("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor is the lessor under certain leases executed with respect
to that certain real property commonly known as ________________ (the
"Property") as more fully described in Exhibit A attached hereto, which leases
are described in the Rent Roll attached hereto as Schedule 1 (the "Leases"); and
WHEREAS, Assignor has entered into that certain Purchase Agreement (the
"Agreement") by which title to the Property is being transferred to Assignee;
and
WHEREAS, Assignor desires to assign its interest as lessor in the Leases to
Assignee, and Assignee desires to accept the assignment thereof;
NOW, THEREFORE, in consideration of the promises and conditions contained
herein, the parties hereby agree as follows:
1. Effective as of the Closing Date (as defined in the Agreement),
Assignor hereby assigns to Assignee, without recourse, all of its right,
title and interest in and to the Leases, and any guarantees related
thereto.
2. Effective as of the Closing Date, Assignee hereby assumes all of
the lessor's obligations arising after the Closing Date under the Leases
and agrees to indemnify Assignor against and hold Assignor harmless from
any and all cost, liability, loss, damage or expense, including without
limitation, reasonable attorneys' fees, arising out of facts or
circumstances occurring subsequent to the Closing Date and arising out of
the lessor's obligations under the Leases.
3. Any rental and other payments under the Leases shall be prorated
between the parties as provided in the Agreement.
4. This Assignment shall be binding on and inure to the benefit of the
parties hereto, their heirs, executors, administrators, successors in
interest and assigns.
<PAGE>
5. This Assignment shall be governed by and construed in accordance
with the laws of the State of New York.
6. This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF Assignor and Assignee have executed this Assignment the
day and year first above written.
ASSIGNEE ASSIGNOR
Glenborough Properties, L.P., Prudential-Bache/Equitec Real Estate
a California limited partnership Partnership,
a California limited partnership
By Glenborough Realty Trust Incorporated, By Prudential-Bache Properties, Inc.,
a Maryland corporation, a Delaware corporation,
its General Partner its General Partner
By By
----------------------------------- ----------------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
TO ASSIGNMENT AND ASSUMPTION OF LEASES
REAL PROPERTY DESCRIPTION
<PAGE>
SCHEDULE 1
TO ASSIGNMENT AND ASSUMPTION OF LEASES
RENT ROLL
<PAGE>
EXHIBIT B
BILL OF SALE
For good and valuable consideration the receipt of which is hereby
acknowledged, Prudential-Bache/Equitec Real Estate Partnership, a California
limited partnership (the "Partnership"), does hereby sell, transfer, and convey
to Glenborough Properties, L.P., a California limited partnership ("Purchaser"),
all personal property owned by the Partnership and located on or in or used in
connection with the Real Property (as defined in that certain Purchase Agreement
relating to the real property, between the Partnership and Purchaser),
including, without limitation, those items described in Schedule 1 attached
hereto.
Dated: _____________, 1997
PARTNERSHIP
Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership
By Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By
--------------------------------------------
its
--------------------------------------
<PAGE>
SCHEDULE 1
TO BILL OF SALE
PERSONAL PROPERTY
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER GENERAL INTANGIBLES
This Assignment of Service Contracts, Warranties and Guaranties and
Other Intangible Property ("Assignment") is made and entered into as of _______,
1997, by Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership ("Assignor"), to Glenborough Properties, L.P., a California limited
partnership ("Assignee"), pursuant to that certain Purchase Agreement (the
"Agreement") between Assignor and Assignee relating to the Real Property (as
defined in the Agreement).
For good and valuable consideration, the receipt of which is hereby
acknowledged, effective as of the Closing Date (as defined in the Agreement),
Assignor hereby assigns and transfers unto Assignee, without recourse, all of
its right, title, claim and interest in and under:
(a) all warranties and guaranties made by or received from any third
party with respect to any building, building component, structure, fixture,
machinery, equipment, or material situated on, contained in any building or
other improvement situated on, or comprising a part of any building or
other improvement situated on, any part of that certain real property
described in Exhibit A attached hereto including, without limitation, those
warranties and guaranties listed in Schedule 1 attached hereto
(collectively, "Warranties");
(b) all of the Service Contracts listed in Schedule 2 attached hereto;
and
(c) any General Intangibles (as defined in the Agreement).
Assignor and Assignee further hereby agree and covenant as follows:
1. Effective as of the Closing Date, Assignee hereby assumes all of
Assignor's obligations under the Service Contracts and agrees to indemnify
Assignor against and hold Assignor harmless from any and all cost,
liability, loss, damage or expense, including, without limitation,
reasonable attorneys' fees, originating on or subsequent to the Closing
Date and arising out of the owner's obligations under the Service
Contracts.
2. Assignor and Assignee shall, at the reasonable request of the other
party, execute, acknowledge, and deliver any further instruments to carry
out effectively the intent of this Assignment.
<PAGE>
3. This Assignment shall be binding on and inure to the benefit of the
parties hereto, their heirs, executors, administrators, successors in
interest and assigns.
4. This Assignment shall be governed by and construed in accordance
with laws of the State of New York.
5. This Assignment may be executed in counterparts, each of which
shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the
day and year first above written.
ASSIGNEE ASSIGNOR
Glenborough Properties, L.P., Prudential-Bache/Equitec Real Estate
a California limited partnership Partnership,
a California limited partnership
By Glenborough Realty Trust Incorporated, By Prudential-Bache Properties, Inc.,
a Maryland corporation, a Delaware corporation,
its General Partner its General Partner
By By
----------------------------------- -------------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
TO
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER GENERAL INTANGIBLES
REAL PROPERTY DESCRIPTION
<PAGE>
SCHEDULE 1
TO
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER INTANGIBLE PROPERTY
WARRANTIES AND GUARANTIES
<PAGE>
SCHEDULE 2
TO
ASSIGNMENT AND ASSUMPTION OF SERVICE CONTRACTS,
WARRANTIES AND GUARANTIES, AND OTHER INTANGIBLE PROPERTY
SERVICE CONTRACTS
<PAGE>
EXHIBIT D
CERTIFICATE OF TRANSFEROR
OTHER THAN AN INDIVIDUAL
(FIRPTA AFFIDAVIT)
Section 1445 of the Internal Revenue Code provides that a transferee of a
U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform Glenborough Properties, L.P., a California limited
partnership, the transferee of certain real property located at _________,
__________, that withholding of tax is not required upon the disposition of such
U.S. real property interest by Prudential-Bache/Equitec Real Estate Partnership,
a California limited partnership (the "Partnership"), the undersigned hereby
certifies the following on behalf of the Partnership:
1. The Partnership is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations);
2. The Partnership's U.S. employer identification number is
94-2949474; and
3. The Partnership's office address is Prudential-Bache/Equitec Real
Estate Partnership
One Seaport Plaza, 28th Floor
New York, NY 10292-0128
The Partnership understands that this certification may be disclosed to the
Internal Revenue Service by Purchaser and that any false statement contained
herein could be punished by fine, imprisonment, or both.
Under penalty of perjury, I declare that I have examined this certificate
and to the best of my knowledge and belief it is true, correct and complete, and
I further declare that I have authority to sign this document on behalf of the
Partnership.
Dated: __________, 1997
---------------------------------------
---------------------------------------
on behalf of:
Prudential-Bache/Equitec Real Estate
Partnership,
a California limited partnership
<PAGE>
EXHIBIT E
ASSIGNMENT OF PARTNERSHIP INTERESTS
IN
MONTROSE OFFICE PARK LIMITED PARTNERSHIP
The undersigned Assignor (the "Assignor") owns a 99.992% general
partnership interest (the "Partnership Interest") in Montrose Office Park
Limited Partnership, a Maryland limited partnership (the "Partnership") formed
pursuant to that certain Certificate and Agreement of Limited Partnership dated
as of June 13, 1980 and recorded in Liber 5536, at folio 195 in the Clerk's
Office of Montgomery County, Maryland, as amended by First Amendment of
Certificate and Agreement of Limited Partnership made as of March 1, 1981, and
as restated by Restated Certificate of Limited Partnership dated October 15,
1984 and as further amended (insert re any further amendments) (the "Partnership
Agreement").
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Assignor hereby transfers and assigns, without recourse,
100% of the Partnership Interest to Glenborough Properties, L.P., a California
limited partnership, including, but not limited to, all of the capital, profits,
losses and distributions of the Partnership and each item of income, loss,
deduction and credit and any other items to which the Partnership Interest is
entitled. The Partnership Interest constitutes all of the right, title and
interest of the Assignor as a partner, general or limited, in the Partnership.
IN WITNESS WHEREOF, the Assignor has executed this Assignment of
Partnership Interest on this ___ day of _______________, 1997.
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
a California limited partnership
By: Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT F
ASSIGNMENT OF JOINT VENTURE/GENERAL PARTNERSHIP INTERESTS
IN
MONTROSE OFFICE PARK JOINT VENTURE
The undersigned Assignor (the "Assignor") owns a 93.9% General
Partnership interest (the "Partnership Interest") in Montrose Office Park Joint
Venture, a Maryland single purpose general partnership (the "Partnership")
formed pursuant to that certain Joint Venture Agreement dated as of November 12,
1981 and as amended (insert re any further amendments) (the "Agreement").
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Assignor hereby transfers and assigns, without
recourse, 100% of the Partnership Interest to Glenborough Properties, L.P., a
California limited partnership, including, but not limited to, all of the
capital, profits, losses and distributions of the Partnership and each item of
income, loss, deduction and credit and any other items to which the Partnership
Interest is entitled. The Partnership Interest constitutes all of the right,
title and interest of the Assignor as a partner in the Partnership.
IN WITNESS WHEREOF, the Assignor has executed this Assignment of
Partnership Interest on this __________ day of _____________, 1997.
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
a California limited partnership
By: Prudential-Bache Properties, Inc.,
a Delaware corporation,
its General Partner
By: ______________________________
Name:
Title:
<PAGE>
SCHEDULE G
ESCROW AGREEMENT
Agreement made this ____ day of October, 1997 by and among Glenborough
Realty Trust Incorporated and Glenborough Properties, L.P. (Collectively
"PURCHASER"), and Prudential-Bache/Equitec Real Estate Partnership ("SELLER"),
and Chicago Title Insurance Company, Inc., as escrow agent ("ESCROW AGENT").
1. The Parties hereto agree that the sum of $1,000,000 (the "ESCROW
AMOUNT"), to be held pursuant to a Purchase Agreement between Seller and
Purchaser of even date herewith (the "CONTRACT"), shall be held in escrow by the
Escrow Agent upon the terms and conditions set forth herein.
2. (a) The Escrow Agent shall deliver the Escrow Amount then in its
possession in accordance with Paragraph 3 hereof to Seller (i) upon the Closing,
as that term is used in and in accordance with the Contract or (ii) in the event
that Seller makes a written demand therefor stating that Purchaser has failed to
perform Purchaser's obligations under the Contract.
(b) Escrow Agent shall return the Escrow Amount then in its possession
in accordance with Paragraph 3 hereof to Purchaser in the event that
Purchaser makes a written demand therefor stating (i) that Seller has
failed to perform Seller's obligations under the Contract or (ii) that
Purchaser is otherwise entitled to the return of the Escrow Amount in
accordance with the terms of the Contract.
(c) In the event that Escrow Agent intends to release the Escrow
Amount and any interest earned thereon in accordance with Paragraph 3
hereof to either party pursuant to Paragraph 2(a)(ii) or 2(b) hereof, then
Escrow Agent shall give to the other party not less than ten days prior
written notice of such fact and, if Escrow Agent actually receives written
notice during such ten day period that such other party objects to the
release, then Escrow Agent shall not release the Escrow Amount and any such
dispute shall be resolved as provided herein.
(d) In the event that a dispute shall arise as to the disposition of
the Escrow Amount or any other funds held hereunder in escrow, Escrow Agent
shall have the right, at its option, to either hold the same or deposit the
same with a court of competent jurisdiction pending decision of such court,
and Escrow Agent shall be entitled to rely upon the decision of such court.
<PAGE>
(e) Escrow Agent may commingle the Escrow Amount with other funds held
in its "trustees account".
(f) Escrow Agent shall hold the Escrow Amount in a savings bank
account or a liquid assets account in the City of Los Angeles bearing
interest at such rate as may from time to time be paid or invest the Escrow
Amount in U.S. Treasury Bills or other securities guaranteed by the
Government of the United States of America. The rate of interest or yield
need not be the maximum available and deposits, withdrawals, purchases and
sales shall be made in the sole discretion of Escrow Agent, which shall
have no liability whatsoever therefor except for its gross negligence or
willful misconduct. Discounts earned shall be deemed interest for the
purposes hereof.
(g) Escrow Agent shall have no liability whatsoever arising out of or
in connection with its activity as Escrow Agent except for its gross
negligence or willful misconduct. Seller and Purchaser jointly and
severally agree to indemnify and hold harmless Escrow Agent from and
against any and all loss, cost, claim, cause of action, damage, liability
and expense (including attorneys' fees and court costs) which may be
incurred by reason of its acting as Escrow Agent.
(h) Escrow Agent shall be entitled to rely upon any judgment,
certification, demand or other writing delivered to it hereunder without
being required to determine the authenticity or the correctness of any fact
stated therein, the propriety or validity thereof, or the jurisdiction of a
court issuing any such judgment. Escrow Agent may act in reliance upon (i)
any instrument or signature believed to be genuine and duly authorized, and
(ii) advice of counsel in reference to any matter or matters connected
herewith.
(i) Any notice, demand or other communication to Escrow Agent
hereunder shall be in writing and delivered in person or sent by certified
mail, return receipt requested, postage prepaid, addressed to Escrow Agent
as follows:
Chicago Title Insurance Company
700 South Flower Street, Suite 900
Los Angeles, California 90017
Attention: _______________________
The same shall be deemed given on the date delivered, if delivered in
person, or on the third business day following the date of mailing the same, if
mailed.
<PAGE>
3. The interest, if any, earned on the Escrow Amount shall be for the
account of the party entitled to the Escrow Amount hereunder. At the Closing,
such interest shall be a credit against the Purchase Price.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
Purchaser:
Glenborough Realty Trust Incorporated
By:______________________________
Name:
Title:
Glenborough Properties, L.P.:
By Glenborough Realty Trust Incorporated
By:______________________________
Name:
Title:
Seller:
Prudential-Bache/Equitec Real Estate Partnership
By: Prudential-Bache Properties, Inc.,
its general partner
By:______________________________
Brian J. Martin
President
Chicago Title Insurance Company, Inc., as Escrow Agent
By:_____________________________
Name:
Title:
<PAGE>
SCHEDULE 1
DESCRIPTION OF LAND
Legal Descriptions of the following properties attached:
1. Gateway Professional Center, Sacramento, California
2. Park Plaza, Sacramento, California
3. Poplar Towers, Memphis, Tennessee
4. Totem Valley Business Park, Seattle, Washington
<PAGE>
SCHEDULE 2
PERMITTED EXCEPTIONS
Current real property taxes and assessments not yet due and payable, the lien of
any unpaid real property taxes and assessments for periods prior to the period
in which the Closing occurs, standard utility, access, and related easements and
licenses, covenants, conditions and restrictions currently of record, matters
which an accurate survey of the Real Estate would disclose, parties in
possession, all those matters affecting title over which the Title Company would
provide coverage at no additional premium based upon an affidavit from the owner
of the Property (it being expressly understood that the Partnership shall have
no obligation to execute any such owner's affidavit or any indemnity required in
order to remove standard "gap" or "creditors' rights" exceptions to title
coverage), and all other matters affecting title, together with the Leases and
the Loan and any and all other monetary liens affecting the Property or matters
which might result in monetary liens affecting the Property.
<PAGE>
SCHEDULE 3
RENT ROLL
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 4
DEFERRED MAINTENANCE
TOTEM POPLAR PARK GATEWAY
Item # VALLEY TOWERS MONTROSE PLAZA GATEWAY EXEC SUITES
- - --------------- --------------- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 1,758 2,751 1,900 79,200 2,100 4,800
2 865 128,000 3,500 76,500 17,400 13,691
3 43,000 3,300 16,900 6,000
4 68,000 5,700
5 257,500 14,000
6 16,400
7 20,000
8 52,000
9 24,200
10 7,800
11
12
TOTAL 2,623 619,651 28,400 155,700 36,400 24,491
--------------------------------------------------------------------------------------------------
GRAND
TOTAL 867,265
</TABLE>
<PAGE>
PRUDENTIAL/BACHE-EQUITEC REAL ESTATE PARTNERSHIP
DEFERRED MAINTENANCE ITEMS
TOTEM VALLEY
1. Curbing is cracked and deteriorating, and needs replacing at a cost of
$2,705,00. The worst areas were replaced in 1996 at a cost of $1,750.00.
750 s.f. of sidewalks are damaged and require replacement at a cost of
$6,448.27.
PARTIALLY COMPLETED - REMAINING COST EQUALS $1,758
2. City of Kirkland is requiring all commercial buildings' fire alarm panels
to be monitored per new ordinance in effect July 1, 1997. We will need to
install a monitoring panel in each of seven buildings and provide two
telephone lines to each panel location. In addition to this capital cost,
monthly monitoring service and telephone lines will cost approximately
$58/mo. for each building. These expenses are included in operating costs.
Included in cost are monitoring panels at $5,599.35, installation of 14
telephone lines at $625.
PARTIALLY COMPLETED - REMAINING COST EQUALS $865
POPLAR TOWERS
1. Tenant Signage: Designer signage for renovated floors will include ADA
requirements for tenant doors, common area doors, i.e., rest rooms,
janitors closets and individual floor directories. Approximate cost is $850
per floor for 8 floors.
PARTIALLY COMPLETED - REMAINING COST EQUALS $2,751
2. Rest Room Renovation: Renovation of men's and ladies rest rooms on all
floors. Scope of work to include new tile floors, new vinyl, lighting,
painting of stalls and new sink, fixtures and cabinets. Cost per rest room:
$8,000.
$128,000
1
<PAGE>
3. Window Film: The solar film on the east, west, and south sides of the
building was applied 20 years ago. Replace with a P-18 film manufactured by
3M. Clean outside windows at same time.
$43,000
4. Common Area Improvements: Renovation of common areas on all floors. The
common area hallways will cost approximately $8,500 per floor. The scope of
work will include carpet, base, new vinyl, paint, sheet rock over existing
aggregate wall and lower elevator buttons.
$68,000
5. Paint and Seal Exterior of Building: The building's exterior paint
continues to deteriorate, in some areas whole sections have stripped off.
The Aluminum must be stripped of all paint and have a special aluminum
paint applied, the aggregate sealed, and a clear coat applied to the
concrete.
$257,500
6. Electric Panel: Replacement of one each hi and low voltage electrical panel
boxes. The existing panel boxes are obsolete. A floor replacement is
necessary to avoid major power problems in the future. The 2nd and 3rd
floors have been done. 9 floors at $1,822 per floor.
$16,400
7. Asphalt Pavement Repair and Seal: Replacement of deteriorated areas,
removal of oil spills, seal coat and stripe.
$20,000
8. Electronic Ballast: Conversion to electronic ballast and octron bulbs as
the start of a building wide replacement. The retrofit is required by the
new Energy Policy Act. 11 floors at $4,731 per floor.
$52,000
9. Replace canopy at main entrance, refurbish the main lobby area with new
wall covering and paint.
$24,200
2
<PAGE>
10. Common Area Stairwells: Paint walls, ceiling and handrails of east and west
stairwell.
$7,800
MONTROSE
1. Installation of fail-safe electric locks on stairwell exit doors per Fire
Marshall inspection (fire code) for 3202 and 3206.
$1,900
2. Parking Structure - repair precast double T's plus various other structural
repairs to concrete.
$3,500
3. Parking Structure Lights - Repair/replacement of wire cages, light fixtures
and equipment as well as conduit.
$3,300
4. Dumpster enclosure - furnish and install concrete pad and fence area around
dumpsters.
$5,700
5. Cooling tower fill replacements - 4 buildings at $3,500 per building.
$14,000
PARK PLAZA
1. Restroom retrofit for ADA and refurbish for floors 2, 3, 4 and 7 (2
restrooms per floor), including remove and replace flooring and
wallcoverings, replace vanity countertops, new toilet partitions per ADA,
ADA faucets.
$79,200
2. Roof replacement.
3
<PAGE>
$76,500
GATEWAY EXECUTIVE SUITES
1. Paint existing tenants' suites not yet renovated.
$4,800
2. Carpet existing tenants' suites not yet replaced.
$13,961
3. Upgrade lobby furniture.
$6,000
GATEWAY PROFESSIONAL CENTER
1. Replace worn out components of security garage gate.
$2,100
2. Restore building facade, which has oxidized and is stained.
$17,400
3. Replace penthouse roof.
$16,900
4
<PAGE>
SCHEDULE 5
LOAN
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
WELLS FARGO BANK LOAN
$26,650,000 ONE YEAR BRIDGE LOAN
BORROWERS: Prudential-Bache/Equitec Real Estate Partnership, a
California limited partnership; and Montrose Office
Park Joint Venture, a Maryland joint venture
SECURED PROPERTIES: 1. Gateway Professional Center, Sacramento, CA
2. Park Plaza, Sacramento, CA
3. Poplar Towers, Memphis, TN
4. Totem Valley Business Park, Kirkland, WA
5. Montrose Office Park, Rockville, MD
RECORD DATE: December 20, 1996
MATURITY DATE: December 9, 1997
LOAN AMOUNT: $26,650,000
LENDER: Wells Fargo Bank
333 South Grand Ave., #900
Los Angeles, Calif. 90071
David Weber, Regional Vice President
(415) 396-8200
INTEREST RATE: LIBOR plus 350 basis points. 30 day LIBOR contracts
automatically set by Wells Fargo Bank. Notice of
each rate set provided by fax to borrower.
LOAN ASSUMPTION: The loan is not assumable.
MONTHLY PAYMENT: Interest only, no amortization. Monthly payment
will vary depending on 30 day LIBOR rate.
AMORTIZATION: None.
DUE DATE OF PAYMENTS: Interest payments are due on the 1st day of each
month with a 15 day grace period.
5
<PAGE>
LATE PAYMENT FEES: 4% of the installment due.
PREPAYMENT: The loan is prepayable at any time in full without
penalty (except for LIBOR contract breakage costs,
if any). No partial payments or partial releases.
NON-RECOURSE: The loan is non-recourse to the borrower.
GUARANTORS: Glenborough Corporation and Robert Batinovich
have guaranteed the standard non-recourse carve
outs in the loan.
GUARANTOR REPORTING: Within 90 days of fiscal year end, balance sheet and
income statements from the guarantors.
BORROWER FINANCIAL o Property operating statements and rent rolls
REPORTING: within 15 days of the end of each month.
o Balance sheet and income statement for the
borrower within 90 days of the end of the year.
o 1997 budgets by January 1, 1997.
o Certificate of no default with the delivery of the
above statements.
CROSS COLLATERAL: All properties secure the full amount of the loan.
CROSS DEFAULT: The loan is not cross defaulted with any other
financing.
LOAN COVENANTS: o No additional partnership debt without the writ
ten consent of the lender. (Section 7.4)
o No distributions to the limited partners during
the term of the loan without the written consent
of the lender. (Section 7.7)
o Lender approval of all leases over 10,000 s.f.
(Section 7.8)
IMPOUND ACCOUNTS: No impound accounts for taxes, insurance or capital
expenditures.
6
<PAGE>
SCHEDULE 6
LEGAL DESCRIPTION OF THE RELATED PROPERTY
Legal Description of Montrose Office Park, Rockville Maryland, attached.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-14271
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-2949474
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0116
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
Securities registered pursuant to Section 12(b) of the Act:
None
- - --------------------------------------------------------------------------------
(Title of class)
Securities registered pursuant to section 12(g) of the Act:
Depositary Units of Limited Partnership Interest
- - --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CK]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Annual Report to Unitholders for the year ended December 31,
1996 is incorporated by reference into Parts II and IV of this Annual Report on
Form 10-K
Amended and Restated Limited Partnership Agreement of Registrant, dated
February 11, 1985, included as part of the Registration Statement filed with the
Securities and Exchange Commission on February 14, 1985 pursuant to Rule 424(b)
of the Securities Act of 1934 (the "Prospectus") is incorporated by reference
into Part IV of this Annual Report on Form 10-K
Index to exhibits can be found on pages 10 through 12.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this Annual Report on Form 10-K, the words "Believes"
"Anticipates," "Expects" and similar expressions are intended to identify
forward-looking statements. Statements looking forward in time are included in
this Annual Report on Form 10-K pursuant to the "Safe Harbor" provision of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially, including, but not limited to, those set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Registrant undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
2
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<TABLE>
<CAPTION>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
TABLE OF CONTENTS
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 4
Item 2 Properties....................................................................... 5
Item 3 Legal Proceedings................................................................ 6
Item 4 Submission of Matters to a Vote of Unitholders................................... 6
PART II
Item 5 Market for Registrant's Units and Related Unitholder Matters..................... 6
Item 6 Selected Financial Data.......................................................... 7
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 7
Item 8 Financial Statements and Supplementary Data...................................... 7
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 7
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 7
Item 11 Executive Compensation........................................................... 10
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 10
Item 13 Certain Relationships and Related Transactions................................... 10
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Consolidated Financial Statements and Consolidated Financial Statement
Schedules...................................................................... 11
Exhibits......................................................................... 11
Reports on Form 8-K.............................................................. 13
SIGNATURES.................................................................................. 18
</TABLE>
3
<PAGE>
PART I
Item 1. Business
General
Prudential-Bache/Equitec Real Estate Partnership, a California Limited
Partnership (the "Registrant"), was formed in June 1984 and will terminate on
December 31, 2009 unless terminated sooner under the provisions of the Amended
and Restated Limited Partnership Agreement (the "Partnership Agreement"). The
Registrant was formed to invest in income-producing real estate with proceeds
raised from the initial sale of 68,795 depositary units ("Units"). On November
21, 1994, the General Partners approved a change in the Registrant's fiscal year
for financial reporting purposes from October 31 to December 31. A Form 10-Q for
the two months ended December 31, 1994 was filed to cover the transition period
resulting from this change. The Registrant's fiscal year for income tax purposes
continues to be December 31.
The Registrant is engaged solely in the business of real estate investment;
therefore, presentation of industry segment information is not applicable. For
information regarding the Registrant's properties (collectively, the
"Properties" or individually, a "Property"), see Item 2 Properties. For
information regarding the Registrant's operations, see Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Registrant's Annual Report to Unitholders for the year ended
December 31, 1996 ("Registrant's Annual Report") which is filed as an exhibit
hereto.
For the years ended December 31, 1996, December 31, 1995 and October 31,
1994, respectively, the following Properties' rental revenues exceeded 15% of
the Registrant's total revenue:
1996 1995 1994
---- ---- ----
Montrose Office Park 40% 43% 46%
Poplar Towers 19% -- --
For the year ended October 31, 1994, Intersolv, a tenant in the Montrose
Office Park property accounted for approximately 10% of the Registrant's total
revenue. Intersolv's lease expired in June 1995 and it vacated its space at that
time. Technical Resources, Inc., another tenant in the Montrose Office Park
property, on an annualized basis, would have accounted for approximately 10% of
the Registrant's total revenue for the year ended December 31, 1995 and did
account for approximately 10% of the Registrant's total revenue for the year
ended December 31, 1996.
General Partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
("PBP"), and Glenborough Corporation (formerly Glenborough Realty Corporation)
and Robert Batinovich (together, "Glenborough") (collectively, the "General
Partners").
Glenborough replaced Equitec Financial Group, Inc. ("EFG") as co-General
Partner of the Partnership on May 4, 1994 when EFG transferred its general
partner interest to Glenborough and withdrew and retired as general partner.
This substitution occurred as a result of the consent of a majority of interests
of the limited partners approving the transaction which was detailed in a proxy
statement dated December 1, 1993. PBP continues as co-General Partner.
Glenborough Corporation continues to receive fees and expense reimbursements in
the same amount that was provided in the property management agreement. See Note
E to the consolidated financial statements in the Registrant's Annual Report
which is filed as an exhibit hereto.
Competition
The General Partners and their affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Registrant.
The Registrant faces active competition in all aspects of its business and
must compete with entities which own properties similar in type to those owned
by the Registrant. The ability of the Registrant to compete with these entities
depends on many factors, including the size, condition and specific location of
its facilities, and is affected by the competitive conditions of the real estate
market in general and the local
4
<PAGE>
markets in particular. Since each of the Registrant's Properties is located in
an area which contains numerous other properties which may be considered
competitive, the Registrant must compete on, among other factors, rental rates,
lease terms and amenities, including availability of parking and public
transportation.
Many of the factors affecting the ability of the Registrant to compete, and
therefore affecting its revenues and expenses, are beyond the Registrant's
control, such as oversupply of similar rental facilities as a result of
overbuilding, increases in unemployment, population shifts, levels of corporate
activity, reduced availability of permanent mortgage funds, changes in zoning
laws or changes in tenants' needs. Expenses such as local real estate taxes and
utilities are subject to change and, while the provisions of certain existing
leases may mitigate the impact of any increases in such expenses, such changes
may not be fully reflected in rental rate increases upon lease renewal or in
connection with the execution of new leases if market conditions are not
favorable. Alternatively, the lack of new construction, reduced unemployment and
stable or reduced tax and utility expenses, all beyond the control of the
Registrant, may have a favorable impact upon the operations of the Properties.
The marketability of the Properties may also be affected (both positively and
negatively) by these factors as well as by changes in general or local economic
conditions including prevailing interest rates. Depending on market and economic
conditions, the Registrant may be required to retain ownership of its Properties
for periods longer than anticipated at acquisition or may need to sell or
refinance a Property during periods or under terms and conditions that are less
advantageous than would be the case if unfavorable economic or market conditions
did not exist.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. The General Partners receive compensation
and reimbursement of expenses in connection with such activities as described in
Section X of the Partnership Agreement. See Note E to the consolidated financial
statements in the Registrant's Annual Report which is filed as an exhibit
hereto.
Item 2. Properties
As of December 31, 1996, the Registrant owns the following properties:
<TABLE>
<CAPTION>
Effective
Average Annual
Occupancy Rate at Rental Rate
December 31, Land Net Rentable Per Square
Location and Type 1996 (in acres) Square Footage Foot
- - -------------------------------------- ------------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
Poplar Tower
Memphis, TN
Office building 93% 3.95 100,901 $11.15
Montrose Office Park
Rockville, MD
Office building complex 83% 18.42 187,131 $12.74
Totem Valley Business Center
Kirkland, WA
Industrial park 99% 10.40 121,645 $ 6.06
Gateway Plaza
Sacramento, CA
Office building 95% .87 49,700 $17.08
Park Plaza
Sacramento, CA
Office building 76% 1.37 70,113 $12.23
---------- --------------
35.01 529,490
---------- --------------
---------- --------------
</TABLE>
5
<PAGE>
The Registrant originally invested in seven properties. In May 1993, the
Registrant and the first mortgage holder of the 399 Market Street property
entered into an agreement related to a deed-in-lieu of foreclosure with regard
to the property, and the Registrant delivered to the mortgage holder the title
to the property. Ashby Industrial Center was sold on August 8, 1992 and one of
the eight buildings comprising Totem Valley Business Center was sold on
September 16, 1991.
The General Partners believe the Registrant's Properties are adequately
insured.
For information regarding the Registrant's investment in Properties and the
encumbrances to which the Properties are subject, see Note C to the consolidated
financial statements in the Registrant's Annual Report which is filed as an
exhibit hereto.
For additional information describing the Registrant's Properties, see
Supplementary Schedule III--Real Estate and Accumulated Depreciation on page 15
in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Unitholders
None
PART II
Item 5. Market for Registrant's Units and Related Unitholder Matters
As of March 3, 1997, there were 5,173 holders of record owning 68,795 Units.
A significant secondary market for the Units has not developed, and it is not
expected that one will develop in the future. There are also certain
restrictions set forth in Section IV of the Partnership Agreement limiting the
ability of a Unitholder to transfer Units. Consequently, holders of Units may
not be able to liquidate their investments in the event of an emergency or for
any other reason.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement; however, the Registrant has paid no distributions from
operations or otherwise since 1988. The amount, if any, to be distributed by the
Registrant from cash generated by operations in future quarters will be based on
the extent to which cash flow generated by the Properties, after tenant and
capital improvement costs, is sufficient to support such distributions. No
distributions from operations are anticipated in the foreseeable future.
Furthermore, it is unlikely that investors will be returned a significant
portion of their original investment upon the sale of the Registrant's remaining
Properties and ultimate dissolution of the Registrant. For discussion of other
factors that may affect future distributions, see Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 10 through 11
of the Registrant's Annual Report which is filed as an exhibit hereto.
6
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the consolidated financial statements of
the Registrant and the notes thereto on pages 2 through 9 of the Registrant's
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended November 1
December 31, through Year ended October 31,
----------------- December 31, ---------------------------
1996 1995 1994 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------
(in thousands except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
Total revenue.......................... $ 6,414 $ 6,541 $ 1,125 $ 6,544 $ 6,841 $ 7,917
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Provision for loss on impairment of
assets............................... $ -- $ -- $ -- $ -- $ (250) $ (614)
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Gain (loss) on disposition of
property............................. $ 33 $ -- $ -- $ -- $ 338 $ (97)
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Net loss............................... $(1,138) $(1,032) $ (122) $ (794) $(1,898) $(3,820)
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Net loss per Unit...................... $(16.38) $(14.86) $ (1.76) $(11.43) $(27.31) $(54.97)
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Total assets........................... $33,346 $34,388 $ 35,737 $36,110 $37,402 $45,046
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Notes payable.......................... $26,650 $26,621 $ 26,862 $26,917 $27,328 $32,578
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
Total cash distributions............... $ -- $ -- $ -- $ -- $ -- $ --
------- ------- ------------ ------- ------- -------
------- ------- ------------ ------- ------- -------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 10 through 11 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partners.
The Registrant, the Registrant's General Partners and their directors and
executive officers, and any persons holding more than ten percent of the
Registrant's Units are required to report their initial ownership of such Units
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such executive officers, directors and persons
who own greater than ten percent of the Registrant's Units are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis. In making these disclosures, the Registrant has
relied solely on written representations of the General Partners' directors and
executive officers and persons who own greater than ten percent of the
Registrant's Units or copies of the reports they have filed with the Securities
and Exchange Commission during and with respect to its most recent fiscal year.
7
<PAGE>
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP and their positions with regard
to managing the Registrant are as follows:
Name Position
Thomas F. Lynch, III President, Chief Executive Officer,
Chairman of the Board of Directors and Director
Barbara J. Brooks Vice President--Finance and Chief Financial Officer
Eugene D. Burak Vice President and Chief Accounting Officer
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated ("PSI"), an affiliate of PBP.
Mr. Lynch also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management LLC, an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 46, is a Director of PBP. She is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work for PSI. She joined PSI's Law Department in 1983; presently, she also
serves in numerous capacities for other affiliated companies.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and/or executive officers
have indefinite terms.
Glenborough and Robert Batinovich
Robert Batinovich, age 60, was the President, Chief Executive Officer and
Chairman of Glenborough Corporation from its inception in 1978 until his
resignation effective January 10, 1996. On August 31, 1994, Mr. Batinovich was
elected Chairman, President and Chief Executive Officer of Glenborough Realty
Trust Incorporated ("GLB"), a newly created Real Estate Investment Trust, which
began trading on the New York Stock Exchange on January 31, 1996. He was a
member of the Public Utilities Commission from 1975 to January 1979 and served
as its President from January 1977 to January 1979. He is a member of the Board
of Directors of Farr Company, a publicly held company that manufactures
industrial filters. He has extensive real estate investment experience. Mr.
Batinovich's business background includes managing and owning manufacturing,
vending and service companies and a national bank.
8
<PAGE>
The directors and executive officers of Glenborough Corporation and their
positions with regard to managing the Registrant are as follows:
Name Position
Andrew Batinovich Chief Executive Officer and Chairman of the Board
Robert E. Bailey Secretary and Corporate Counsel
Sandra L. Boyle President and Chief Operating Officer
June Gardner Director
Terri Garnick Chief Financial Officer
Judy Henrich Vice President
Wallace A. Krone, Jr. Director
ANDREW BATINOVICH, age 38, was elected Chairman of the Board and Chief
Executive Officer of Glenborough Corporation on January 10, 1996. He has been
employed by Glenborough Corporation since 1983, and had functioned since 1987 as
Chief Operating Officer and Chief Financial Officer. Mr. Batinovich also serves
as Executive Vice President, Chief Operating Officer, Chief Financial Officer
and Director of GLB. He holds a California real estate broker's license and is a
Member of the National Advisory Council of BOMA International. He received his
B.A. in International Finance from the American University in Paris. Prior to
joining Glenborough Corporation, Mr. Batinovich was a lending officer with the
International Banking Group and the Corporate Real Estate Division of Security
Pacific National Bank. He is the son of Robert Batinovich.
ROBERT E. BAILEY, age 35, joined Glenborough Corporation in 1989 as Associate
Counsel and was elected Secretary of Glenborough Corporation on May 15, 1995. He
is responsible for all landlord/tenant documentation, tenant litigation,
corporate and partnership matters and employment matters. In 1984, he received
his Bachelor of Arts degree from the University of California at Santa Barbara
and his Juris Doctor degree from Vermont Law School in 1987. From 1987 to 1989,
Mr. Bailey was an associate with the law firm of Pedder, Stover, Hesseltine &
Walker, where he specialized in business litigation. He is a member of the State
Bar of California.
SANDRA L. BOYLE, age 48, has been associated with Glenborough Corporation or
its associated entities since 1984 and has served as President and Chief
Operating Officer of Glenborough Corporation since January 10, 1996. She was
originally responsible for residential marketing, and her responsibilities were
gradually expanded to include residential leasing and management in 1985, and
commercial leasing and management in 1987. She was elected Vice President in
1989, and continues to supervise marketing, leasing, property management
operations and regional offices. Ms. Boyle also serves as a Senior Vice
President of GLB. Ms. Boyle holds a California real estate broker's license and
a CPM designation, and is a member of the National Advisory Council and Finance
Committee of BOMA International; and is on the Board of Directors of BOMA San
Francisco and BOMA California.
JUNE GARDNER, age 45, was elected a director of Glenborough Corporation on
January 10, 1996. She was associated with Glenborough Corporation from 1984
through 1995, as Senior Vice President and Corporate Controller with
responsibilities in the areas of corporate financial planning, reporting,
accounting and banking relationships. Before joining Glenborough Corporation,
Ms. Gardner was Assistant Vice President of JMB Realty Corporation from 1977 to
1984, with responsibilities in the areas of financial management and reporting.
TERRI GARNICK, age 36, has served as Chief Financial Officer of Glenborough
Corporation since January 10, 1996. She is also Senior Vice President, Chief
Accounting Officer and Treasurer of GLB. Ms. Garnick is responsible for property
management accounting, financial statements, audits, Securities and Exchange
Commission reporting, and tax returns. Prior to joining Glenborough Corporation
in 1989, Ms. Garnick was a controller at August Financial Corporation from 1986
to 1989 and was a Senior Accountant at
9
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Deloitte, Haskins and Sells from 1983 to 1986. She is a Certified Public
Accountant and has a Bachelor of Science degree from San Diego State University.
JUDY HENRICH, age 51, is a Vice President of Glenborough Corporation,
effective January 10, 1996 and is responsible for the coordination of all
broker-dealer and investor communications for partnerships managed by
Glenborough Corporation. Prior to joining Glenborough Corporation, Ms. Henrich
was associated with Rancon Financial Corporation from 1981 through early 1995,
and as Senior Vice President since 1985, with responsibilities similar to those
at Glenborough Corporation. Ms. Henrich also served as Executive Vice President
of Rancon Securities Corporation from 1988 to 1991, and thereafter as its Chief
Executive Officer. Prior to joining Rancon, Ms. Henrich was manager of public
relations and advertising for Kaiser Development Company, a diversified real
estate holding company.
WALLACE A. KRONE, JR., age 65, has been an entrepreneur in the restaurant
business since 1965, and owns a number of Burger King restaurants in the San
Francisco area. Mr. Krone has been associated with Glenborough Corporation since
1982 as an investor in one or more partnerships, and has been a member of the
board of directors of Glenborough Corporation since 1989.
Except as noted above, there are no family relationships among the foregoing
directors or executive officers.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the General Partners for their
services. Certain officers and directors of the General Partners receive
compensation from the General Partners and their affiliates, not from the
Registrant, for services performed for various affiliated entities, which may
include services performed for the Registrant; however, the General Partners
believe that any compensation attributable to services performed for the
Registrant is immaterial. See Item 13 Certain Relationships and Related
Transactions for information regarding compensation to the General Partners.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Glenborough Corporation's common stock is owned by Sandra L. Boyle, June
Gardner and Wallace A. Krone, Jr., each owning a one-third interest and all of
the preferred stock is owned by Glenborough Realty Trust Incorporated.
As of March 3, 1997, no director or executive officer of PBP owns directly or
beneficially any interest in the voting securities of PBP.
As of March 3, 1997, no director or executive officer of any of the General
Partners owns directly or beneficially any of the Units issued by the
Registrant.
As of March 3, 1997, no beneficial owner who is neither a director nor
executive officer of either of the General Partners beneficially owns more than
five percent (5%) of the outstanding Units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the directors or officers of
the General Partners.
Reference is made to Note E to the consolidated financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto, which identifies
the related parties and discusses the services provided by these parties and the
amounts paid or payable for their services.
10
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<TABLE>
<CAPTION>
PART IV
Page in
Annual Report
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements and Independent Auditors'
Report--Incorporated by reference to the Registrant's Annual Report
which is filed as an exhibit hereto
Independent Auditors' Report 2
Consolidated Financial Statements:
Consolidated Statements of Financial Condition--December 31, 1996 and
December 31, 1995 3
Consolidated Statements of Operations--Years ended December 31, 1996 and
1995, November 1 through December 31, 1994, and the year ended October 31,
1994 4
Consolidated Statements of Changes in Partners' Capital--Years ended
December 31, 1996 and 1995, November 1 through December 31, 1994, and the
year ended October 31, 1994 4
Consolidated Statements of Cash Flows--Years ended December 31, 1996 and
1995, November 1 through December 31, 1994, and the year ended October 31,
1994 5
Notes to Consolidated Financial Statements 6
2. Consolidated Financial Statement Schedules and Independent Auditors' Report
on Schedules
Independent Auditors' Report on Schedules
Schedules:
II--Valuation and Qualifying Accounts and Reserves--Year ended
December 31, 1996 and 1995 and the year ended October 31, 1994
III--Consolidated Real Estate and Accumulated Depreciation--At
December 31, 1996 All other schedules have been omitted because they
are not applicable or the required information is included in the
consolidated financial statements and notes thereto.
3. Exhibits
Description:
3 and 4 Amended and Restated Limited Partnership Agreement of Registrant dated
February 11, 1985 (incorporated by reference to Amendment No. 1 to the
Registrant's Form S-11 Registration Statement filed on February 14, 1985)
and Amendment No. 1 thereto dated April 18, 1985 (incorporated by reference
to Form 8-A filed on February 28, 1986), as amended on March 25, 1994
(incorporated by reference to the Registrant's 1994 Annual Report filed on
Form 10-K)
3 and 4 Amended and Restated Agreement between General Partners dated December 28,
1990 (incorporated by reference to the Registrant's 1990 Annual Report
filed on Form 10-K)
</TABLE>
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<TABLE>
<CAPTION>
Page in
Annual Report
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<S> <C>
10(a) Note Modification Agreement between Montrose Office Park Joint
Venture (a joint venture which is indirectly wholly-owned by the
Registrant) and The Variable Annuity Life Insurance Company
(incorporated by reference to the Registrant's 1991 Annual Report
filed on Form 10-K)
10(b) Settlement Statement on Ashby Industrial Center dated August 6, 1992
(incorporated by reference to the Registrant's 1992 Annual Report
filed on Form 10-K)
10(c) Escrow Instruction on Sale of Ashby Industrial Center dated August 6,
1992 (incorporated by reference to the Registrant's 1992 Annual
Report filed on Form 10-K)
10(d) Agreement regarding Deed-in-Lieu of Foreclosure and Related Matters
between the Registrant and Fidelity Bank N.A. dated May 11, 1993
(incorporated by reference to the Registrant's Quarterly Report for
the period ended April 30, 1993 filed on Form 10-Q)
10(e) Loan Agreement by and among Registrant and Montrose Office Park Joint
Venture (a joint venture which is indirectly wholly-owned by the
Registrant), and Wells Fargo Bank, National Association, executed as
of December 13, 1996. (1)
10(f) Amended, Restated and Consolidated Promissory Note dated December 13,
1996 in the amount of $26,650,000.00 by and among Registrant and
Montrose Office Park Joint Venture and Wells Fargo Bank, National
Association. (1)
10(g) Deed of Trust, With Absolute Assignment of Leases and Rents, Security
Agreement, Assignment of Equipment Leases, Assignment of Permits and
Fixture Filing dated December 13, 1996 by and among Registrant,
American Securities Company, a corporation and Wells Fargo Bank,
National Association relating to the property known as Park Plaza
Professional Center, 1303 J Street, Sacramento, Sacramento County,
California and to the property known as Gateway Executive Center, 801
12th Street, Sacramento, Sacramento County, California. (1)
10(h) Deed of Trust, With Absolute Assignment of Leases and Rents, Security
Agreement, Assignment of Equipment Leases, Assignment of Permits and
Fixture Filing dated December 13, 1996 by and among Registrant,
Chicago Title Insurance Company, a Missouri corporation and Wells
Fargo Bank, National Association relating to the property known as
Totem Valley Business Center, 12800 N.E. 126th Place, Kirkland, King
County, Washington.(1)
10(i) Amended and Restated Deed of Trust, With Absolute Assignment of
Leases and Rents, Security Agreement, Assignment of Equipment Leases,
Assignment of Permits and Fixture Filing dated December 13, 1996 by
and among Montrose Office Park Joint Venture, Chicago Title Insurance
Company,a Missouri corporation and Wells Fargo Bank, National
Association relating to the property known as Montrose Office Park,
3200-3206 Tower Oaks Boulevard, Rockville, Montgomery County,
Maryland. (1)
10(j) Deed of Trust, With Absolute Assignment of Leases and Rents, Security
Agreement, Assignment of Equipment Leases, Assignment of Permits and
Fixture Filing dated December 13, 1996 by and among Registrant, J.
Richard Rossie, a resident of Shelby County, Tennessee and Wells
Fargo Bank, National Association relating to the property known as
Poplar Towers, 6263 Poplar Avenue, Memphis, Tennessee. (1)
13 Registrant's Annual Report to Unitholders for the year ended December
31, 1996 (with the exception of the information and data incorporated
by reference in Items 7 and 8 of this Annual Report on Form 10-K, no
other information or data appearing in the Registrant's Annual Report
is to be deemed filed as part of this report)
27 Financial Data Schedule (filed herewith)
12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page in
Annual Report
-------------
<S> <C>
(b) Reports on Form 8-K
Registrant's Current Report on Form 8-K dated December 20, 1996, as
filed with the Securities and Exchange Commission on January 21, 1997
relating to Item 5 regarding the refinancing of the mortgage loans on
the Registrant's properties.
</TABLE>
- - ---------------
(1) Incorporated by reference to applicable exhibit included in Registrant's
Current Report on Form 8-K dated December 20, 1996
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Prudential-Bache/Equitec Real Estate Partnership (a California limited
partnership):
We have audited the consolidated financial statements of
Prudential-Bache/Equitec Real Estate Partnership (a California limited
partnership) as of December 31, 1996 and 1995, and for the years ended December
31, 1996 and 1995 and October 31, 1994, and the period November 1, 1994 through
December 31, 1994, and have issued our report thereon dated February 18, 1997;
such financial statements and report are included in your 1996 Annual Report and
are incorporated herein by reference. Our audits also included the consolidated
financial statement schedules of Prudential-Bache/Equitec Real Estate
Partnership, listed in Item 14. These financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
San Francisco, California
February 18, 1997
14
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- - --------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
<TABLE>
<CAPTION>
Deduc-
tions-Amounts Balance at
Year ended Year ended Balance at Additions-Amounts written-off during end of
December 31, October 31, beginning of year reserved during year year year
- - ------------ ----------- ----------------- -------------------- ------------------ ----------
<S> <C> <C> <C> <C>
1996 $ 500,000 $ -- $ -- $ 500,000
1995* 500,000 -- -- 500,000
1994 500,000 -- -- 500,000
</TABLE>
* Includes the period November 1 through December 31, 1994.
15
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
SCHEDULE III--CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Initial cost to
Registrant
-------------------------
Buildings Gross amount at which carried
and Net costs at close of period
improve- capitalized --------------------------------------
ments, (disposed) Buildings,
Encumbrances furniture subsequent to furniture
Description (C) Land and fixtures acquisition Land and fixtures Total (A)
- - ---------------------- ------------ ------- ------------- ------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Poplar Tower
Memphis, TN
Office building $ -- $ 1,678 $ 4,928 $ 1,348 $ 1,678 $ 6,276 $ 7,954
Montrose Office Park
Rockville, MD
Office building
complex -- 5,918 15,766 2,416 5,918 18,182 24,100
Totem Valley
Business Center
Kirkland, WA
Industrial park -- 2,666 5,265 (518) 2,083 5,330 7,413
Gateway and Park
Plaza
Sacramento, CA
Office buildings -- 1,163 9,075 1,682 1,163 10,757 11,920
Note Payable 26,650
------------ ------- ------------- ------------- ------- ------------ ---------
Totals $ 26,650 $11,425 $35,034 $ 4,928 $10,842 $ 40,545 $ 51,387
------------ ------- ------------- ------------- ------- ------------ ---------
------------ ------- ------------- ------------- ------- ------------ ---------
</TABLE>
See notes to Schedule III on the following page.
<TABLE>
<CAPTION>
Life on
which
depreciation
in the latest
Accumulated statement of
depreciation Date of Date operations is
Description (B) construction acquired computed
- - ---------------------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Poplar Tower
Memphis, TN 3 to
Office building $ 4,256 1974 5/01/86 30 years
Montrose Office Park
Rockville, MD
Office building 3 to
complex 7,559 1980-83 8/11/86 30 years
Totem Valley
Business Center
Kirkland, WA 3 to
Industrial park 2,522 1983-86 3/13/87 30 years
Gateway and Park
Plaza
Sacramento, CA 3 to
Office buildings 5,297 1982 6/15/87 30 years
Note Payable
-----------
Totals $19,634
-----------
-----------
</TABLE>
16
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
NOTES TO SCHEDULE III
(in thousands)
December 31, 1996
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
<TABLE>
<CAPTION>
November 1
Year ended Year ended through Year ended
December 31, December 31, December 31, October 31,
1996 1995 1994 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 50,605 $ 50,013 $ 49,983 $49,647
Additions during period 810 592 30 336
------------ ------------ ------------ -----------
51,415 50,605 50,013 49,983
Cost of land conveyed (28) -- -- --
------------ ------------ ------------ -----------
Balance at end of period $ 51,387 $ 50,605 $ 50,013 $49,983
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
The allowance for loss on impairment for the above assets is $500 at December
31, 1996. See Note C to the consolidated financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto.
The aggregate cost of land, buildings, and furniture and fixtures for Federal
income tax purposes for the tax year ended December 31, 1996 was $49,976.
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
November 1
Year ended Year ended through Year ended
December 31, December 31, December 31, October 31,
1996 1995 1994 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 17,905 $ 16,177 $ 15,889 $14,253
Additions during period 1,729 1,728 288 1,636
------------ ------------ ------------ -----------
Balance at end of period $ 19,634 $ 17,905 $ 16,177 $15,889
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
NOTE C--ENCUMBRANCES
The note payable is secured by Deeds of Trust on each of the respective
properties and by security interests in the respective property's leases and
rents, and equipment and fixtures contained therein.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Prudential-Bache/Equitec Real Estate
Partnership,
A California Limited Partnership
By: Prudential-Bache Properties, Inc.,
A Delaware corporation, Managing General Partner
By: /s/ Eugene D. Burak Date: March 27, 1997
----------------------------------------
Eugene D. Burak
Vice President and Chief Accounting Officer
By: Glenborough Corporation
General Partner
By: /s/ Andrew Batinovich Date: March 27, 1997
----------------------------------------
Andrew Batinovich
Chief Executive Officer and Chairman of
the Board of Directors
By: Robert Batinovich
General Partner
By: /s/ Robert Batinovich Date: March 27, 1997
----------------------------------------
Robert Batinovich
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.,
A Delaware corporation, Managing General Partner
By: /s/ Thomas F. Lynch, III Date: March 27, 1997
----------------------------------------
Thomas F. Lynch, III
President, Chief Executive Officer,
Chairman of the Board of Directors and
Director
By: /s/ Barbara J. Brooks Date: March 27, 1997
----------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief
Financial Officer
By: /s/ Eugene D. Burak Date: March 27, 1997
----------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: March 27, 1997
----------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: March 27, 1997
----------------------------------------
Nathalie P. Maio
Director
18
<PAGE>
By: Glenborough Corporation and Robert
Batinovich
General Partners
By: /s/ Robert Batinovich Date: March 27, 1997
----------------------------------------
Robert Batinovich
Individually
By: /s/ Andrew Batinovich Date: March 27, 1997
----------------------------------------
Andrew Batinovich
Chief Executive Officer and Chairman of
the Board of Directors
By: /s/ June Gardner Date: March 27, 1997
----------------------------------------
June Gardner
Director
By: /s/ Terri Garnick Date: March 27, 1997
----------------------------------------
Terri Garnick
Chief Financial Officer
19
Ex-13
Annual Report
1996 ANNUAL REPORT
1996
- - --------------------------------------------
Prudential-Bache/Equitec Annual
Real Estate Partnership Report
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
Message to our Unitholders:
1
Deloitte &
Touche LLP
--------------------------------------------------------
50 Fremont Street Telephone: (415) 247-4000
San Francisco, California 94105-2230 Facsimile: (415) 247-4329
INDEPENDENT AUDITORS' REPORT
Prudential-Bache/Equitec Real Estate Partnership
(a California limited partnership):
We have audited the accompanying consolidated statements of financial condition
of Prudential-Bache/Equitec Real Estate Partnership (a California limited
partnership) as of December 31, 1996 and 1995 and the related consolidated
statements of operations, changes in partners' capital and cash flows for the
years ended December 31, 1996 and 1995 and October 31, 1994, and the period
November 1, 1994 through December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Prudential-Bache/Equitec Real
Estate Partnership at December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995 and
October 31, 1994, and the period November 1, 1994 through December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Francisco, California
February 18, 1997
- - -----------------
Deloitte Touche
Tohmatsu
International
- - -----------------
2
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- - ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Investment in property:
Land $ 10,842 $ 10,870
Buildings, improvements and equipment 40,545 39,735
Less: Accumulated depreciation (19,634) (17,905)
Allowance for loss on impairment of assets (500) (500)
------------ ------------
Net investment in property 31,253 32,200
Cash and cash equivalents 697 806
Prepaid expenses and other assets, net 1,396 1,382
------------ ------------
Total assets $ 33,346 $ 34,388
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable $ 26,650 $ 26,621
Due to affiliates 705 700
Accounts payable and accrued liabilities 266 291
Security deposits and deferred revenue 335 232
Real estate taxes payable 57 73
------------ ------------
Total liabilities 28,013 27,917
------------ ------------
Partners' capital
Unitholders (68,795 depositary units issued and outstanding) 5,587 6,714
General partners (254) (243)
------------ ------------
Total partners' capital 5,333 6,471
------------ ------------
Total liabilities and partners' capital $ 33,346 $ 34,388
------------ ------------
------------ ------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended November 1
December 31, through Year ended
------------------- December 31, October 31,
1996 1995 1994 1994
- - --------------------------------------------------------------------------------------------------------
(in thousands,
except per depositary unit amounts)
<S> <C> <C> <C> <C>
REVENUES
Operating $ 5,987 $ 5,982 $1,039 $ 5,997
Recovery of expenses 394 559 86 547
Gain on land conveyance 33 -- -- --
------- ------- ------------ -----------
6,414 6,541 1,125 6,544
------- ------- ------------ -----------
EXPENSES
Property operating 2,873 2,813 472 2,711
Interest 2,429 2,411 391 2,364
Depreciation and amortization 2,025 1,965 328 1,883
General and administrative 225 384 56 380
------- ------- ------------ -----------
7,552 7,573 1,247 7,338
------- ------- ------------ -----------
Net loss $(1,138) $(1,032) $ (122) $ (794)
------- ------- ------------ -----------
------- ------- ------------ -----------
ALLOCATION OF NET LOSS
Unitholders $(1,127) $(1,022) $ (121) $ (786)
------- ------- ------------ -----------
------- ------- ------------ -----------
General partners $ (11) $ (10) $ (1) $ (8)
------- ------- ------------ -----------
------- ------- ------------ -----------
Net loss per depositary unit $(16.38) $(14.86) $(1.76) $(11.43)
------- ------- ------------ -----------
------- ------- ------------ -----------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL
UNITHOLDERS PARTNERS TOTAL
- - ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Partners' capital (deficit)--October 31, 1993 $ 8,643 $ (224) $ 8,419
Net loss (786) (8) (794)
----------- -------- -------
Partners' capital (deficit)--October 31, 1994 7,857 (232) 7,625
Net loss (121) (1) (122)
----------- -------- -------
Partners' capital (deficit)--December 31, 1994 7,736 (233) 7,503
Net loss (1,022) (10) (1,032)
----------- -------- -------
Partners' capital (deficit)--December 31, 1995 6,714 (243) 6,471
Net loss (1,127) (11) (1,138)
----------- -------- -------
Partners' capital (deficit)--December 31, 1996 $ 5,587 $ (254) $ 5,333
----------- -------- -------
----------- -------- -------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
<TABLE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year ended November 1
December 31, through Year ended
-------------------- December 31, October 31,
1996 1995 1994 1994
- - --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,138) $(1,032) $ (122) $ (794)
-------- ------- ------------ -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,025 1,965 328 1,883
Lease concessions-effective rents 72 69 13 138
Bad debt expense 1 -- -- 18
Gain on land conveyance (33) -- -- --
Leasing commissions paid (271) (260) (18) (125)
Changes in:
Prepaid expenses and other assets 195 (145) (21) (122)
Due to affiliates 5 (7) 10 42
Accounts payable and accrued liabilities (25) (2) (208) (16)
Security deposits and deferred revenue 103 (30) 2 (21)
Real estate taxes payable (16) (37) -- (92)
-------- ------- ------------ -----------
Total adjustments 2,056 1,553 106 1,705
-------- ------- ------------ -----------
Net cash provided by (used in) operating
activities 918 521 (16) 911
-------- ------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Building and tenant improvements (810) (592) (30) (336)
Proceeds from land conveyance 61 -- -- --
-------- ------- ------------ -----------
Net cash used in investing activities (749) (592) (30) (336)
-------- ------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan refinancing 26,650 -- -- --
Principal payments on notes (26,621) (241) (55) (411)
Loan fees (307) -- -- --
-------- ------- ------------ -----------
Net cash used in financing activities (278) (241) (55) (411)
-------- ------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents (109) (312) (101) 164
Cash and cash equivalents at beginning of
period 806 1,118 1,219 1,055
-------- ------- ------------ -----------
Cash and cash equivalents at end of period $ 697 $ 806 $1,118 $ 1,219
-------- ------- ------------ -----------
-------- ------- ------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 2,409 $ 2,546 $ 533 $ 2,369
-------- ------- ------------ -----------
-------- ------- ------------ -----------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. General
Prudential-Bache/Equitec Real Estate Partnership, A California Limited
Partnership (the "Partnership"), was formed on June 19, 1984 and will terminate
on December 31, 2009 unless ended sooner under the provisions of the Amended and
Restated Limited Partnership Agreement (the "Partnership Agreement"). The
Partnership was formed for the purpose of purchasing, holding, operating,
leasing and selling various real properties. The general partners of the
Partnership are Prudential-Bache Properties, Inc. ("PBP") and Glenborough
Corporation (formerly Glenborough Realty Corporation) and Robert Batinovich
(together, "Glenborough") (collectively, the "General Partners"). At December
31, 1996, the Partnership owned five properties.
Glenborough replaced Equitec Financial Group, Inc. ("EFG") as co-General
Partner of the Partnership on May 4, 1994 when EFG transferred its general
partner interest to Glenborough and withdrew and retired as general partner.
This substitution occurred as a result of the consent of a majority of interests
of the limited partners approving the transaction which was detailed in a proxy
statement dated December 1, 1993. PBP continues as co-General Partner.
Glenborough Corporation, continues to receive fees and expense reimbursements in
the same amount that was provided in the property management agreement (see Note
E).
B. Summary of Significant Accounting Policies
Basis of accounting principles
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partners to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Partnership's fiscal year for financial reporting purposes now ends on
December 31. On November 21, 1994, the General Partners approved a change in the
Partnership's fiscal year for financial reporting purposes from October 31 to
December 31.
The consolidated financial statements of the Partnership include the accounts
of Montrose Office Park Limited Partnership, in which the Partnership owns a
100% interest.
Investment in property
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," was adopted by the Partnership as of January 1, 1995. Under SFAS No. 121,
impairment for properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties' carrying value. If a property is determined to be
impaired, it should be recorded at the lower of its carrying value or its
estimated fair value. For properties that are held for sale, SFAS No. 121 states
that they should be reported at the lower of carrying amount or estimated fair
value less cost to sell. The implementation of SFAS No. 121 did not affect the
Partnership's results of operations or financial position for the year ended
December 31, 1995.
Prior to 1995, property investments were carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. A provision for loss on impairment of assets would
be recorded when estimated amounts recoverable through future operations and
ultimate disposition of the property on an undiscounted basis were below
depreciated cost.
Property investments are depreciated or amortized using the straight-line
method over their estimated economic lives which range from 3 to 30 years
depending on property type.
6
<PAGE>
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
Other assets
Other assets consist primarily of loan fees, lease concessions, and lease
commissions. Loan fees are capitalized and amortized on a straight-line basis
over the terms of the respective loans. Lease concessions and lease commissions
are deferred and amortized over the terms of the respective leases.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
The following is a reconciliation of net loss for financial reporting
purposes with net loss for tax reporting purposes.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1996 1995 1994
------- ------- -----
(in thousands)
<S> <C> <C> <C>
Net loss, financial statement basis $(1,138) $(1,032) $(819)
Rental concessions recorded for books not tax -- (120) --
Book depreciation in excess of tax depreciation 481 475 338
------- ------- -----
Net loss, tax basis $ (657) $ (677) $(481)
------- ------- -----
------- ------- -----
</TABLE>
Profit and loss allocations/distributions
For financial and tax reporting purposes, net profits or losses are allocated
99% to the Unitholders and 1% to the General Partners.
No distributions have been paid since 1988.
C. Investment in Property and Notes Payable
The Partnership's properties, net of accumulated depreciation, and the
related debt at December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
Investment Notes Payable
------------------- -------------------
Property 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Montrose Office Park, Rockville, MD $16,541 $16,786 $ -- $13,055
Gateway and Park Plaza, Sacramento, CA 6,623 7,104 -- 6,439
Totem Valley Business Center, Kirkland, WA 4,891 5,074 -- 3,645
Poplar Tower, Memphis, TN 3,698 3,736 -- 3,482
Less: allowance for loss on impairment of assets (500) (500) -- --
Note payable -- -- 26,650 --
------- ------- ------- -------
$31,253 $32,200 $26,650 $26,621
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
During 1996, a small parcel of land was conveyed to a local jurisdiction to
be used for a road project at the Totem Valley property for proceeds of
approximately $61,000 resulting in a gain of approximately $33,000.
Loans held on two of the Partnership's properties, Poplar Towers and Montrose
Office Park matured on October 1, 1996 and December 31, 1996, respectively. As a
result, the Partnership, on December 20, 1996, pursuant to a loan agreement
dated December 13, 1996 with Wells Fargo Bank, N.A. ("WFB"), consolidated and
refinanced all of the existing loans on the five properties owned by the
Partnership (the "Loan"). WFB held mortgages on the Partnership's three
remaining properties Totem Valley, Gateway and Park Plaza.
7
<PAGE>
The Loan from WFB is in the amount of $26,650,000 (which approximates the
total amount of the individual loans on each of the five properties). The Loan
will mature on December 9, 1997 and bears interest at LIBOR + 3.5% reset
monthly. The Loan is secured by Deeds of Trust on each of the respective
properties and by security interests in the respective property's leases and
rents, and equipment and fixtures contained therein. The Partnership has the
ability to refinance the loan at maturity based on the current appraised values
on the underlying properties.
D. Lease Agreements
The provisions of the leases generally require tenants to pay for their
proportionate share of increases in building operating costs and property tax
increases. Future minimum rental receipts due under the noncancellable operating
leases with tenants are as follows:
Year ending
December 31, (in thousands)
- - ---------------- --------------
1997 $ 6,169
1998 5,499
1999 4,187
2000 2,578
2001 1,551
Thereafter 4,178
--------------
Total $ 24,162
--------------
--------------
For the years ended December 31, 1996, December 31, 1995 and October 31,
1994, respectively, the following properties' rental revenues exceeded 15% of
the Partnership's total revenue:
1996 1995 1994
---- ---- ----
Montrose Office Park 40% 43% 46%
Poplar Towers 19 -- --
During the year ended December 31, 1996, Technical Resources, Inc., a tenant
in the Montrose Office Park property, did account for approximately 10% of the
Partnership's total revenue and, on an annualized basis, had its new lease
covered the entire year, would have accounted for approximately 10% of the
Partnership's total revenue for the year ended December 31, 1995. During the
year ended October 31, 1994, Intersolv, a tenant in the Montrose Office Park
property, accounted for approximately 10% of the Partnership's total revenue.
8
<PAGE>
E. Related Parties
The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; property management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
November 1,
Year ended through Year ended
December 31, December 31, October 31,
1996 1995 1994 1994
- - -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
PBP and affiliates
General and administrative $ 60 $112 $ 10 $ 136
----- ----- ------ -----------
Glenborough Corporation and affiliates
Property management fee and expenses 634 663 103 212
Leasing commissions 131 136 18 31
----- ----- ------ -----------
765 799 121 243
----- ----- ------ -----------
$825 $911 $131 $ 379
----- ----- ------ -----------
----- ----- ------ -----------
</TABLE>
- - ---------------
PBP is not being paid on a current basis for general and administrative
expenses other than printing costs. During the year ended December 31, 1996, PBP
was reimbursed approximately $48,000, which was applied to prior years' general
and administrative expenses due. At December 31, 1996 and 1995, the total
liability outstanding to PBP was approximately $705,000 and $700,000,
respectively.
The Partnership maintains an investment account with the Prudential
Institutional Liquidity Portfolio Fund, an affiliate of PBP, for investment of
its available cash in short-term instruments pursuant to the guidelines
established by the Partnership Agreement.
Prudential Securities Incorporated ("PSI"), an affiliate of PBP, owns 180
depositary units at December 31, 1996.
9
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
All of the Partnership's properties generated cash flow from operations after
debt service during the year ended December 31, 1996.
During the year ended December 31, 1996, the Partnership incurred
approximately $810,000 for building and tenant improvements primarily at the
Montrose Office Park, Totem Valley, Park Plaza, and Poplar Towers properties. Of
this amount, approximately $525,000 was expended at Montrose Office Park
primarily for build out of space for new tenants. In order to keep the
Partnership's properties competitive, building and tenant improvements will
continue to be required. Building and tenant improvements for 1997 are currently
budgeted for approximately the same amount as 1996.
The Partnership had cash of approximately $697,000 at December 31, 1996. PBP
is not being reimbursed for its general and administrative expenses (other than
printing) on a current basis. During the year ended December 31, 1996, PBP was
reimbursed approximately $48,000, which was applied to prior years' general and
administrative expenses due. At December 31, 1996, the total liability
outstanding (including printing) was approximately $705,000. Cash on hand plus
any cash generated from operations may not be sufficient to fund building and
tenant improvements and to pay deferred general and administrative expenses.
The Partnership in December 1996 consolidated and refinanced all of the
existing loans on the five properties. The new loan in the amount of $26,650,000
will mature in December 1997 and is secured by all of the properties.
The General Partners continue to evaluate all of the properties' prospects
for eventual sale. It is unlikely that investors will be returned a significant
portion of their original investment upon the sale of the properties and
ultimate dissolution of the Partnership.
Results of Operations
1996 versus 1995
- - ----------------
The Partnership's net loss increased by approximately $106,000 for the year
ended December 31, 1996 as compared to 1995 for the reasons discussed below.
Property operating revenue increased by approximately $5,000 for the year
ended December 31, 1996 as compared to 1995 as increases at the Totem Valley,
Gateway, Park Plaza and Poplar Tower properties were more than offset by a
decrease at Montrose Office Park due to a major tenant's lease expiring in May
1996. The increase and decreases in operating revenue were primarily the result
of corresponding changes in average occupancies.
Recovery of expenses decreased by approximately $165,000 for the year ended
December 31, 1996 as compared to 1995 primarily due to lower tenant recoveries
at the Montrose property as a result of a major tenant's lease expiring in May
1996, partially offset by increases in expense recoveries at the Totem Valley
property.
Property operating expenses increased by approximately $60,000 for the year
ended December 31, 1996 as compared to 1995 due primarily to increased utility
expenses, building management fees and salaries at Poplar Towers.
Depreciation and amortization increased by approximately $60,000 for the year
ended December 31, 1996 as compared to 1995 due to increased building and tenant
improvement additions.
General and administrative expenses decreased by approximately $159,000 for
the year ended December 31, 1996 as compared to 1995 primarily due to appraisal
fees recorded in 1995.
1995 versus 1994
- - ----------------
The Partnership's net loss increased by approximately $238,000 for the year
ended December 31, 1995 as compared to the year ended October 31, 1994 ("fiscal
1994") for the reasons discussed below.
Operating revenues decreased by approximately $15,000 for the year ended
December 31, 1995 as compared to fiscal year 1994 as increases at the Totem
Valley, Gateway, and Poplar Tower properties were
10
<PAGE>
more than offset by decreases at the Park Plaza and Montrose properties. The
increases and decreases in operating revenue were primarily the result of
corresponding changes in average occupancies.
Recovery of expenses increased by approximately $12,000 for the year ended
December 31, 1995 as compared to fiscal 1994 primarily due to greater tenant
work order recoveries at the Montrose property offset by decreases in various
other expense recoveries at all of the properties.
Property operating expenses increased by approximately $102,000 during the
year ended December 31, 1995 as compared to fiscal 1994 due primarily to
increased tenant work order costs and increased utilities expenses.
Depreciation and amortization increased by approximately $82,000 during the
year ended December 31, 1995 as compared to fiscal 1994 due to increased
building and tenant improvement additions.
Interest expense increased by approximately $47,000 during the year ended
December 31, 1995 as compared to fiscal 1994 because of increases in interest
rates on variable rate notes.
11
<PAGE>
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:
Prudential-Bache/Equitec Real Estate Partnership
P.O. Box 2016
Peck Slip Station
New York, N.Y. 10272-2016
12
<PAGE>
P.O. Box 2016
BULK RATE
Peck Slip Station
U.S. POSTAGE
New York, NY 10272
PAID
Automatic Mail
PBEQ86/170368
<PAGE>
Ex-27
ART. 5 FDS FOR 4TH QUARTER 10-K
ARTICLE 5
LEGEND
The Schedule contains summary financial information
extracted from the financial statements for P-B Equitec Real
Estate and is qualified in its entirety by reference to such
financial statements
/LEGEND
RESTATED
CIK 0000757191
NAME P-B Equitec Real Estate
MULTIPLIER 1
FISCAL-YEAR-END Dec-31-1996
PERIOD-START Jan-1-1996
PERIOD-END Dec-31-1996
PERIOD-TYPE 12-Mos
CASH 697,000
SECURITIES 0
RECEIVABLES 1,396,000
ALLOWANCES 500,000
INVENTORY 0
CURRENT-ASSETS 0
PP&E 0
DEPRECIATION 51,387,000
TOTAL-ASSETS 19,634,000
CURRENT-LIABILITIES 33,346,000
BONDS 1,363,000
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 5,333,000
TOTAL-LIABILITY-AND-EQUITY 33,346,000
SALES 0
TOTAL-REVENUES 6,414,000
CGS 0
TOTAL-COSTS 5,123,000
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 2,429,000
INCOME-PRETAX 0
INCOME-TAX 0
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (1,138,000)
EPS-PRIMARY (16.38)
EPS-DILUTED 0
EX-13.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-14271
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP, A California Limited
Partnership
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-2949474
- - --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0128
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 214-1016
N/A
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- - ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Investment in property:
Land $ 10,842 $ 10,842
Buildings, improvements and equipment 40,881 40,545
Less: Accumulated depreciation (20,613 ) (19,634)
Allowance for loss on impairment of assets (500 ) (500)
--------- ------------
Net investment in property 30,610 31,253
Cash and cash equivalents 1,222 697
Prepaid expenses and other assets, net 1,126 1,396
--------- ------------
Total assets $ 32,958 $ 33,346
--------- ------------
--------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable $ 26,650 $ 26,650
Due to affiliates 683 705
Accounts payable and accrued liabilities 365 266
Security deposits and deferred revenue 348 335
Real estate taxes payable 65 57
--------- ------------
Total liabilities 28,111 28,013
--------- ------------
Partners' capital
Unitholders (68,795 depositary units issued and outstanding) 5,106 5,587
General partners (259 ) (254)
--------- ------------
Total partners' capital 4,847 5,333
--------- ------------
Total liabilities and partners' capital $ 32,958 $ 33,346
--------- ------------
--------- ------------
- - ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
<TABLE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the six months ended For the three months ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
- - -------------------------------------------------------------------------------------------------------
(in thousands, except for depositary unit amounts)
<S> <C> <C> <C> <C>
REVENUES
Operating $3,223 $3,055 $1,622 $1,545
Recovery of expenses 187 215 96 95
------------ ------------ ------------ ------------
3,410 3,270 1,718 1,640
------------ ------------ ------------ ------------
EXPENSES
Property operating 1,300 1,401 637 697
Interest 1,213 1,216 617 607
Depreciation and amortization 1,237 1,029 622 486
General and administrative 146 143 75 69
------------ ------------ ------------ ------------
3,896 3,789 1,951 1,859
------------ ------------ ------------ ------------
Net loss $ (486) $ (519) $ (233) $ (219)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
ALLOCATION OF NET LOSS
Unitholders $ (481) $ (514) $ (231) $ (217)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
General partners $ (5) $ (5) $ (2) $ (2)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per depositary unit $(6.99) $(7.47) $(3.35) $(3.15)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- - -------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
GENERAL
UNITHOLDERS PARTNERS TOTAL
- - ---------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Partners' capital (deficit)--December 31, 1996 $5,587 $ (254) $5,333
Net loss (481) (5) (486)
-------------- -------- ------
Partners' capital (deficit)--June 30, 1997 $5,106 $ (259) $4,847
-------------- -------- ------
-------------- -------- ------
- - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
June 30, June 30,
1997 1996
- - ---------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (486) $ (519)
------------ ------------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,237 1,029
Lease concessions-effective rents 38 42
Leasing commissions paid (133) (96)
Changes in:
Prepaid expenses and other assets, net 107 (4)
Due to affiliates (22) 3
Accounts payable and accrued liabilities 99 81
Security deposits and deferred revenue 13 48
Real estate taxes payable 8 17
------------ ------------
Total adjustments 1,347 1,120
------------ ------------
Net cash provided by operating activities 861 601
CASH FLOWS FROM INVESTING ACTIVITIES
Building improvements (336) (212)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes -- (103)
------------ ------------
Net increase in cash and cash equivalents 525 286
Cash and cash equivalents at beginning of period 697 806
------------ ------------
Cash and cash equivalents at end of period $1,222 $1,092
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $1,091 $1,078
------------ ------------
------------ ------------
- - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential-Bache Properties, Inc. ('PBP') and Glenborough Corporation and
Robert Batinovich (together, 'Glenborough') (collectively, the 'General
Partners'), the financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of Prudential-Bache/Equitec Real Estate Partnership, A California Limited
Partnership (the 'Partnership') as of June 30, 1997, and the results of its
operations for the six and three months ended June 30, 1997 and 1996 and its
cash flows for the six months ended June 30, 1997 and 1996. However, the
operating results for the interim periods may not be indicative of the results
expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1996.
B. Related Parties
The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; property management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, 1997 June 30, 1996
- - -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
PBP and affiliates:
General and administrative $ 48 $ 53
------ ------
Glenborough and affiliates:
Property management fee and expenses 322 292
Leasing commissions 31 63
------ ------
353 355
------ ------
$ 401 $ 408
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
Three months Three months
ended ended
June 30, 1997 June 30, 1996
- - -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
PBP and affiliates:
General and administrative $ 24 $ 25
------ ------
Glenborough and affiliates:
Property management fee and expenses 188 132
Leasing commissions 3 52
------ ------
191 184
------ ------
$ 215 $ 209
------ ------
------ ------
</TABLE>
5
<PAGE>
PBP is not being paid on a current basis for general and administrative
expenses other than printing costs. During the six and three months ended June
30, 1997, PBP was reimbursed approximately $100,000 and $50,000, respectively,
which was applied to prior years' general and administrative expenses due. At
June 30, 1997 and December 31, 1996, the total liability outstanding to PBP was
approximately $644,000 and $705,000, respectively. At June 30, 1997, the total
liability outstanding to Glenborough was approximately $39,000.
The Partnership maintains an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of PBP, for investment of its available
cash in short-term instruments pursuant to the guidelines established by the
Partnership Agreement.
Prudential Securities Incorporated ('PSI'), an affiliate of PBP, owns 180
depositary units at June 30, 1997.
6
<PAGE>
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP,
A California Limited Partnership
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership generated cash from operations of $861,000 for the six months
ended June 30, 1997. During the six months ended June 30, 1997, the Partnership
disbursed approximately $336,000 for building and tenant improvements, primarily
related to the Montrose, Poplar Towers and Totem Valley properties. In order to
keep the properties competitive, building and tenant improvements will continue
to be required.
The Partnership had cash of approximately $1,222,000 at June 30, 1997. PBP is
not being reimbursed for its general and administrative expenses (other than
printing) on a current basis; however, a payment for past due amounts of $50,000
was made in the second quarter of 1997. At June 30, 1997, the total liability
outstanding (including printing) was approximately $644,000. Cash on hand plus
any cash generated from operations may not be sufficient to fund building and
tenant improvements and to pay deferred general and administrative expenses.
The General Partners of the Partnership believe that now is the appropriate
time to sell the Partnership's properties given current market conditions,
increased availability of investor capital, increased purchasing activity and a
favorable interest rate environment, among other reasons.
The General Partners are preparing a proxy statement to be filed with the
Securities and Exchange Commission that will be sent to limited partners
requesting their consent to sell the Partnership's properties by an auction
process and to liquidate the Partnership, among other matters.
Results of Operations
The Partnership's net loss decreased by approximately $33,000 and increased
by approximately $14,000 for the six and three months ended June 30, 1997 as
compared to the corresponding period in 1996 for the reasons discussed below.
Property operating revenues increased by approximately $168,000 and $77,000
for the six and three months ended June 30, 1997 as compared to the
corresponding period in 1996 as increases in Montrose, Poplar Towers, Gateway
and Totem Valley more than offset the decrease at the Park Plaza property. The
increase in operating revenues was primarily the result of increased occupancies
at the properties
Recovery of expenses decreased by approximately $28,000 for the six months
ended June 30, 1997 as compared to the corresponding period in 1996 primarily
due to lower tenant recoveries at the Montrose property as a result of new
tenant leases.
Property operating expenses decreased by $101,000 and $60,000 for the six and
three months ended June 30, 1997 as compared to the corresponding period in 1996
primarily due to decreases in property taxes and general repairs and
maintenance.
Depreciation and amortization increased by approximately $208,000 and
$136,000 for the six and three months ended June 30, 1997 as compared to the
corresponding period in 1996 primarily due to the amortization of loan fees
relating to the December 1996 mortgage refinancing.
7
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3 and 4 Amended and Restated Limited Partnership Agreement of
Registrant dated February 11, 1985 (incorporated by
reference to Amendment No. 1 to the Registrant's Form S-11
Registration Statement filed on February 14, 1985) and
Amendment No. 1 thereto dated April 18, 1985
(incorporated by reference to Form 8-A filed on
February 28, 1986), as amended on March 25, 1994
(incorporated by reference to Registrant's 1994 Annual
Report on Form 10-K)
Amended and Restated Agreement between General Partners dated
December 28, 1990 (incorporated by reference to the Registrant's
1990 Annual Report filed on Form 10-K)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Prudential-Bache/Equitec Real Estate Partnership,
A California Limited Partnership
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/ Eugene D. Burak Date: August 14, 1997
- - -------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
9
<PAGE>
Ex-27
ART. 5 FDS FOR 2ND QUARTER 10-Q
ARTICLE 5
LEGEND
The Schedule contains summary financial information
extracted from the financial statements for Prudential-Bache
Equitec Real Estate and is qualified in its entirety by
reference to such financial statements
/LEGEND
RESTATED
CIK 0000757191
NAME Prudential-Bache Equitec Real Estate
MULTIPLIER 1
FISCAL-YEAR-END Dec-31-1997
PERIOD-START Jan-1-1997
PERIOD-END Jun-30-1997
PERIOD-TYPE 6-Mos
CASH 1,222,000
SECURITIES 0
RECEIVABLES 1,126,000
ALLOWANCES 500,000
INVENTORY 0
CURRENT-ASSETS 0
PP&E 51,723,000
DEPRECIATION 20,613,000
TOTAL-ASSETS 32,958,000
CURRENT-LIABILITIES 28,111,000
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 4,847,000
TOTAL-LIABILITY-AND-EQUITY 32,958,000
SALES 0
TOTAL-REVENUES 3,410,000
CGS 0
TOTAL-COSTS 2,683,000
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 1,213,000
INCOME-PRETAX 0
INCOME-TAX 0
INCOME-CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (486,000)
EPS-PRIMARY (6.99)
EPS-DILUTED 0
7
- - --------------------------------------------------------------------------------
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
CONSENT CARD
CONSENT IS SOLICITED ON BEHALF OF PRUDENTIAL-BACHE PROPERTIES, INC. ("PB
PROPERTIES"), AS MANAGING GENERAL PARTNER AND ON BEHALF OF PRUDENTIAL-
BACHE/EQUITEC REAL ESTATE PARTNERSHIP (THE "PARTNERSHIP"). PB PROPERTIES,
GLENBOROUGH CORPORATION AND ROBERT BATINOVICH, WHICH TOGETHER
CONSTITUTE ALL OF THE GENERAL PARTNERS OF THE PARTNERSHIP, RECOMMEND
CONSENT ON THE PROPOSAL.
Unitholders should not send any Depositary Units with this Consent card.
Unitholders are urged to mark, sign, date and mail promptly this Consent card in
the envelope provided. The Consent card must be received at the address of the
Soliciting Agent by no later than 10:00 a.m., New York time on November 24, 1997
(unless such date and/or time is extended in the sole discretion of PB
Properties acting as managing general partner of the Partnership).
THIS CARD SHALL BE DEEMED TO APPROVE THE PROPOSAL IF NOT INDICATED TO THE
CONTRARY.
EACH CONSENT CARD MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each sign. If signing as
executor, administrator, attorney, trustee, or guardian, give title as such. If
a corporation, sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
THE PLAN
The undersigned hereby votes all Units beneficially owned by the undersigned
with respect to the Plan as follows:
|_| Approve |_| Disapprove |_| Abstain
Please refer to the Statement Furnished in Connection with the Solicitation of
Consents, dated _________, for a full description of the Plan.
------------------------------
Signature
------------------------------
Dated: ___________________, 1997
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD USING THE ENCLOSED ENVELOPE.
- - --------------------------------------------------------------------------------
PROPOSED AMENDMENTS TO
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
of
PRUDENTIAL-BACHE/EQUITEC REAL ESTATE PARTNERSHIP
A California Limited Partnership
Article V., Section 1 of the Amended and Restated Limited Partnership
Agreement of Prudential-Bache/Equitec Real Estate Partnership (the "Agreement")
is hereby amended by adding to the end of such section the following new
paragraph:
Nothwithstanding any other provision of this Agreement, the
General Partners shall have the authority to effectuate the
Plan, as such term is defined in the Statement Furnished in
Connection with the Solicitation of Consents, dated as of
October , 1997, filed with the Securities and Exchange
Commission on Schedule 13E-3 on October , 1997 and as such
document may be amended (the "Statement").
Article V., Section 2(i) of the Agreement is hereby amended by deleting the
period at the end of such subsection and inserting at the end of such subsection
the following:
; and, provided further, that any Affiliate of Glenborough
Corporation and/or Robert Batinovich may purchase all or
any of the Assets (as such term is defined in the Statement)
from the Partnership.
<PAGE>
IN WITNESS WHEREOF, the General Partners have, after receiving the
requisite consent of the Unitholders, executed the Amendments to the Partnership
Agreement, effective as of November , 1997.
PRUDENTIAL-BACHE PROPERTIES, INC.,
a Delaware corporation
By:__________________________________
Title:_______________________________
GLENBOROUGH CORPORATION,
a California corporation
By:__________________________________
Title:_______________________________
ROBERT BATINOVICH,
in his individual capacity as
General Partner
By:__________________________________
- - --------------------------------------------------------------------------
LIMITED APPRAISAL IN A
RESTRICTED REPORT
POPLAR TOWERS OFFICE BUILDING
6263 Poplar Avenue
Memphis, Tennessee
- - --------------------------------------------------------------------------
As of October 21, 1996
Prepared For:
PRUDENTIAL SECURITIES, INCORPORATED
One Seaport Plaza, 16th Floor
New York, New York 10292-0116
Prepared By:
CUSHMAN & WAKEFIELD OF GEORGIA, INC.
Valuation Advisory Services
3300 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
<PAGE>
This is a Limited Appraisal in a Restricted Appraisal Report which is intended
to comply with the reporting requirements set forth under Standards Rule 2-2(c)
of the Uniform Standards of Professional Appraisal Practice for a Restricted
Appraisal Report. As such, it presents no discussion of the data, reasoning, an
analyses that were used in the appraisal process to develop the appraiser's
opinion of a fee simple value range. This report is not intended to be
understood properly without the supporting documentation concerning the data,
reasoning, and analyses which will be retained the appraiser's files. The depth
of discussion contained in this report is specific to the needs of the client
and for the intended use stated below. The appraiser is not responsible for
unauthorized use of this report.
Furthermore, in accordance with the prior agreement between the client and the
appraiser, this report is the result of a limited appraisal process, in that
certain allowable departures from specific guidelines of the Uniform Standards
of Professional Appraisal Practice were invoked. Specifically, the valuation is
limited to the discounted cash flow method in the Income Approach, and no
inspection was performed. The information relative to the property and the
market were provided via telephone interviews and desk top review. The appraiser
has appraised and inspected the property on previous occasions, and this
knowledge was relied upon for this desktop review/ limited appraisal. The
intended user of this report is warned that the reliability of the value
conclusion provided may be impacted because of these departures from specific
guidelines of USPAP.
<PAGE>
CLIENT: Mr. Chester Piskorowski
Senior Vice President
Specialty Finance Department
Prudential Securities Incorporated
New York, New York 10292-0116
APPRAISER: John S. Schneider, Jr., MAI
Associate Director
Cushman & Wakefield of Georgia, Inc.
3300 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
SUBJECT: POPLAR TOWERS Office Building
6263 Poplar Avenue
Memphis, Shelby County, Tennessee
PURPOSE OF THE APPRAISAL:
The purpose of this appraisal is to estimate, a market value range for the
unencumbered leased fee interest in the subject property.
INTENDED USE OF REPORT:
The sole purpose is to assist Prudential Bache in making internal corporate
decisions regarding this property.
INTEREST VALUED: Leased Fee - The property is 93 percent occupied. We
relied on a rent roll provided by the property management
company as well as information obtained by telephone from the
on site property manager.
VALUE ESTIMATE: Market Value as defined by the Tenth Edition of the Appraisal
of Real Estate, Page 18.
EFFECTIVE DATE OF VALUE: October 21, 1996
DATE OF REPORT: October 21, 1996
APPRAISAL DEVELOPMENT AND REPORTING PROCESS: In preparing this appraisal, the
appraiser performed a desktop review of the rent roll and financial statements
provided and made telephone inqueries into the current market conditions in the
subject location. This information was applied in the discounted cash flow model
used in the Income Approach, the only approach employed in this limited
appraisal.
<PAGE>
This Restricted Appraisal Report sets forth only the appraiser's conclusions.
Supporting documentation will be retained in the appraiser's files.
REAL ESTATE APPRAISED: Poplar Towers Office Building
6263 Poplar Avenue
Memphis, Shelby County, Tennessee
The subject property consists of a 11 story Class B office building constructed
in 1974 and containing 100,901+/-square feet of rentable building area, on a
site of 3.862+/-acres. The building is currently reported to be 93 percent
occupied by approximately 33 tenants.
HIGHEST AND BEST USE:
HIGHEST AND BEST USE AS THOUGH VACANT: Office Use
HIGHEST AND BEST USE AS IMPROVED: Existing Office Building Use.
TOTAL CONCLUDED VALUE RANGE: $4,800,000 to $5,000,000
($47.57 ________ to $49.55 per SF)
ASSUMPTIONS AND LIMITING CONDITIONS:
1. As agreed upon with the client prior to the preparation of this appraisal,
this is a Limited Appraisal because it invokes the Departure Provision of
the Uniform Standards of Professional Appraisal Practice. As such,
information pertinent to the valuation has not been considered and/or the
full valuation process has not been applied. The reliability of the value
conclusion provided herein may be less than that of a complete appraisal.
2. This is a Restricted Appraisal Report which is intended to comply with the
reporting requirements set forth under Standard Rule 2-2(c) of the Uniform
Standards of Professional Appraisal Practice for a Restricted Appraisal
Report. As such, it does not include full discussions of the data,
reasoning, or analyses that were used in the appraisal process to develop
the appraiser's opinion of a fee simple value range. Supporting
documentation concerning the data, reasoning and analyses will be retained
in the appraiser's files. The information contained in this report is
specific to the needs of the client and for the intended use stated in this
report. The appraiser is not responsible for unauthorized use of this
report.
<PAGE>
3. Per our contractual agreement, the appraisers performed a desktop review
and did not travel to the subject location or inspect the property for this
limited appraisal. However, we last inspected the property in November,
1995, for a previous appraisal.
4. No responsibility is assumed for legal or title considerations. Title to
the property is assumed to be good and marketable unless otherwise stated
in this report.
5. The property is appraised free and clear of any or all liens and
encumbrances unless otherwise stated in this report.
6. Responsible ownership and competent property management are assumed unless
otherwise stated in this report.
7. The information furnished by others is believed to be reliable. However, no
warranty is given for its accuracy.
8. Any plot plans and illustrative material in this report are included only
to assist the reader in visualizing the property.
9. It is assumed that there are no hidden or unapparent conditions of the
property, subsoil, or structures that render it more or less valuable. No
responsibility is assumed for such conditions or for arranging for
engineering studies that may be required to discover them.
10. It is assumed that there is full compliance with all applicable federal,
state, and local environmental regulations and laws unless otherwise stated
in this report.
11. It is assumed that all applicable zoning and use regulations and
restrictions have been complied with, unless a nonconformity has been
stated, defined, and considered in this appraisal report.
12. It is assumed that all required licenses, certificates of occupancy or
other legislative or administrative authority from any local, state, or
national governmental or private entity or organization have been or can be
obtained or renewed for any use on which the value estimates contained in
this report are based.
13. It is assumed that the utilization of the land and improvements is within
the boundaries or property lines of the property described and that there
is no encroachment or trespass unless otherwise stated in this report.
<PAGE>
14. The appraiser is not qualified to detect hazardous waste and/or toxic
materials. Any comment by the appraiser that might suggest the possibility
of the presence of such substances should not be taken as confirmation of
the presence of hazardous waste and/or toxic materials. Such determinators
would require investigation by a qualified expert in the field of
environmental assessment. The presence of substances such as asbestos,
urea-formaldehyde foam insulation, or other potentially hazardous materials
may affect the value of the property. The appraiser's value estimate is
predicated on the assumption that there is no such material on or in the
property that would cause a loss in value unless otherwise stated in this
report. No responsibility is assumed for any environmental conditions, or
for any expertise or engineering knowledge required to discover them. The
appraiser's descriptions and resulting comments are the result of the
routine observations made during the appraisal process.
15. Unless otherwise stated in this report, the subject property is appraised
without a specific compliance survey having been conducted to determine if
the property is or is not in conformance with the requirements of the
Americans with Disabilities Act. The presence of architectural and
communications barriers that are structural in nature that would restrict
access by disabled individuals may adversely affect the property's value,
marketability, or utility.
16. The distribution, if any, of the total valuation in this report between
land and improvements applies only under the stated program of utilization.
The separate allocations for land and buildings must not be used in
conjunction with any other appraisal and are invalid if so used.
17. Possession of this report, or a copy thereof, does not carry with it the
right of publication. It may not be used for any purpose by any person
other than the party to whom it is addressed without the written consent of
the appraiser, and in any event, only with proper written qualifications
and only in its entirety.
18. Neither all nor any part of the contents of this report (especially any
conclusions as to value, the identity of the appraiser, or the firm with
which the appraiser is connected) shall be disseminated to the public
through advertising, public relations, news sales, or other media without
prior written consent and approval of the appraiser.
<PAGE>
CERTIFICATION:
We certify that, to the best of our knowledge and belief:
1. John S. Schneider, Jr., MAI, has not inspected the property for this
limited appraisal. Inspections have been made in prior years, however.
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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
6. No one provided significant professional assistance to the persons signing
this report.
7. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Departure Provision of the Uniform
Standards of Professional Appraisal Practice of the Appraisal Foundation
and the Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, John S. Schneider, Jr., MAI, has completed
the requirements of the continuing education program of the Appraisal
Institute.
/s/ JOHN S. SCHNEIDER
--------------------------------
John S. Schneider, Jr., MAI
Associate Director
Certified Real Estate Appraiser
Georgia No. CG001397
<PAGE>
QUALIFICATIONS OF JOHN S. SCHNEIDER, JR., MAI
- - --------------------------------------------------------------------------------
Real Estate Background:
Management and valuation/consulting practitioner experience with:
Deloitte & Touche
Ernst & Young
Couch & Associates
Landauer & Associates
Type of Services Provided:
Valuation of all types of commercial, office, industrial, hotel and retail
properties. Analysis and valuation of special purpose properties including
resort communities, hotels, planned unit development and mixed-use
developments.
Counseling and consultation include appraisal review, investment analysis,
disposition counseling, computer analysis of mortgage and lease portfolios
and computer modeling for real estate investment analysis.
Experience:
Mr. Schneider has been engaged in the real estate valuation and counseling
profession since 1973. He has performed and managed engagements for a
variety of clients including institutional investors, banks, Fortune 500
corporations, developers, and individuals. He has managed and performed real
estate valuation and consulting engagements encompassing all types of
commercial real estate. His experience demonstrates competency to appraise
and analyze a variety of property types including regional malls, large-scale
multi-tenant office and mixed-use properties, shopping centers, industrial
plants, hotels, distressed properties, residential subdivisions, resort
developments, and warehouses. Counseling engagements include market and
feasibility studies, loan portfolio evaluation, analysis of purchase offers,
REO portfolio cash flow studies, and highest and best use investigation. He
has designed and developed software for a variety of real estate applications
including the appraisal or evaluation of multi-tenant commercial developments.
Affiliations:
MAI-Appraisal Institute
Certified Real Estate Appraiser--Geogia No. CGOO1387
Education:
North Carolina State University, B.A. (Economics)
Successfully completed various courses offered by the Institute required for
the MAI designation and continuing education requirements.
=====================================================
COMPLETE APPRAISAL
OF REAL PROPERTY
MONTROSE OFFICE PARK
3200-3206 Tower Oaks Boulevard
Rockville, Montgomery County, Maryland
=====================================================
IN A SELF CONTAINED REPORT
As of May 20, 1997
Prepared For:
PRUDENTIAL BACHE PROPERTIES, INC.
199 Water Street, 16th Floor
New York, New York 10292
Prepared By:
CUSHMAN & WAKEFIELD OF WASHINGTON, D.C., INC.
Valuation Advisory Services
1875 Eye Street, NW
Suite 700
Washington, D.C. 20006
<PAGE>
CUSHMAN & WAKEFIELD OF WASHINGTON, D.C., INC. CUSHMAN & WAKEFIELD(R)
1875 Eye Street, N.W., Suite 700 A ROCKEFELLER GROUP COMPANY
Washington, D.C. 20006
(202) 467-0600
May 20, 1997
Mr. Chester Piskorowski
PRUDENTIAL BACHE PROPERTIES, INC.
199 Water Street, 16th Floor
New York, New York 10292
RE: Complete Appraisal of Real Property
Montrose Office Park
3200-3206 Tower Oaks Boulevard
Rockville, Montgomery County, Maryland
Dear Mr. Piskorowski:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Washington, D.C., Inc. is pleased to transmit our
appraisal report estimating the market value of the leased fee estate in the
referenced real property. This is a Complete Appraisal prepared in accordance
with the Uniform Standards of Professional Appraisal Practice of The Appraisal
Foundation and the Appraisal Institute, including the Competency Provision. The
results of the appraisal are being conveyed in a Self Contained Report.
As specified in the Letter of Engagement, the value opinion reported below
is qualified by certain assumptions, limiting conditions, certifications, and
definitions, which are set forth in the report. We call your attention to the
following special assumptions:
This report was prepared for Prudential Bache Properties, Inc. and is
intended only for the specified use of the client, its subsidiaries, and/or
affiliates. It may not be distributed to or relied upon by other persons or
entities without written permission of the Appraiser.
The property was inspected and the report prepared by Kelly Small under the
supervision of Donald R. Morris, MAI.
As a result of our analysis, we estimated the market value of the leased
fee estate in the referenced property, and subject to the assumptions, limiting
conditions, certifications and definitions set forth herein, as of May 20, 1997,
is:
TWENTY MILLION FOUR HUNDRED THOUSAND DOLLARS
$20,400,000
We previously appraised the subject property in November 1995 and November
1996 for $16,100,000 and $18,300,000, respectively. The increase in our value
conclusions is attributable to significant leasing at the subject property, as
well as improved market conditions.
<PAGE>
Mr. Chester Piskorowski
May 20, 1997 Page 2
Based upon the available data in the marketplace, as well as our
discussions with area brokers familiar with this property type, a marketing time
of twelve months would appear to be reasonably appropriate for the subject
property as of a current date.
This letter is invalid as an opinion of value if detached from the report,
which contains the text, exhibits, and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF WASHINGTON, D.C. INC.
/s/ KELLY J. SMALL
- - ----------------------------------------------
Kelly J. Small
Appraiser
Washington, D.C. Valuation Advisory Services
Maryland Certified General Appraiser No. 20143
/s/ DONALD R. MORRIS, MAI
- - -----------------------------------------------
Donald R. Morris, MAI
Manager, Director
Washington, D.C. Valuation Advisory Services
Maryland Certified General Appraiser No. 07220
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
================================================================================
Property Name: Montrose Office Park
Address: 3200-3206 Tower Oaks Boulevard
Rockville, Montgomery County, Maryland
General Overview: The property is located on the east side
of Tower Oaks Boulevard in Rockville,
Montgomery County, Maryland. There are
several business and industrial parks
adjacent to the subject. The Montgomery
County office market has begun to show
some improvement in rental rates,
occupancy levels, and investment
activity over the last year.
Assessor's Account Number: 04-01995656
Interest Appraised: Leased Fee
Date of Value: May 20, 1997
Date of Inspection: May 20, 1997
Ownership: Montrose Office Park Limited Partnership
Land Area: 18.60 Acres; 810,216 Square Feet
Current Property Assessment (1996/97) $17,150,020
Current Property Taxes: $248,331 or $1.34 per Square Foot
Zoning: I-3, Technology and Industrial Park
Highest and Best Use
If Vacant: Office development, as market conditions
permit.
As Improved: Continued use as a multi-tenant office
building
Improvements
Type: Four (4) four-story brick office
buildings, with a three-level parking
structure for 311 vehicles and surface
parking for 370 cars.
Year Built: 1981
Net Rentable Area (NRA): 186,138 SF
Condition: Good
================================================================================
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
================================================================================
OPERATING DATA AND FORECASTS
Current Occupancy: 95+/-%
Forecasted Average Occupancy: 95+/-%
Average Annual Rental Rate: $16.68 per SF, Full Service
Current Market Rental Rate $18.00 per SF, Full Service
Operating Expenses
Actual (1994) $5.78 per SF
Actual (1995) $5.66 per SF
Actual (1996) $5.67 per SF
Budget (1997): $6.33 per SF
Forecasted (FY 1998) $6.29 per SF
VALUE INDICATORS
COST APPROACH: Not Applicable
SALES COMPARISON APPROACH
Indicated Value: $21,300,000
or $114.43 per SF
INCOME CAPITALIZATION APPROACH--DISCOUNTED CASH FLOW ANALYSIS
Market Rent Growth Rate: 5.0% Yrs 1-2; 3.5% thereafter
Expense Growth Rate: 3.5%
Credit Loss: 2.0%
Vacancy Between Tenants: 2 months (weighted)
Renewal Probability: 70%
Tenant Improvements
New Leases: $10.00 per SF
Renewal Leases: $3.00 per SF
Terminal Capitalization Rate 10.25%
Cost of Sale at Reversion: 3.0%
Discount Rate: 12.0%
Indicated Value: $20,400,000
or $109.60 per SF
VALUE CONCLUSION $20,400,000
Value Per Square Foot: $109.60
Implicit Capitalization Rate: 10.1%
Exposure Time Implicit
in Market Value Conclusion: 12+/-months
Marketing Time: 12 +/- months
================================================================================
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
================================================================================
SPECIAL ASSUMPTIONS AFFECTING VALUATION:
Please refer to our complete list of Assumptions and Limiting Conditions at the
end of this report.
Job No. 97-0079
================================================================================
<PAGE>
TABLE OF CONTENTS
================================================================================
PAGE
SUBJECT AND AREA PHOTOGRAPHS.............................................. 1
INTRODUCTION.............................................................. 1
Identification of Property............................................. 6
Property Ownership and Recent History.................................. 6
Purpose and Function of Appraisal...................................... 6
Extent of the Appraisal Process........................................ 6
Date of Value and Property Inspection.................................. 7
Property Rights Appraised.............................................. 7
Definitions of Value, Interest Appraised, and Other Pertinent Terms.... 7
Legal Description...................................................... 8
REGIONAL ANALYSIS......................................................... 9
NEIGHBORHOOD ANALYSIS..................................................... 25
OFFICE MARKET ANALYSIS.................................................... 28
PROPERTY DESCRIPTION...................................................... 41
Site Description....................................................... 41
Improvements Description............................................... 43
REAL ESTATE TAXES AND ASSESSMENTS......................................... 46
ZONING.................................................................... 49
HIGHEST AND BEST USE ANALYSIS............................................. 50
VALUATION PROCESS......................................................... 52
SALES COMPARISON APPROACH................................................. 54
INCOME APPROACH........................................................... 62
RECONCILIATION AND FINAL VALUE ESTIMATE................................... 82
ASSUMPTIONS AND LIMITING CONDITIONS....................................... 84
CERTIFICATION OF APPRAISAL................................................ 86
ADDENDA................................................................... 87
================================================================================
<PAGE>
SUBJECT AND AREA PHOTOGRAPHS
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Building 3200
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Building 3202
================================================================================
-1-
<PAGE>
SUBJECT AND AREA PHOTOGRAPHS
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Building 3204
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Building 3206
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<PAGE>
SUBJECT AND AREA PHOTOGRAPHS
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Exterior View of Parking Garage
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Interior View of Parking Garage
================================================================================
-3-
<PAGE>
SUBJECT AND AREA PHOTOGRAPHS
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Typical Lobby
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Typical Office Space
================================================================================
-4-
<PAGE>
SUBJECT AND AREA PHOTOGRAPHS
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Perkin Elmer Lab Space
-------------------------------------------------
[PHOTO]
-------------------------------------------------
View of Park Entrance
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-5-
<PAGE>
SUBJECT AND AREA PHOTOGRAPHS
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Looking North Along Tower Oaks Boulevard
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Looking South Along Tower Oaks Boulevard
================================================================================
-6-
<PAGE>
INTRODUCTION
================================================================================
IDENTIFICATION OF PROPERTY
The subject property, known as Montrose Office Park, consists of four(4)
four-story multi-tenant Class B suburban office buildings with a three-level
parking structure for 311 vehicles and surface parking for 370 cars. The office
buildings were constructed in 1981 and contain 186,138 square feet of net
rentable area. The property is located on the east side of Tower Oaks Boulevard
and the street address is 3200-3206 Tower Oaks Boulevard, Rockville, Maryland.
The property is further identified by the State of Maryland Department of
Assessment and Taxation as account number 4-01995656. The zip code is 20852.
The improvements are located on an irregular shaped site that contains
810,216 square feet (or 18.6 acres) of land. The buildings are irregular in
shape, with a typical floor plate of approximately 12,000 square feet of net
rentable area. The property is currently 95 percent leased to 17 tenants. There
are currently two vacant spaces totaling 8,254 square feet.
PROPERTY OWNERSHIP AND RECENT HISTORY
Title to the property is vested in Montrose Office Park Limited
Partnership. The last transfer of the property occurred in June 1980 for a
consideration of $1,299,200. At the time of sale, the property comprised raw
land. There have been no other transfers and the property is not currently
listed for sale; however, it is our understanding that Prudential Bache is
interested in liquidating its partnership interest in the subject and the
property may be offered for sale in the near future. The appraisal will be used
to assist Prudential Bache in determining a sale price for the property.
PURPOSE AND FUNCTION OF APPRAISAL
The purpose of the appraisal is to provide an estimate of market value of
the leased fee estate interest of the subject property. The intended use of this
report is to assist the client in a possible disposition of the site.
EXTENT OF THE APPRAISAL PROCESS
In the process of preparing this appraisal, we:
o Inspected the exterior of the building and site improvements, and a
representative sample of tenant spaces with Ms. Marylou Thibodeau, the
on-site property manager;
o Conducted market inquiries into recent sales of similar buildings to
ascertain the sales prices per square foot, effective gross income
multipliers and capitalization rates. This process involved telephone
interviews with sellers, buyers and/or participating brokers;
o Reviewed the leasing policy, tenant build-out allowances, and history
of recent rental rates and occupancy with the ownership;
o Reviewed a detailed history of the income and expenses for 1993
through 1996, and a budget for 1997;
================================================================================
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<PAGE>
INTRODUCTION
================================================================================
o Conducted market research into occupancies, asking rents, and
operating expenses at competing buildings including interviews with
on-site managers and a review of our own database; and,
o Prepared the Sales Comparison and Income Approaches to value. The Cost
Approach was omitted due to the subjective nature of estimating
physical deterioration due to the age of the improvements and the
external/economic obsolescence.
DATE OF VALUE
The date of value is May 20, 1997, the last date of inspection.
PROPERTY RIGHTS APPRAISED
The value estimate set forth in this report reflects market value, as
defined, of the leased fee estate in the subject property.
DEFINITIONS OF VALUE, INTEREST APPRAISED, AND OTHER PERTINENT TERMS
The definition of market value, taken from the Uniform Standards of
Professional Appraisal Practice, 1995 Edition, published by The Appraisal
Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and seller
each acting prudently and knowledgeably, and assuming the price is not affected
by undue stimulus. Implicit in this definition is the consummation of a sale as
of a specified date and the passing of title from seller to buyer under
conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
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.
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.
Based upon the available sales data in the marketplace, as well as our
discussions with area brokers familiar with this property type, an exposure
time of approximately
================================================================================
-8-
<PAGE>
INTRODUCTION
================================================================================
twelve months is deemed to have been reasonable for the subject property as
of the date of valuation.
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.
Based on the improved sales data presented in this document, coupled with
our conversations with local property owners, brokers and management firms,
we estimate the appropriate marketing time to be twelve months for the
property.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by The Appraisal
Institute:
FEE SIMPLE ESTATE
Absolute ownership unencumbered by any other interest or estate, subject
only to the limitations imposed by the governmental powers of taxation,
eminent domain, police power, and escheat.
LEASED FEE ESTATE
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
MARKET RENT
The rental income that a property would most probably command on the open
market; indicated by the current rents paid and asked for comparable space
as of the date of the appraisal.
CASH EQUIVALENT
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
DISCOUNTED CASH FLOW (DCF) ANALYSIS
The procedure in which a discount rate is applied to a set of projected
income streams and a reversion. The analyst specifies the quantity,
variability, timing, and duration of the income streams as well as the
quantity and timing of the reversion and discounts each to its present
value at a specified yield rate. DCF analysis can be applied with any yield
capitalization technique and may be performed on either a lease-by-lease or
aggregate basis.
================================================================================
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<PAGE>
INTRODUCTION
================================================================================
MARKET VALUE AS IS ON APPRAISAL DATE
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
LEGAL DESCRIPTION
The land is legally described by metes and bounds as recorded in the Land
Records of Montgomery County, Maryland. A copy of the legal description is
included in the Addenda.
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-10-
<PAGE>
REGIONAL ANALYSIS
================================================================================
INTRODUCTION
The real estate market is affected by a range of supply and demand factors.
As examples, the growth trends in population and the number of households affect
the general demand for housing, offices, shopping centers, warehouses; the
employment opportunities and unemployment levels influence the ability or desire
to buy or rent and the quality/cost of the facilities sought; demographics
influence the types of units demanded; and general economic conditions affect
the attitudes of the populace towards the future.
The following analysis will review each of the major factors affecting the
supply and demand for real estate in the metropolitan area. The discussion is
organized to provide the reader with an overview of the area's geographic scope
and facilities infrastructure, followed by discussions of the key economic
factors affecting supply and demand under the following headings:
o Background
o Area Definition
o Infrastructure
o Population
o Employment and The Economy
o Household Demographics
o Recent Trends
BACKGROUND
Washington, D.C. is unique among American cities. As our nation's capital,
it serves as a focal point for our country both politically and economically. In
the role as host city for a major world power, it attracts people from all over
the world. Washington has been dubbed a "recession proof" city in that it is
insulated, as some have argued, from the full effects of economic ups and downs
by the stabilizing influence of the federal government as the area's biggest
employer. From the 1950s through the 1980s, the size of government continually
increased, which brought about an increase in government employment and
population in the Washington area.
AREA DEFINITION
The metropolitan Washington area is all of the Washington Metropolitan
Statistical Area (MSA) as defined by the U.S. Department of Commerce, Bureau of
the Census, as of June 1983. The Washington MSA includes: District of Columbia;
the Maryland Counties of Calvert, Charles, Frederick, Montgomery and Prince
George's; the Virginia Counties of Arlington, Fairfax, Loudoun, Prince William
and Stafford; and the Virginia independent Cities of Alexandria, Fairfax, Falls
Church, Manassas, and Manassas Park. Prior to the 1983 redefinition of the
Washington MSA, the Maryland counties of Calvert and Frederick and the Virginia
county of Stafford were excluded. The addition of these counties enlarged the
metropolitan area from approximately 2,800 square miles to 3,956 square miles.
Please refer to the Washington MSA map on the following page.
================================================================================
-11-
<PAGE>
REGIONAL ANALYSIS
================================================================================
[GRAPHICAL REPRESENTATION OF SUBJECT AREA MAP]
================================================================================
-12-
<PAGE>
REGIONAL ANALYSIS
================================================================================
Effective December 31, 1992, the Department of Commerce created a new
Washington-Baltimore-D.C.-MD-VA-WVa CMSA (consolidated metropolitan statistical
area) that includes the primary Washington, D.C. and Baltimore MSAs, plus a new
Hagerstown MSA and nine additional counties in Virginia and West Virginia. The
expanded market was created to reflect the area's household and employment
patterns and is highly touted by economic development agencies. The current
Washington, D.C. metropolitan area is the appropriate focus for this analysis,
however, since the pertinent market is more localized.
The population, housing and employment characteristics of the region are
best defined by starting at the area's central jurisdictions: the District of
Columbia, Arlington County, and the City of Alexandria; then moving outward to
the first suburban tier of counties: Fairfax County, City of Fairfax, City of
Falls Church, Prince George's County, and Montgomery County; and thence to the
outer tier of suburbs: Loudoun County, Prince William County, Manassas and
Manassas Park, Frederick County, Calvert County, Charles County, and Stafford
County.
INFRASTRUCTURE
TRANSPORTATION
The Capital Beltway (I-495) is one of the most important factors driving
development in the Washington area. It has tied the Maryland and Virginia
suburbs together and significantly influenced real estate investment patterns.
One of the primary results has been a steady rise in land prices in the vicinity
of the Beltway. Apartments, light industrial facilities, distribution
warehouses, and shopping centers have gone up wherever the Beltway crosses other
major highways. Interestingly, closer-in sites have often been by-passed in
favor of locations adjacent to the Beltway.
In addition to the Beltway, Washington is connected to I-95, the major
north-south interstate highway that extends most of the length of the Atlantic
coast, and I-66, an east-west highway that begins in Washington, D.C. and
connects westward to other interstate highways in Virginia and West Virginia.
The Washington Metropolitan Area Transit Authority (WMATA) provides transit
service in Maryland, the District of Columbia, and Virginia, including both
rapid rail and bus transportation. The rapid rail network, referred to as
Metrorail, will cover 103 miles with 86 stations in D.C., suburban Maryland and
Virginia when completed in the late 1990s. The construction of Metrorail has had
a major impact on land values around the stations and has spurred dramatic new
development, both in downtown Washington and in suburban areas. Major new office
and mixed use projects have been built around the Metro stops. In particular,
portions of downtown Washington and Arlington County have experienced an
economic revitalization due to the opening of Metrorail. Apartment projects
often market themselves as being close to Metrorail stations and typically
command rents at the high end of the market and achieve higher occupancies as a
result. The same could be said for various primary employment centers and major
retail facilities.
In terms of air transportation, the Washington area is served by three
major airports: Washington National, Baltimore/Washington International and
Washington Dulles International. Washington National, located in Arlington
County, is located four and one-half miles from the U.S. Capitol, and transports
over 16 million passengers per year. The airport
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REGIONAL ANALYSIS
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was built in the 1940s and is currently undergoing major renovations and
expansion, which primarily includes a new terminal building and improved
parking.
Washington Dulles International Airport is bisected by the Loudoun County,
Fairfax County line and lies in the western part of the MSA. The Dulles Access
Road provides quick access to the airport, along with the Capital Beltway
(I-495) which connects Fairfax County to the Washington metropolitan area. The
Dulles Toll Road is a commuter road bordering the Dulles Access Road that is
being studied for expansion and extension to Leesburg (Route 15) and past Dulles
Airport.
Opened in 1962, Dulles Airport has been an important factor in the growth
of the regional economy of Northern Virginia. In 1985, it became the fastest
growing airport in the United States. Currently 19 airlines service the airport
with 500 daily departures serving 30,000 passengers. Three major airlines have
established regional hubs here including United Airlines, Continental, and Delta
Airlines. Further, international carriers including Air France, British Airways,
All Nippon Airways, TWA, Lufthansa and Swiss Air.
The Baltimore/Washington International Airport (BWI) is located in the
southern portion of the Baltimore MSA in Anne Arundel County, ten miles from
downtown Baltimore, and 30 miles from Washington, D.C. This airport hosts 18
passenger airlines that provide direct air service to 135 cities in the United
States and Canada. BWI also provides service to air-freight carriers with its
110,000 square foot air cargo complex. When compared with Dulles and Washington
National Airport, BWI services 28 percent of commercial passengers, 38 percent
of commercial operations and 57 percent of freight customers. BWI has spawned
the development of 15 new business parks and several hotels, has created nearly
10,000 jobs, and has generated a state-wide economic impact of $1.7 billion in
the form of business sales made, goods and services purchased, and wages and
taxes paid.
GOVERNMENT SERVICES AND STRUCTURES
The Washington, D.C. metropolitan area contains fourteen different
municipal jurisdictions, including the District of Columbia, ten counties and
three cities in two states. Local governments provide typical municipal services
found in a major metropolitan area, including welfare and social services,
refuse collection, emergency services, public education, and a variety of
regulatory functions. Each municipality has its own zoning ordinance and
governmental structure.
In addition to the local governments, the District of Columbia is the
headquarters for the federal government. Major federal agencies are located
throughout the District of Columbia and many of the surrounding suburbs. The
support functions for many agencies have been relocated to the less expensive
suburbs.
The area is also served by several cross-jurisdictional agencies. These
include the Maryland National-Capital Park and Planning Commission (MNCPPC)
which provides planning and zoning coordination to the Maryland suburbs. The
Washington Metropolitan Area Transit Authority (WMATA), which was referred to
earlier, is the regional public transit authority. The Metropolitan Washington
Council of Governments performs studies on metropolitan economic and business
issues and promotes the region to outsiders.
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REGIONAL ANALYSIS
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PUBLIC AND PRIVATE AMENITIES
As the nation's capital, the District of Columbia houses many national
museums, monuments, and institutions that attract visitors to the area from
around the world. Washington, D.C. is one of the leading tourist destinations
for domestic travelers and foreign visitors to the United States.
In addition, the metropolitan area is a strong supporter of the performing
arts. The Kennedy Center is the area's main stage for plays, opera, and symphony
presentations, but there are indoor and outdoor stages and theaters in all of
the adjacent jurisdictions. Professional athletics are played at RFK Stadium
(football) in southeast Washington, D.C. and the U.S. Air Arena (basketball and
hockey) in Landover, Maryland. Baseball is played at Oriole Park at Camden Yard
in Baltimore.
The region also offers numerous private and public golf courses, municipal
parks, and bicycle and jogging trails. One unique feature of the region's
outdoor attractions is the C&O Canal. The canal is maintained as a national park
and follows the Maryland side of the Potomac River between Georgetown in
northwest Washington, D.C. and Cumberland, Maryland. The Potomac River is an
active recreational area for fishing and various kinds of boating.
The public and private primary schools in the region include many with
national standing. The school districts face the typical challenges encountered
in urban centers with mixes of high and low income neighborhoods and growing
immigrant populations without English language skills. On average, the suburban
school districts tend to be better funded than those in the District of
Columbia.
With respect to higher education, the region has a network of nationally
recognized universities and regional and community colleges, including George
Washington University, Georgetown University, American University, the
University of Maryland, Howard University, Gallaudet University, The University
of the District of Columbia, Catholic University, George Mason University, and
Trinity College.
In review, the metropolitan area has a well established infrastructure of
roadways, light rail and bus systems, airports, attractive business and
residential neighborhoods, and many quality of life features that continue to
make Washington, D.C. a desirable place to work and live. There are continuing
efforts by municipal agencies to improve public transportation, especially the
commuter rail system, so as to ease road congestion and lessen air pollution.
The District of Columbia and nearby suburban office concentrations remain the
area's primary business destinations. Thus, improvement of the public
transportation system to facilitate wider access to the District and, more
importantly, connecting the suburban business centers is essential for long-term
growth.
POPULATION
This section will examine the population size and age trends for the
metropolitan area. Employment, income, and household related demographics will
be reviewed separately.
According to Market Statistics' 1995 Demographics USA, the Washington, D.C.
MSA ranks fifth in the nation in terms of total population. The Washington area
increased in
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population by 20.7 percent between 1980 and 1990, or an average annual rate of
2.1 percent. The rate of growth has slowed somewhat with the population change
between 1990 and 1994 having decreased to 1.4 percent. Nonetheless, population
growth in the region during the 1980s far exceeded the growth during the 1970s,
when the region grew by an average of only 21,000 persons per year. During the
1980s, the region had an average growth of roughly 67,000 persons per year.
Interestingly, however, while there was an overall increase in population,
this increase was by no means uniform within the component jurisdictions of the
Washington MSA. The 1980s saw a shift in population from the inner-city and
close-in suburbs to the more remote suburban areas. The District of Columbia was
the big loser during this period with an average annual decline of 0.5 percent.
The annual rate of decline grew to 1.5 percent by 1994. The impact of declining
population and household levels in the District will be discussed further for
the subject's neighborhood and will be addressed in the market discussion.
In contrast, the inner suburbs had an annual average growth rate of 2.5
percent during the 1980s, with both Fairfax County, Virginia, and Montgomery
County, Maryland having growth rates of 3.7 percent and 3.1 percent,
respectively. Both counties were the main suburban benefactors of commercial
office and retail development for this period and population increases were
primarily concentrated in the outer portions of the counties. The growth in
these areas has decreased in the 1990s to an annual growth rate of 1.8 percent.
The largest population increases occurred in the outer suburbs, the areas
beyond the first tier communities surrounding the District. The average annual
rate of increase in these areas was 4.4 percent. However, the rate of increase
has fallen off since 1990 to 3.2 percent, a phenomena concurrent with the slow
down in the economy. The chart on the next page presents population data and the
average growth rates for the various jurisdictions in the MSA:
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REGIONAL ANALYSIS
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================================================================================
POPULATION CHANGES
1990 CENSUS ESTIMATES VERSUS 1980 CENSUS
================================================================================
| | Annual Average
Jurisdiction | Population (Thousands) | Growth Rate (%)
|=============================|==========================
| 1980 | 1990 | 1994 Est | 1980-1990 | 1990-1994 Est
=======================|=========|========|==========|===========|==============
District of Columbia | 638.3 | 606.9 | 570.2 | -0.4919 | -2.0157
- - -----------------------|---------|--------|----------|-----------|--------------
Arlington County | 152.6 | 170.9 | 171.4 | 1.1992 | 0.0975
- - -----------------------|---------|--------|----------|-----------|--------------
City of Alexandria | 103.2 | 111.2 | 114.3 | 0.7752 | 0.9293
=======================|=========|========|==========|===========|==============
Central Jurisdictions | 894.1 | 889 | 855.9 | -0.0570 | -1.2411
=======================|=========|========|==========|===========|==============
Fairfax County | 596.9 | 818.6 | 910.1 | 3.7142 | 3.7259
- - -----------------------|---------|--------|----------|-----------|--------------
City of Fairfax | 19.4 | 19.6 | 19.6 | 0.1031 | 0.0000
- - -----------------------|---------|--------|----------|-----------|--------------
City of Falls Church | 9.5 | 9.6 | 9.6 | 0.1053 | 0.0000
- - -----------------------|---------|--------|----------|-----------|--------------
Montgomery County | 579.1 | 757 | 797.4 | 3.0720 | 1.7790
- - -----------------------|---------|--------|----------|-----------|--------------
Prince George's County | 665.1 | 729.3 | 764.7 | 0.9653 | 1.6180
=======================|=========|========|==========|===========|==============
Inner Suburban Area | 1870 | 2334.1 | 2501.4 | 2.4818 | 2.3892
=======================|=========|========|==========|===========|==============
Loudoun County | 57.4 | 86.1 | 96.1 | 5.0000 | 3.8715
- - -----------------------|---------|--------|----------|-----------|--------------
Prince William County | 144.7 | 215.7 | 246.3 | 4.9067 | 4.7288
- - -----------------------|---------|--------|----------|-----------|--------------
Cities of Manassas/ | 22 | 34.7 | 40.6 | 5.7727 | 5.6676
Manassas Park | | | | |
- - -----------------------|---------|--------|----------|-----------|--------------
Frederick County | 114.8 | 150.2 | 164.2 | 3.0836 | 3.1070
- - -----------------------|---------|--------|----------|-----------|--------------
Calvert County | 34.6 | 51.4 | 60 | 4.8555 | 5.5772
- - -----------------------|---------|--------|----------|-----------|--------------
Charles County | 72.7 | 101.2 | 109.7 | 3.9202 | 2.7997
- - -----------------------|---------|--------|----------|-----------|--------------
Stafford County | 40.5 | 61.2 | 74.2 | 5.1111 | 7.0806
=======================|=========|========|==========|===========|==============
Outer Suburban Area | 486.7 | 700.5 | 791.1 | 4.3929 | 4.3112
=======================|=========|========|==========|===========|==============
METRO AREA TOTAL | 3250.8 | 3923.6 | 4148.4 | 2.0696 | 1.9098
================================================================================
Source: U.S. Census Data and 1994 Estimate Provided By Equifax National
Decision Systems, Inc.
Note: The list of municipalities corresponds to the DC-VA-MD MSA prior to
the December 31, 1992 expansion.
We noted earlier that the District of Columbia actually lost population
over the past ten years while the suburban areas actually grew. It is important
to note, however, that this phenomenon is being seen in most major metropolitan
areas in the United States. Nevertheless, in relative terms, the population
decreases in Washington, D.C. versus population increases in suburban areas are
significantly less than that seen in other parts of the country, thus attesting
to the continuing strength and viability, albeit somewhat lessened given the
more recent recessionary trends, of the metropolitan area's inner city.
AGE DISTRIBUTION
As can be seen in the following chart, the percentage of the region's
infant and elderly populations increased between 1980 and 1990. Interestingly,
however, the number of working aged residents increased the most in absolute
numbers. The number of youths and teenagers shrank. The table on the following
page displays the data.
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=====================================================================
POPULATION TRENDS BY AGE
(COUNCIL OF GOVERNMENTS MEMBERS)
=====================================================================
| 1980 | 1990 | % Change
=====================|================|===============|==============
0 to 4 Years | 192,372 | 262,578 | +36.5%
---------------------|----------------|---------------|--------------
5 to 17 Years | 636,733 | 585,949 | -7.2%
---------------------|----------------|---------------|--------------
18 to 64 Years | 2,020,989 | 2,509,056 | +24.1%
---------------------|----------------|---------------|--------------
Over 65 Years | 235,875 | 317,538 | +34.6%
=====================================================================
Source: 1980 and 1990 Census Data; Metropolitan Washington Council of
Governments: Where We Live: Housing and Household Characteristics in
the Washington Metropolitan Region, April, 1993.
The District of Columbia was the only major jurisdiction to lose working
age adults (down 1.9 percent). The largest gains among working age adults were
in the inner suburbs of Montgomery and Prince George's County in Maryland and
Arlington, Fairfax, and Loudoun Counties in Virginia. The increases in the
elderly population were spread across all municipalities.
As of the 1990 Census, the population was distributed with 21 percent under
30 years, 39 percent between the ages of 30 and 49 years, and 12 percent between
50 and 64 years of age. These are the key working age groupings.
EMPLOYMENT AND THE ECONOMY
The employment picture has a very significant effect on the demand for real
estate. High unemployment rates and business downsizing, for example, reduce the
number of households able to buy homes. Similarly, a growth economy creates
increasing demand for goods and services. This section will review the recent
trends and the outlook for employment in the Washington, D.C. region.
EMPLOYMENT CHARACTERISTICS
The table on the next page shows the area's total employment as a percent
of total employment for each industry group for the past eight years, and the
year-to-year growth rates in total employment.
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<TABLE>
<CAPTION>
================================================================================================
NON-AGRICULTURAL EMPLOYMENT
PERCENT SHARE OF TOTAL EMPLOYMENT (%)
================================================================================================
Industry | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | ANNUAL
| | | | | | | | (Dec) | GROWTH %
=====================|=======|=======|=======|=======|=======|=======|=======|========|=========
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing | 4.1 | 4.0 | 3.9 | 3.8 | 3.6 | 4.0 | 3.9 | 4.9 | 2.4
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
Construction | 6.6 | 6.6 | 6.0 | 4.8 | 4.4 | 4.4 | 4.8 | 4.0 | -4.9
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
T.C.U. (1) | 4.9 | 4.9 | 4.8 | 4.8 | 4.7 | 4.5 | 4.6 | 4.5 | -1.0
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
Wholesale Trade | 3.6 | 3.5 | 3.5 | 3.4 | 3.3 | 3.3 | 3.3 | 3.2 | -1.4
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
Retail Trade | 16.2 | 16.1 | 15.9 | 15.6 | 15.4 | 15.6 | 15.7 | 16.6 | 0.3
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
F.I.R.E. (2) | 5.9 | 5.8 | 5.9 | 5.9 | 5.8 | 5.7 | 5.9 | 5.5 | -0.8
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
Services | 32.4 | 33.0 | 33.7 | 34.3 | 34.9 | 35.1 | 35.4 | 36.3 | 1.5
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
State Government | 3.7 | 3.6 | 3.6 | 3.6 | 3.6 | 3.7 | 3.6 | 3.4 | -1.0
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
Local Government | 6.0 | 6.1 | 6.4 | 6.7 | 6.7 | 6.9 | 6.9 | 7.3 | 2.7
- - ---------------------|-------|-------|-------|-------|-------|-------|-------|--------|---------
Federal Government | 16.6 | 16.4 | 16.3 | 17.1 | 17.5 | 16.8 | 15.9 | 14.4 | -1.7
=====================|=======|=======|=======|=======|=======|=======|=======|========|=========
Total Employment | 2,167 | 2,226 | 2,242 | 2,190 | 2,186 | 2,317 | 2,373 | 2,425 | 1.5
(Thousands) | | | | | | | | |
=====================|=======|=======|=======|=======|=======|=======|=======|========|=========
Yr-to-Yr Growth (%) | N/A | +2.7 | +0.7 | -2.3 | -0.2 | +5.6 | +2.4 | +2.2 | N/A
================================================================================================
</TABLE>
(1) Transportation, Communications, Utilities
(2) Finance, Insurance, Real Estate
Source: U.S. Department of Labor, Bureau of Labor Statistics, Wage and Salary
Employment, 1988-1993; Obtained From the District of Columbia Department
of Employment Services
The region enjoyed a period of unusual growth during the 1980s. The peak
year for job growth in the region was 1984, when growth reached 107,000 jobs.
The growth fell to 100,000 in 1985, and to 82,000 jobs in 1986. From 1986 to
1988, job growth settled at around 80,000 to 90,000 jobs per year, or in the
four percent range. Job growth dropped to 59,500 jobs (2.9 percent) in 1989, and
declined by another two percent to only 15,900 jobs in 1990. By this time, the
economy was being affected by the national recession with the area's total
employment declining by 52,100 jobs (minus 2.3 percent) in 1991 and remaining
relatively flat in 1992. From 1992 to 1993, however, the area experienced 5.6
percent growth. This growth was found in the suburban areas as opposed to the
District of Columbia and was evenly distributed through all industry types. The
average growth rate for the 1988 to 1995 period reflects a 1.5 percent per year
average.
During 1994, employment in Northern Virginia grew by a strong 3.5 percent
but in the Maryland suburbs, the figure was only 2.1 percent while for the
District of Columbia it was less than 1 percent. Job growth in the region fell
below the average for the nation of 2.5 percent.
Although the federal government has historically been the major employer in
the region, its share of employment has remained around 15 to 17 percent. The
aggregate federal employment grew at an average annual rate of 1.7 percent
between 1988 and 1995 and was 14.4 percent of total civilian employment in 1995.
The most dramatic change in employment in the Washington area has been in
the private sector, particularly the emergence of the service industry as the
fastest growing and now largest employment opportunity. In 1960, the services
industry employed 18 percent of all non-agricultural workers and has grown to
36.3 percent by 1995. Retail and wholesale trades
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REGIONAL ANALYSIS
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have maintained a steady portion of total employment, thus indicating that
employment in these sectors expands and contracts with the economy.
Construction employment fell dramatically in 1991. The construction boom of
the late 1980s came to an abrupt halt by late 1990, and the percent share of
employment held by the construction sector fell from 6.6 percent in 1988 and
1989 to 4.0 percent in 1995. The average annual rate of decline over the period
was 4.9 percent.
We noted earlier a growing diversification of the area's employment base.
The following list of major employers in the Washington area reflects the
growing diversity of the local economy, the continuing influece of educational
institutions, and the emergence of service-oriented firms.
================================================================
LARGEST PRIVATE EMPLOYERS
RANKED BY TOTAL EMPLOYEES IN METRO AREA
================================================================
| | Metro Area
Rank | Company Name | Employees
========|=====================================|=================
1 | Inova Health Systems | 9,500
--------|-------------------------------------|-----------------
2 | Hechts | 8,000
--------|-------------------------------------|-----------------
3 | Medlantic Healthcare Group | 6,000
--------|-------------------------------------|-----------------
4 | Long & Foster Real Estate | 5,300
--------|-------------------------------------|-----------------
5 | Shoppers Food Warehouse | 3,800
--------|-------------------------------------|-----------------
6 | Booz Allen & Hamilton | 3,100
--------|-------------------------------------|-----------------
7 | Dyncorp | 3,000
--------|-------------------------------------|-----------------
8 | Holy Cross Hospital | 2,300
--------|-------------------------------------|-----------------
9 | Providence Hospital | 2,000
--------|-------------------------------------|-----------------
10 | Alexandria Hospital | 1,742
================================================================
Source: Washington Business Journal, November 17-23, 1995
If the federal government were included in the above list, the Department
of Defense would be the largest local employer, with over 86,000 employees. The
next closest is the Department of Health and Human Services with over 30,000
employees. The Treasury, Justice, Postal Service, and Commerce Departments all
have over 20,000 employees, and are larger individual employers than any other
local private firm.
The local governments are also major employers in the region. For example,
the City of Alexandria had over 5,100 employees between the city government,
Alexandria Hospital, and the public school system. Arlington, Fairfax, and
Loudoun Counties have, respectively, over 6,800, 25,500, and 3,900 employees for
the same functions. Montgomery County and Prince George's Counties are similarly
large local employers.
UNEMPLOYMENT RATES
According to the Census reports, the Washington region has one of the
highest labor force participation rates in the country, with more than 75
percent of the population between the ages of 16 and 65 being part of the labor
pool. This is ten percent higher than the national average.
For most of the 1980s, the demand for workers was increasing at a faster
rate than the number of workers in the area, causing a labor shortage. The 1991
through 1993 recession,
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however, halted job growth in the area and drove up unemployment rates. The
related statistics are summarized below.
================================================================================
UNEMPLOYMENT RATES
================================================================================
Year | 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995
| | | | | | | | (Nov)
=================|======|=======|=======|=======|=======|=======|=======|=======
Washington MSA | 2.9% | 2.7% | 3.4% | 4.5% | 5.0% | 4.5% | 4.1% | 3.9%
- - -----------------|------|-------|-------|-------|-------|-------|-------|-------
United States | 5.5% | 5.3% | 5.5% | 6.7% | 7.4% | 6.8% | 6.1% | 5.3%
===============================================================================
Source: Metropolitan Council of Governments: Economic Trends in
Metropolitan Washington, 1988-1991 (The unemployment rates are not
seasonally adjusted.) Updated figures including 1992 through
year-to-date 1995 obtained from the District of Columbia Department of
Employment Services.
The outlook for employment in the region continues to be strong despite the
recent recession. Obviously, federal and local government employment is a major
contributor to the region's stability. Most of the swings in employment have
been experienced in the construction trades and retail employment. These last
two sectors are expected to remain soft for the next few years with slow gains
made as the economy stabilizes and demand for new housing and commercial
construction increases.
EMPLOYMENT OUTLOOK
The Greater Washington Research Center reported that growth in the
Washington area economy finally returned during the latter part of 1993 after
staggering through the previous six years. In early 1994, most of the nine
indicators that the research group uses to track the health of the economy and
to predict its direction were up, the only exception being the employment index
which showed the number of jobs increasing at a pace somewhat slower than the
seasonal norm. On the positive side, however, the number of jobs increased by
the largest margin since mid-1993. Job gains in the private sector seem to be
leading those in the government.
The indicators utilized by the Research Center seem to suggest that the
economy is continuing to gain strength. However, the level of improvement still
falls short of generating the number of jobs the Washington area produced during
the boom of the 1980s. The number of jobs in the area increased by 18,900 in
March but the total number of jobs so far this year is still short of
pre-recession peak employment.
Job gains have been concentrated in the government and service sector, with
employment in retailing and construction still relatively depressed. The new
jobs numbers may be understated because they don't include self-employment. In
addition to employment, other guideposts to the state of the region's economic
health -- airport boardings, classified advertising lineage and the national
consumer confidence index -- all improved in 1994.
Even though the recovery in the Washington area may be slow, the region is
strong economically. The office vacancy rate in the Washington area is below
that in most metropolitan areas and unemployment is lower than the national
average. The indicators that
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the Greater Washington Research Center uses to forecast economic growth six to
nine months from now were up as well, albeit less strongly.
Increases in the sales of durable goods, in the number of business
telephone lines installed, in housing sales, in the Johnston, Lemon Index of
local stocks and in the national leading index, produced a modest gain of 0.09
percent in March.
Overall, the region's 1993 performance was described as a year of recovery
as evidenced by the net increase in wage and salary jobs, with the services and
government sectors adding the most positions. For 1994, we witnessed further
employment gains for the region and a strengthening economy, as the recovery
broadened and deepened. However, there is concern among area economists that
1996 results will lag 1995 due to the effect of higher interest rates.
HOUSEHOLD DEMOGRAPHICS
One of the more important demographic factors influencing the demand for
goods and services is the household. The household is the basic consuming unit
in the housing market. It is defined by the U.S. Census as a person or group of
people who jointly occupy a dwelling unit and who constitute a single economic
unit for the purposes of meeting housing expenses. The household unit can be a
family, two or more individuals living together, or a single person.
The historical household growth patterns help define the region and are
shown in the following table. The forecasts were published by Equifax National
Decision Systems and were tabulated for them by an econometric modeling service
associated with a major university.
The figures show that the number of households in the region grew at an
average annual rate of 2.4 percent during the 1980s. The rate has slowed to
about 2.1 percent per year for 1990 through 1994, and is projected to slow to
about 1.5 percent for the next five years. As with the population figures
presented earlier, household formation has become negative in the District of
Columbia. However, the inner suburbs have showed continued growth with the
strongest counties being Fairfax and Prince George's. The outer suburbs had the
strongest 1980s and early 1990s growth rates, but are projected to slow to an
average annual rate of 2.6 percent.
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<TABLE>
<CAPTION>
===================================================================================================
HOUSEHOLD CHANGES 1990 CENSUS ESTIMATES VERSUS 1980 CENSUS
===================================================================================================
| Households | Annual Average
Jurisdiction | (Thousands) | Growth Rate (%)
|=============================================|============================
| | | | | | 1990- | 1993-
| 1980 | 1990 | 1994 | 1999 | 1980- | 1994 | 1999
| | | Est. | Fcst | 1990 | Est. | Fcst
========================|============|==========|==========|==========|=========|========|=========
<S> <C> <C> <C> <C> <C> <C> <C>
District of Columbia | 253.1 | 249.6 | 240.8 | 231.1 | -0.1 | -0.9 | -0.8
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Arlington County | 71.6 | 78.5 | 79.2 | 80.0 | 1.0 | 0.2 | 0.2
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
City of Alexandria | 49.0 | 53.3 | 56.1 | 58.2 | 0.9 | 1.3 | 0.7
========================|============|==========|==========|==========|=========|========|=========
Central Jurisdictions | 373.7 | 381.4 | 376.1 | 369.3 | 0.2 | -0.3 | -0.4
========================|============|==========|==========|==========|=========|========|=========
Fairfax County | 205.2 | 292.3 | 331.3 | 373.7 | 4.3 | 3.3 | 2.6
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
City of Fairfax | 6.9 | 7.4 | 7.8 | 8.1 | 0.7 | 1.4 | 0.8
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
City of Falls Church | 4.3 | 4.2 | 4.3 | 4.4 | -0.2 | 0.6 | 0.5
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Montgomery County | 207.2 | 282.2 | 304.6 | 326.5 | 3.6 | 2.0 | 1.4
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Prince George's Cnty | 224.8 | 258.0 | 281.7 | 308.1 | 1.5 | 2.3 | 1.9
========================|============|==========|==========|==========|=========|========|=========
Inner Suburban Area | 648.4 | 844.1 | 929.7 | 1,020.8 | 3.0 | 2.5 | 2.0
========================|============|==========|==========|==========|=========|========|=========
Loudoun County | 18.7 | 30.5 | 35.3 | 39.1 | 6.3 | 3.9 | 2.2
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Prince William Cnty | 43.8 | 69.7 | 81.7 | 93.8 | 5.9 | 4.3 | 2.9
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Cities of Manassas/ | 6.9 | 11.7 | 14.3 | 17.0 | 7.0 | 5.6 | 3.8
Manassas Park | | | | | | |
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Frederick County | 37.5 | 52.6 | 59.8 | 66.0 | 4.0 | 3.4 | 2.1
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Calvert County | 10.7 | 17.0 | 20.6 | 23.4 | 5.9 | 5.3 | 2.7
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Charles County | 21.4 | 32.9 | 37.6 | 42.0 | 5.4 | 3.6 | 2.3
- - ------------------------|------------|----------|----------|----------|---------|--------|---------
Stafford County | 12.2 | 19.4 | 24.3 | 27.9 | 5.9 | 6.3 | 2.0
========================|============|==========|==========|==========|=========|========|=========
Outer Suburban Area | 151.2 | 233.8 | 273.6 | 309.2 | 5.5 | 4.3 | 2.6
========================|============|==========|==========|==========|=========|========|=========
REGION TOTAL | 1173.3 | 1459.3 | 1579.4 | 1699.3 | 2.4 | 2.1 | 1.5
===================================================================================================
</TABLE>
Source: U.S. Census Data Provided By National Decision Systems, Inc.
Note: The list of municipalities corresponds to the DC-VA-MD MSA prior to
the December 31, 1992 expansion.
The key items relating to Household (HH) Income and Statistics relating to
persons per dwelling unit (DU) are summarized below.
<TABLE>
<CAPTION>
=================================================================================================================================
SELECTED HOUSEHOLD DEMOGRAPHICS FOR THE METROPOLITAN AREA
=================================================================================================================================
Category | 1990 | 1995 Estimate | 2000 | % Change | % Change
| | | Forecast | 1990-1995 | 1995-2000
=========================|==================|=====================|===================|====================|=====================
<S> <C> <C> <C> <C> <C>
Average HH Income | $55,693 | $67,747 | $89,806 | 21.6% | 32.6%
- - -------------------------|------------------|---------------------|-------------------|--------------------|---------------------
Median HH Income | $46,196 | $55,684 | $68,889 | 20.5% | 23.7%
=========================|==================|=====================|===================|====================|=====================
Population by HH | % Family HH | 81.1% | % Non-Family HH | 16.4% |
Type (1990) | | | | |
=========================|==================|=====================|===================|====================|=====================
No. Of Persons | One | Two | Three | Four | Five or More
=========================|==================|=====================|===================|====================|=====================
Persons Per DU | 24.9% | 30.8% | 18.5% | 15.3% | 10.5%
(% of Total) | | | | |
=========================|==================|=====================|===================|====================|=====================
Characteristics: | Single Male | Single Female | Married Couple | Other Family Head | Non-Family Head
=========================|==================|=====================|===================|====================|=====================
HH Type (% of Total) | 10.5% | 14.4% | 51.7% | 15.4% | 8.0%
=================================================================================================================================
</TABLE>
Source: U.S. Census Data and Projections Provided by Equifax National
Decision Systems, Inc.
================================================================================
-23-
<PAGE>
REGIONAL ANALYSIS
================================================================================
Since 1980 there has been a drop in household size and, correspondingly,
a growth in the number of non-family households. Married couples continue to
represent over 50 percent of the total households. Single person households grew
at an annual rate of 2.5 percent and non-family households grew at an annual
rate of 6.1 percent during the last decade while single parent households grew
at an annual rate of 3.0 percent during the 1980s. The growth in the single
person and non-family household categories of households contributes to housing
demand, which generates demand across the economy.
Another important issue affecting the demand for real estate is household
income. The following table shows the percent distribution of income within the
different jurisdictions.
<TABLE>
<CAPTION>
======================================================================================================
1994 PERCENT DISTRIBUTION OF HOUSEHOLD INCOME
======================================================================================================
Jurisdiction | Less Than | $25- | $35- | $50- | Over | No. Of
| $25K | 34.9K | 49.9K | 74.9K | $75K | Household
============================|=============|==========|==========|===========|==========|==============
<S> <C> <C> <C> <C> <C> <C>
District of Columbia | 33.4 | 13.3 | 15.6 | 16.5 | 21.2 | 240,777
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Arlington County | 17.0 | 11.2 | 17.2 | 22.3 | 32.3 | 79,254
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
City of Alexandria | 17.4 | 13.4 | 21.0 | 22.0 | 26.3 | 56,113
============================|=============|==========|==========|===========|==========|==============
Central Jurisdictions | 27.9 | 12.8 | 16.7 | 18.4 | 24.2 | 378,144
============================|=============|==========|==========|===========|==========|==============
Fairfax County | 8.5 | 6.6 | 12.5 | 26.2 | 46.1 | 331,334
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
City of Fairfax | 13.4 | 10.2 | 15.3 | 30.7 | 30.4 | 7,775
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
City of Falls Church | 15.5 | 8.7 | 15.0 | 23.8 | 37.0 | 4,284
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Montgomery | 13.0 | 8.7 | 14.6 | 22.8 | 40.9 | 304,627
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Prince George's | 18.2 | 13.2 | 20.0 | 26.4 | 22.6 | 281,732
============================|=============|==========|==========|===========|==========|==============
Inner Suburban Area | 12.9 | 9.3 | 15.5 | 25.2 | 37.1 | 929,752
============================|=============|==========|==========|===========|==========|==============
Loudoun County | 10.8 | 8.0 | 17.0 | 32.6 | 31.5 | 35,267
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Prince William County | 10.4 | 9.2 | 19.8 | 33.6 | 27.1 | 81,669
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Cities of Manassas/ | 27.5 | 28.4 | 53.3 | 57.4 | 33.5 | 14,340
Manassas Park | | | | | |
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Frederick County | 20.4 | 13.0 | 22.6 | 26.6 | 17.4 | 59,763
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Calvert County | 15.7 | 10.5 | 18.4 | 29.3 | 26.2 | 20,596
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Charles County | 17.0 | 9.9 | 20.1 | 28.5 | 24.4 | 37,600
- - ----------------------------|-------------|----------|----------|-----------|----------|--------------
Stafford County | 15.1 | 11.4 | 22.3 | 29.7 | 21.5 | 24,312
============================|=============|==========|==========|===========|==========|==============
Outer Suburban Area | 15.3 | 11.0 | 20.0 | 30.8 | 22.9 | 273,547
============================|=============|==========|==========|===========|==========|==============
Totals | 16.8 | 10.5 | 16.1 | 24.7 | 31.9 | 1,581,443
======================================================================================================
</TABLE>
Source: Equifax National Decision Systems, Inc.
The metropolitan area as a whole shows a heavy distribution of households
with incomes on the high end of the range. Over 55 percent of the households
have an annual income over $50,000 per year and the highest grouping is those at
$75,000 per year or higher (31.9 percent).
This relationship is not true of the central jurisdictions and the outer
suburban areas where the highest concentration of households is in the $50,000
to $75,000 per year range. The inner suburban areas, however have an
overwhelming percentage of households - 37.1 percent in the over $75,000 per
year range.
================================================================================
-24-
<PAGE>
REGIONAL ANALYSIS
================================================================================
SUMMARY
The long-term outlook for the metropolitan Washington area continues to be
good. The expanding population of the area indicates an increase in demand for
goods and services. The trend toward smaller household sizes provides additional
demand pressures for new housing. The major factors affecting real property
values are sound, and future trends appear to point toward continued economic
vitality for the region.
In the short term, the region has experienced the effects of the recent
recession. Total employment in the region declined during the recent recession.
However, unemployment levels were moderated by the influence of federal and
local government employment and contracts for services. The Washington region
continues to have one of the lowest unemployment levels in the United States.
Overall, we believe that 1996 will be a period of slow growth and steady
improvement in the underlying factors affecting the real estate markets. More
importantly, we do not anticipate any further downturn in the local economy on
the scale of what has occurred in other regions of the country. Many local
economists and developers are signaling their belief that the real estate market
is strengthening.
Real estate values are volatile in this climate, some property values are
on the increase while other areas remain stable. For the short-term, we expect
that real estate values will show improvement in value in certain sectors. For
the long-term, the market overall appears to be in good condition.
================================================================================
-25-
<PAGE>
REGIONAL ANALYSIS
================================================================================
[GRAPHICAL REPRESENTATION OF NEIGHBORHOOD
MAP OF SUBJECT AREA]
================================================================================
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
AREA DEFINITION
The subject property is situated in central Montgomery County, within the
metropolitan area of Washington, D.C. Rockville's downtown business core is
about two miles to the northeast, whereas downtown Washington, D.C. lies about
ten miles to the southeast. The subject property is located along the east side
of I-270 and the north side of Montrose Road. The boundaries of the neighborhood
are defined as follows:
North: Gude Drive West
South: Montrose Road
East: Rock Creek
West: Glen Mill Road
NEARBY AND ADJACENT LAND USES
Land uses surrounding the subject are mixed and include 1980s and 1990s
vintage office buildings, R&D and industrial buildings, residential development,
commercial retail improvements, and open space (state parks).
The character of the neighborhood is predominantly low and mid-rise office
and flex uses. The adjacent and nearby developments include several planned
business and industrial parks, surrounded by residential housing. Retail uses
dominate the area's main thoroughfares. Rockville Pike follows a north/south
path through Montgomery County and is one of the most heavily improved retail
corridors in the region. There is also considerable open space designated as
state park area. The nearest food and shopping amenities are located within one
mile of the subject.
ACCESS
The neighborhood has excellent accessibility within Montgomery County and
the rest of the metropolitan area. Both I-270 and I-495 are easily accessed from
the subject via Old Georgetown Pike, Rockville Pike and Montrose Road.
MetroRail's Red Line services Montgomery County, following a north/south path
along Rockville Pike through most of the area. Stops near the subject include
White Flint (Rockville Pike and Marinelli Road) and Twinbrook (Rockville Pike
and Twinbrook Parkway). MetroBus provides extensive service along Rockville Pike
and Montrose Road.
The main surface streets in the area include Rockville Pike (MD Route 355),
Montrose Road, Old Georgetown Pike, Tuckerman Lane, and Veirs Mill Road. Traffic
volumes in the neighborhood are very high. Coincident with the construction of
the new office buildings at the intersection of Executive Boulevard and East
Jefferson Street in the late 1980s and early 1990s, a new traffic light was
added at this intersection to facilitate traffic flow on and off these streets.
Even with this improvement, however, traffic at Montrose Road and East Jefferson
Street is usually very high at rush hours, primarily because Montrose Road
provides the nearest I-270 access. Traffic planners at the Maryland National
Capital Park & Planning Commission (MNCPPC) indicate that this intersection
currently exceeds intended traffic volumes by more than 4,000 daily trips.
Rockville Pike is also very heavily traveled.
At some point in the future, it is possible that a connector highway to be
known as Montrose Parkway will be constructed in this area, with the intent of
reducing congestion. The parkway would follow a path directly north of the
subject, carrying vehicles between Montrose Road and the proposed inter-county
connector located close to Route 28. The project is a
================================================================================
-26-
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
candidate project for the county's Capital Improvement Project budget after
2002. If it is put on the budget for that time period, an environmental impact
study would be conducted at earliest in 2003. Thus, the roadway construction is
likely to be at least ten years away.
NEIGHBORHOOD CHARACTERISTICS
Developed primarily over the last couple of decades and literally exploding
with growth in the 1980s and early 1990s, this area has been a desirable
suburban location in close proximity to Washington D.C. At each intersection
with I-270, large parcels were planned for garden office parks. Upon completion
(in about the mid to late 1980s), the office market deteriorated and vacancies
soared. Many properties, which were taken back by the lenders, are now starting
to see real improvement, with current vacancies coming down from the high seen
in 1995. Current indications are that the market will reflect further
improvement. The area is substantially developed (an estimated 70 to 75
percent), with some large blocks of land yet to be developed. These unimproved
tracts are mostly zoned residential and do not have good commercial
characteristics. The I-270 Corridor is a major center for bio-medical,
communications, and telecommunications companies and is somewhat dependent upon
a number of federal agencies.
PLANNED IMPROVEMENTS/DEMOLITION
Within the neighborhood, we are not aware of any major planned commercial
or retail developments; however, a new 100 unit townhouse development has been
approved and is beginning construction on the south side of Montrose Road, east
of East Jefferson Street. The county has also approved a 154,202 square foot
office building at the eastern end of the site near Old Georgetown Road and
Mid-Pike Plaza. This development is possible because the site plans had been
previously approved and were registered as a loophole property, i.e. granting
the site a waiver from the adequate public facilities tests.
Additionally, we understand that Wilco Construction is planning a
build-to-suit office building on a part of its Washington Science Center
property, but have been unable to confirm the precise location, tenant, or
nature of the project. Finally, 6110 Executive Boulevard is under contract of
sale and the owner plans to do a major renovation of the building, including a
new exterior and full interior gutting and refinishing at a cost of about $6.0
million. The projected market rents after renovation are in the $19.00 to $20.00
per square foot range.
SPECIAL HAZARDS OR ADVERSE INFLUENCES
We are not aware of any atypical or unusual detrimental influences, such as
land fills, flooding, noise pollution (the traffic noise is expected), air
pollution or chemical factories and/or storage.
CONCLUSION
The neighborhood benefits from excellent access provided by a modern
transportation system and has access to the major traffic arteries connecting
the Rockville area to the surrounding metropolitan area. Land uses in the
neighborhood are diverse but consist primarily of light industrial, office
services/business park, R&D, and residential. The real estate in this area is in
the young to mature stage of its life cycle with an adequate infrastructure in
place to serve the needs of the community.
================================================================================
-27-
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
The near term outlook for the neighborhood is stable. The demand for office
space in the area remains relatively healthy and vacancy rates in Montgomery
County are improving. The high density of existing office and commercial
enterprises in the area is expected to maintain a healthy demand for office
property for the foreseeable future. Based on the characteristics of the
neighborhood, we believe continued investment is warranted. The neighborhood
appears to be stable to improving. We project that growth will be positive, but
moderate.
================================================================================
-28-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
INVESTMENT MARKET
The investment market in the metropolitan Washington area has been active
as 21 office buildings sold for more than $10 million in 1996 following 25
buildings during 1995. Within Washington, D.C. itself, seven buildings sold for
over $10 million at an average price of $202 per square foot. The composition of
investors in the metropolitan Washington area is largely institutional,
consisting mainly of insurance companies, pension funds and fund advisors. In
addition, the market has seen increased investment activity from offshore
capital sources and individual syndicates.
With a higher concentration of available capital, the metropolitan market
has experienced rising prices on average. For example, most recently, a true
trophy property developed by Copley and Prentiss Properties (1301 K Street) sold
for $306 per square foot. Another similar quality building built by Manulife
(1350 Eye Street) was purchased for almost $350 per square foot. In 1994, the
Government of Singapore Investment Corporation purchased the 242,000-square foot
office building at 901 E Street, NW, for $66 million, or $272 per square foot.
These sales provide evidence that the metropolitan Washington office market
continues to be among the more desirable markets in the nation for institutional
investment.
METROPOLITAN OFFICE MARKET
SUPPLY AND DEMAND FACTORS
In order to report on the state of the office market and to project future
trends, we have collected information on the metropolitan Washington Office
Market, the relevant submarket and the office projects that compete directly
with the subject. Cushman & Wakefield of Washington, D.C., maintains a database
comprised of multi-tenant office buildings of at least 20,000 square feet. The
following categories of buildings are specifically not included in our survey:
medical and professional buildings, government buildings, owner-occupied
projects and office/ showroom/ warehouse complexes. Cushman & Wakefield also
produces a quarterly Office Market Survey entitled Metropolitan Washington, D.C.
Office Market Report. Additional information was obtained through conversations
with knowledgeable market participants.
The metropolitan Washington, D.C. office market includes the following
jurisdictions: the District of Columbia, Arlington and Fairfax Counties and the
City of Alexandria in Northern Virginia and Montgomery and Prince George's
Counties in Suburban Maryland. The market contains over 200 million square feet
of privately owned office space distributed among 31 submarkets within the seven
jurisdictions. The District of Columbia contains 39 percent of the metro area's
total square footage. The following table presents the geographic distribution
of the office inventory in the metropolitan area, along with other statistical
data:
================================================================================
-29-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
<TABLE>
<CAPTION>
==============================================================================================
GEOGRAPHIC DISTRIBUTION OF INVENTORY
METROPOLITAN WASHINGTON OFFICE MARKET
FIRST QUARTER 1997
==============================================================================================
Jurisdiction Inventory Overall SF Under Weighted Avg. Y-T-D Net
SF (000) Vacancy Construction Class A Absorption
Rental Rate
==============================================================================================
<S> <C> <C> <C> <C> <C>
Washington, D.C. 80,523 12.7% 1,983,260 $35.09 55,852
Arlington County 24,995 6.3% 153,000 $26.34 239,351
Alexandria 12,120 5.4% 0 $22.49 1,791
Fairfax County 48,090 6.4% 510,000 $23.15 512.052
Loudoun County 2,355 4.9% 73,500 $17.75 (3,120)
Montgomery County 32,140 10.2% 0 $19.80 512,059
Prince George's County 10,128 18.2% 0 $18.85 73,603
- - ----------------------------------------------------------------------------------------------
Total 210,350 9.9% 2,033,016 $28.00 1,391,588
==============================================================================================
</TABLE>
As of the end of 1996, the overall vacancy rate stood at 9.9 percent,
reflecting both direct vacancies and sublet space, continuing a slow recovery
from the end of year 1992 vacancy of 14.7 percent. Although the Washington
region is now and has over the past experienced generally higher overall
occupancies levels than most major metropolitan areas in the United States, the
current statistics, as presented in this section, reflect recent trends which in
general, support only limited optimism for an overall improving market as a
whole. Specifically, the Class A market appears sound, but there are unsettling
currents affecting older buildings throughout the city.
Furthermore, build-to-suit activity on the part of the World Bank and the
International Monetary Fund (IMF) will likely prove problematic over the next
couple of years, particularly in the Class B and C properties in the city's
Central Business District office submarket (submarket boundaries will be defined
later in this section). Also, the issue of government downsizing, both locally
and nationally, cannot be dismissed lightly. The 1994 Congressional election
brought the first change in the control of both Houses of Congress in 40 years.
Thus, it is difficult to reliably predict the upshot. Accordingly, at the very
least, caution is in order as we are traveling uncharted territory. These issues
are discussed in greater detail later in this section.
As noted above, there are positives in the market. We do expect Class A
properties to fair well over the near term. Further, the suburban market,
starting with Northern Virginia, are showing considerable strengthening with
occupancies improving dramatically and rent spikes occurring in most submarkets.
We also see similar trends in portions of suburban Maryland, particularly
Montgomery County. As will be repeatedly indicated in the following discussion,
there appears to be a continuing shortage of Class A office space in all
submarkets throughout the region, but a plethora of Class B and C space, in at
least some areas, namely the District.
The following table presents the historical vacancy, rental rate and
absorption data, showing a steadily declining vacancy rate and a possible
increase in rents:
================================================================================
-30-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
================================================================================
HISTORICAL DATA
METROPOLITAN WASHINGTON OFFICE MARKET
1992 - 1996
================================================================================
Year Inventory SF Vacancy SF Under Rental Net
(000) Construction Rate Absorption SF
================================================================================
1992 204,427 14.7% 2,301,986 $22.80 2,833,422
1993 205,629 13.5% 874,631 $21.38 3,763,144
1994 206,337 12.7% 2,124,631 $21.44 2,319,175
1995 206,794 12.3% 1,004,272 $21.75 2,642,126
1996 212,389 10.8% 1,878,016 $23.49 2,921,573
================================================================================
Annual Averages 1,636,707 2,895,888
================================================================================
The above table presents several important changes: the inventory increased
by the inclusion of Loudoun County in the first quarter 1996; the square footage
under construction jumped dramatically as new build to suits commenced. As the
economy continues to improve, we anticipate a slow return to development.
DEMAND FOR OFFICE SPACE
As shown above, the overall vacancy has been gradually declining. The
office market is demonstrating improvement, although it varies from market to
market. Northern Virginia and Fairfax County specifically continue to be the
strongest submarkets with low vacancies and strong absorption. In contrast,
Washington, D.C. has demonstrated weak absorption and stable vacancy rates.
Traditionally, the office market's vigorous leasing activity has been
supported by the growth of the white collar employment base. Additionally, one
of the major players in the local market is the federal government (largely the
General Services Administration or GSA) which leases just over 20 percent of the
office space in the metropolitan area. Government leasing has historically
accounted for about 40 percent of gross leasing activity, but dropped to the 25
percent range in 1993 before falling to less than ten percent in 1994 and 1995
and then rising above ten percent in 1996. Furthermore, due to the new political
climate in Washington and continuing efforts to cut the size of the federal
government, future absorption projections are uncertain.
In July 1996, GSA announced that government agencies will be allowed to
control their own leasing using outside third party vendors, if they prefer. It
is too early to tell what effect this will have on overall government leasing,
but the change in the status quo is worth noting.
Government activity notwithstanding, the primary influence on net office
absorption is job formation, in particular, white collar employment. An
historical summary of office type employment is shown in the following table,
encompassing the categories of Government, Finance, Insurance, Real Estate
(FIRE), Transportation, Communications, Utilities (TCU) and Services. The
compound annual growth rate from 1984 to 1994 was 3.0 percent. However, real
growth occurred only in the 1984 to 1989 time frame with 5.0 percent compound
growth rate while there was very modest compounded job growth of 1.6 percent
from 1989 to 1994. In contrast, the future job growth over the next ten years is
expected to be 6.6 percent for the
================================================================================
-31-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
Service sector, 1.3 percent for the Finance, Insurance & Real Estate sector and
1.4 percent for the Government sector. Obviously, the projection for growth in
the Government sector merits caution as previously addressed.
================================================================================
METROPOLITAN WASHINGTON
OFFICE RELATED EMPLOYMENT *
1987 - 2004
================================================================================
Year Total New Jobs Created Over Net Office
Employment Previous Period Absorption
(000s) (000s) (000s Square Feet)
================================================================================
1987 1,500.6 N/A N/A
1988 1,545.5 44.9 N/A
1989 1,604.3 58.8 N/A
1990 1,639.1 34.8 N/A
1991 1,641.0 1.9 3,317
1992 1,661.0 20.0 2,733
1993 1,686.5 25.5 3,753
1994 1,739.8 53.5 2,319
1995 1,748.6 8.8 2,642
1996 1,753.8 5.2 2,921
1999 2,155.3 401.5 or 133.8/yr
2004 2,688.6 533.3 or 106.7/yr
================================================================================
Source: The WEFA Group - Regional Economic Service, Net Absorption data from C&W
* Service, FIRE, TCU and Government sectors
================================================================================
For the years for which data is available, the table also shows the
historical relationship between job formation and office absorption in the
metropolitan area. Coinciding with the depths of the recession, the 1991 job
growth of only 1,900 jobs corresponded with a healthy absorption of 3.3 million
square feet. We would typically expect lower absorption in years with little job
growth. Possibly the low absorption was due in part to the high level of job
growth in the immediate preceding years.
In the following years, net absorption fluctuated between 2,319,000 to
3,753,000 square feet against a steadily growing job formation trend. Perhaps
having some effect on the data is the national and local pattern of corporate
down-sizing and consolidation, leaving less office space per employee. As one
observer recently put it, "historically, 250 square feet per office employee was
the standard rule-of-thumb ratio. Today, this ratio is working itself down to
160 feet per employee." A recent market example of this trend is AT&T's current
target of 180 square feet of net rentable area per employee, down from 200
square feet a few years ago. Also, the federal government is now targeting less
than 150 feet per employee.
Although the above statistics produce unclear trends, the relationship
between white collar job formation and net office space absorption, while not
always obvious, is a key component of the demand side of the office space
equation. With regular job growth, net absorption will occur and gradually draw
down the supply of vacant office space, albeit probably at a slower pace than
history would suggest.
The number of years' supply of available space is one method of evaluating
the relative health of a market. If one defines market equilibrium to be
occupancy in the 95 percent range,
================================================================================
-32-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
then about 5.0 percent of the total inventory needs to be absorbed in order to
achieve equilibrium (or about 10.2 million square feet). This is calculated by
subtracting from the overall vacancy rate the defined 5.0 percent stabilized
vacancy. Assuming a future absorption rate equal to the past five year average
annual net absorption of 2.9 million square feet, an approximate 3.5 year supply
of vacant office space (all classes) is indicated. This issue is discussed in
greater detail once we look at the more distinct Washington, D.C., market versus
the metropolitan area as a whole.
Until recently, an exodus of businesses from the District to the suburbs
compounded the recent downward absorption cycle. The exodus was attributable to
the continuing cost cutting in large regional and national firms which fled the
higher rates of the downtown market. Even so, the overall strength of the
Washington area, based primarily on the influence of the federal government,
should not be ignored. In addition, as occupancies increase and asking rental
rates in the preferred close-in suburbs rose dramatically, the cost spread
between downtown and the suburbs narrowed and seemingly stanched the outflow of
major tenants.
Nevertheless, within the Central Business District Submarket (CBD) of the
downtown office district in Washington, D.C., an ominous cloud threatens
prospective leasing for the next several years. This is particularly true for
Class B and C buildings. As previously alluded to, the World Bank and IMF will
have new headquarters buildings operational by 1997 and 1998. As these and other
related tenants leave their CBD space, most of which is Class B, an additional
1.5 million square feet will become available, just within the next 12 months.
While this is not expected to severely impact Class A buildings, it will
definitely prove problematic for the Class B sector and likely disastrous for
Class C and D buildings, over the short term at least.
In the final analysis, we anticipate a return to equilibrium in the
metropolitan Washington office market only after the turn of the century. We
have defined this equilibrium in terms of occupancy and market rents with
stabilized occupancy in the 95 percent range, and market rents at sufficient
levels to support new construction. We expect the phenomena of free rent and
above standard concessions to generally disappear over the next several years
with market rents and the overall level of economic growth again achieving some
sort of parity prior to the turn of the century. The exception may be the older
Class C and D product, assuming it will rent at all.
RENTAL RATES
Based on Cushman & Wakefield's survey of market rents, the weighted average
asking rental rate drifted downward from 1991 to 1993 when it appears to have
reversed directions. The following chart demonstrates the trend in overall
rental rates since 1991. Note that Class A rates have been steadily rising as a
result of the shrinking inventory of available space.
================================================================================
-33-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
===========================================================
OVERALL WEIGHTED AVERAGE RENTAL RATES
WASHINGTON METROPOLITAN AREA OFFICE MARKET
1991 - 1997
===========================================================
Year Class A Rental Overall Rental
Rates per SF Rates Per SF
===========================================================
1991 N/A $23.34
1992 N/A $22.80
1993 $21.88 $21.38
1994 $23.25 $21.44
1995 $25.07 $21.75
1996 $27.35 $23.49
1997Q1 $28.00 $23.89
===========================================================
Recent rental trends show signs of improvement in many submarkets,
particularly in Northern Virginia. Further, an increasing portion of the
remaining available Class A and B space is commonly referred to as back space,
including inferior back office space with poor or no window lines, encumbered
space, and less desirable configurations. The encumbered space includes Class A
premises that are encumbered by existing tenants through expansion options.
Overall, this back space is less desirable, has lower asking rates, and tends to
be the last areas leased, all of which tends to skew the average asking rents
downward. The reality is that the better Class A space is likely achieving
higher rates than the statistics indicate.
The lack of significant new construction, coupled with positive, albeit
slower absorption, has led to a shortage of large blocks of Class A office space
in the preferred submarkets. The emergence of back space is one indicator of
this trend as is the recently completed speculative building at 1900 K Street in
the CBD and other build to suits in the downtown area. Given the lack of overall
speculative development, coupled with overall positive absorption, we do not
anticipate any further decline in rental rates.
Regarding the issue of rent spikes, we have recently observed above average
rent jumps in some Northern Virginia submarkets and may be seeing the start of a
similar occurrence in portions of Montgomery County, Maryland. Therefore, we
believe real increases in market rental rates are likely over the next two to
three years in selective markets as existing office inventory is absorbed and
before funds for new speculative development become available and new
construction begins. Again, due to the tight supply in some submarkets, there
may be rent spikes for newer space within the next twelve month period. However,
in only some instances has it been clear that investors were willing to pay for
prospective rent spikes.
LAND VALUES
With the decrease in effective rents in the early 1990s, before the
apparent turn-around noted above, land values had been depressed dramatically.
Reportedly, values for downtown commercial land had decreased up to 25 percent
or more since 1990. Secondary parcels have probably dropped even more
precipitously. Nevertheless, we believe that this downward trend in vacant land
prices has stopped and that it will reverse itself in the next few years,
provided the economy continues to improve, the financial institutions resume
lending, and the overall market psychology and investor expectations improve.
================================================================================
-34-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
The most recent office land sale in downtown Washington was a 23,218 square
foot site at the southwest corner of 13th and G Streets in the East End which
sold in March 1996 at approximately $76 per FAR foot. Since this sale was
subject to the buyer lining up the lead tenant and obtaining all necessary
approvals, the price is probably higher than a pure speculative purchase would
have been. General market indications point to a range of $40 to $70 for typical
downtown development sites.
SUMMARY OF METROPOLITAN OFFICE MARKET
Although some submarkets remain soft, the overall vacancy rate continues to
decline, and the remaining available space tends to be less desirable. Northern
Virginia, in particular, is leading the region in net absorption, and has shown
above average increases in rental rates. We believe that over the next several
years, the metropolitan office market should reach a more stabilized position
both from an occupancy and lease rate standpoint. Until equilibrium is reached,
however, overall rental rates for all classes of space will probably not grow at
a compound rate that exceeds the rate of inflation.
In contrast, Class A space has demonstrated strength in the overall market,
absorbing clearly more than its fair share of the total market absorption. While
some Class B product may mirror the growth rates for Class A space, the majority
will most likely only experience marginal growth given the excessive supply of
Class B space compared to the demand for it. Finally, most Class C and D
buildings will have difficulty renting at any rate.
SUBURBAN MARYLAND OFFICE MARKET
The subject property is located in the North Bethesda/Rockville submarket
of Montgomery County. The Maryland counties immediately proximate to the
District of Columbia are generally referred to as Suburban Maryland. According
to the First Quarter 1997 Focus on WashingtonTrends, published by Cushman and
Wakefield, Suburban Maryland has about 42.3 million square feet of privately
owned office space distributed between Montgomery and Prince George's Counties,
in about 400 office buildings. Over 75 percent of the inventory is located in
Montgomery County. The following table presents the historical vacancy, rental
rate and absorption data for the Suburban Maryland Market.
================================================================================
HISTORICAL DATA
SUBURBAN MARYLAND OFFICE MARKET
1992 TO 1ST QUARTER 1997
===============================================================================
Year Inventory Overall Class A Average Net
SF (000) Vacancy Asking Asking Absorption
Rental Rate Rental Rate SF
================================================================================
1992 38,800 16.1% N/A $18.43 917,181
1993 40,347 16.0% $21.56 $18.18 912,859
1994 40,866 17.7% $20.91 $17.60 240,380
1995 41,923 18.5% $20.98 $17.30 527,384
1996 41,868 13.2% $19.65 $17.60 1,471,503
1Q1997 42,267 12.1% $19.49 $17.91 585,662
================================================================================
The data shows a steadily declining vacancy rate over the past two years, a
gradual increase in average asking rents, and a substantial increase in net
absorption. The down tick in Class A asking rents is expected to be primarily
related to the mix of availabilities in
================================================================================
-35-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
Montgomery County, reflecting less desirable space in buildings or small blocks
which are more difficult to lease rather than a real declining trend.
Taken as a whole, the Suburban Maryland office market exhibited an overall
vacancy rate of 12.1 percent in the first quarter 1997, down from 13.2 percent
as of year-end 1996 and 18.5 percent at year end 1995. The highest overall
vacancy rates are found in the Prince George's County submarkets of
Landover/Lanham (23.2 percent) and Laurel (19.1 percent), and the Montgomery
County submarket of Silver Spring/Kensington (19.1 percent). Montgomery County's
lowest vacancy rates are found in the subject's North Bethesda/Rockville
submarket (7.2 percent) and the Bethesda/Chevy Chase submarket (9.3 percent),
which is a CBD location.
Montgomery County is one of the nation's premier locations for high
technology research and development activities in both the private and public
sectors. A surge in business growth within the county during the mid- to
late-1980s was attributed to the presence of Federal agencies that are
represented, such as the National Institutes of Health, National Institute of
Standard Technology, the Federal Drug Administration, and the Energy Department.
These institutions have contributed to an impressive addition of office space
and are projected to continue to grow through the 1990s, unless they become
targets of federal cutbacks. Based on the concentration of such federal agencies
and many high-technology private enterprises located along I-270, developers and
local economic development agencies are promoting the area as the I-270
Technology Corridor. Some of the larger corporations in Montgomery County
include Marriott, IBM, Giant Food, the Chesapeake and Potomac Telephone Company,
Bechtel and Vitro Corporation. The county's statistical history is shown in the
following table.
================================================================================
HISTORICAL DATA
MONTGOMERY COUNTY OFFICE MARKET
1992 TO 1ST QUARTER 1997
===============================================================================
Year Inventory Overall Class A Average Net
SF (000) Vacancy Asking Asking Absorption
Rental Rate Rental Rate SF
================================================================================
1992 29,269 14.1% N/A $19.20 572,712
1993 30,837 15.1% $21.84 $18.90 1,140,333
1994 31,499 17.1% $21.08 $18.21 406,686
1995 32,025 18.0% $21.08 $17.85 497,843
1996 32,123 12.0% $19.45 $18.05 1,219,274
1Q1997 32,139 10.2% $19.80 $18.53 512,069
================================================================================
Like the Suburban Maryland submarket as a whole, Montgomery County has
experienced strong leasing and absorption over the past two years, and so far in
1997, resulting in marked reductions in the vacancy level and increasing average
rents.
Within Montgomery County, there are four submarkets: Bethesda/Chevy Chase,
North Bethesda/Rockville (subject), Gaithersburg/Germantown, and Silver
Spring/Kensington. The following table presents the geographic distribution of
the office inventory in the county, along with other statistical data as of
first quarter 1997.
================================================================================
-36-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
<TABLE>
<CAPTION>
================================================================================================
GEOGRAPHIC DISTRIBUTION OF INVENTORY
MONTGOMERY COUNTY OFFICE MARKET
1ST QUARTER 1997
================================================================================================
SUBMARKET Inventory Direct Overall Under Y-T-D Net
Vacancy Vacancy Construction Absorption
================================================================================================
<S> <C> <C> <C> <C> <C>
Bethesda/Chevy Chase 6,465,801 9.1% 9.3% 0 28,430
North Bethesda/Rockville 16,326,555 6.0% 7.2% 0 204,145
Gaithersburg/Germantown 3,641,515 10.9% 11.5% 0 (16,550)
Silver Spring/Kensington 5,706,027 16.8% 19.1% 0 296,034
- - ------------------------------------------------------------------------------------------------
Total 32,139,898 9.1% 10.2% 0 512,069
================================================================================================
</TABLE>
Montgomery County has over 32 million square feet, of which the subject's
competitive area (North Bethesda/Rockville) has 16.3 million square feet, or
about 51 percent of the county's total inventory. The North Bethesda/Rockville
market is the largest submarket in both the county and suburban Maryland, the
second largest suburban submarket in the metropolitan area, and the fourth
largest submarket overall, including the District of Columbia. The next closest
suburban Maryland submarket in size is the Bethesda/Chevy Chase CBD.
<TABLE>
<CAPTION>
================================================================================================
HISTORICAL DATA
NORTH BETHESDA/ROCKVILLE OFFICE MARKET
1992 - 1ST QUARTER 1997
================================================================================================
Year Overall Class A Overall Asking Construction Net Absorption
Vacancy Asking Rent Rental Rate Completions SF
(SF)
================================================================================================
<S> <C> <C> <C> <C> <C>
1992 11.3% N/A $19.10 0 373,863
1993 12.3% $22.93 $20.19 524,922 726,438
1994 13.0% $22.97 $20.85 0 439,937
1995 16.1% $22.42 $18.51 0 12,966
1996 8.8% $21.20 $18.90 0 336,739
1Q-1997 7.2% $21.78 $20.15 0 204,145
================================================================================================
</TABLE>
This submarket had net absorption of 373,863 square feet in 1992 followed
by a much larger level in 1993 with a fall off in 1994. The net absorption for
1995 dropped to only 12,966 square feet, but shows a much improved positive
absorption trend in 1996 and so far for this year. The low absorption trend in
1995 was driven substantially by corporate downsizing by IBM (196,500 square
feet), CNA Insurance (106,000 square feet), on others. This submarket is
performing better than the Suburban Maryland and Montgomery markets as a whole,
with lower overall vacancy and higher average rents.
RENTAL RATES
The history of rental rates in the Suburban Maryland and Montgomery County
markets are shown in the following table by class of space.
================================================================================
-37-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
========================================================================
HISTORIC RENTAL RATE TRENDS : AVERAGE ASKING RATES FOR VACANCIES
SUBURBAN MARYLAND OFFICE MARKET
1992 THROUGH 1ST QUARTER 1997
=======================================================================
| Suburban Maryland | Montgomery County
|============================|============================
Year | Overall Class A | Overall Class A
=======================================================================
1992 $18.43 n/a $19.20 n/a
1993 $18.18 $21.56 $18.90 $21.84
1994 $17.60 $20.91 $18.21 $21.08
1995 $17.30 $20.98 $17.85 $21.08
1996 $17.60 $19.65 $18.05 $19.45
1Q-1997 $17.91 $19.49 $18.53 $19.80
=======================================================================
Although average asking rates have slowly increased over the last two years
throughout Suburban Maryland, Montgomery County experienced a significant
increase of 2.7 percent in the first quarter 1997. The subject's North
Bethesda/Rockville submarket experienced an even greater increase of 6.6
percent, or an average of $1.25 per square foot, during the same time period.
The outlook is generally positive as owners are encouraged by the greater
activity in the market and are adjusting rent levels accordingly. Overall,
investors are anticipating that rents will continue to increase in Montgomery
County over the next two to three years.
CURRENT CONSTRUCTION ACTIVITY
Since the end of the 1980s, very little new speculative construction has
occurred in Montgomery County. There are two buildings under renovation in
Bethesda, each containing 125,000 square feet: The Philips Building located at
7930 Norfolk Avenue, and the Fairmont Building located at 7735 Old Georgetown
Road. No new significant office building construction is presently planned in
Montgomery County, though as noted in the Neighborhood Analysis, a build-to-suit
may be imminent in the Washington Science Center.
Overall, the lack of speculative space currently under construction
reflects the cautious posture taken by many traditional real estate investors,
developers and financiers in the local market.
SUMMARY
The Suburban Maryland and Montgomery County market areas are basically
trending the Washington metropolitan office market as a whole, increasing net
absorption, rising rents, and decreasing vacancy. The North Bethesda/Rockville
submarket has fared even better, posting a rent spike of about $1.25 per square
foot. Given the lack of new construction in Montgomery County and North
Bethesda/Rockville over the past couple of years and increased net absorption,
we anticipate a further reduction in vacancy and continued rent increases.
MICRO MARKET ANALYSIS
As presented earlier in the Market Analysis discussion, the Rockville/North
Bethesda submarket contains a total of 16.3 million square feet of office space
in 134 buildings. Over half of this space is contained in buildings constructed
before 1985 and in older Class C quality structures. Thus, the subject's
competitive market is much smaller and is focused predominantly along Montrose
Road and nearby sections of Executive Boulevard and Rockville Pike. A survey of
the submarket for Class B buildings in these locales reveals a total inventory
of about 1.8 million square feet. The survey is shown on the following page.
================================================================================
-38-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
<TABLE>
<CAPTION>
===================================================================================================================
MICRO-MARKET SURVEY
COMPETING CLASS B OFFICE BUILDINGS
NORTH BETHESDA / ROCKVILLE MARKET
===================================================================================================================
Net Typical Asking
Year No. Rentable Floor Rental Rate
No. Name/Location Built Floors Area (SF) Size (SF) Occupancy ($/SF, Fu.l Svc)
- - -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1 6000 Executive Boulevard 1971 6 121,500 20,250 94.7% $18.50
2 6001 Executive Boulevard 1980 10 98,640 9,864 0.0% $12.00
3 6010 Executive Boulevard 1980 10 106,645 10,647 0.0% $12.00
4 6100 Executive Boulevard 1981 8 130,000 16,250 92.2% $19.50
5 6101 Executive Boulevard 1980 3 80,000 26,667 94.2% $19.50
6 6010 Executive Boulevard 1971 10 200,632 20,063 91.2% $18.50
7 6111 Executive Boulevard 1970 2 31,982 15,991 100.0% N/A
8 401 East Jefferson Street 1980 2 27,000 13,500 86.7% $15.00, Net
9 6001 Montrose Road 1980 10 148,536 14,854 96.7% $19.00
10 6101 Montrose Road 1979 3 30,000 10,000 100.0% N/A
11 5515 Security Lane 1982 11 183,666 16,697 98.6% $17.50-$19.00
12 1201 Seven Locks Road 1984 3 129,402 43,134 82.2% $15.00, Net
13 11140 Rockville Pike 1981 6 80,000 13,333 96.3% $23.00-$25.00
14 11300 Rockville Pike 1974 12 275,000 22,917 97.2% $20.00
15 11921 Rockville Pike 1987 4 120,000 30,000 96.0% $21.75-$24.00
-------------------------------------------------------------------------------------------------------
| SAMPLE SUMMARY 1,726,823 18,944 83.3% $12.00-$25.00 |
-------------------------------------------------------------------------------------------------------
===================================================================================================================
Montrose Office Park 1981 186,138 12,000 95.6% $17.00-$18.75
3200-3260 Tower Oaks Boulevard
Rockville, Montgomery County, Maryland
===================================================================================================================
</TABLE>
-39-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
The market is comprised primarily of mid-rise buildings of two to six
stories and ranging in size from 30,000 to 275,000 square feet of net rentable
area. The average occupancy rate is 83.3 percent, reflecting a 16.7 percent
vacancy rate. This appears high at first, but several of the fully vacant
buildings on Executive Boulevard are owned by Wilco Construction, and may be
part of the buildings planned for demolition for the rumored build-to-suit.
Excluding these particular buildings results in a vacancy rate for the area's
Class B buildings of 5.7 percent, a low vacancy rate compared to most submarkets
in the region.
Asking rents in the micro-market include one set of anomalies, again
related to the Wilco Construction buildings which are set a $12.00 per square
foot. Excluding these buildings, the sample shows Class B buildings are asking
between $17.00 and $25.00 per square foot, full service. The highest rents are
achieved along Rockville Pike and the cluster of buildings opposite White Flint
Mall. Excluding these buildings, the range narrows to $15.00 (net) and $19.50
per square foot, full service, which supports the subject's most recent leases
at $17.00 to $18.75 per square foot, full service.
SUMMARY
In conclusion, the North Bethesda/Rockville office market is performing
better than the overall Montgomery County market. The existing office inventory,
with a few exceptions, is well-occupied and commanding rents in the $17.00 to
$19.50 per square foot, full service range. As previously discussed, the market
area experienced a recent rent spike of about $1.25 per square foot. At present,
the office supply is set due to a county-moratorium on new development which
should economically enhance the existing buildings. Given these supply and
demand factors, we anticipate average rental rates will continue to increase.
================================================================================
-40-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
[GRAPHICAL REPRESENTATION OF PLAN MAP
OF SUBJECT AREA]
================================================================================
<PAGE>
PROPERTY DESCRIPTION
================================================================================
SITE DESCRIPTION
Location: The site is located on the east side of Tower Oaks
Boulevard, north of Montrose Road, in the Rockville
area of Montgomery County, Maryland.
Address: 3200-3206 Tower Oaks Boulevard
Rockville, Maryland
Shape: Irregular
Land Area: 18.60 acres or 810,216 square feet
Frontage/Terrain: The site has frontage along Tower Oaks Boulevard
Topography: The site slopes gently downward to the southwest
Street Improvements: Tower Oaks Boulevard is a secondary two-lane roadway
connecting Wootton Parkway to the north and Montrose
Road to the south. It has an interchange off of
Interstate 270 immediately west of the subject.
Soil Conditions: We did not receive nor review a soil report.
However, we assume that the soil's load-bearing
capacity is sufficient to support the existing
structure. We did not observe any evidence to the
contrary during our physical inspection of the
property. The tract's drainage appears to be
adequate.
Utilities All public utilities are available to the site,
including water, sewer, electricity, natural gas,
and telephone.
Access: The site has good access via Tower Oaks Boulevard
from either Interstate 270, Montrose Road, or
Wootton Parkway.
Land Use Restrictions: Based on a review of the title policy, as well as
our investigation of County records, the subject
does not appear to have any adverse or unusual
easements. However, these issues are generally a
legal matter and we are not qualified to determine
whether any adverse conditions exist. Consequently,
we are assuming that none does exist.
Flood Hazard: According to the Federal Emergency Management
Agency's Flood Insurance Rate Maps for Montgomery
County, Maryland, Community Panel 240051-0003B,
effective January 5, 1978, the subject site is
located in
================================================================================
-41-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
[GRAPHICAL REPRESENTATION OF SITE PLAN
OF SUBJECT AREA]
================================================================================
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Zone C, an area outside a 500-year floodplain.
Wetlands: We were not given a wetlands survey. If subsequent
engineering data reveal the presence of regulated
wetlands, it could materially affect property value.
We recommend a wetlands survey by a competent
engineering firm, if additional concern exists.
Site Improvements: The site is improved with:
o asphalt paved parking for 370 vehicles;
o three-story parking garage with 311 spaces;
o seeded lawn and shrubbery;
o concrete walkways; and
o decorative landscaping.
Comments: Overall, the site is in good condition and
functional for its existing use.
IMPROVEMENTS DESCRIPTION
The improvements comprise four (4) four-story office buildings which were
constructed in 1981. The buildings contain a total of 189,871 gross square feet.
The average floor plate is approximately 12,000 square feet. The layout of the
floor plates makes it awkward to split the floors between more than two tenants
thus, limiting the ability to fill vacant space with tenants smaller than 4,000
square feet. The property is currently 95 percent leased to 17 tenants. There
are currently two vacant spaces totaling 8,254 square feet.
The entire project contains 186,138 square feet of net rentable area.
Building 3200 contains 45,476 square feet. Building 3202 contains 47,376 square
feet. Building 3204 contains 47,028 square feet. Building 3206 contains 46,258
square feet. There are two spaces comprising 387 and 636 square feet (Unit 120
in Building 3202 and Unit 420 in Building 3204) that are currently occupied by
the site engineer and property manager, respectively. Because it is typical for
management to occupy space in a complex such as the subject, our analysis
assumes that these spaces will continue to be occupied by management and that no
rent will be collected over the holding period. Thus, we have not included these
spaces in the net rentable area of the building.
Within the past one to two years, the owners have performed various repairs
to the property including lobby and restroom renovations, roof repairs, and
parking lot re-sealing. Based on a review of the capital budget and discussions
with property management, current items of deferred maintenance include window
replacements, parking structure and lighting
================================================================================
-42-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
repairs, cooling tower fill replacements, heat exchanger refurbishment, and roof
replacement in various buildings. The total cost of these repairs is estimated
at $258,800.
Following are the construction details for the subject improvements based
on our inspection of the property and discussions with management/ownership:
General Description
Year Built: 1981
Gross Building Area: 189,871 square feet
Net Rentable Area: 186,138 square feet
Number of Stories: Four (4) four-story office buildings with an
attached three-story parking garage.
Construction Detail:
Foundation: Concrete footings
Framing: Structural steel columns and beams
Floors: Concrete slab
Exterior Walls: Brick
Roof Cover: Single ply rubberized roof membrane
Windows: Double pane aluminum frame
Pedestrian Doors: Aluminum storefront
Loading Facilities: Each building contains a set of double doors
leading to a loading area.
Mechanical Detail
Heating and Cooling: The buildings contain a two-part oil fired heat
pump system. The core of the buildings utilize a
central heat pump system, while the perimeter
offices have individual heat pump units. Each
building contains a 1,500 gallon steel
underground storage tank for the storage of
fuel-oil required for the heating system.
Plumbing Service: We assume that the plumbing is installed to meet
all required building codes. Each floor has
one set of restrooms.
Electrical Service: We assume that the electrical service is
installed to meet all required building codes.
================================================================================
-43-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Elevator Service: There are two 2,500 pound hydraulic elevators in
the central lobby of each building. Hydraulic oil
is stored in above ground oil tanks in the first
floor mechanical rooms of each building.
Fire Protection: The buildings are sprinklered.
Interior Detail
Layout: There is a centrally located lobby and hallway
providing access to two elevators, restrooms,
mechanical rooms, and two sets of stairwells.
Individual suites are situated off the central
hallway.
Floor Covering: Commercial grade carpet in tenant spaces and
common areas; vinyl tile floor in the restrooms;
finished concrete in mechanical rooms.
Interior Walls: Painted or wall covered drywall
Ceilings: Suspended acoustical tiles
Lighting: Recessed florescent lighting
Restrooms: There is a set of men's and women's restrooms in
the lobby area of all levels.
Site Improvements
Parking: There is an asphalt paved and striped surface
parking lot with parking for 370 vehicles and a
three-story parking garage which can accommodate
311 vehicles. Thus, there is a total of 681
spaces, or 3.6 spaces per 1,000 square feet of
net rentable area.
Landscaping: Perimeter trees and shrubs around the periphery
of the building and parking lot; overall in good
condition
Condition: Good
================================================================================
-44-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Americans With
Disabilities Act: The Americans With Disabilities Act (ADA) became
effective January 26, 1992. We have not made, nor
are we qualified by training to make, a specific
compliance survey and analysis of this property
to determine whether or not it is in conformity
with the various detailed requirements of the
ADA. It is possible that a compliance survey and
a detailed analysis of the requirements of the
ADA could reveal that the property is not in
compliance with one or more of the Act. If so,
this fact could have a negative effect upon the
value of the property. Since we have not been
provided with the results of a recent survey, we
did not consider possible noncompliance with the
requirements of ADA in estimating the value of
the property.
Hazardous Substances: We are not aware of any potentially hazardous
materials (such as formaldehyde foam insulation,
asbestos insulation, radon gas emitting
materials, or other potentially hazardous
materials) which may have been used in the
construction of the improvements. However, we are
not qualified to detect such materials and urge
the client to employ an expert in the field to
determine if such hazardous materials are thought
to exist.
Personal Property Included
In Appraisal: None
Summary and Condition: The quality of the subject improvements is rated
good. The layout and functional plan are
considered typical of the market. Deferred
maintenance items include window replacements,
parking structure and lighting repairs, cooling
tower fill replacements heat exchanger
refurbishment, and roof replacement. The total
cost of these repairs is estimated at $258,800
and are deducted in the discounted cash flow
analysis and the Sales Comparison Approach.
The normal life expectancy of a building of this
type is 45 to 50 years. The subject was
constructed in 1981 and is 15 years old. We
consider the effective age to be approximately
ten years, leaving an estimated remaining
economic life of about 35 years
================================================================================
-45-
<PAGE>
REAL ESTATE TAXES AND ASSESSMENTS
================================================================================
The subject property is located in Montgomery County, Maryland, and is
assessed by the Maryland Department of Assessment and Taxation. This department
is an independent state agency responsible for real and personal property
assessment as well as the mapping of all real estate. The applicable tax rate is
set by the local jurisdiction and is combination of state, county and city
rates.
Maryland's assessment system is based on a three-year cycle in which
one-third of all taxable real estate is physically inspected and reassessed each
year. Assessments are based upon an estimate of ad valorem value known as full
cash value. The state assessors utilize the three traditional approaches to
value: cost, sales comparison, and income. To lessen the impact of any increase
in full cash value, a three phase-in is implemented. This provides for one-third
of the increase in full cash value added to the first year of the assessment
cycle with the balance being added in equal installments over the next two
years.
Assessments are a percentage of the full cash value of the property. Once
the full cash value and associated phase-in value is determined, a percentage
known as an equalization ratio is applied to ascertain the assessment. The
equalization ratio is 40 percent. The current assessing procedure has been in
effect since 1979.
Property owners receive an assessment notice once every three years. These
notices are generally issued in December of the year in which the property was
reviewed by the assessor. The notice shows the proposed full cash value as of
January 1, which is known as the date of finality. The proposed full cash value
is the basis upon which assessments for the three forecoming taxable years will
be based.
TAX RATES
The tax rate for Montgomery County has changed little since 1992.
Montgomery County's assessment base grew rapidly during the 1980s as property
values increased but slowed dramatically in the 1990s as the economy slowed. The
current tax rate for Montgomery County is $1.997 per $100 of assessed value.
Added to this figure is the Town of Rockville charge of $0.82 and the State of
Maryland rate of $0.21 per $100 of assessed value. Thus, the total tax liability
is equivalent to $3.027 per $100 of assessed value. The current tax rate, along
with a three-year prior history, are presented in the following table.
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TAX RATES PER $100 OF ASSESSED VALUE
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Tax Year
Ending June 30 Tax Rate
---------------------------------------------------------------
1994 $2.934
1995 $2.967
1996 $3.028
1997 $3.027
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In addition to the municipal rate indicated above, the subject is assessed
a fire and transit tax of $0.324 per $100 of assessed value. Thus, the total tax
liability for the subject is $3.351 per $100 of assessed value.
It is difficult, at best to judge the likelihood of future tax rate
increases when viewing only a short history. Tax rates tend to increase or
decrease based upon the combined influences of
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<PAGE>
REAL ESTATE TAXES AND ASSESSMENTS
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changes in property values and increasing governmental budgetary needs as the
jurisdiction tries to maintain a pace with inflationary pressures.
TAX ASSESSMENT
The subject property is identified for real estate assessment and taxation
purposes as account number 04-01995656 and is further identified as Map GQ33,
part of Parcel 27. The subject's 1996/1997 full cash value and subsequent
assessment are outlined in the following table.
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MONTROSE OFFICE PARK
FULL CASH VALUE AND ASSESSMENT
===================================================
FY 1997
===================================================
Tax Account # 04-1995656
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Land Value $ 9,722,500
Improvement Value $ 7,561,700
-----------
Total Value $17,284,200
Taxable Assessment $ 6,877,890
Tax Rate x .03351
-----------
Taxes Due $230,478.09
===================================================
The subject property was recently assessed in January 1997 for the
1997/98 fiscal year and is in its first year of the three year assessment cycle.
The new full cash (market) value reflects an increase of less than one percent
over the prior assessment period. The land value decreased from $11,343,020 to
$9,722,500, while the improvements value increased from $5,807,000 to
$7,561,700.
The full cash value is about 20 percent below our value conclusion;
however, the subject property recently experienced an increase in value due to
significant leasing and improved market conditions. Since the property was
recently reassessed and the full cash value is set for the next three years, we
have not anticipated any immediate increases in the tax burden. However, in year
four of the analysis, we have increased the tax burden by 20 percent to account
for the subject's increased value.
AD VALOREM TAX CONCLUSIONS
As developed above, the net tax associated with Montrose Office Park is
$230,478.09 for the tax year ending June 30, 1998. As previously stated, taking
into consideration future tax rate increases and the potential for increases in
the assessed value of the subject, we have projected that taxes for the subject
property will increase at 3.5 percent annually, with a 20 percent bump in year
four. It should also be noted that, according to the various taxing entities,
the real estate taxes for the previous tax period have been paid. Fiscal year
1997/98 taxes are not yet due and payable.
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<PAGE>
ZONING
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The subject property is zoned I-3, a Technology and Industrial Park zone of
Montgomery County. The purpose of the I-3 zone is to provide a medium density,
industrial zone for park like development of high technology industries,
research and development facilities, corporate and business offices, and uses
that have similar locational, site development and use requirements. (Montgomery
County Zoning Ordinance, Chapter 59, Volume 4, Montgomery County Code, Effective
1993)
Uses permitted in the I-3 district include, but are not limited to:
electroplating plants, light metals manufacturing, a wide variety of
manufacturing, compounding and assembling activities with a high technology
orientation, off-street parking, retail sales and personal services for
employees in the area, ambulance or rescue squads, child day care facility,
medical and dental clinics, computer programming and software services,
conference centers without lodging, general office uses, universities and
colleges, health clubs, libraries, and recreational uses.
The following development standards affect the I-3 district.
Building Height: 5 stories and 100 feet
Site Coverage: Not less than 35 percent green area, and off-street parking
may not use more than 45 percent of the site area.
Maximum FAR: 0.50; may be approved to higher density with traffic
mitigation steps
Setbacks: 20 feet plus 1 foot for each foot of height over 40 feet
for non-residential districts
Parking: Parking for office uses is based on one parking space for
every 300 square feet of gross floor area. This equates to
633 required spaces for the subject property, or 3.4 spaces
per 1,000 square feet.
We are not experts in the interpretation of complex zoning ordinances, but
the property appears to be a legally conforming use based on our review of the
public information. There are a total of 681 existing parking spaces, which is
above the required parking of approximately 633 spaces. The determination of
compliance, however, is beyond the scope of a real estate appraisal.
We do not know of any deed restrictions, private or public, that would
further limit the subject property's use. The research required to determine
whether or not such restrictions exist is beyond the scope of this appraisal
assignment. Deed restrictions are a legal matter and only a title examination by
an attorney or title company can usually uncover such restrictive covenants.
Thus, we recommend a title search to determine if any such restrictions do
exist.
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<PAGE>
HIGHEST AND BEST USE
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HIGHEST AND BEST USE, AS THOUGH VACANT
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of The Appraisal Institute, highest and best use, as though vacant
is defined as:
Among all reasonable, alternative uses, the use that yields the
highest present land value, after payments are made for labor,
capital, and coordination. The use of a property based on the
assumption that the parcel of land is vacant or can be made vacant
by demolishing any improvements.
In evaluating the site's highest and best use, as though vacant, the use
must be (1) legally permissible, (2) physically possible, (3) financially
feasible, and (4) maximally productive.
Regardless of how favorable the physical attributes of a property are or
how feasible and productive a use might be for a given site, the permissibility
of uses has to be the initial consideration. As discussed in the Zoning section,
the subject is zoned I-3, Technology and Industrial Park, which is principally
for development of high technology industries, research and development
facilities, and corporate and business offices. Retail and residential uses are
not permitted within this zone. Development along Twin Oaks Boulevard comprises
vacant commercial land, residential developments, and one office/warehouse
project. Surrounding uses along Montrose Road and Wootton Parkway comprise
mainly residential uses. All of the development along Executive Boulevard and
East Jefferson Street, located east of the subject, is mid- to high-rise office
buildings.
The second test is what is physically possible. As is evident from the
Property Description section of this report, the site's shape, topography, and
soil do not generally limit its use. Moreover, the critical utilities (i.e.,
water and sanitary sewer) are available and thus, should not impede the timing
of the site's development. With 18.60 acres, the subject is large enough to
accommodate uses that need larger areas, such as manufacturing or production
facilities. However, such uses are not typical for sites with very good traffic
exposure and that are in close proximity to residential neighborhoods. Thus, the
most likely use, based upon its legal and physical constraints, would be a
medium density office project. Such a project could be either single-tenant or
multi-tenant, as both are prevalent in the market.
The third and fourth constraints on the possible use of the site are that
it must be financially feasible and maximally productive. These two criteria
will be addressed in tandem, and in doing so, homogeneity with surrounding
development becomes a critical factor. Existing land uses in the general
vicinity of the subject include mainly mid-rise office buildings, retail, and
residential dwellings. The land uses along Montrose Road are predominantly
residential and community uses. Along Rockville Pike, the uses are predominantly
retail and high rise office. The improvements on Old Georgetown Road are a mix
of retail, office, community and residential. Given the uses in closest
proximity to the subject, and the fact that retail is not permitted, office
development would be the most consistent.
As explained in the Office Market Analysis section, the office sector in
which the subject competes continues to experience rental rates that are below
what would be considered economic for new construction. In addition, overall
occupancies have also not quite reached the point of stabilization. However,
both occupancies and rental rates are showing signs of improvement, particularly
for high quality buildings.
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<PAGE>
HIGHEST AND BEST USE
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As previously noted, the subject property is located in the largest and
currently strongest submarket in Montgomery County, near the intersection of
Rockville Pike and Montrose Road, an area with a large supply of Class B and C
office product. The North Bethesda/Rockville submarket has an overall occupancy
level of 92.8 percent as of first quarter 1997, a slight increase from 91.2
percent at year end 1996. Rental rates are at a weighted average of $18.90 per
square foot for all classes of space and $21.20 per square foot for Class A
space, both of which are up from two years ago. Property owners are now offering
fewer concessions as part of their leases, such that asking rents and effective
rents are more closely aligned. Consequently, we anticipate that it may be
several more years before rental rates and occupancies will support new
speculative office construction in the subject's locale. Build-to-suit
construction, however, could conceivably begin much sooner given a lease with
terms considered acceptable to the financial community.
In summary, given the income producing product alternatives, it is our
opinion that the highest and best use of the subject site, as though vacant
today, would be for the eventual development of a mid-density office project,
as a speculative multi-tenant building, once rental rates have recovered to a
level that would support new construction. Overall, a holding period would
probably be required for the site until such time as market demand would dictate
a need for additional speculative office development or a user could be secured.
This inherently assumes that once the market imbalance is corrected, the
cost/benefit equation, i.e., cost versus value, would support additional
construction.
HIGHEST AND BEST USE, AS IMPROVED
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues
to contribute to the total market value of the property, or until the
return from a new improvement would more than offset the cost of
demolishing the existing building and constructing a new one.
The highest and best use "as vacant" and "as improved" must be compatible.
If the site value as though vacant is greater than the property as improved
(less demolition cost), then existing improvements have no value. Sometimes,
however, existing improvements have interim use value. If the highest and best
use of the site as though vacant is holding for future development, then the
improvements might make a short term contribution to property value.
As noted in the Property Description section of this report, the subject
site is improved with four (4) four-story buildings totaling 186,138 net
rentable square feet, class B office buildings. Completed in 1981, the
improvements are relatively functional in design and are of good quality when
compared to suburban office developments in Montgomery County. The building is
currently 95 percent occupied by 17 tenants.
The data within the Office Market Analysis section revealed that the
submarket in which the subject competes is slowly recovering from the
overbuilding and the soft economy of the 1980s and early 1990s. Our survey of
the direct competition indicated an average occupancy of 83 percent, with rental
rates still somewhat soft. Despite this softness, the subject property, as
improved, is still capable of providing an adequate return to the land both on
an intermediate and long-term basis. This conclusion is supported by the data
and analysis
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<PAGE>
HIGHEST AND BEST USE
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presented in the balance of this report. This premise is obviously contingent
upon property management utilizing a course of action which will be conducive to
maximizing occupancy and rent levels. For these reasons, it is our opinion that
the highest and best use of this site, as improved, is for continued use as a
multi-tenant office project.
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<PAGE>
VALUATION PROCESS
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Appraisers typically use three approaches in valuing improved office
property. These include the Cost Approach, the Sales Comparison Approach and the
Income 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 strengths and weaknesses of each approach utilized are weighed in
the final analysis with the approach or approaches offering the greatest
quantity and quality of supporting data is given the most consideration in the
final analysis.
In this appraisal, we have used the Sales Comparison Approach and the
Income Approach to develop a market value estimate.
THE COST APPROACH HAS BEEN OMITTED FROM THIS ANALYSIS
FOR THE FOLLOWING REASONS:
o First and foremost, the value being sought is the leased fee estate,
whereas the Cost Approach normally depicts the fee simple estate.
Therefore, the interest being appraised cannot be reflected by the
Cost Approach in its traditional form;
o The subject was constructed in 1981 and is 16 years old. The Cost
Approach is typically a good indication of value when the subject is
new (there is recent historical cost data available) and a minimal
amount of depreciation is present. The Cost Approach is fraught with
deficiencies when attempting to value an older building such as the
subject.
o Although improving, the office market is still below stabilized
levels. Consequently, some external/economic obsolescence is inherent
in the replacement cost new of the subject improvements. Classically,
external/economic obsolescence is viewed as incurable and is so from
the perspective of the property owner. It will eventually be cured
because it is purely a function of current market conditions.
Quantifying this form of obsolescence within the context of the Cost
Approach is highly subjective and very theoretical. As a result, the
reliability of this approach becomes very suspect under these
circumstances; and
o Lastly, one of the most persuasive reasons for not using the Cost
Approach is the fact that market participants do not typically use
this approach as a determinant of value especially when market
conditions are below an optimal level as they are currently. While
this in itself does not justify omitting this approach, it does serve
to underscore the lack of reliance placed on this technique.
IN THE SALES COMPARISON APPROACH, WE PERFORMED THE FOLLOWING STEPS:
o Searched the market for recent office building sales;
o Analyzed those sales on the basis of the sales price per square foot
(net rentable area); and
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<PAGE>
VALUATION PROCESS
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o Correlated the various value indications into a point value estimate
from within the range.
IN DEVELOPING THE INCOME APPROACH, WE:
o Studied the rents in effect at the subject and competing complexes to
estimate the potential rental income at market levels;
o Estimated the income from sources other than office rentals;
o Studied the recent history of operating and fixed expenses at this and
competing properties to estimate an appropriate level of operating and
fixed expenses and reserves for replacement;
o Estimated the cash flow by subtracting the operating and fixed
expenses from the effective gross income; and
o Prepared a discounted cash flow analysis in which the cash flow and
the property value at reversion are discounted at an estimate of
current market value at a market-derived discount rate. Potential
gross revenues are estimated based on modeling the actual rents and
expense reimbursement provisions in effect through the term of
existing leases. As existing leases expire, the space is estimated for
downtime. Spaces now vacant (if applicable) are rented at the market
rates and at the time intervals discussed in the Income Approach
section of this report. From potential gross revenues, we subtract
vacancy and expenses (operating, fixed, and other) to arrive at an
estimate of cash flow over an 11 year forecast.
The appraisal process is concluded by a review and re-examination of each
of the approaches to value that are used. Consideration is given to the type and
reliability of data used and the applicability of each approach. Finally, the
approaches are reconciled and a final value conclusion is estimated.
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<PAGE>
SALES COMPARISON APPROACH
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METHODOLOGY
The Sales Comparison Approach produces an estimate of value for real estate
by comparing recent sales of similar properties in the surrounding or competing
area to the subject property. 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 which qualify as arms-length transactions between
willing, knowledgeable buyers and sellers with reasonable market exposure, we
can identify price trends from which value parameters may be extracted.
Comparability in physical, locational and economic characteristics is an
important criteria in evaluating the sales in relation to the subject property.
The basic steps involved in the application of this approach are as follows:
(1) Researching recent relevant property sales and current offerings
throughout the competitive area.
(2) A selection process to focus on properties considered most similar to
the subject, and hence, most meaningful. Analyzing the selected
comparable properties concerning time of sale and any change in
economic conditions which may have occurred to the date of value;
locational factors such as ease of access and proximity to public
transportation and highways; age; condition; physical, functional and
economic characteristics and any other relative factors of comparison.
(3) Reducing the sale price to common units of comparison (i.e., price per
square foot of building area).
(4) Making appropriate adjustments between the comparable properties and
the property appraised.
(5) Interpreting the adjusted sales data and drawing a valid conclusion.
In our research and analysis of the market for sales with characteristics
similar to those of the subject, we have attempted to gather what we consider
relevant data so that reasonable comparisons could be made.
The most widely-used and market-oriented unit of comparison for properties
such as the subject is the sales price per square foot of gross building area.
All comparable sales were analyzed on this basis. The following table summarizes
the improved, sold properties that we compared with the subject property.
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<PAGE>
SALES COMPARISON APPROACH
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[GRAPHICAL REPRESENTATION OF COMPARABLE
BUILDING SALES OF SUBJECT AREA]
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<PAGE>
SALES COMPARISON APPROACH
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<TABLE>
<CAPTION>
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MONTROSE OFFICE PARK
3200-06 TOWER OAKS BOULEVARD
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
COMPARABLE OFFICE BUILDING SALES SUMMARY
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Comp. Cash Overall
Sale Year Built/ Equivalent Sale Price Capitalization
No. Name/Location Sale Date Renovated NRA (SF) Occupancy Sale Price Per SF (GLA) Rate
====================================================================================================================================
<C> <S> <C> <C> <C> <C> <C> <C> <C>
I-1 CRI Building Apr-97 1986 180,229 67.0% $23,200,000 $128.73 8.59%
11200 Rockville Pike
Rockville, Montgomery County
I-2 Rockwall I and II Dec-96 1975 339,174 86.0% $37,258,500 $109.85 9.75%
11400 Rockville Pike & 5515 Security Lane
Bethesda, Montgomery County
I-3 Woodmont Office Center Dec-96 1986 187,531 100.0% $20,900,000 $111.45 11.72%
1401 Rockville Pike
Rockville, Montgomery County
I-4 NIST Building Aug-95 1995 132,548 100.0% $20,000,000 $150.89 10.00%
820 W. Diamond Avenue
Gaithersburg, Montgomery County
I-5 Woodmont Place July-95 1983 102,992 100.0% $10,650,000 $103.41 9.40%
1451 Rockville Pike
Rockville, Montgomery County
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SUBJECT
MONTROSE OFFICE PARK
3200-06 TOWER OAKS BOULEVARD N/A 1981 186,138 95.6%
ROCKVILLE, MONTGOMERY COUNTY
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LOW: 102,992 67.0% $10,650,000 $103.41 8.59%
DATA RANGE: HIGH: 339,174 100.0% $37,258,500 $150.89 11.72%
MEAN: 188,495 90.6% $22,401,700 $120.86 9.89%
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* PROJECTED NOI FROM FIRST FISCAL YEAR OF DCF ANALYSIS
NRA NET RENTABLE AREA
EGI EFFECTIVE GROSS INCOME
====================================================================================================================================
</TABLE>
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<PAGE>
SALES COMPARISON APPROACH
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SALES PRICE PER SQUARE FOOT ANALYSIS
The five comparables indicate sales prices ranging from $103.41 to $150.89
per square foot of net rentable area on a cash equivalent basis. The prices per
square foot have been influenced by differences in construction quality,
condition of the premises, character of the tenancy, and location. Nevertheless,
it is important to address each property in terms of the conventional sequence
of adjustments. Following are those considerations which are relevant to the
subject. The first three elements must be considered in advance of applying any
other compensating factors to derive value conclusions via the sales price per
square foot methodology. These same three factors must also be addressed before
the selection of an effective gross income multiplier.
PROPERTY RIGHTS CONVEYED
As shown in the summary table, all of the comparables are encumbered by
existing leases; therefore, the leased fee estate was conveyed in each case.
Consequently, no adjustments are warranted for differences in property rights
conveyed.
SELLER FINANCING/CASH EQUIVALENCY
All of the comparables were sold on the basis of cash to the seller or cash
equivalent financing. Thus, we have made no adjustments to the comparables for
seller financing.
CONDITIONS OF SALE
With the exception of Sale I-3, we identified no special motivational
conditions concerning the comparables; therefore, no adjustments for conditions
of sale were made. Sale I-3 was purchased via deed in lieu of foreclosure. A
comparison of this sale to Comparable I-1, which is similar in size, location,
age/condition, occupancy and date of sale, indicates an adjustment of about 15
percent for conditions of sale.
DATE OF SALE
As shown in the summary table, the transactions occurred between June 1995
and April 1997. As mentioned in the preceding Office Market Analysis, the
subject office market has strengthened over the past 12 to 24 months with
increasing rents and decreasing vacancy. Over the past two years, the Montgomery
County submarkets have posted decreases in vacancy from 18.0 to 10.0 percent,
while overall rental rates increased from $17.85 to $18.53 per square foot. The
subject's direct competition in the North Bethesda/Rockville submarket supports
lower vacancy levels and higher rents.
Sales I-1 through I-3, which sold between December 1996 and April 1997,
occurred during a period of increased investor interest. Thus, no adjustments
are deemed necessary to these sales. Sales I-4 and I-5 sold during a period of
relative quiet for suburban Maryland office investment. We adjusted these sales
upward for date of sale.
OTHER
Most of the additional considerations for the comparables involve
locational issues, design and quality elements, and economic factors. It is
noted that current rents at the subject property have been in the $17.00 to
$18.75 per square foot range and that the subject property is currently 95
percent occupied. As discussed in the Property Description section, the subject
suffers from deferred maintenance at an estimate cost of $258,800. We have
analyzed the sales to the subject assuming the subject has been renovated, and
then deducted the cost of $258,000 from our final value conclusion. In the
following discussion, we
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<PAGE>
SALES COMPARISON APPROACH
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compare each of the improved sales to the subject property and conclude if the
comparable is similar, inferior or superior.
Comparable I-1, the CRI Building, is located along Rockville Pike within a
few miles of the subject. As discussed in the Neighborhood Analysis, Rockville
Pike follows a north/south path through Montgomery County and is one of the most
heavily improved retail corridors in the region. In addition, MetroRail's Red
Line follows a north/south path along this thoroughfare through most of the
area. Based on the foregoing, this property's location along Rockville Pike is
considered superior to the subjec s locale. The building was constructed in 1986
and is slightly newer than the subject. The property was reportedly 67 percent
occupied at the time of sale, with the most recent leases at $21.50 per square
foot. This property is considered superior to the subject from a physical and
locational standpoint, but somewhat inferior from an economic (occupancy)
standpoint. Overall, we have labeled the sale of this building as superior to
the subject.
Comparable I-2, Rockwall I and II, is also located on Rockville Pike and is
considered superior to the subject in terms of location. Constructed in 1975,
the building represents older construction than the subject. The property was 86
percent leased at the time of sale at rents of $17.00 to $18.00 per square foot.
This property is considered superior to the subject from a locational
standpoint, and inferior from a physical and occupancy standpoint. We have
labeled the sale of this building as inferior to the subject.
Comparable I-3, the Woodmont Office Center, is also located on Rockville
Pike and is considered superior to the subject from a locational standpoint. The
building was constructed in 1986 and is considered slightly superior. Although
the property was almost 100 percent leased at the time of sale, a primary tenant
occupying 50 percent of the property was scheduled to expire within the year.
The buyer purchased the property based on a projection of rollover and market
lease-up. As previously discussed, this sale was acquired via foreclosure and
requires an upward adjustment for this factor. This comparable is deemed
slightly inferior to the subject, primarily because of its economics (high
rollover).
Comparable I-4, the NIST Building, is located off I-270 in the Gaithersburg
section of Montgomery County, which is considered a slightly inferior location
because it has a higher occupancy and is achieving lower rents. The building
represents new construction and was 100 percent leased to the National Institute
of Standards and Technology for ten years at a rent of $24.25 per square foot of
net rentable area under a standard GSA lease structure with flat rents over the
period. Its condition is substantially superior to the subject. Given the
strength of its tenancy, this property is considered significant superior to the
subject.
Comparable I-5, Woodmont Place, is a class B building located along
Rockville Pike. Constructed in 1983, it is considered basically equivalent to
the subject in terms of age/condition. The property was 100 percent leased to
the Food & Drug Administration at a rent of $15.50 per square foot, flat over
the term under standard GSA lease conditions. As previously indicated, this sale
requires an upward adjustment for market conditions. Given the below market rent
and improved market conditions since the sale, this comparable is considered
inferior to the subject.
The following chart summarizes how each sale compares to the subject
property from a physical, locational and economic (occupancy and rental rate)
standpoint.
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<PAGE>
SALES COMPARISON APPROACH
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========================================================================
IMPROVED SALES COMPARIS8N
========================================================================
Sales Overall Rating
Comp. Price Relative to
No. Property Per SF the Subject
========================================================================
I-1 CRI Building $128.73 Superior
Rockville, Montgomery County
I-2 Rockwall I & II $109.85 Slightly Inferior
Bethesda, Montgomery County
I-3 Woodmont Office Center $111.45 Slightly Inferior
Rockville, Montgomery County
I-4 NIST Building $150.89 Superior
Gaithersburg, Montgomery County
I-5 Woodmont Place $103.41 Inferior
Rockville, Montgomery County
========================================================================
Because of the multiple differences inherent in office properties with
respect to quality and design, location, and economics, not to mention the
quality of the tenant base, mathematical adjustments for the reasoning noted
above would be extremely difficult, at best.
Comparables I-1 and I-4, with sale prices of $128.73 to $150.89 per square
foot, are considered superior to the subject, while Comparables I-1 through I-3
and I-5, with sale prices of $103.41 to $111.45 per square foot, are considered
inferior. Thus, the subject's value should most likely fall within the range of
$111.45 and $128.73 per square foot, and probably nearer the low end because
Sales I-2 and I-3 at $109.85 to $111.45 are considered only slightly inferior to
the subject due primarily to physical and economic issues, respectively.
Based on the information presented, we have concluded at a value range for
the subject of $115 to $117 per net rentable square foot. When applied to the
net rentable area, our estimated value range by the sales price per square foot
method is presented as follows:
====================================================
SALES PRICE PER SQUARE FOOT UNIT ANALYSIS
====================================================
186,138 SF x $115.00/SF = $21,405,870
186,138 SF x $117.00/SF = $21,778,146
====================================================
From the value stated above, we must deduct capital expenses of $258,800 as
previously discussed in the Property Description section. Thus, the indicated
range via the Sales Comparison Approach is $21,147,070 to $21,519,346, which we
have concluded to $21,300,000 (rounded).
================================================================================
-58-
<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 cash flow 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).
The direct capitalization method is an effective technique when stable
conditions exist both in the marketplace and for the property; however, when
market conditions are either changing or likely to change in a fairly dramatic
manner over time, direct capitalization becomes a difficult technique to
administer. Direct capitalization is further inhibited by the numerous variables
that exist with multi-tenant office buildings, i.e., multiple leases, with
staggered lease terms and varying lease structures; the lease-up of vacant
space; and differing tenant finish allowances, depending upon whether the space
is in a shell or second generation state.
Given these numerous variables, coupled with our inquiries of participants
in the marketplace, we feel that the majority of investors for a property like
the subject would utilize the discounted cash flow method, in an attempt to
mirror the expectations relative to those variables. Overall, office market
conditions are continuing to strengthen. Consequently, the discounted cash flow
method affords the most realistic method of reflecting investor expectations of
the current period, as well as the projected continued recovery. For this
reason, it is our opinion that the discounted cash flow method is the most
appropriate method in the valuation of the subject property. As such, the direct
capitalization method will not be used in this analysis but at the conclusion of
the income approach, we will analyze the resulting overall capitalization rate
derived from the discounted cash flow analysis as a check for reasonableness.
Following is an analysis of the current market rental rates, existing
leases in place, other revenue, vacancy and collection loss projections, and
historical/future operating and fixed expenses for the subject property.
POTENTIAL GROSS INCOME
SUMMARY OF EXISTING LEASES
The object of this appraisal is to estimate the value of the leased fee
estate in the subject property. Accordingly, consideration must be given to the
leases in place at the time of appraised valuation. The actual leases for the
subject's tenants are incorporated in the following discounted cash flow
analysis. We utilize Pro-Ject +plus, a software program designed to analysis
multi-tenant properties, in this analysis and several of the computer generated
reports are included in the Addenda.
================================================================================
-59-
<PAGE>
INCOME APPROACH
================================================================================
The subject is 95 percent occupied by 17 tenants. On the following page is
a Rent Roll Summary, as of May 1997. The rent roll was reconstructed from leases
and rent roll supplied by the owner's representative.
The tenants range in size from 4,076 to 35,465 square feet, with an average
tenant size of 10,464 square feet. Nine tenants have small office suites ranging
from 4,076 to 8,969 square feet. Six tenants have larger suites ranging in size
from 10,361 to 17,246 square feet. The two largest tenants lease 28,964 and
35,465 square feet, or about 35 percent of the project. The current rental rates
range from $14.10 to $28.49 per square foot, with an average base rent of $16.68
per square foot. Excluding the highest and low end of the range, the indicated
rental range narrows to $16.00 to $18.75 per square foot. A review of the rent
roll did not indicate a rent differential for smaller versus larger tenants.
There are five leases which have recently been signed and are expected to
commence in the next month. These tenants include Network Appliance, DynCorp
Environmental (renewal), Solutions by Design, TYC Associates and Analysis &
Technology (expansion in Suite 100 - building 3206). The terms of the recent
leasing are discussed later in this section.
ASSUMPTIONS REGARDING THE EXISTING LEASES
Information provided by management indicates that none of the tenants are
in default of their lease and the tenant base, which includes a number of
regional credit tenants, appears to be stable. We assume that all of the
existing tenants will continue to pay rent under the terms of their lease
obligations. We address renewal probability in the Vacancy and Collection Loss
section.
LEASE EXPIRATIONS
In our analysis, consideration is also given to lease expiration schedule.
The timing of lease expiration is an important element and a prospective buyer
would attempt to assess the risk relative to upcoming turnover. For example, a
large lease expiring in the near future would indicate the possibility of a
significant drop in income and consequently a higher risk factor might be
appropriate. The following chart summarizes the property's annual lease
expirations.
=====================================================
EXPIRATION REPORT
=====================================================
Year | Square Feet | % of NRA
===============|===================|=================
1997 | 5,844 | 3.1%
---------------|-------------------|-----------------
1998 | 22,528 | 12.1%
---------------|-------------------|-----------------
1999 | 53,359 | 28.7%
---------------|-------------------|-----------------
2000 | 33,989 | 18.3%
---------------|-------------------|-----------------
2001 | 16,810 | 9.0%
---------------|-------------------|-----------------
2002 | 41,667 | 22.4%
---------------|-------------------|-----------------
2003 | 17,785 | 9.6%
---------------|-------------------|-----------------
2004 | 63,671 | 34.2%
---------------|-------------------|-----------------
2005 | 46,205 | 24.8%
---------------|-------------------|-----------------
2006 | 16,180 | 8.7%
=====================================================
================================================================================
-60-
<PAGE>
INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================================
MONTROSE OFFICE PARK
3200-3260 TOWER OAKS BOULEVARD
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
RENT ROLL ANALYSIS
====================================================================================================================================
| | | Lease Term | | | | |
| | |---------------| | | Annual | |
| | NRA | Lease | Lease | Term | Annual Ren | Rent | Annual | Expense
Suite | Tenant | (SF) | Start | End | (Yrs) | Total | ($SF) | Escalations | Recoveries
===================================================================================================================================
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Building 3200:
Various PB Farradyne, Inc. 28,964 09/95 08/100 5.0 $517,008 $17.85 3.5% 1995 Tax Base
107 R.C. Publications 5,025 05/90 05/100 10.0 $104,700 $20.84 4.5% Gross Lease
300 SPC Financial 6,541 05/89 04/99 10.0 $116,628 $17.83 5.2% Gross Lease
350 Network Appliance 4,946 06/97 05/102 5.0 $ 86,555 $17.50 Bumps 1997 Operating Base
------
Total Building 3200 45,476
Building 3202:
Various Technical Resources 35,465 09/86 12/99 13.0 $567,444 $16.00 3.5% Gross Lease
400 TAF Associates 11,911 02/84 03/99 15.0 $214,284 $17.99 4.5% Gross Lease
------
Total Building 3202 47,376
Building 3204:
100 Registry 11,941 01/97 12/103 7.0 $168,372 $14.10 2.5% 1997 Operating Base
200 DynCorp Environmental 12,000 06/97 05/102 5.0 $204,000 $17.00 2.5% 1997 Operating Base
300 Systems Flow, Inc. 5,844 11/91 04/98 7.0 $ 96,432 $16.50 3.2% Gross Lease
350 Dennisberg Advertising 5,678 06/96 05/99 3.0 $ 93,684 $16.50 2.5% 1996 Operating Base
400 EPIC Megagames 4,076 05/96 04/99 3.0 $ 67,176 $16.48 3.0% 1996 Operating Base
410 Solutions by Design 5,129 06/97 05/102 5.0 $ 94,887 $18.50 3.0% 1997 Operating Base
450 Vacant 2,360
------
Total Building 3204 47,028
Building 3206:
200 M-Cubed Information Systems 12,216 05/96 04/100 4.0 $220,260 $18.03 3.0% 1996 Operating Base
400 Analysis & Technology (Vector) 11,352 12/96 12/101 5.0 $323,364 $28.49 3.0% 1997 Operating Base
310 Toll Brothers 5,458 05/96 05/101 5.0 $ 92,784 $17.00 3.0% 1996 Operating Base
100 TYC Associates 8,969 06/97 05/102 5.0 $161,442 $18.00 3.0% 1997 Operating Base
100 Analysis & Technology (Vector) 2,369 06/97 12/101 4.5 $ 44,419 $18.75 3.0% 1997 Operating Base
300 Vacant 5,894
------
Total Building 3204 46,258
================================================================================================
TOTAL AREA
================================================================================================
<S> <C> <C> <C> <C>
Total Net Rentable Area 186,138 100.0% | Number of Tenant Spaces 17
Occupied NRA 177,884 95.6% | Average Tenant Size 10,464 /SF
------- ------ | Average Minimum Rental Size $16.68 /SF
Vacant NRA 8,254 4.4% | (Weighted)
=================================================================================================
</TABLE>
-61-
<PAGE>
INCOME APPROACH
================================================================================
The risk associated with lease expirations in the subject property is
relatively high during the first four years of the analysis. The largest
rollover in fiscal years 1999 and 2000 is due primarily to the expiration of two
large tenants (Technical Resources and Farradyne). Given that 62 percent of the
leases expire in the first four years of the holding period, and virtually 100
percent expire in the first seven years, expirations are considered to be a
significant factor in the analysis of the subject.
ESTIMATE OF CURRENT MARKET RENT
The subject property is currently 95 percent leased. According to the
property manager, asking rents for the vacant space are $17.00 to $18.00 per
square foot, full service. Tenant improvement allowances vary depending on the
space and could range from minimal ($2.00 to $3.00) to $10.00 per square foot.
In order to gauge the reasonableness of the quoted rent and form a
conclusion as to the current market rent for the subject property, consideration
is given to the most recent leases within the subject since they are the best
comparables and therefore the best indicators of current market rent.
RECENT LEASES AT SUBJECT PROPERTY
There has been a significant amount of recent leasing activity at the
subject with which to gauge current rents. There have been six new lease
executed in 1997 at rental rates of $17.00 to $18.75 per square foot for spaces
ranging in size from 2,369 to 12,000 square feet. The highest rental rate of
$18.75 per square foot (Analysis & Technology) had the highest tenant
improvement allowance of $14.50 per square foot. Leases in the $17.00 to $17.50
per square foot range received a tenant improvement allowance of $2.71 to $7.00
per square foot, while leases in the $18.00 to $18.50 per square foot range had
higher allowances of $10.00 per square foot. Annual escalators range from 2.5 to
3.0 percent, with the majority at 3.0 percent. The following chart depicts the
recent leasing activity at the subject property.
================================================================================
RECENT LEASING ACTIVITY
================================================================================
Tenant
Leased Area Rental Rate Term Improvements
Tenant Area (SF) (Yrs) (SF)
================================================================================
DynCorp 12,000 $17.00 5 $ 2.71
TYC Assoc 8,969 $18.00 5 $10.00
Solutions by Design 5,129 $18.50 5 $10.00
Network Appliance 4,946 $17.50 5 $ 7.00
Analysis & Technology 2,369 $18.75 4.5 $14.50
================================================================================
COMPARABLE BUILDING LEASES
In addition to the recent leases at the subject property, we have analyzed
actual lease data. The tables on the following pages highlights several
competitive office buildings in the Rockville submarket.
================================================================================
-62-
<PAGE>
INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================================
MONTROSE OFFICE PARK
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
SUMMARY OF RENT COMPARABLES
====================================================================================================================================
Comp. Year Area Lease Rental Rate
No. Name/Location Built Leased (SF) Date ($/SF) Term Escalations Tls Pass-Thrus
====================================================================================================================================
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 11200 Rockville Pike 1986 6,888 9/97 $21.50 10 yrs 3.0% $20.00 sf Base year
Rockville, Montgomery County
R-2 2115 E. Jefferson Street 1981 6,580 5/97 $18.00 10 yrs 2.5% None Base year
Rockville, Montgomery County
R-3 9231 Corporate Boulevard 1988 51,000 4/97 $18.50 10 yrs 3.0% As is Base year
Rockville, Montgomery County
R-4 30 West Gude Drive 1987 92,000 1/97 $17.80 10 yrs 2.0% $10.00 sf Base year
Rockville, Montgomery County
R-5 15400 Calhoun Drive N/A 52,326 7/96 $16.75 10 yrs 3.0% $15.00 sf Base year
Rockville, Montgomery County
R-6 1390 Piccard Drive 1982 21,000 6/96 $16.50 10 yrs 3.0% $10.00 sf Base year
Rockville, Montgomery County 72,900 6/96 $17.50 5 yrs N/A $20.00 sf Base year
R-7 1801 Research Boulevard 1980 45,000 6/96 $16.75 5 yrs N/A $20.00 sf Base year
Rockville, Montgomery County 59,227 3/96 $16.00 5 yrs 2.0% $21.50 sf Base year
====================================================================================================================================
</TABLE>
-63-
<PAGE>
INCOME APPROACH
================================================================================
The competitive projects reflect a rental range of $16.00 to $21.50 per
square foot, full service. The 1996 leases indicate rents of $16.00 to $17.50
per square foot, while the more recent 1997 leases reflect higher rents of
$17.80 to $21.50 per square foot. Excluding Rental R-1, which indicated the
highest rent and highest tenant improvement allowance, the newer 1997 rents
indicate a narrower range of $17.80 to $18.50 per square foot, which basically
supports the recent leasing at the subject property of $17.00 to $18.75 per
square foot.
The comparables indicated tenant improvement allowances of $0.00 to $20.00
per square foot for second generation space, with the majority in the $10.00 to
$20.00 per square foot range. No free rent concessions were indicated for any of
the comparables. Annual rent escalations were generally two to three percent per
year and base year expense stops are the market's common practice.
All of the buildings are located in the Rockville submarket within two to
three miles of the subject, and comprise 1980s vintage class B office
facilities. Comparable R-2 is most similar in age to the subject, having been
constructed in 1981. Placing most emphasis on Rental R-2 and the newer 1997
leases, as well as the most recent leasing activity for the property itself, it
is our opinion that the following parameters are representative of a market
lease for the subject property, as of the effective date of appraisal:
============================================================
MARKET RENTAL RATE PARAMETERS
============================================================
Base Rent, Effective $18.00/SF, Full Service
Free Rent None
Expense Recoveries Base Year Stop
Annual Escalations 3.0%
Term 5 years
Office Tls per SF
New Tenants $10.00
Renewal Tenants $ 3.00
============================================================
MARKET RENT FORECAST
In addition to estimating the market rent for the subject, it is
appropriate to analyze what the rental growth rate will be in forecasting the
cash flows over the prescribed holding period. It is our contention that the
submarket will continue to experience an increase in rents over the next several
years. With occupancy levels and rental rates climbing in the Northern Virginia
markets, the suburban Maryland area's are expected to become increasingly
attractive to cost conscious tenants.
Over the last four years, rental rates in Montgomery County and the North
Bethesda/Rockville submarkets have fluctuated. As this period was also the depth
of the recent recession, the lack of rental rate movement is not surprising. The
following table shows examples of these trends.
================================================================================
RENTAL RATE TRENDS BY SUBMARKET ($/SF)
================================================================================
Market | 1992 | 1993 | 1994 | 1995 | 1996 | 1Q 1997
=========================|========|========|========|========|========|=========
Montgomery County | $19.20 | $18.90 | $18.21 | $17.85 | $18.05 | $18.53
North Bethesda/Rockville | $19.10 | $20.19 | $20.85 | $18.51 | $18.90 | $20.15
================================================================================
-64-
<PAGE>
INCOME APPROACH
================================================================================
For the Montgomery County market, asking rental rates over this five year
period ranged from $19.20 to $18.53 per square foot. During the same period, the
North Bethesda/Rockville submarket rates were between $19.10 and $20.15 per
square foot. Between 1995 and 1996, rents increased about 2.1 percent. Since
year-end 1996 and first quarter 1997, rents spiked about $1.25 per square foot,
or an additional increase of 6.6 percent. With a steadily declining vacancy rate
of just under ten percent, it is our opinion that rents will continue to climb
in the near future .
Based on the recent rental increases of 2.1 to 6.6 percent, as well as the
lack of new construction planned for the immediate area, we have projected rent
increases of 5.0 percent in years one and two and in-line with inflationary
expectations or 3.5 percent thereafter. Discussions with C&W brokers indicated
that investors anticipate rents will continue to spike over the next two to
three years within Montgomery County; thus, our relatively modest spike in year
one appears reasonable.
Obviously, the timing and the amount of rent growth is somewhat speculative
and subjective on our part; however, we have attempted to measure the effects of
future occupancy changes in the market and the potential for renewed speculative
development once the rental rates for newer properties again justify new office
construction. As rental rates increase, newer properties and those being
renovated should benefit.
Again, while not verifiable directly from the market, our projected future
market rent schedule attempts to recognize knowledgeable investors' long-term
growth expectations and is further supported by the Cushman & Wakefield Investor
Survey included in the Addenda. Our growth assumptions produce a 4.51 percent
annual compound growth factor in market rent and a 3.52 percent annual compound
growth factor in actual rental revenue.
FREE RENT CONCESSIONS
Free rent does not appear to be a major factor in this environment.
Interviews with leasing agents and a review of the comparable leases indicated
that free rent is subsiding. Thus, we have not provided for any free rent and
have selected a rental rate that is net of any possible rent abatement.
EXPENSE RECOVERY INCOME
The majority of existing leases at the subject property have provisions for
expense pass throughs above a base year, which is typical of the market.
However, some of the older leases written in the 1980s are gross leases wherein
the tenant does not pay any pass-throughs. The allowable expenses included in
the expense recoveries for leases include all items of expense except
administrative expenses, capital replacements, tenant improvements, and leasing
commissions. Most of the existing tenants have base year expenses of 1996 and
1997; thus, recovery income is not significant in the first year of the
analysis. The recovery income reflected in our cash flow analysis is based on
the terms of the existing tenant leases. All future leases are projected to have
a base year expense stop beginning in the year the lease is signed.
ABSORPTION OF VACANT SPACE
The subject property has two vacant suites containing 2,360 and 5,894
square feet. Given the recent amount of leasing activity at the subject over the
past couple of months, as well as the tightening of the market, we have
estimated that it will take three months to lease
================================================================================
-65-
<PAGE>
INCOME APPROACH
================================================================================
the remaining vacant space. This equates to approximately 2,751 square feet per
month, which is only slightly below the subject's year to date 1997 leasing
activity of 3,809 square feet per month (excluding the 12,000 square foot
renewal and 2,369 square foot expansion).
PARKING AND OTHER INCOME
Based on our survey of competitive office buildings, it is not common
practice to charge for parking in the subject's submarket. Only those buildings
with parking structures in central business district locations typically have
parking fees. Although the subject does not charge for parking, some income is
collected for parking from tenants who desire additional spaces in excess of
their allocated number of slots. Parking income was $29,947 in 1994, $30,130 in
1995, and $11,352 in 1996. Discussions with property management indicated that
the high figures for 1994 and 1995 are due to a previous tenant (Perkin Elmer)
who leased an entire building (#3206) and desired excess parking spaces.
Although the 1997 budget does not allocate parking income, the financial
statements through March 1997 indicate year-to-date parking income of $7,549. We
have estimated parking income at $10,000 per year.
Other income has been steadily declining at the subject property over the
past three years and decreased from $11,624 in 1994 to $7,541 in 1995, and $862
in 1996. The 1997 budgeted amount is $404; however, year-to-date figures through
March 1997 are $3,843. Other income includes late fees, security deposit
forfeits, etc. Based on the year-to-date figures, we estimated this income
category conservatively at $5,000 in Year One.
Both parking and other income are projected to increase at a rate of 2.0
percent per year throughout the projection period.
VACANCY AND COLLECTION LOSS
An investor is primarily interested in the annual revenue 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 tenants
were actually paying their rent in full and on time. It is normally prudent to
expect some income loss either in the form of turnover, non-payment, or slow
payment of rent. Regarding collection loss specifically, we have applied a 2.0
percent loss factor throughout the holding period primarily as a contingency for
potential collection problems and tenant defaults. This collection loss factor
is applied to rental income from all tenants.
As of the date of appraisal, the subject property is 95 percent occupied.
With the exception of user-properties, most office buildings rarely reach 100
percent occupancy due to the fact that there is usually a certain amount of
space which is difficult to lease due to its location or configuration as well
as tenant movement within the market. As previously discussed, the average
occupancy level in the North Bethesda/Rockville submarket is 8.8 percent. From a
micro-market perspective, we surveyed about 1.8 million square feet of Class B
suburban office buildings in the Rockville area. The reported occupancy levels
of these buildings ranged from 82.2 to 100.0 percent, with the weighted average
occupancy being 83.3 percent. As previously indicated, several of the fully
vacant buildings on Executive Boulevard are owned by Wilco Construction and may
be part of the buildings planned for demolition for the rumored build-to-suit.
Excluding these buildings results in a vacancy rate for the area's Class B
buildings of 5.7 percent. These statistics indicate that the buildings contained
in our micro-market survey are performing better than the overall submarket.
================================================================================
-66-
<PAGE>
INCOME APPROACH
================================================================================
Area brokers indicated that stabilized vacancy in this market should be
between five and ten percent. To analyze this consensus, we considered the
typical five year lease, acknowledging that some leases extend for more and some
for less than five years. We have similarly estimated the vacancy between leases
(i.e., after tenants turnover) to be six to eight months on average, or say
seven months. Given the tightening of the market and the lack of new
construction, we have factored a renewal probability of 70 percent, which
suggests that 70 percent of tenants will renew rather than vacate. This yields a
blended average downtime between leases of about 2.1 months. This implies a
vacancy of 3.2 percent (2.1 months vacancy between leases divided by a 60 month
lease term plus the vacant months). Adding a credit loss of 2.0 percent, yields
an overall vacancy and collection loss of 5.2 percent. This would indicate a
stabilized occupancy estimate of approximately 95 percent, which is in-line with
stabilized occupancy rates indicated by local brokers of 90 to 95 percent. A
review of the average occupancy levels resulting from the cash flow analysis
indicates an average occupancy of 96.2 percent over the holding period, which is
basically consistent with this projection.
OPERATING EXPENSES
On the following page is our reconstructed Operating Income and Expense
Analysis for the subject property. We based our estimate of operating expenses
for the subject on a review of the actual 1994, 1995 and 1996 expenses, as well
as the 1997 budget. This data was compared with expense comparables at similar
suburban office buildings as well as industry studies. In addition, we have
consulted Cushman & Wakefield's Management Services staff for further support.
It should be noted that the Cushman & Wakefield Year One Projection shown
in the right hand column is for fiscal year beginning May 1997 and corresponds
to the cash flow shown later. The cash flow model used in this report allows for
input of expense items on a calendar year basis, but provides for an analysis on
a fiscal year basis. The input of the individual expense items, as presented,
corresponds to the calendar year accounting at the property. The Pro-Ject +plus
cash flow model automatically compounds escalation in January and as such, the
fiscal year figures presented in the Operating Income and Expense Analysis
include some escalation due to the November starting date.
We have analyzed each item of expense individually and attempted to project
what the typical investor would consider reasonable. Increases in the expenses
during subsequent years are projected at 3.5 percent per annum. Based on
historical CPI trends, we conclude that our selected growth rate reflects an
overall inflationary rate over the long term. The forecast of growth rates in
all categories of expenses reflect typical investor expectations as noted in the
Cushman & Wakefield Investor Survey , a copy of which is in the Addenda. Except
where noted, our forecasted growth rate for the various expense categories
generally does not attempt to reflect growth rates for any individual year, but
rather the long term trend over the projected holding period. Operating expenses
are classified into variable and fixed categories.
FIXED OPERATING EXPENSES
Fixed expenses are those which generally do not vary with occupancy and
have to be paid whether the property is occupied or vacant. The two major
expenses in this category are real estate taxes and insurance.
================================================================================
-67-
<PAGE>
INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
MONTROSE OFFICE PARK
3200-3206 TOWER OAKS BOULEVARD
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
OPERATING INCOME AND EXPENSE ANALYSIS
|=============================================================================================
| 1994 | 1995 | 1996 |
| Actual | Actual | Actual |
|===============================|==============================|=============================|
| Annual | | Annual | | Annual | |
| Amount | Per SF | Amount | Per SF | Amount | Per SF |
======================================|===============================|==============================|=============================|
<S> <C> <C> <C> <C> <C> <C>
REVENUE FROM OPERATIONS | | | | | | |
Rental Income | $2,976,810 | $15.99 | $2,844,899 | $15.28 | $3,124,401 | $16.79 |
Rent Concessions | ($68,921) | ($0.37) | ($83,398) | ($0.45) | $0 | $0.00 |
Total Recoveries | $244,203 | $1.31 | $174,149 | $0.94 | $78,462 | $0.42 |
Parking Income | $29,947 | $0.16 | $30,130 | $0.16 | $11,352 | $0.06 |
Other Income | $11,624 | $0.06 | $7,541 | $0.04 | $862 | $0.00 |
| ---------- | ------ | ---------- | ------ | ---------- | ------ |
Total Revenue | $3,193,663 | $17.16 | $2,973,321 | $15.97 | $3,215,077 | $17.27 |
Less: Vacancy and Collection Loss | ($45,866) | ($0.25) | ($154,169) | ($0.83) | ($692,290) | ($3.72) |
| ---------- | ------ | ---------- | ------ | ---------- | ------ |
Effective Gross Income | $3,147,797 | $16.91 | $2,819,152 | $15.15 | $2,522,787 | $13.55 |
| | | | | | |
FIXED EXPENSES | | | | | | |
Real Estate Taxes | $275,223 | $1.48 | $264,312 | $1.42 | $260,020 | $1.40 |
Insurance | $23,270 | $0.13 | $18,858 | $0.10 | $27,949 | $0.15 |
| ---------- | ------ | ---------- | ------ | ---------- | ------ |
Total Fixed Expenses | $298,493 | $1.60 | $283,170 | $1.52 | $287,969 | $1.55 |
| | | | | | |
VARIABLE EXPENSES | | | | | | |
Utilities | $281,524 | $1.51 | $289,837 | $1.56 | $295,235 | $1.59 |
Repairs & Maintenance | $308,059 | $1.66 | $276,306 | $1.48 | $289,144 | $1.55 |
General & Administrative | $78,429 | $0.42 | $103,319 | $0.56 | $90,966 | $0.49 |
Management | $106,027 | $0.57 | $98,193 | $0.53 | $85,775 | $0.46 |
| ---------- | ------ | ---------- | ------ | ---------- | ------ |
Total Variable Expenses | $774,039 | $4.16 | $767,655 | $4.12 | $761,120 | $4.09 |
| | | | | | |
NON-REIMBURSABLE EXPENSES | $2,905 | $0.02 | $2,637 | $0.01 | $5,983 | $0.03 |
| | | | | | |
TOTAL EXPENSES | $1,075,437 | $5.78 | $1,053,462 | $5.66 | $1,055,072 | $5.67 |
| | | | | | |
Net Operating Income | $2,072,360 | $11.13 | $1,765,690 | $9.49 | $1,467,715 | $7.89 |
====================================================================================================================================
|============================================================
| 1997 | Cushman & Wakefield |
| Budget | Year One Projections |
|===============================|===========================|
| Annual | | Annual | |
| Amount | Per SF | Amount | Per SF |
======================================|===============================|===========================|
<S> <C> <C> <C> <C>
REVENUE FROM OPERATIONS | | | | |
Rental Income | $3,227,628 | $17.34 | $3,273,151 | $17.58 |
Rent Concessions | $0 | $0.00 | $0 | $0.00 |
Total Recoveries | $2,682 | $0.01 | $7,277 | $0.04 |
Parking Income | $0 | $0.00 | $10,067 | $0.05 |
Other Income | $404 | $0.00 | $5,033 | $0.03 |
Total Revenue | $3,230,714 | $17.36 | $3,295,528 | $17.70 |
| ---------- | ------ | ---------- | ------ |
Less: Vacancy and Collection Loss | ($521,206) | ($2.80) | ($65,609) | ($0.35) |
| ---------- | ------ | ---------- | ------ |
Effective Gross Income | $2,709,508 | $14.56 | $3,229,919 | $17.35 |
| | | | |
FIXED EXPENSES | | | | |
Real Estate Taxes | $253,298 | $1.36 | $233,167 | $1.25 |
Insurance | $19,680 | $0.11 | $20,714 | $0.11 |
| ---------- | ------ | ---------- | ------ |
Total Fixed Expenses | $272,978 | $1.47 | $253,881 | $1.36 |
| | | | |
VARIABLE EXPENSES | | | | |
Utilities | $366,500 | $1.97 | $370,970 | $1.99 |
Repairs & Maintenance | $314,004 | $1.69 | $318,243 | $1.71 |
General & Administrative | $123,259 | $0.66 | $124,284 | $0.67 |
Management | $94,833 | $0.51 | $96,898 | $0.52 |
| ---------- | ------ | ---------- | ------ |
Total Variable Expenses | $898,596 | $4.83 | $910,395 | $4.89 |
| | | | |
NON-REIMBURSABLE EXPENSES | $6,336 | $0.03 | $5,665 | $0.03 |
| | | | |
TOTAL EXPENSES | $1,177,910 | $6.33 | $1,169,941 | $6.29 |
| | | | |
Net Operating Income | $1,531,598 | $8.23 | $2,059,978 | $11.07 |
===================================================================================================
</TABLE>
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INCOME APPROACH
================================================================================
REAL ESTATE TAXES
Real estate taxes are based on the actual assessment and tax rate reported
in the Real Estate Taxes and Assessment section. The Year One real estate
taxes are equal to $230,478 or $1.24 per square foot of net rentable area.
As previously discussed, we have increased taxes by 20 percent in year
three of the analysis.
INSURANCE
Insurance rate premiums at the subject property decreased from $0.13 per
square foot in 1994 to $0.10 in 1995 and then increased to $0.15 in 1996.
The 1997 projection is $0.11 per square foot. The expense comparables on
the following page indicate insurance rates of $0.07 to $0.12 per square
foot for 1996, which supports the subject's budgeted expense. We have
estimated the insurance expense to be in line with the 1997 annualized
level at $0.11 per square foot.
VARIABLE OPERATING EXPENSES
Variable expenses are operating expenditures that generally fluctuate
with the level of occupancy and/or intensity of property operation. These
expenses are described below.
UTILITIES
Utilities expense includes the cost of providing electrical, water and
sewer service to the building. The building's actual utilities cost has
steadily increased from $1.52 to $1.59 per square foot between 1994 and
1996. The 1997 budgeted expense is significantly above the historicals at
$1.97 per square foot; however, this range is still below the comparables
at $2.20 to $2.46 per square foot. This may be attributable to the
installation of an energy savings program which was implemented at the
subject site by Pepco in 1994. We have estimated this expense consistent
with the budget, or $1.97 per square foot.
REPAIRS AND MAINTENANCE
This expense is one of the most difficult to estimate because of annual
fluctuations in upkeep. It does not include extraordinary repair items
such as roof replacement but does include maintenance of common areas
components and individual suites. The historical expense for this line
item has fluctuated from $1.48 to $1.67 per square foot, with a 1997
budgeted expense of $1.69 per square foot. The expense comparables
indicate a significantly higher range of $2.14 to $3.72 per square foot;
however, they include payroll expenses within this category, which is
included in the subject's general & administrative category. The subject's
1997 budgeted payroll is equivalent to $0.52 per square foot. Adding this
figure to the budgeted repairs and maintenance expense of $1.69 indicates
a total of $2.21 per square foot, which is in-line with the expense
comparables. Based on the foregoing, we have estimated repairs and
maintenance expense in line with the budget of $1.69 per square foot,
excluding payroll.
GENERAL & ADMINISTRATIVE
These expenses are directly connected to the administration of the
building, including office payroll, general office expense, advertising
and other miscellaneous expenses. This expense increased from $0.42 to
$0.56 per square foot from 1994 to 1996. The 1997 budgeted expense is
$0.66 per square foot. The bulk of this expense ($0.52
================================================================================
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INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
MONTROSE OFFICE PARK
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
OPERATING EXPENSE COMPARABLES
=============================================================================================
| Comparable One | Comparable Two | Comparable Three
| Montgomery County | Prince George's County | Prince George's County
| 12,606 SF | 121,460 SF | 77,894 SF
|-------------------------------|-------------------------------|----------------------------
| 1995 | 1996 | 1995 | 1996 | 1995 | 1996
| $/SF | $/SF | $/SF | $/SF | $/SF | $/SF
================================|==============|================|===============|===============|==============|=============
<S> <C> <C> <C> <C> <C> <C>
FIXED EXPENSES | | | | | |
Real Estate Taxes | $0.72 | $0.74 | $0.91 | $0.92 | $1.29 | $1.17
Insurance | $0.06 | $0.07 | $0.11 | $0.12 | $0.12 | $0.12
| ----- | ----- | ----- | ----- | ----- | -----
TOTAL FIXED EXPENSES | $0.78 | $0.81 | $1.02 | $1.04 | $1.41 | $1.29
| | | | | |
VARIABLE EXPENSES | | | | | |
Utilities | $2.39 | $2.46 | $2.19 | $2.20 | $2.44 | $2.31
Repairs and Maintenance | $3.09 | $3.18 | $3.47 | $3.72 | $2.67 | $2.14
Administrative | $0.16 | $0.17 | $0.20 | $0.22 | $0.22 | $0.15
Management Fees | $0.39 | $0.48 | $0.55 | $0.58 | $0.34 | $0.32
| ----- | ----- | ----- | ----- | ----- | -----
TOTAL VARIABLE EXPENSES | $6.03 | $6.29 | $6.41 | $6.72 | $5.67 | $4.92
| | | | | |
TOTAL EXPENSES | $6.81 | $7.10 | $7.43 | $7.76 | $7.08 | $6.21
| | | | | |
TOTAL EXPENSES EXCLUDING | | | | | |
REAL ESTATE TAXES | $6.09 | $6.36 | $6.52 | $6.84 | $5.79 | $5.04
| | | | | |
Management As % of EGI | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% | 3.0%
=============================================================================================================================
Note 1: The comparables include Contract Services within the Repair and Maintenance expense category.
</TABLE>
<PAGE>
INCOME APPROACH
================================================================================
per square foot or $97,240) is attributable to payroll for the on-site property
manager and assistant. Based on a review of payroll expenses for similar
properties, the existing salaries at the subject property appear reasonable. The
remaining $0.14 per square foot is attributable to general administrative
expenses such as professional fees, office expenses, etc. The expense
comparables indicate general and administrative expenses of $0.15 to $0.22 per
square foot, which is basically in-line with the subject's 1997 budgeted
expense. Based on the foregoing, we have relied on the subject's 1997 budgeted
expense of $0.66 per square foot, which includes payroll.
MANAGEMENT FEES
This expense represents the fee for management responsibilities, whether
provided by an outside company or ownership. This includes rent
collection, property supervision and budget preparation. Cushman &
Wakefield Property Management personnel reported that typical management
agreements range from 2.5 to 3.0 percent of effective gross income. This
range is supported by the expense comparables, which all indicated a rate
of 3.0 percent. The management fee charged at the subject is 3.5 percent
of effective gross income. It is our opinion that this is above market
parameters and as such, a management fee equal to 3.0 percent of effective
gross income is estimated for the subject.
NON-RECOVERABLE EXPENSES
This expense includes general and administrative expenses such as legal
fees, architectural fees, etc. that are not recoverable from tenants. The
historical expense for this line item has fluctuated from $0.01 to $0.03
per square foot, with the most recent history and the 1997 budget at $0.03
per square foot. We have estimated this expense at $0.03 per square foot.
OTHER EXPENSES
Other operating expenses include tenant improvements/finish, leasing
commissions and capital reserves. The probability of incurring future leasing
commissions and tenant improvements/finish is based on the following:
LEASING COMMISSIONS
New leases will require a leasing commission equivalent to 5.0 percent of
total rental income and 2.0 percent on renewal leases. The new lease
commission rate reflects the fact that a landlord will typically be
charged a commission of 3.0 to 4.0 percent by the tenant's agent and 2.0
to 3.0 percent by the landlord's agent. Upon renewal, landlords resist
paying leasing commissions, but typically pay a portion of the full
commission rate or a partial fee to the management company for its
assistance in working with the tenant. This expense item is not passed
through to the tenant. The probability factor is used for speculative
renewals and is equivalent to 2.9 percent. For the recently executed lease
agreements, we utilized the commission rates provided by property
management.
TENANT IMPROVEMENTS/FINISH
The tenant improvement allowance was previously discussed and is projected
to be $10.00 per square foot for new tenants and $3.00 per square foot for
renewals. This
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INCOME APPROACH
================================================================================
expense is also not passed through to the tenants. The probability factor
applies to speculative renewals and is equivalent to $5.10 per square foot.
Tenant improvements/finish costs are projected to increase at the rate of
3.5 percent per year through the projection period.
As previously indicated, there are several new leases which will commence
in June 1997, for which tenant improvements have not been paid. We have
deducted these costs in year one of our discounted cash flow analysis. A
summary of these costs are as follows:
==============================================================
RECENT LEASING ACTIVITY
==============================================================
TENANT
IMPROVEMENTS
TENANT LEASED AREA (SF)
==============================================================
DynCorp 12,000 $ 2.71
TYC Assoc 8,969 $10.00
Solutions by Design 5,129 $10.00
Network Appliance 4,946 $ 7.00
Analysis & Technology 2,369 $14.50
==============================================================
CAPITAL REPLACEMENTS/RESERVES
Reserves for replacements should be (though as a practical matter, they may
not be) set aside to accumulate an amount sufficient to replace and/or
repair certain major building components, i.e., roof, HVAC system, etc.
during the period under analysis. Based on our inspection and conversations
with the property manager, the subject property appears to be in good
overall condition. Taking into consideration the recent and proposed
repairs, we have estimated capital reserves of $0.15 per net rentable
square foot for Year One, increasing by 3.5 percent per year throughout our
analysis.
As previously indicated, the subject suffers from deferred maintenance in
the amount of $258,800. This figure was deducted in year one of the cash
flow. A detailed description of these capital items was discussed in great
detail in the Property Description section.
Our projected expenses are predicated on the assumption that the property
will be prudently managed, while maintaining the improvements at a competitive
level to preserve value. The preceding cumulative annual operating expense
estimate for fiscal year 1998 equates to $1,169,941 or $6.29 per square foot of
net rentable area, excluding capital replacements, tenant alterations and
leasing commissions. The subject's expenses fall within the range indicated by
the expense comparables of $6.21 to $7.76 per square foot. Our estimated
expenses represent a 10.9 percent increase over last year's actual expenses. The
major increase in expenses is attributable to utilities and repairs and
maintenance, which management projects to increase 23.9 and 9.0 percent,
respectively. The expense growth rates incorporated in our projections result in
a 3.85 percent annual compound growth rate over the holding period.
DISCOUNTED CASH FLOW ANALYSIS
Based on the assumptions and projects discussed, we employed the Pro-Ject
+plus computer program, which has the flexibility to allow for a tenant by
tenant analysis, to calculate
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INCOME APPROACH
================================================================================
the subject's forecasted cash flow. It also allows for a variety of assumptions
regarding future income streams and expenses. On the following page is our pro
forma of annual cash flows for the property over a 10 year holding period. An
11th year was used to calculate the reversion.
DERIVATION OF TERMINAL VALUE
The sale of the property is projected to occur in the final year of our
analysis. We estimated the terminal value using the direct capitalization method
wherein an overall rate is applied directly to the net operating income from the
eleventh year of the projection.
We derived the terminal capitalization rate from an analysis of the actual
market sales in the Sales Comparison Approach and information noted in the real
estate investment market. The capitalization rate (OAR) is computed by dividing
net operating income by the sales price. The market derived overall
capitalization rates from the comparable sales are as follows:
===================================================
SUMMARY OF CAPITALIZATION RATES
===================================================
SALE CAPITALIZATION
NO. RATE
===================================================
1 8.59%
2 9.75%
3 11.72%
4 10.0%
5 9.40%
===================================================
The OARs for the comparable sales from which we were able to derive
capitalization rates ranged from 8.59 to 11.72 percent. Sale I-1, which had the
lowest rate of 8.59 percent, was based on the existing net operating income in
place for a 67 percent occupied building; resulting in a low net operating
income and overall rate. Sale I-3, with the highest rate of 11.72 percent, had
high tenant rollover for nearly 50 percent of the building. Excluding these
sales, the range narrows to 9.40 to 10.0 percent. Sale I-5 was 100 percent
occupied by the Food and Drug Administration until the Year 2004 and was
considered to have excellent income durability and quality by the purchaser.
Cushman and Wakefield has surveyed national real estate investors for their
investment objectives as of Autumn 1996. This information includes parameters
relative to going-in cap rates, terminal capitalization rates, and IRRs for
specific property types. A copy of this survey is in the Addenda.
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INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
MONTROSE OFFICE PARK
3200-3206 TOWER OAKS BOULEVARD
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
CASH FLOW ANALYSIS
==========================================================================================================================
Calendar Calendar Calendar Calendar Calendar Calendar
Year Year Year Year Year Year
1997 1998 1999 2000 2001 2002
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
REVENUE FROM OPERATIONS
Rental Income $3,273,151 $3,446,583 $3,463,325 $3,664,561 $3,835,739 $3,821,593
Rent Concessions $0 $0 $0 $0 $0 $0
Total Recoveries $7,277 $29,593 $61,768 $129,400 $172,303 $154,123
Parking Income $10,067 $10,268 $10,473 $10,683 $10,896 $11,114
Other Income $5,033 $5,134 $5,237 $5,341 $5,448 $5,557
-----------------------------------------------------------------------------------
Total Revenue $3,295,528 $3,491,578 $3,540,803 $3,809,985 $4,024,386 $3,992,387
Less: Vacancy and Collection Loss ($65,609) ($69,524) ($70,502) ($75,879) ($80,161) ($79,514)
-----------------------------------------------------------------------------------
EFFECTIVE GROSS INCOME $3,229,919 $3,422,054 $3,470,301 $3,734,106 $3,944,225 $3,912,873
FIXED EXPENSES
Real Estate Taxes $233,167 $241,328 $263,354 $299,730 $310,220 $321,078
Insurance $20,714 $21,439 $22,189 $22,966 $23,770 $24,602
-----------------------------------------------------------------------------------
Total Fixed Expenses $253,881 $262,767 $285,543 $322,696 $333,990 $345,680
VARIABLE EXPENSES
Utilities $370,970 $383,954 $397,392 $411,301 $425,697 $440,596
Repairs & Maintenance $318,243 $329,382 $340,910 $352,842 $365,191 $377,973
General & Administrative $124,284 $128,634 $133,136 $137,796 $142,619 $147,611
Management $96,898 $102,662 $104,109 $112,023 $118,327 $117,386
-----------------------------------------------------------------------------------
TOTAL VARIABLE EXPENSES $910,395 $944,632 $975,547 $1,013,962 $1,051,834 $1,083,566
NON-REIMBURSABLE EXPENSES $5,665 $5,864 $6,069 $6,281 $6,501 $6,729
TOTAL EXPENSES $1,169,941 $1,213,263 $1,267,159 $1,342,939 $1,392,325 $1,435,975
===================================================================================
NET OPERATING INCOME | $2,059,978 | $2,208,791 | $2,203,142 | $2,391,167 | $2,551,900 | $2,476,898
===================================================================================
Commissions $198,364 $17,006 $198,336 $146,118 $56,320 $141,152
Capital Reserves $27,921 $28,898 $29,910 $30,957 $32,040 $33,161
Capital Expenses $258,800 $0 $0 $0 $0 $0
Alterations $325,013 $30,848 $354,631 $261,265 $100,703 $252,385
-----------------------------------------------------------------------------------
Net Cash Flow $1,249,880 $2,132,039 $1,620,265 $1,952,827 $2,362,837 $2,050,200
==========================================================================================================================
===========================================================================================================================
Calendar Calendar Calendar Calendar Calendar | Compound |
Year Year Year Year Year | Growth |
2003 2004 2005 2006 2007 | Rate |
=============================================================================================================|============|
<S> <C> <C> <C> <C> <C> <C>
REVENUE FROM OPERATIONS | |
Rental Income $4,056,491 $4,063,601 $4,297,082 $4,571,959 $4,625,465 | 3.52% |
Rent Concessions $0 $0 $0 $0 $0 | |
Total Recoveries $185,036 $172,302 $137,089 $167,425 $164,701 | 36.61% |
Parking Income $11,337 $11,563 $11,795 $12,031 $12,271 | 2.00% |
Other Income $5,668 $5,782 $5,897 $6,015 $6,136 | |
----------------------------------------------------------------------| 2.00% |
Total Revenue $4,258,532 $4,253,248 $4,451,863 $4,757,430 $4,808,573 | 3.85% |
Less: Vacancy and Collection Loss ($84,830) ($84,718) ($88,683) ($94,788) ($95,803) | |
----------------------------------------------------------------------| |
EFFECTIVE GROSS INCOME $4,173,702 $4,168,530 $4,363,180 $4,662,642 $4,712,770 | 3.85% |
| |
FIXED EXPENSES | |
Real Estate Taxes $332,316 $343,947 $355,985 $368,444 $381,340 | 5.04% |
Insurance $25,463 $26,354 $27,276 $28,231 $29,219 | |
----------------------------------------------------------------------| 3.50% |
TOTAL FIXED EXPENSES $357,779 $370,301 $383,261 $396,675 $410,559 | |
| |
VARIABLE EXPENSES | |
Utilities $456,017 $471,978 $488,497 $505,594 $523,290 | 3.50% |
Repairs & Maintenance $391,202 $404,894 $419,065 $433,733 $448,913 | 3.50% |
General & Administrative $152,777 $158,124 $163,659 $169,387 $175,315 | 3.50% |
Management $125,211 $125,056 $130,895 $139,879 $141,383 | |
----------------------------------------------------------------------| 3.85% |
TOTAL VARIABLE EXPENSES $1,125,207 $1,160,052 $1,202,116 $1,248,593 $1,288,901 | |
| |
NON-REIMBURSABLE EXPENSES $6,964 $7,208 $7,460 $7,721 $7,992 | 3.50% |
| |
TOTAL EXPENSES $1,489,950 $1,537,561 $1,592,837 $1,652,989 $1,707,452 | 3.85% |
| |
======================================================================| |
NET OPERATING INCOME | $2,683,752 | $2,630,969 | $2,770,343 | $3,009,653 | $3,005,318 | 3.85% |
======================================================================| |
| |
Commissions $63,823 $102,357 $310,552 $21,217 $213,317 | 0.73% |
Capital Reserves $34,322 $35,523 $36,767 $38,053 $39,385 | 3.50% |
Capital Expenses $0 $0 $0 $0 $0 | |
Alterations $114,118 $183,018 $555,281 $37,937 $381,422 | 1.61% |
----------------------------------------------------------------------| |
Net Cash Flow $2,471,489 $2,310,071 $1,867,743 $2,912,446 $2,371,194 | 6.61% |
===========================================================================================================================
</TABLE>
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INCOME APPROACH
================================================================================
<TABLE>
<CAPTION>
===================================================================================================
CUSHMAN & WAKEFIELD INVESTOR SURVEY
AUTUMN 1996
OFFICES-SUBURBAN NON-CBD, CLASS-B -- LEASED ASSET
===================================================================================================
Going-in Terminal Income Expense
Cap Rate Cap Rate IRR Growth Growth
===================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overall Range 8.5 - 12.0% 9.0 - 11.0% 10.5 - 18.0% 0.0 - 8.0% 2.0 - 5.0%
Average Low/
Average High 9.5 - 10.0% 9.8 - 10.2% 12.0 - 12.5% 3.4 - 4.5% 3.4 - 3.7%
===================================================================================================
</TABLE>
The preceding table summarizes the investment parameters of some of the
most prominent investors currently acquiring high-grade investment properties in
the United States. Generally speaking, our survey reveals going-in
capitalization rates of 8.5 to 12.0 percent with the average low and high
responses of 9.5 and 10.0 percent for investment grade Class B offices in
non-CBD suburban locations. These going-in rates reflect an attitude in the
market that existing income in these Class B properties now includes significant
upside potential.
The Washington, D.C. area has been consistently cited as one of the top
office investment markets in the country. With the strength of the office demand
created by the federal government and the national and international entities
that must locate in close proximity to the seat of government, this market is
highly regarded among investors. With the persistent questions about future
federal employment, and hence office space demand, some caution is warranted.
Additionally, the Montgomery County office markets continue to show secondary
tier preference by many investors and tenants compared to Northern Virginia, but
investment activity has shown significant improvement in the last year. Even so,
the capitalization rates and yield rates required by investors for quality
property in the metropolitan area are consistently among the lowest in the
nation. Consequently, we concluded that a capitalization rate for a stabilized
Class B building like the subject would be within the range of the local
comparable sales and the survey data of 9.5 to 10.0 percent, and probably nearer
the high end of the range because Sale I-5, which indicated an overall rate of
9.4 percent, has superior income durability and quality relative to the subject.
In our DCF model, we selected a terminal capitalization rate that accounted
for the anticipated holding period and reflected the subject's tenancy, quality
and location. This rate also reflected the risk involved in our DCF analysis
based on the income and expense projections that were modeled, as well as the
approximate age of the property at the end of the holding period. The rate we
selected reflects the significant rollover risk in the first four years of the
holding period and the layout of the floor plates which makes it awkward to
split the floors between more than two tenants thus, limiting the ability to
fill vacant space with tenants smaller than 4,000 square feet. Thus, we are of
the opinion that a 10.0 to 10.5 percent terminal capitalization rate is
appropriate, say 10.25 percent.
From this projected sales price, the estimated costs of sale for such items
as real estate commissions, closing costs, legal fees, and so on, must be
deducted. We estimate the seller's portion of closing costs, commissions, legal
fees, and the like to be 3.0 percent of the sales price.
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INCOME APPROACH
================================================================================
DERIVATION OF DISCOUNT RATE
The present value analysis is formulated by discounting the property cash
flows at the selected internal rate of return or yield rate. The yield rate
utilized to discount the projected cash flows and eventual property reversion
was based on the results of our recent investor survey. The rate reflects
acceptable expectation of yield to be achieved by the various investors
currently active in the marketplace.
A yield rate differs from an income rate, such as cash-on-cash (equity
dividend rate or cash flow after debt service), in that it takes into
consideration all equity benefits including the equity reversion at the time of
resale, in addition to annual cash flows. The yield rate is the single rate
(internal rate of return or IRR) that discounts all of the future equity
benefits (cash flows and equity reversion) to the original equity investment.
The yield rate currently accepted by investors in the market can be applied to
the projected cash flows and a reversion in order to estimate the value of the
projected income stream and, therefore, the value of the subject property.
A real estate investment must compete in the capital markets and as such
must be competitive with the yields offered on other investment vehicles of
nearly similar risk, considering a similar holding period. In order to estimate
the proper discount rate by which to process the subject income stream, we
considered the yields on lower risk investments, such as ten-year Treasury Bonds
and Aaa, A, Baa corporate bonds.
An investor analyzing a real estate investment would certainly consider the
alternative investment vehicles noted above as well as the distinct advantages
and disadvantages offered by a real estate investment. Advantages include tax
write-offs through depreciation and the chance for substantial capital
appreciation. Disadvantages include non-liquidity and the burden of management.
Institutional investors in class B office building in non-CBD suburban
settings are currently requiring discount rates (before tax yield rates) ranging
from 11.0 to 18.0 percent, with low and high averages of 12.0 and 12.5 percent.
These rates relate to well-located, investment grade properties (note the
Investor Survey in the Addenda). By comparison, the fourth quarter 1996 Korpacz
Real Estate Investor Survey for the National Suburban Office Market showed
equity IRRs between 10.0 and 14.0 percent, with an average of 11.8 percent. The
better buildings, of course, would fall at the lower end of the range.
In selecting an appropriate rate, consideration must be given not only to
available yields on alternative investments, but also to the property's
location, age and condition, as well as our degree of confidence in the
assumptions made in our DCF model. As previously indicated, the subject has high
rollover risk in the first four years of the analysis, when 62+/- percent of the
existing leases expire, and limiting floor plates. However, these factor are
somewhat offset by the subject's convenient location to I-270 in a strongly
improving office market which is experiencing rent spikes and steadily declining
vacancy. Based on these factors, it is our opinion that the subject warrants a
discount rate of 12.0 percent.
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INCOME APPROACH
================================================================================
CONCLUSION
Using the above indicated rates of return, our cash flow model indicated a
value of $20,400,000 or $109.60 per square foot, as shown on the following page.
This value estimate produces an implied going-in capitalization rate of 10.1
percent, which falls toward the upper end of the range generally required by
investors as noted in the Cushman & Wakefield Investor Survey. We deem this
reasonable because of the decline in cash flows in the first three years of the
analysis due to high tenant turnover and reletting costs, when combined with a
relatively flat cash flow profile over the term.
Regarding the composition of the yield, as analyzed in the Discounted Cash
Flow Analysis chart, 55 percent of the subject's ultimate yield is derived from
the cash flow of the property with the balance attributable to the reversion or
resale of the property at the conclusion of the holding period. Typical investor
requirements dictate that a substantial amount of the value be derived from the
cash flow. Greater risk is evident when the reversion provides a larger
percentage of the overall return than the cash flows. However, the average cash
on cash return is 10.3 percent, based on this value conclusion. This rate would
generate investor interest because the yields are appropriate relative to the
risks involved.
Thus, it is our opinion that the market value of the property by the Income
Approach, is $20,400,000 which equates to $109.60 per square foot of net
rentable building area.
================================================================================
-76-
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
================================================================================
<TABLE>
<CAPTION>
MONTROSE OFFICE PARK
3200-3206 TOWER OAKS BOULEVARD
ROCKVILLE, MONTGOMERY COUNTY, MARYLAND
DISCOUNTED CASH FLOW ANALYSIS
=======================================================================================================
NET DISCOUNT PRESENT ANNUAL
CALENDAR CASH FACTOR @ VALUE OF COMPOSITION CASH ON CASH
YEAR FLOW 12.00% CASH FLOWS OF YIELD RETURN
=======================================================================================================
<S> <C> <C> <C> <C> <C>
1997 $1,249,880 X 0.89286 = $ 1,115,964 5.47% 6.13%
1998 $2,132,039 X 0.79719 = $ 1,699,648 8.33% 10.45%
1999 $1,620,265 X 0.71178 = $ 1,153,273 5.65% 7.94%
2000 $1,952,827 X 0.63552 = $ 1,241,057 6.08% 9.57%
2001 $2,362,837 X 0.56743 = $ 1,340,737 6.57% 11.58%
2002 $2,050,200 X 0.50663 = $ 1,038,695 5.09% 10.05%
2003 $2,471,489 X 0.45235 = $ 1,117,976 5.48% 12.12%
2004 $2,310,071 X 0.40388 = $ 932,999 4.57% 11.32%
2005 $1,867,743 X 0.36061 = $ 673,527 3.30% 9.16%
2006 $2,912,446 X 0.32197 = $ 937,730 4.59% 14.28%
----------- ------
TOTAL PRESENT VALUE OF CASH FLOWS $11,251,606 55.13% 10.26%
AVERAGE
REVERSION:
2007 $3,005,318 (1) / 10.25% = $29,320,176
Less: Cost of Sale @ 3.00% $ 879,605
-----------
Net Reversion $28,440,570
X Discount Factor 0.32197
-----------
TOTAL PRESENT VALUE OF REVERSION $ 9,157,102 44.87%
TOTAL PRESENT VALUE OF CASH FLOW $20,408,709 100.00%
ROUNDED: $20,400,000
===========
--------------------------------------------------------------
| Gross Leasable Area (S.F.): 186,138 |
| Per Square Foot of Gross Leasable Area: $109.60 |
| Implicit Going-In Capitalization Rate: |
| Year One NOI $2,059,978 |
| Going-In Capitalization Rate: 10.1% |
--------------------------------------------------------------
NOTE: (1) NET OPERATING INCOME
=======================================================================================================
</TABLE>
-77-
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
================================================================================
The two approaches utilized in this analysis indicated the following
values:
Sales Comparison Approach $21,300,000
Income Approach $20,400,000
In the reconciliation, each approach to value is reviewed in order to
determine the reliability of the data employed and to determine which approach
best represents the actions of typical users and investors in the market.
The Cost Approach is typically a good indication of value when the subject
is new (there is recent historical cost data available) and a minimal amount of
depreciation is present. Further, the interest being sought should be the fee
simple estate. However, as indicated in the Valuation Process section, the Cost
Approach is fraught with deficiencies when attempting to apply this technique to
the leased fee estate of a property and when there is significant physical
depreciation. Based on these factors, the Cost Approach was not prepared.
The Sales Comparison Approach is based on the principle of substitution,
which implies that a prudent person will not pay more to buy a property than it
would cost to buy a comparable substitute property. We compared the subject
property with the most recent sales of office properties in the area. Because of
the inherent differences between the comparables and the subject, the range of
value indications provided an imprecise indication of the price that a buyer
would pay for the subject under normal circumstances. Even so, following our
analysis, the Sales Comparison Approach value indication supports the value
conclusion by the Income Approach.
The Income Approach is predicated upon the principle of anticipation, which
assumes that value is determined by the future income one can expect to receive
from the real estate. In this approach, we estimated future income from
operations over a holding period, including the ultimate sale of the property at
the end of the term. This income stream was discounted to present value,
yielding a reliable indication of value.
Income properties like the subject are generally bought and sold based upon
their ability to produce income, if leased. Thus, the prices being paid for
comparable properties are less indicative of the subject's value than the value
derived by the Income Approach. Therefore, we have relied primarily on the
latter. However, strong support is provided by the value indication via the
Sales Comparison Approach.
Based on the above discussion, we have formed an opinion that the market
value of the leased fee estate in the property, subject to the assumptions,
limiting conditions, certifications and definitions as of May 20, 1997, is:
TWENTY MILLION FOUR HUNDRED THOUSAND DOLLARS
$20,400,000
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, whereas exposure time is presumed
to precede the effective date of appraisal. The
================================================================================
-78-
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
================================================================================
estimate of marketing time uses some of the same data analyzed in the process of
estimating the reasonable exposure time and is not intended to be a prediction
of a date of sale.
Our estimate of an appropriate marketing time for the subject relates to a
sale of the property in its As Is condition. Based on our discussions with local
brokers and buyer/sellers of office projects like the subject, as well as our
assessment of the local real estate market and economic forces in general, we
have concluded that the probable marketing period for the subject property in
today's environment would be about twelve months.
================================================================================
-79-
<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.
This appraisal is 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
================================================================================
-80-
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
other governmental consents have been or can be obtained and renewed for
any use on which the value estimate 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. In preparing this appraisal, we have relied on the rent roll and the
history of income and expenses furnished by the owner or the management
company representing the owner. We have not reviewed actual tenant leases.
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 the Appraisal, envisages for the future in
terms of rental rates, expenses, supply and demand.
10. 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 life 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.
11. 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.
12. 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.
================================================================================
-81-
<PAGE>
CERTIFICATION OF APPRAISAL
================================================================================
We certify that, to the best of our knowledge and belief:
1. Kelly J. Small inspected the property, and Donald R. Morris, MAI, Manager,
Cushman & Wakefield of Washington D.C., Valuation Advisory Services, has
reviewed and approved the report, but did not inspect 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 I have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event.
6. No one provided professional assistance to the person(s) signing this
report.
7. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Donald R. Morris, MAI has completed he
requirements of the continuing education program of the Appraisal
Institute.
/s/ KELLY J. SMALL
-----------------------------------------------
Kelly J. Small
Washington, D.C. Valuation Advisory Services
Maryland Certified General Appraiser No. 20143
/s/ DONALD R. MORRIS, MAI
-----------------------------------------------
Donald R. Morris, MAI
Director/Manager
Washington, D.C. Valuation Advisory Services
Maryland Certified General Appraiser No. 07220
================================================================================
-82-
<PAGE>
ADDENDA
================================================================================
================================================================================
-83-
<PAGE>
ADDENDA
================================================================================
ENGAGEMENT LETTER
================================================================================
<PAGE>
[LETTERHEAD OF CUSHMAN & WAKEFIELD]
April 22, 1997
Prudential Bache Properties, Inc.
c/o Mr. Chester Piskorowski
Senior Vice President
Direct Investment
Prudential Securities Incorporated
199 Water Street, 16th floor
New York, New York 10292
RE: Prudential Bache/Equitec Portfolio
Dear Chet:
Thank you for requesting our proposal for appraisal services. This proposal
letter, with its attachments, will become, upon your acceptance, our letter of
engagement to provide the services outlined.
THE PARTIES TO THIS AGREEMENT: Cushman & Wakefield subsidiaries active in
the markets where the above portfolio properties are located will prepare the
appraisal. We understand that Prudential Bache Properties, Inc. ("Prudential")
is the client in this assignment and the report will be addressed accordingly.
THE PROPERTY: We understand that the property consists of three office
buildings and one industrial property located in California, Maryland and
Washington. The properties are more specifically described on the attached
Schedule A entitled "Property to be Appraised."
INTEREST APPRAISED AND DATE OF VALUATION: Our assignment is to estimate
the market value of a leased fee interest disregarding existing financing. The
date of valuation will be the date of inspection.
INTENDED USE OF APPRAISAL AND LIMITATIONS ON DISTRIBUTION OF REPORT: The
appraisal is to be used to assist Prudential in evaluating current offers to
purchase the properties from Equitec and other offers that may arise.
<PAGE>
Cushman & Wakefield, Inc.
Prudential Bache Properties, Inc.
c/o Mr. Chester Piskorowski
Prudential Securities Incorporated -2- April 22, 1997
REGULATIONS OF FEDERAL AGENCIES: Federal banking regulations require banks
and savings and loan associations to employ appraisers when the appraisal is to
be used in connection with mortgage loans or other transactions involving
federally regulated lending institutions. Because of that requirement, this
appraisal may not be accepted by a federally regulated financial institution.
COMPLETE APPRAISAL, SELF-CONTAINED REPORT: This will be a complete
appraisal prepared in accordance with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation. The results of the appraisal
will be conveyed in three copies of a Self-Contained report.
COMPLIANCE WITH USPAP AND APPRAISAL INSTITUTE CODE OF ETHICS: Our report
will be prepared in accordance with the Uniform Standards of Professional
Appraisal Practice ("USPAP") of the Appraisal Foundation and the Code of Ethics
of the Appraisal Institute.
STANDARD ASSUMPTIONS AND LIMITING CONDITIONS: We enclose for your review a
copy of our standard Assumptions and Limiting Conditions which will be
incorporated into the appraisal. The appraisal may also be subject to special
assumptions and limiting conditions which become apparent during the course of
the assignment.
INDEMNIFICATION: If you plan to use the appraisal or C&W's name in any
offering memoranda or other investment material, you must obtain our prior
written consent which will be given at our sole discretion. If C&W's name is
published in any kind of offering materials, we will require an indemnification
agreement from Prudential to us and in a form satisfactory to us.
INFORMATION NEEDED TO COMPLETE THE APPRAISAL: Since we previously
appraised these properties we understand that you will provide the following
additional information for our review, if available:
o Cost of any major expansions, modifications or repairs incurred over the
past three years
o Engineering or environmental reports
o ADA Compliance studies
o Year-to-date operating statements and statements for two previous years
o Budgets
o Lease Documents or detailed rent roll showing expiration dates, options to
renew, expense stops, pass-through provisions and breakpoint for
calculating overage rent
o Name and telephone number of contact person to arrange for inspection
APPRAISAL FEE AND SCHEDULE OF PAYMENT: The fee for this assignment shall
be $25,000 payable at the time of delivery of the reports.
DISINTERESTED OPINION OF VALUE: It is understood that payment of the
appraisal fee is not contingent on the appraised value, a loan closing, or any
other prearranged condition.
<PAGE>
Cushman & Wakefield, Inc.
Prudential Bache Properties, Inc.
c/o Mr. Chester Piskorowski
Prudential Securities Incorporated -3- April 22, 1997
AUTHORIZING THE ASSIGNMENT AND REPORT DELIVERY: We agree to complete the
assignment within thirty (30) days of your authorization to proceed. You may
authorize the assignment by signing this letter and returning it to us.
TIMELINESS OF DELIVERY: We will make every effort to deliver the report
within the time period agreed upon. However, any delays in receiving the
information requested could affect our ability to deliver on time.
RESPONDING TO SUBPOENAS OR OTHER JUDICIAL REQUESTS TO PRODUCE DOCUMENTS:
If we receive a subpoena or other judicial request to produce documents or a
request to provide testimony involving this assignment in connection with a
lawsuit or proceeding, we will notify you immediately so that you can take
action to challenge that request if you see fit. However, if we are not a party
to these proceedings, you agree to compensate us for the professional time and
reimburse us for the actual expense which we incur in responding to this
request, including attorneys' fees, if any, as they are incurred. We will be
compensated at the then prevailing hourly rates of the personnel responding to
the subpoena or request for testimony.
PAYMENT OF LEGAL FEES TO COLLECT PAST DUE ACCOUNTS: Our fees and expenses
shall be due as agreed in this letter. If it becomes necessary to place
collection in the hands of a collection agent and/or an attorney (whether or not
a legal action is filed) you agree to pay all legal fees and expenses incurred
by us in connection with the collection or attempted collection of the agreed
fee and travel expenses.
USE OF AFFILIATES: You agree that we may utilize the services of our
affiliates within the C&W network to produce the report required by this
assignment. Our valuation offices in San Jose, CA; Seattle, WA; and Washington,
D.C. will be involved in completing this assignment. The properties and
respective branch managers are detailed below.
Gateway Plaza and Park Plaza Kenneth E. Matlin, MAI
Director/Manager
Cushman & Wakefield of California, Inc.
2055 Gateway Place, Suite 550
San Jose, CA 95110-1068
phone (408) 438-5500 x140
fax (408) 437-9129
Montrose Office Park Donald E. Morris, MAI
Director/Manager
Cushman & Wakefield of Washington, D.C., Inc.
1875 Eye Street , NW, Suite 700
Washington, D.C. 20006
phone (202) 739-0393
fax (202) 223-8963
<PAGE>
Cushman & Wakefield, Inc.
Prudential Bache Properties, Inc.
c/o Mr. Chester Piskorowski
Prudential Securities Incorporated -4- April 22, 1997
Totem Valley Business Center Kenneth A. Barnes, MAI
Director/Manager
Cushman & Wakefield of Washington, Inc.
700 Fifth Avenue, Suite 2700
Seattle, Washington 98104
phone (206) 521-0240
fax (206) 521-0299
The proposal is submitted based on our current schedule of commitments. It
may be necessary to alter the anticipated completion date if the assignment is
not authorized promptly.
Thank you for calling on us to render these services and we look forward
to working with you.
Sincerely,
CUSHMAN & WAKEFIELD, INC.
/s/ Frank P. Liantonio
Frank P. Liantonio, MAI, CRE
Executive Managing Director
Valuation Advisory Services
FPL: fl
Enclosure
cc: Kenneth A. Barnes
Brian R. Corcoran
Kenneth E. Matlin
Donald R. Morris
AGREED AND ACCEPTED FOR:
Prudential Bache Properties, Inc.
By: /s/ THOMAS S. LYNCH
----------------------------------
President
Date: April 25, 1997
<PAGE>
SCHEDULE A
================================================================================
================================================================================
PROPERTY TO BE APPRAISED
- - --------------------------------------------------------------------------------
Land Area Net Rentable
Location Property Type (in acres) Square Feet
================================================================================
Montrose Office Park Office Building Complex 18.42 190,754
Rockville, MD
- - --------------------------------------------------------------------------------
Totem Valley Business Center Industrial Park 10.40 105,115
Kirkland, WA
- - --------------------------------------------------------------------------------
Gateway Plaza Office Building .87 48,578
Sacremento, CA
- - --------------------------------------------------------------------------------
Park Plaza Office Building 1.37 67,292
Sacremento, CA
================================================================================
<PAGE>
Addenda
================================================================================
Legal Description
<PAGE>
- - --------------------------------------------------------------------------------
POLICY OF TITLE INSURANCE ISSUED BY
STEWART TITLE
GUARANTY COMPANY
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS CONTAINED IN SCHEDULE B
AND THE PROVISIONS OF THE CONDITIONS AND STIPULATIONS HEREOF, STEWART TITLE
GUARANTY COMPANY, a corporation of Galveston, Texas, herein called the Company,
insures, as of Date of Policy shown in Schedule A, against loss or damage, not
exceeding the amount of insurance stated in Schedule A, and costs, attorneys,
fees and expenses which the Company may become obligated to pay hereunder,
sustained or incurred by the insured by reason of:
1. Title to the estate or interest described in Schedule A being vested
otherwise than as stated therein;
2. Any defect in or lien or encumbrance on such title;
3. Lack of a right of access to and from the land; or
4. Unmarketability of such title
IN WITNESS WHEREOF, Stewart Title Guaranty Company has caused this policy
to be signed and sealed by its duly authorized officers as of Date of Policy
shown in Schedule A.
STEWART TITLE
GUARANTY COMPANY
/s/ Carloss Morris /s/ Stewart Morris
- - --------------------------- ---------------------------
Chairman of the Board President
Countersigned:
[SEAL]
/s/ [ILLEGIBLE]
- - ---------------------------
Authorized Countersignature
EXCLUSIONS FROM COVERAGE
Sanctity of Contract
The following matters are expressly excluded from the coverage of this policy:
1. Any law, ordinance or governmental regulation (including but not limited
to building and zoning ordinances) restricting or regulating or
prohibiting the occupancy, use or enjoyment of the land, or regulating the
character, dimensions or location of any improvement now or hereafter
erected on the land, or prohibiting a separation in ownership or a
reduction in the dimensions or area of the land, or the effect of any
violation of any such law, ordinance or governmental regulation.
2. Rights of eminent domain or governmental rights of police power unless
notice of the exercise of such rights appears in the public records at
Date of Policy.
3. Defects, liens, encumbrances, adverse claims, or other matters (a)
created, suffered, assumed or agreed to by the insured claimant; (b) not
known to the Company and not shown by the public records but known to the
insured claimant either at Date of Policy or at the date such claimant
acquired an estate or interest insured by this policy and not disclosed in
writing by the insured claimant to the Company prior to the date such
insured claimant became an insured hereunder; (c) resulting in no loss or
damage to the insured claimant; (d) attaching or created subsequent to
Date of Policy; or (e) resulting in loss or damage which would not have
been sustained if the insured claimant had paid value for the estate or
interest insured by this policy.
---------------------
Page 1 of
Policy 0-9902-053296
Serial No.
---------------------
- - --------------------------------------------------------------------------------
<PAGE>
CONDITIONS AND STIPULATIONS
1. DEFINITION OF TERMS
The following terms when used in this policy mean:
(a) "insured": the insured named in Schedule A, and, subject to any rights
or defenses the Company may have against the named insured, those who succeed to
the interest of such insured by operation of law as distinguished from purchase
including, but not limited to, heirs, distributees, devisees, survivors,
personal representatives, next of kin, or corporate or fiduciary successors.
(b) "insured claimant": an insured claiming loss or damage hereunder.
(c) "knowledge": actual knowledge, not constructive knowledge or notice
which may be imputed to an insured by reason of any public records.
(d) "land": the land described, specifically or by reference in Schedule
A, and improvements affixed thereto which by law constitute real property;
provided, however, the term "land" does not include any property beyond the
lines of the area specifically described or referred to in Schedule A, nor any
right, title, interest, estate or easement in abutting streets, roads, avenues,
alleys, lanes, ways or waterways, but nothing herein shall modify or limit the
extent to which a right of access to and from the land is insured by this
policy.
(e) "mortgage": mortgage, deed of trust, trust deed, or other security
instrument.
(f) "public records": those records which by law impart constructive
notice of matters relating to said land.
2. CONTINUATION OF INSURANCE AFTER CONVEYANCE OF TITLE
The coverage of this policy shall continue in force as of Date of Policy
in favor of an insured so long as such insured retains an estate or interest in
the land, or holds an indebtedness secured by a purchase money mortgage given by
a purchaser from such insured, or so long as such insured shall have liability
by reason of covenants of warranty made by such insured in any transfer or
conveyance of such estate or interest; provided, however, this policy shall not
continue in force in favor of any purchaser from such insured of either said
estate or interest or the indebtedness secured by a purchase money mortgage
given to such insured.
3. DEFENSE AND PROSECUTION OF ACTIONS - NOTICE OF CLAIM TO BE GIVEN BY AN
INSURED CLAIMANT
(a) The Company, at its own cost and without undue delay, shall provide
for the defense of an insured in all litigation consisting of actions or
proceedings commenced against such insured, or a defense interposed against an
insured in an action to enforce a contract for a sale of its estate or interest
in said land, to the extent that such litigation is founded upon an alleged
defect, lien, encumbrance, or other matter insured against by this policy.
(b) The insured shall notify the Company promptly in writing (i) in case
any action or proceeding is begun or defense is interposed as set forth in (a)
above, (ii) in case knowledge shall come to an insured hereunder of any claim of
title or interest which is adverse to the title to the estate or interest as
insured, and which might cause loss or damage for which the Company may be
liable by virtue of this policy or, (iii) if title to the estate or interest, as
insured, is rejected as unmarketable. If such prompt notice shall not be given
to the Company, then as to such insured all liability of the Company shall cease
and terminate in regard to the matter or matters for which such prompt notice is
required; provided, however, that failure to notify shall in no case prejudice
the rights of any such insured under this policy unless the Company shall be
prejudiced by such failure and then only to the extent of such prejudice.
(c) The Company shall have the right at its own cost to institute and
without undue delay prosecute any action or proceeding or to do any other act
which in its opinion may be necessary or desirable to establish the title to the
estate or interest as insured, and the Company may take any appropriate action
under the terms of this policy, whether or not it shall be liable thereunder,
and shall not thereby concede liability or waive any provision of this policy.
(d) Whenever the Company shall have brought any action or interposed a
defense as required or permitted by the provisions of this policy, the Company
may pursue any such litigation to final determination by a court of competent
jurisdiction and expressly reserves the right, in its sole discretion, to appeal
from any adverse judgment or order.
(e) In all cases where this policy permits or requires the Company to
prosecute or provide for the defense of any action or proceeding, the insured
hereunder shall secure to the Company the right to so prosecute or provide
defense in such action or proceeding, and all appeals therein, and permit the
Company to use, at its option, the name of such insured for such purpose.
Whenever requested by the Company, such insured shall give the Company all
reasonable aid in any such action or proceeding, in effecting settlement,
securing evidence, obtaining witnesses, or prosecuting or defending such action
or proceeding, and the Company shall reimburse such insured for any expense so
incurred.
4. NOTICE OF LOSS - LIMITATION OF ACTION
In addition to the notices required under paragraph 3(b) of these
Conditions and Stipulations, a statement in writing of any loss or damage for
which it is claimed the Company is liable under this policy shall be furnished
to the Company within 90 days after such loss or damage shall have been
determined and no right of action shall accrue to an insured claimant until 30
days after such statement shall have been furnished. Failure to furnish such
statement of loss or damage shall terminate any liability of the Company under
this policy as to such loss or damage.
5. OPTIONS TO PAY OR OTHERWISE SETTLE CLAIMS
The Company shall have the option to pay or otherwise settle for or in the
name of an insured claimant any claim insured against or to terminate all
liability and obligations of the Company hereunder by paying or tendering
payment of the amount of insurance under this policy together with any costs,
attorneys' fees and expenses incurred up to the time of such payment or tender
of payment, by the insured claimant and authorized by the Company.
(continued and concluded on last page of this policy)
<PAGE>
ALTA OWNER'S POLICY--Amended 10/17/70
SCHEDULE A
Order No.: M-00834 Policy No.: 0 - 9902 - 053296
Date of Policy: August 11, 1986 Amount of Insurance: $20,300,000.00
1. Name of Insured Montrose Office Park Joint Venture, a Maryland single purpose
General Partnership created by Joint Venture Agreement dated November 12, 1981
as amended by Amended and Restated Joint Venture Agreement dated August 11,
1986.
2. The estate or interest in the land described herein and which is covered by
this policy is:
FEE SIMPLE.
3. The estate or interest referred to herein is at Date of Policy vested in:
PLEASE SEE ATTACHED EXHIBIT "A"
4. The land referred to in this policy is described as follows:
PLEASE SEE ATTACHED EXHIBIT "B"
This is a replacement Policy for a Policy issued August 11, 1986 insuring
Montrose Office Park Joint Venture
Page 2 STEWART TITLE
GUARANTY COMPANY
<PAGE>
EXHIBIT "A"
The Estate or interest referred to herein is at Date of Policy vested in:
Montrose Office Park Limited Partnership, a Maryland limited partnership,
created by Certificate and Agreement of Montrose Office Certificate and
Agreement of Montrose Office Park Limited Partnership, dated June 13, 1980,
First Amendment of Certificate and Agreement of Limited Partnership dated
October 15, 1985, and Second Amended and Restated Agreement and Certificate of
Limited Partnership dated August 11, 1986, as declarant for Montrose Office Park
Joint Venture, a Maryland single purpose general partnership created by Joint
Venture Agreement dated November 12, 1981, as amended by Amended and Restated
Joint Venture Agreement dated November 12, 1981 as amended and Restated Joint
Venture Agreement dated August 11, 1986, as set out in Declaration recorded in
Liber 5795, at folio 702 as amended by Declaration recorded in Liber 7244, at
folio 706.
<PAGE>
34/078219-11
080786-1
EXHIBIT "B"
DESCRIPTION OF THE
MONTROSE OFFICE PARK PARCEL
CITY OF ROCKVILLE
MONTGOMERY COUNTY, MARYLAND
Being part of Lot 27, Block D, as shown on a p1at of subdivision entitled "Plat
of Subdivision Lot 27 in Block "D" Wheel of Fortune" recorded among the Land
Records of Montgomery County, Maryland, in Plat Book 100 as P1at No. 11191:
Beginning for the same at the most easterly corner of the aforesaid Lot
27, said point being the end of the northeasterly or South 15(degrees) 36' 26"
East, 955.30 foot line of the said Lot 27, said point also being a stone
monument found with the marking "B.P.P.", thence running with part of the
southeasterly or South 41(degrees) 27' 43" West 478.67 foot line of the
aforesaid p1at, all courses in the Meridian of the Washington Suburban Sanitary
Commission,
1. South 41(degrees) 27' 37" West, 465.34 feet to a point, said point
being in the northeasterly right of way line of Monroe Street as
dedicated to public use by the aforesaid p1at; thence running with
the said right of way line
2. North 39(degrees) 31' O1" West, 628.87 feet to a point; thence
leaving the said right of way line and running with the westerly
line of the Recreation Easement as shown on the aforesaid p1at the
following six (6) courses and distances:
3. North 09(degrees) 04' 53" East, 113.17 feet to a point; thence
4. North 26(degrees) 06' 02" West, 175.94 feet to a point; thence
5. North 14(degrees) 37' 52" West, 168.67 feet to a point; thence
6. North 17(degrees) 37' 50" East, 307.02 feet to a point; thence
7. North 30(degrees) 40' 58" West, 264.18 feet to a point; thence
8. North 71(degrees) 41' 04" West, 152.81 feet to a point in the
northerly line of the aforesaid Lot 27, Block "D", thence running
with the northerly and northeasterly lines of the said Lot 27 the
following four (4) courses and distances:
9. North 79(degrees) 51' 12" East, 235.19 feet to a point; thence
10. North 85(degrees) 45' 12" East, 428.92 feet to the northeastern most
corner of the said Lot 27; thence
11. South 15(degrees) 35' 46" East, 301.38 feet to a point; and thence
<PAGE>
Continuation Form 203-A-T
Attached to and made a part of Stewart Title Guaranty Company Policy No.
0-9902-053296
Continuation of Schedule
12. Easement and Right of Way for the installation construction,
reconstruction, maintenance, repair, operation and inspection of a water
main and appurtenances together with the right of ingress and egress along
and over said right of way for any and all such purposes granted to the
Mayor and City Council of Rockville by Instrument dated April 2, 1980 and
recorded April 11, 1980 in Liber 5505 at folio 567 and as shown on the
Greenhorne and O'Mara Inc. boundary survey, dated July 21, l986, the
policy will insure however that said easement is not encroached upon by
improvements.
13. Note: This policy will insure that the insured property is adjacent to and
abuts on Monroe Street, a duly dedicated public Street, and that said
Monroe Street provides direct public access to Montrose Road also a duly
dedicated public street.
<PAGE>
Continuation Form 203-A-T
Attached to and made a part of Stewart Title Guaranty Company Policy No.
0-9902-053296
Continuation of Schedule
975 at folio 275 dated July 3, 1945 and recorded July 23, 1945 and
omitting any restriction based on race, color, religion or national origin
but the policy will insure that said covenants have not been violated and
that a future violation thereof will not work or cause a forfeiture or
reversion of title.
6. Fifty (50) foot building restriction line per item 2 of the covenants set
out as items 2 and 3 above of this schedule: but the policy will insure
that said covenants have not been violated and that a future violation
thereof will not cause a forfeiture or reversion of title.
7. Easement and Right of Way for trunk line sanitary sewer with right of
ingress and egress thereto, and granted to the Mayor City Council of
Rockvile by Instrument dated October 29, 1957 and recorded October 31,
1957 in Liber 2399 at folio 137 but the final policy will insure that said
easement is not encroached upon by improvements which would violate the
terms of the easement.
8. Easement and Right of Way for installation construction and repair of a
trunk line sanitary sewer granted to the Mayor and City Council of
Rockville by Instrument dated August 6, 1956 and recorded April 29, 1957
in Liber 2334 at folio 172 but this policy insures that said easement is
not encroached upon by improvements which would violate the terms of the
easement.
9. Agreement for recreational easement with the Mayor and City Council of
Rockville dated January 13, 1969 and recorded January 29, 1969 in Liber
3828 at folio 432, as modified by Modification Agreement dated January 14,
1976 and recorded January 16, 1976 in Liber 4739 at folio 260 and as shown
on the plat of subdivision recorded in Plat Book 100 at plat 11191. This
policy insures that said easement is not encroached upon by improvements.
10. Twenty (20) and ten (10) foot sewer easements and ten (10)
<PAGE>
12. South 15 degrees 36 minutes 26 seconds East, 955.30 feet to the point of
beginning, containing 810,623 square feet or 18.6093 acres of land:
The above described parcel of is in accordance with a "Plat of Survey for Part
of Lot 27, Block "D" Wheel of Fortune", prepared by Greenhorne & O'Mara, Inc.,
dated September 4, 1981, and re-certified July 21, 1986.
<PAGE>
ALTA OWNER'S POLICY--Amended: 10/17/70
M00834
SCHEDULE B
Policy No.: 0-9902-053296
This policy does not insure against loss or damage by reason of the following:
1. Rights or claims of parties in possession not shown by the public records.
2. Easements, or claims of easements, not shown by the public records.
3. Encroachments, overlaps, boundary line disputes, or other matters which
would be disclosed by an accurate survey or inspection of the premises.
4. Any lien, or right to a lien, for services, labor or material heretofore
or hereafter furnished, imposed by law and not shown by the public
records.
5. Community property, dower, curtesy, survivorship, or homestead rights, if
any, of any spouse of the insured.
6. Any titles or rights asserted by anyone including but not limited to
persons, corporations, governments or other entities, to tide lands, or
lands comprising the shores or bottoms of navigable rivers, lakes, bays,
ocean or gulf, or lands beyond the line of the harbor or bulkhead lines as
established or changed by the United States Government or water rights, if
any.
7. Reservations contained in Patent from the United States of America or
State where the land described in Schedule A is located.
8. Restrictive Covenants affecting the property described in Schedule A.
9. Taxes for the year 19 and thereafter.
1. State, County and Rockville taxes subsequent to those levied for the year
ending June 30, 1987, a lien but not yet due and payable.
2. Mortgage from Montrose Office Park Joint Venture, a Maryland joint venture
to Paul A. Patrick, trustee dated December 16, 1986 and recorded December
16, 1986 in Liber 7449, folio 416.
3. Minimum Building Restriction Line Slope easements and drainage easements
as established by owners dedication on a plat of subdivision recorded in
Plat Book 100 at Plat 1191 which has not been violted and a future
violation thereof will not work or cause a forfeiture or reversion of
title.
4. Restrictive covenants in Deed appearing of record in Liber 956 at folio
286 dated December 19, 1944 and recorded December 29, 1944 Omitting any
restriction based on race, color, religion or national origin, but the
policy will insure said covenants have not been violted and a future
violation thereof will not cause a forfeiture or reversion of title.
5. Restrictive covenants in Deed appearing of record in Liber
See Continuation Page
omit items 1 thru 9
STEWART TITLE
Page 3 GUARANTY COMPANY
<PAGE>
Addenda
================================================================================
Flood Plain Map
<PAGE>
[GRAPHICAL REPRESENTATION OF FLOOD PLAIN
MAP OF SUBJECT AREA]
<PAGE>
Addenda
================================================================================
Improved Sales Comparables
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-1 Sale
Building Name: CRI Building
Location: 11200 Rockville Pike
Rockville, Montgomery, MD
Parcel Number: HQ11-N261
Grantor: 11200 RP Associates LP
Grantee: Meridian
Date of Sale: 04/01/97
Recording Data: N/A
Physical Description:
Land Area: 190,793 Square Feet
4.38 Acres
Net Rentable Area: 180,229 Square Feet
Year Built: 1986
Occupancy at Sale: 67 %
Parking: 2.84 per 1,000
Quality: Average
Construction: concrete and glass
Zoning: OM & R-90
Stories: 6
Sale Price: $23,200,000
Terms of Sale: $21,684,733 @ 8.25%; 25 yrs
AMRESCO
Economic Indicators:
Net Operating Income: $1,993,188 Buyer's Proforma
Appraisal Indicators:
Overall Rate (OAR): 8.59%
Discount Rate (IRR): 12.9%
Sale Price/Square Foot (RSF): $128.73
COMMENTS:
The sale included 1.8 acres of excess residential land which the buyer
attributed $1.2 million. This figure was
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-1 Continued
deducted from the total purchaser price; thus, no adjustment is necessary.
The purchaser anticipates lease-up of the vacant space by year-end 1997.
The indicated net operating income and capitalization rate are based upon
net operating income in place, without the benefit of lease-up. Current
rents are $21.50 per square foot.
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-2 Sale
Building Name: Rockwall I and II
Location: 11400 Rockville Pike
5515 Security Lane
Rockville, Montgomery, MD
Parcel Number: HQ 11-N59 and N-115
Grantor: Equitable Life Assurance
Grantee: Rockwall I and II LLC
Date of Sale: 12/30/96
Recording Data: 14585/226
Physical Description:
Land Area: 93,654 Square Feet
2.15 Acres
Net Rentable Area: 339,174 Square Feet
Year Built: 1975
Occupancy at Sale: 86 %
Parking: 3.2 per 1,000
Quality: Average
Construction: concrete and brick
Zoning: CO
Stories: 11
Sale Price: $37,258,500
Terms of Sale: All cash
Economic Indicators:
Net Operating Income: $3,632,704 Seller's Proforma
Appraisal Indicators:
Overall Rate (OAR): 9.75%
Sale Price/Square Foot (RSF): $109.85
COMMENTS:
This represents the sale of two office buildings containing 157,707 and
181,467 square feet. There is approximately 1.5 acres of excess land;
however, it will be used for additional parking. Current rents are in the
$17.00 to
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-2 Continued
$18.00 per square foot range. The exposure time was approximately three
months.
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-3 Sale
Building Name: Woodmont Office Center
Location: 1401 Rockville Pike
Rockville, Montgomery, MD
Parcel Number: GR51-N848-002
Grantor: Templeton Place LP
Grantee: Blackridge Woodmont LLC
Date of Sale: 12/05/96
Recording Data: 14544/144
Physical Description:
Land Area: 103,673 Square Feet
2.38 Acres
Net Rentable Area: 187,531 Square Feet
Year Built: 1987
Occupancy at Sale: 100 %
Parking: 2.3 per 1,000
Quality: Good
Construction: concrete and glass
Zoning: RPC
Stories: 6
Sale Price: $20,900,000
Terms of Sale: $19,500,000 GMAC
Economic Indicators:
Net Operating Income: $2,450,000 Seller's Proforma
Appraisal Indicators:
Overall Rate (OAR): 11.72%
Sale Price/Square Foot (RSF): $111.45
COMMENTS:
Approximately 91,000 square feet of space in this building is occupied by
the Food and Drug Administration at a rental rate of $24.00 per square
foot. The previous owner of the building had defaulted on the loan and the
purchaser acquired the delinquent note and took the deed in lieu of
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-3 Continued
foreclosure. The FDA was scheduled to expire in 1997, but renewed for
another ten years subsequent to the sale. The extension had not been
negotiated with the FDA at the time of sale and the net operating income
reported above was based on a projection of rollover and market lease-up
of the FDA space in 1997.
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-4 Sale
Building Name: NIST Building
Location: 820 W. Diamond Avenue
Gaithersburg, Montgomery, MD
Parcel Number: FT32-N39
Grantor: 820 W. Diamond LP
Donohoe Companies
Grantee: Rosecliff Realty Funding, Inc.
Date of Sale: 12/15/95
Recording Data: 13820-725
Physical Description:
Land Area: 386,813 Square Feet
8.88 Acres
Net Rentable Area: 131,084 Square Feet
Year Built: 1995
Occupancy at Sale: 100 %
Parking: Surface
Quality: Good
Construction: brick and steel
Zoning: C-2
Stories: 6
Sale Price: $20,000,000
Terms of Sale: Cash sale
Economic Indicators:
Net Operating Income: $2,000,000 Seller's Proforma
Appraisal Indicators:
Overall Rate (OAR): 10%
Sale Price/Square Foot (RSF): $152.57
COMMENTS:
This building was a build-to-suit for NIST who occupies the entire
building on a ten year lease at a rental rate of $24.25 per square foot.
The lease has a five year renewal
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-4 Continued
option and, if the lease is renewed in 2005, the seller will receive an
additional $1.0 million. The building is reportedly under contract to sell
as part of Rosecliff's portfolio sale; however, the individual value
attributed to this portion of the portfolio was unavailable.
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-5 Sale
Building Name: Woodmont Place
Location: 1451 Rockville Pike
Rockville, Montgomery County, MD
Parcel Number: 04-269-02253276
Grantor: Metropolitan Life Insurance Co
Grantee: A&A Woodmont Place, Inc.
c/o Cambridge Group
Date of Sale: 07/31/95
Physical Description:
Land Area: 108,464 Square Feet
2.49 Acres
Gross Building Area: 110,000 Square Feet
Net Rentable Area: 102,992 Square Feet
Year Built: 1983
Occupancy at Sale: 100 %
Parking: 337 Structured, 30 Surface
Quality: Good
Construction: Steel Frame
Sale Price: $10,650,000
Terms of Sale: $7.5 million; 10 yrs; market
IDS Life Insurance
Economic Indicators:
Net Operating Income: $1,001,415 Estimate
Appraisal Indicators:
Overall Rate (OAR): 9.40%
Sale Price/Square Foot (GSF): $96.82
Sale Price/Square Foot (RSF): $103.41
COMMENTS:
This is a high quality office building originally developed by Gerald
Hines and sold to Met Life in 1984 for $17.8 million ($173 sf). At the
time of safe, the building was
<PAGE>
OFFICE BUILDING SALE
- - --------------------------------------------------------------------------------
I-5 Continued
fully leased to the FDA at a flat rent of $15.51 per square foot for eight
additional years. The buyer is a middle eastern investor actively buying
office buildings in the Washington D.C. area, who was motivated by the
riskless return over the next eight years. The property was considered to
have excellent income durability and quality.
<PAGE>
Addenda
================================================================================
Pro-Ject +plus Reports
<PAGE>
MONTROSE OFFICE PARK
PROJECT DESIGNATOR: MON2
REVISION: 5/27/97 @ 11:22
TENANT REGISTER
5/27/97 @ 11:23
TENANT SQUARE FEET BEGIN DATE END DATE
- - ------------------------------------------ ----------- ---------- --------
# 1 - SUITE 100-02 FARRADYNE SYSTEMS 28,964 9/1995 8/2000
# 2 - SUITE 107-01 R.C. PUBLICATIONS 5,025 5/1990 5/2000
# 3 - SUITE 300-01 SPC FINANCIAL 6,541 5/1989 4/1999
# 4 - SUITE 350-01 NETWORK EXPANSION 4,946 6/1997 5/2002
# 5 - SUITE 100-02 TECHNICAL RESOURCE 35,465 9/1986 12/1999
# 6 - SUITE 400-01 TAF ASSOCIATES 11,911 2/1984 3/1999
# 7 - SUITE 100-01 THE REGISTRY 11,941 1/1997 12/2003
# 8 - SUITE 200-01 DYNCORP ENVIRON 12,000 6/1997 5/2002
# 9 - SUITE 300-02 SYSTEMS FLOW INC 5,844 11/1991 4/1998
# 10 - SUITE 350-01 DENNISBERG ADVERT 5,678 6/1996 5/1999
# 11 - SUITE 400-02 EPIC MEGAGAMES 4,076 5/1996 4/1999
# 12 - SUITE 410-01 SOLUTIONS DESIGN 5,129 6/1997 5/2002
# 13 - SUITE 450 VACANT 2,360 8/1997 7/2002
# 14 - SUITE 200 M-CUBED INFO SYST 12,216 5/1996 4/2000
# 15 - SUITE 400 VECTOR 11,352 12/1996 12/2001
# 16 - SUITE 310 TOLL BROTHERS 5,458 5/1996 5/2001
# 17 - SUITE 100 TYC ASSOC 8,969 6/1997 5/2002
# 18 - SUITE 100 VECTOR 2,369 6/1997 5/2002
# 19 - SUITE 300 VACANT 5,894 8/1997 7/2002
-------
19 TENANTS 186,138
=======
<PAGE>
MONTROSE OFFICE PARK
PROJECT DESIGNATOR: MON2
REVISION: 5/27/97 @ 11:22
AVERAGE OCCUPANCY REPORT
FOR ALL TENANTS
5/27/97 (R) 11:22
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 144,471 186,138 186,138 150,673 186,138 174,786 186,138 174,197 186,138
FEBRUARY 144,471 186,138 186,138 150,673 186,138 174,786 186,138 174,197 186,138
MARCH 144,471 186,138 186,138 186,138 186,138 186,138 186,138 186,138 150,673
APRIL 144,471 186,138 174,227 186,138 186,138 186,138 186,138 186,138 150,673
MAY 144,471 180,294 163,610 173,922 186,138 186,138 186,138 186,138 186,138
JUNE 177,884 180,294 169,843 168,897 180,680 152,726 186,138 174,227 186,138
JULY 177,884 186,138 180,460 181,113 180,680 152,726 180,294 163,610 173,922
AUGUST 186,138 186,138 186,138 186,138 186,138 177,884 180,294 169,843 168,897
SEPTEMBER 186,138 186,138 186,138 157,174 186,138 177,884 186,138 180,460 181,113
OCTOBER 186,138 186,138 186,138 157,174 186,138 186,138 186,138 186,138 186,138
NOVEMBER 186,138 186,138 186,138 186,138 186,138 186,138 186,138 186,138 1S7,174
DECEMBER 186,138 186,138 186,138 186,138 186,138 186,138 186,138 186,138 157,174
------- ------- ------- ------- ------- ------- ------- ------- -------
AVERAGE SF
OCCUPIED-OCCA 167,401 185,164 181,437 172,526 185,228 177,302 185,164 179,447 172,526
TOTAL SF-GSA 186,138 186,138 186,138 186,138 186,138 186,138 186,138 186,138 186,138
------- ------- ------- ------- ------- ------- ------- ------- -------
OCCUPANCY % 89.93 99.48 97.47 92.69 99.51 95.25 99.48 96.41 92.69
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
2006 2007 2008 2009 2010 2011
------- ------- ------- ------- ------- -------
JANUARY 186,138 186,138 186,138 186,138 186,138 157,174
FEBRUARY 186,138 186,138 186,138 186,138 186,138 157,174
MARCH 186,138 174,786 186,138 174,197 186,138 186,138
APRIL 186,138 174,786 186,138 174,197 186,138 186,138
MAY 186,138 186,138 186,138 186,138 150,673 186,138
JUNE 186,138 186,138 186,138 186,138 150,673 186,138
JULY 186,138 186,138 186,138 186,138 186,138 186,138
AUGUST 180,680 152,725 186,138 174,227 186,138 186,138
SEPTEMBER 180,680 152,725 180,294 163,610 173,922 186,138
OCTOBER 186,138 177,884 180,294 169,843 168,897 180,680
NOVEMBER 186,138 177,884 186,138 180,460 181,113 180,680
DECEMBER 186,138 186,138 186,138 186,138 186,138 186,138
------- ------- ------- ------- ------- -------
AVERAGE SF
OCCUPIED-OCCA 185,228 177,302 185,164 179,447 177,354 180,401
TOTAL SF-GBA 186,138 186,138 186,138 186,138 186,138 186,138
------- ------- ------- ------- ------- -------
OCCUPANCY % 99.51 95.25 99.48 96.41 95.28 96.92
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
MONTROSE OFFICE PARK
PROJECT DESIGNATOR: MON2
REVISION: 5/27/97 @ 11:22
PROJECT ASSUMPTIONS REPORT
INCLUDING ALL TENANTS
5/27/97 @ 11:23
BUILDING PROLOGUE
LEASEHOLD ANALYSIS OF MONTROSE OFFICE PARK BEGINNING 5/1997
FOR 15 YEARS ON A FISCAL YEAR BASIS
AREA MEASURES
GBA
1997 VALUE -186,138
THEREAFTER - CONSTANT
OCCA
1997 VALUE - 167,401
1998 VALUE - 185,164
1999 VALUE - 181,437
2000 VALUE - 172,526
2001 VALUE - 185,228
2002 VALUE - 177,302
2003 VALUE - 185,164
2004 VALUE - 179,447
2005 VALUE - 172,526
2006 VALUE - 185,228
2007 VALUE - 177,302
2008 VALUE - 185,164
2009 VALUE - 179,447
2010 VALUE - 177,354
2011 VALUE - 180,401
THEREAFTER - CONSTANT
GROWTH RATES
RENT
1997 VALUE - 5.00
1998 VALUE - 5.00
1999 VALUE - 3.50
THEREAFTER - CONSTANT
EXPG
1997 VALUE - 3.50
THEREAFTER - CONSTANT
ESC
1997 VALUE - 3.00
<PAGE>
THEREAFTER - CONSTANT
CPI
1997 VALUE - 3.50
THEREAFTER - CONSTANT
MISC
1997 VALUE - 2.00
THEREAFTER - CONSTANT
MARKET RATES
RENT
PAGE 2
1997 VALUE - 18.00
THEREAFTER - GROWING AT GROWTH RATE RENT
TINW
1997 VALUE - 10.00
THEREAFTER - GROWING AT GROWTH RATE CPI
RNWR
1997 VALUE - 3.00
THEREAFTER - GROWING AT GROWTH RATE EXPG
TIRN
1997 VALUE - 3.00
THEREAFTER - GROWING AT GROWTH RATE CPI
MISCELLANEOUS INCOMES
MISC INCOME
1997 VALUE - 5,000
THEREAFTER - GROWING AT GROWTH RATE MISC
PARKING INCOME
1997 VALUE - 10,000
THEREAFTER - GROWING AT GROWTH RATE MISC
EXPENSES
UTILITIES , REFERRED TO AS UTIL
CHARGED AGAINST NET OPERATING INCOME
<PAGE>
1997 VALUE - 366,692
THEREAFTER - GROWING AT GROWTH RATE EXPG
REPAIRS & MAINT , REFERRED TO AS MAIN
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 314,573
THEREAFTER - GROWING AT GROWTH RATE EXPG
GENERAL & ADMIN , REFERRED TO AS ADMN
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 122,851
THEREAFTER - GROWING AT GROWTH RATE EXPG
Non-Recoverab1e , REFERRED TO AS NONR
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 5,600
THEREAFTER - GROWING AT GROWTH RATE EXPG
0000
AN INFORMATIONAL EXPENSE
1997 VALUE - 0.00
THEREAFTER - GROWING AT GROWTH RATE EXPG
MANAGEMENT , REFERRED TO AS MGMT
AN INFORMATIONAL EXPENSE
1997 VALUE - 95,078
1998 VALUE - 101,739
1999 VALUE - 104,118
2000 VALUE - 106,878
2001 VALUE - 119,405
2002 VALUE - 114,603
2003 VALUE - 124,392
2004 VALUE - 126,642
2005 VALUE - 125,113
2006 VALUE - 139,581
PAGE 3
2007 VALUE - 138,328
2008 VALUE - 149,551
2009 VALUE - 150,195
2010 VALUE - 152,842
2011 VALUE - 160,661
THEREAFTER - CONSTANT
R.E. TAXES , REFERRED TO AS RETX
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 230,478
1998 VALUE - 238,545
1999 VALUE - 246,894
2000 VALUE - 296,273
<PAGE>
THEREAFTER - GROWING AT GROWTH RATE EXPG
INSURANCE , REFERRED TO AS INSR
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 20,475
THEREAFTER - GROWING AT GROWTH RATE EXPG
OPERATING EXPENSES, REFERRED TO AS OPER
AN INFORMATIONAL EXPENSE
+100.0% OF UTIL+100.0% OF MAIN
+100.0% OF ADMN+100.0% OF WGMT
+100.0% OF RETX+100.0% OF INSR
0001
AN INFORMATIONAL EXPENSE
1997 VALUE - 0.00
THEREAFTER - CONSTANT
0002
AN INFORMATIONAL EXPENSE
1997 VALUE - 0.00
THEREAFTER - CONSTANT
VACANCY ALLOWANCE
PERCENTAGE OF POTENTIAL GROSS INCOME
FOR ALL TENANTS SUBJECT TO VACANCY
1997 VALUE - 2.00
THEREAFTER - CONSTANT
MANAGEMENT FEE
PERCENTAGE OF EFFECTIVE GROSS INCOME
FOR ALL TENANTS
PASSED THROUGH TO TENANTS USING EXPENSE MGMT
1997 VALUE - 3.00
THEREAFTER - CONSTANT
COMMISSION CALCULATIONS
STANDARD METHOD #1 - 2.900% OF TOTAL RENT
STANDARD METHOD #2 - 5.000% OF TOTAL RENT
STANDARD METHOD #3 - 2.000% OF TOTAL RENT
STANDARD METHOD #4 - 0.000% OF TOTAL RENT
STANDARD METHOD #5 - 0.000% OF TOTAL RENT
<PAGE>
PAGE 4
COMMISSION PAYOUTS
STANDARD METHOD #1 - CASHED OUT
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
ALTERATION CALCULATION
1997 VALUE - 5.10
THEREAFTER - GROWING AT GROWTH RATE CPI
ALTERATION PAYOUTS
STANDARD METHOD #1 - CASHED OUT
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
COMMON AREA MAINTENANCE POOL
NONE
CAPITAL EXPENDITURES
CAPITAL RESERVES
1997 VALUE - 27,921
THEREAFTER - GROWING AT GROWTH RATE CPI
CAPITAL EXPENSES
1997 VALUE - 258,800
1998 VALUE - 0.00
THEREAFTER - CONSTANT
<PAGE>
PRIMARY CLASSIFICATION CODES
NONE
SECONDARY CLASSIFICATION CODES
NONE
PAGE 5
COST CENTERS
NONE
SALES VOLUME PROFILE
PERCENT OF RELATIVE
MONTH ANNUAL SALES VOLUME
- - ----- ------------ ------
JAN 8.33% 1.00
FEB 8.33% 1.00
MAR 8.33% 1.00
APR 8.33% 1.00
MAY 8.33% 1.00
JUN 8.33% 1.00
JUL 8.33% 1.00
AUG 8.33% 1.00
SEP 8.33% 1.00
OCT 8.33% 1.00
NOV 8.33% 1.00
DEC 8.33% 1.00
------ -----
TOTALS 100.00% 12.00
GLOBAL RECOVERIES
NONE
<PAGE>
TENANT PROLOGUE
MINIMUM RENTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
SALES VOLUMES AND BREAKPOINTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/YEAR
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/YEAR
RENEWAL RENTS ARE COMPOUNDED ANNUALLY
RELETTING DOWNTIME AND EXPENSES ARE NOT CONDITIONAL ON GOING TO MARKET
REFERENCE TENANTS
THERE ARE A TOTAL OF 1 REFERENCE TENANT(S):
- - --------------------------------------------------------------------------------
# 1 - REFERENCE
BASE LEASE DATES: 11/1995 TO 10/2000
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 1,000
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - MARKET RATE RENT
RECOVERIES: NONE
COMMISSIONS: NONE
PAGE 6
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 3 NONE NONE YES YES
2 5.00 3 NONE NONE YES YES
3 5.00 3 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
<PAGE>
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES: NONE
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
TENANTS
THERE ARE A TOTAL OF 19 LEASEHOLD TENANT(S)
- - --------------------------------------------------------------------------------
# 1 - SUITE 100-02 , FARRADYNE SYSTEMS
BASE LEASE DATES: 9/1995 TO 8/2000
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 28,964
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 17.85/SF/YR
CHANGING TO - 18.48/SF/YR ON 8/1997
CHANGING TO - 19.12/SF/YR ON 8/1998
CHANGING TO - 19.60/SF/YR ON 8/1999
RECOVERIES:
R.E. TAXES
PRO RATA SHARE RECOVERY OF EXPENSE RETX
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE OCCA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF 1.42/SF MULTIPLIED BY AREA MEASURE OCCA
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
<PAGE>
PAGE 7
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 2 - SUITE 107-01 , R.C. PUBLICATIONS
BASE LEASE DATES: 5/1990 TO 5/2000
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 5,025
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 20.84/SF/YR
CHANGING TO - 21.77/SF/YR ON 5/1997
CHANGING TO - 22.75/SF/YR ON 5/1998
CHANGING TO - 23.84/SF/YR ON 5/1999
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
<PAGE>
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 3 - SUITE 300-01 , SPC FINANCIAL
BASE LEASE DATES: 5/1989 TO 4/1999
TYPE OF TENANT: OFFICE
PAGE 8
SQUARE FOOTAGE: 6,541
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 16.95/SF/YR
CHANGING TO - 17.83/SF/YR ON 5/1997
CHANGING TO - 18.73/SF/YR ON 5/1998
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
<PAGE>
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 4 - SUITE 350-01 , NETWORK EXPANSION
BASE LEASE DATES: 6/1997 TO 5/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 4,946
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - l7.50/SF/YR
1999 VALUE - 20.00/SF/YR
2000 VALUE - 20.75/SF/YR
2001 VALUE - 21.25/SF/YR
2002 VALUE - 22.00/SF/YR
THEREAFTER - GROWING AT 0.00%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SNARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #2
PAGE 9
PAYOUT: CASHED OUT
ALTERATIONS: 7.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
<PAGE>
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 5 - SUITE 100-02 , TECHNICAL RESOURCE
BASE LEASE DATES: 9/1986 TO 12/1999
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 35,465
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 16.00/SF/YR
CHANGING TO - 16.48/SF/YR ON 9/1997
CHANGING TO - 16.97/SF/YR ON 8/1998
CHANGING TO - 17.48/SF/YR ON 8/1999
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
<PAGE>
PAGE 10
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 6 - SUITE 400-01 , TAF ASSOCIATES
BASE LEASE DATES: 2/1984 TO 3/1999
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 11,911
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 17.30/SF/YR
CHANGING TO - 17.99/SF/YR ON 4/1997
CHANGING TO - 18.73/SF/YR ON 4/1998
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
<PAGE>
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 7 - SUITE 100-01 , THE REGISTRY
BASE LEASE DATES: 1/1997 TO 12/2003
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 11,941
SUBJECT TD VACANCY ALLOWANCE
MINIMUM RENT:
PAGE 11
INITIAL RENT - 14.10/SF/YR
CHANGING TO - 14.46/SF/YR ON 1/1998
CHANGING TO - 14.82/SF/YR ON 1/1999
CHANGING TO - 15.19/SF/YR ON 1/2000
CHANGING TO - 15.57/SF/YR ON 1/2001
CHANGING TO - 15.97/SF/YR ON 1/2002
CHANGING TO - 16.36/SF/YR ON 1/2003
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE OCCA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
<PAGE>
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 8 - SUITE 200-01 , DYNCORP ENVIRON
BASE LEASE DATES: 6/1997 TO 5/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 12,000
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 17.00/SF/YR
THEREAFTER - GROWING AT 2.50%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
PAGE 12
COMMISSIONS: 4.50/SF
PAYOUT: CASHED OUT
ALTERATIONS: 2.71/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
<PAGE>
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 9 - SUITE 300-02 , SYSTEMS FLOW INC
BASE LEASE DATES: 11/1991 TO 4/1998
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 5,844
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 16.00/SF/YR
CHANGING TO - 16.50/SF/YR ON 5/1997
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
<PAGE>
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 11 - SUITE 400-02 , EPIC MEGAGAMES
PAGE 14
BASE LEASE DATES: 5/1996 TO 4/1999
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 4,076
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 16.00/SF/YR
CHANGING TO - 16.48/SF/YR ON 5/1997
CHANGING TO - 16.97/SF/YR ON 5/1996
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE OCCA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
<PAGE>
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED OH AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 12 - SUITE 410-01 , SOLUTIONS DESIGN
BASE LEASE DATES: 6/1997 TO 5/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 5,129
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 18.50/SF/YR
THEREAFTER - GROWING AT 3.00%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
PAGE 15
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #2
PAYOUT: CASHED OUT
ALTERATIONS: 10.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
<PAGE>
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 13 - SUITE 450 , VACANT
BASE LEASE DATES: 8/1997 TO 7/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 2,360
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - MARKET RATE RENT
THEREAFTER - GROWING AT GROWTH RATE ESC
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #2
PAYOUT: CASHED OUT
ALTERATIONS: MARKET RATE TINW
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
<PAGE>
PAGE 16
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE EEC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 14 - SUITE 200 , M-CUBED INFO SYST
BASE LEASE DATES: 5/1996 TO 4/2000
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 12,216
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 17.50/SF/YR
CHANGING TO - 18.03/SF/YR ON 5/1997
CHANGING TO - 18.56/SF/YR ON 5/1998
CHANGING TO - 19.12/SF/YR ON 5/1999
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE OCCA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
<PAGE>
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PAGE 17
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 15 - SUITE 400 , VECTOR
BASE LEASE DATES: 12/1996 TO 12/2001
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 11,352
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 28.49/SF/YR
CHANGING TO - 29.34/SF/YR ON 1/1998
CHANGING TO - 30.22/SF/YR ON 1/1999
CHANGING TO - 31.13/SF/YR ON 1/2000
CHANGING TO - 32.06/SF/YR ON 1/2001
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE OCCA
CALCULATED OH AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
<PAGE>
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
PAGE 18
- - --------------------------------------------------------------------------------
# 16 - SUITE 310 , TOLL BROTHERS
BASE LEASE DATES: 5/1996 TO 5/2001
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 5,458
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 17.00/SF/YR
CHANGING TO - 17.51/SF/YR ON 5/1997
CHANGING TO - 18.03/SF/YR ON 5/1998
<PAGE>
CHANGING TO - 18.57/SF/YR ON 5/1999
CHANGING TO - 19.13/SF/YR ON 5/2000
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE OCCA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
3 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 17 - SUITE 100 , TYC ASSOC
BASE LEASE DATES: 6/1997 TO 5/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 8,969
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT
1998 VALUE - 18.00/SF/YR
THEREAFTER - GROWING AT 3.00%
<PAGE>
PAGE 19
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #2
PAYOUT: CASHED OUT
ALTERATIONS: 10.00/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
# 18 - SUITE 100 , VECTOR
BASE LEASE DATES: 6/1997 TO 5/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 2,369
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - 18.75/SF/YR
1999 VALUE - 19.31/SF/YR
<PAGE>
2000 VALUE - 19.89/SF/YR
2001 VALUE - 20.49/SF/YR
2002 VALUE - 21.00/SF/YR
THEREAFTER - GROWING AT 0.00%
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #2
PAGE 20
PAYOUT: CASHED OUT
ALTERATIONS: 14.50/SF
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
<PAGE>
# 19 - SUITE 300 , VACANT
BASE LEASE DATES: 8/1997 TO 7/2002
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 5,894
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
1998 VALUE - MARKET RATE RENT
THEREAFTER - GROWING AT GROWTH RATE ESC
RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
COMMISSIONS: STANDARD METHOD #2
PAYOUT: CASHED OUT
ALTERATIONS: MARKET RATE TINW
PAYOUT: CASHED OUT
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 5.00 2 NONE NONE YES YES
2 5.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
PAGE 21
MARKET RATE RENT MULTIPLIED BY 1.000
INCREASING AT GROWTH RATE ESC PER YEAR DURING EACH RENEWAL TERM
RENEWAL RECOVERIES:
OPERATING EXPENSES
PRO RATA SHARE RECOVERY OF EXPENSE OPER
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GBA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF THE EXPENSE VALUE IN THE OCCUPANCY YEAR
RENEWAL COMMISSIONS: STANDARD METHOD #1
<PAGE>
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: STANDARD
RENEWAL PAYOUT: CASHED OUT
<PAGE>
MONTROSE OFFICE PARK
PROJECT DESIGNATOR: MON2
REVISION: 5/27/97 @ 11:22
EXPIRATION REPORT
YEARS 1998 TO 2012, ALL TENANTS,
INCLUDING OPTIONS, INCLUDING RENEWALS,
EXCLUDING BASE LEASES AND PRIOR OPTIONS,
BASE RENTS INCLUDING CPI ADJUSTMENTS,
INCLUDING PERCENTAGE RENTS
5/27/97 @ 11:23
TERM/ BASE TOTAL MARKET
TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF
- - -------------------- --------- -------- ------- ------- ------- -------
# 9-SUITE 300-02 INITIAL
SYSTEMS FLOW INC 5,844 4/1998 16.50 0.00 16.50 18.90
--------- ------- ------- ------- -------
1 FY 98 EXPIRATIONS 5,844 16.50 0.00 16.50 18.90
# 6-SUITE 400-01 INITIAL
TAF ASSOCIATES 11,911 3/1999 18.73 0.00 18.73 19.84
# 3-SUITE 300-01 INITIAL
SPC FINANCIAL 6,541 4/1999 18.73 0.00 18.73 19.84
# 11-SUITE 400-02 INITIAL
EPIC MEGAGAMES 4,076 4/1999 16.97 0.47 17.43 19.84
--------- ------- ------- ------- -------
3 FY 99 EXPIRATIONS 22,528 18.41 0.08 18.50 19.84
--------- ------- ------- ------- -------
4 CUMULATIVE EXPS 28,372 18.02 0.07 18.08 19.65
# 10-SUITE 350-01 INITIAL
DENNISBERG ADVERT 5,678 5/1999 17.34 0.46 17.81 19.84
# 5-SUITE 100-02 INITIAL
TECHNICAL RESOURCE 35,465 12/1999 17.48 0.00 17.48 20.54
# 14-SUITE 200 INITIAL
M-CUBED INFO SYST 12,216 4/2000 19.12 0.97 20.09 20.54
--------- ------- ------- ------- -------
3 FY100 EXPIRATIONS 53,359 17.84 0.27 18.11 20.47
--------- ------- ------- ------- -------
7 CUMULATIVE EXPS 81,731 17.90 0.20 18.10 20.18
# 2-SUITE 107-01 INITIAL
R.C. PUBLICATIONS 5,025 5/2000 23.84 0.00 23.84 20.54
<PAGE>
# 1-SUITE 100-02 INITIAL
FARRADYNE SYSTEMS 28,964 8/2000 19.80 0.34 20.14 20.54
--------- ------- ------- ------- -------
2 FY101 EXPIRATIONS 33,989 20.40 0.29 20.69 20.54
--------- ------- ------- ------- -------
9 CUMULATIVE EXPS 115,720 18.64 0.23 18.86 20.29
# 16-SUITE 310 INITIAL
TOLL BROTHERS 5,458 5/2001 19.13 1.20 20.33 21.26
# 15-SUITE 400 INITIAL
VECTOR 11,352 12/2001 32.06 1.20 33.26 22.00
--------- ------- ------- ------- -------
PAGE 2
TERM/ BASE TOTAL MARKET
TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF
- - -------------------- --------- -------- ------- ------- ------- -------
2 FY102 EXPIRATIONS 16,810 27.86 1.20 29.06 21.76
--------- ------- ------- ------- -------
11 CUMULATIVE EXPS 132,530 19.81 0.35 20.16 20.47
# 8-SUITE 200-01 INITIAL
DYNCORP ENVIRON 12,000 5/2002 18.76 1.40 20.17 22.00
# 4-SUITE 350-01 INITIAL
NETWORK EXPANSION 4,946 5/2002 22.00 1.40 23.40 22.00
# 12-SUITE 410-01 INITIAL
SOLUTIONS DESIGN 5,129 5/2002 20.82 1.40 22.23 22.00
# 17-SUITE 100 INITIAL
TYC ASSOC 8,969 5/2002 20.26 1.40 21.66 22.00
# 18-SUITE 100 INITIAL
VECTOR 2,369 5/2002 21.00 1.40 22.40 22.00
# 13-SUITE 450 INITIAL
VACANT 2,360 7/2002 20.26 1.40 21.66 22.00
# 19-SUITE 300 INITIAL
VACANT 5,894 7/2002 20.26 1.40 21.66 22.00
--------- ------- ------- ------- -------
7 FY103 EXPIRATIONS 41,667 20.15 1.40 21.55 22.00
--------- ------- ------- ------- -------
18 CUMULATIVE EXPS 174,197 19.89 0.60 20.49 20.84
<PAGE>
# 9-SUITE 300-02 RENEWAL 1
SYSTEMS FLOW INC 5,844 6/2003 21.27 1.47 22.74 22.77
# 7-SUITE 100-01 INITIAL
THE REGISTRY 11,941 12/2003 16.36 1.71 18.07 23.57
--------- ------- ------- ------- -------
2 FY104 EXPIRATIONS 17,785 17.97 1.63 19.60 23.31
--------- ------- ------- ------- -------
20 CUMULATIVE EXPS 191,982 19.71 0.70 20.41 21.07
# 6-SUITE 400-01 RENEWAL 1
TAF ASSOCIATES 11,911 5/2004 22.34 1.51 23.85 23.57
# 3-SUITE 300-01 RENEWAL 1
SPC FINANCIAL 6,541 6/2004 22.34 1.51 23.85 23.57
# 11-SUITE 400-02 RENEWAL 1
EPIC MEGAGAMES 4,076 6/2004 22.34 1.51 23.85 23.57
# 10-SUITE 350-01 RENEWAL 1
DENNISBERG ADVERT 5,678 7/2004 22.34 1.51 23.85 23.57
# 5-SUITE 100-02 RENEWAL 1
TECHNICAL RESOURCE 35,465 2/2005 23.12 1.32 24.44 24.39
--------- ------- ------- ------- -------
5 FY105 EXPIRATIONS 63,671 22.77 1.40 24.18 24.03
--------- ------- ------- ------- -------
25 CUMULATIVE EXPS 255,653 20.47 0.87 21.35 21.81
PAGE 3
TERM/ BASE TOTAL MARKET
TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF
- - -------------------- --------- -------- ------- ------- ------- -------
# 14-SUITE 200 RENEWAL 1
N-CUBED INFO SYST 12,216 6/2005 23.12 1.32 24.44 24.39
# 2-SUITE 107-01 RENEWAL 1
R.C. PUBLICATIONS 5,025 7/2005 23.12 8.40 31.51 24.39
# 1-SUITE 100-02 RENEWAL 1
FARRADYNE SYSTEMS 28,964 10/2005 23.12 1.32 24.44 24.39
--------- ------- ------- ------- -------
<PAGE>
3 FY106 EXPIRATIONS 46,205 23.12 2.09 25.21 24.39
--------- ------- ------- ------- -------
28 CUMULATIVE EXPS 301,858 20.88 1.06 21.94 22.20
# 16-SUITE 310 RENEWAL 1
TOLL BROTHERS 5,458 7/2006 23.93 1.37 25.30 25.25
# 15-SUITE 400 RENEWAL 1
VECTOR 11,352 2/2007 24.76 1.43 26.20 26.13
--------- ------- ------- ------- -------
2 FY107 EXPIRATIONS 16,810 24.49 1.41 25.91 25.85
--------- ------- ------- ------- -------
30 CUMULATIVE EXPS 318,668 21.07 1.09 22.15 22.39
# 4-SUITE 350-01 RENEWAL 1
NETWORK EXPANSION 4,946 7/2007 24.76 1.43 26.20 26.13
# 17-SUITE 100 RENEWAL 1
TYC ASSOC 8,969 7/2007 24.76 1.44 26.20 26.13
# 12-SUITE 410-01 RENEWAL 1
SOLUTIONS DESIGN 5,129 7/2007 24.77 1.43 26.20 26.13
# 18-SUITE 100 RENEWAL 1
VECTOR 2,369 7/2007 24.76 1.43 26.20 26.13
# 8-SUITE 200-01 RENEWAL 1
DYNCORP ENVIRON 12,000 7/2007 24.76 1.43 26.20 26.13
# 13-SUITE 450 RENEWAL 1
VACANT 2,360 9/2007 24.76 1.43 26.20 26.13
# 19-SUITE 300 RENEWAL 1
VACANT 5,894 9/2007 24.76 1.44 26.20 26.13
--------- ------- ------- ------- -------
7 FY105 EXPIRATIONS 41,667 24.76 1.43 26.20 26.13
--------- ------- ------- ------- -------
37 CUMULATIVE EXPS 360,335 21.50 1.12 22.61 22.83
# 9-SUITE 300-02 RENEWAL 2
SYSTEMS FLOW INC 5,844 8/2008 25.63 1.49 27.12 27.05
# 7-SUITE 100-01 RENEWAL 1
THE REGISTRY 11,941 2/2009 26.53 1.53 28.05 27.99
--------- ------- ------- ------- -------
2 FY109 EXPIRATIONS 17,785 26.23 1.51 27.75 27.68
--------- ------- ------- ------- -------
39 CUMULATIVE EXPS 378,120 21.72 1.14 22.86 23.05
<PAGE>
PAGE 4
TERM/ BASE TOTAL MARKET
TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF
- - -------------------- --------- -------- ------- ------- ------- -------
# 6-SUITE 400-01 RENEWAL 2
TAF ASSOCIATES 11,911 7/2009 26.53 1.53 28.06 27.99
# 3-SUITE 300-01 RENEWAL 2
SPC FINANCIAL 6,541 8/2009 26.53 1.53 28.05 27.99
# 11-SUITE 400-02 RENEWAL 2
EPIC MEGAGAMES 4,076 6/2009 26.53 1.53 28.06 27.99
# 10-SUITE 350-01 RENEWAL 2
DENNISBERG ADVERT 5,678 9/2009 26.53 1.53 28.06 27.99
# 5-SUITE 100-02 RENEWAL 2
TECHNICAL RESOURCE 35,465 4/2010 27.46 1.60 29.06 29.97
--------- ------- ------- ------- -------
5 FY110 EXPIRATIONS 63,671 27.05 1.57 28.61 29.54
--------- ------- ------- ------- -------
44 CUMULATIVE EXPS 441,791 22.49 1.20 23.69 23.85
# 14-SUITE 200 RENEWAL 2
M-CUBED INFO SYST 12,216 8/2010 27.46 1.60 29.06 28.97
# 2-SUITE 107-01 RENEWAL 2
R.C. PUBLICATIONS 5,025 9/2010 27.46 9.99 37.45 28.97
# 1-SUITE 100-02 RENEWAL 2
FARRADYNE SYSTEMS 28,964 12/2010 28.42 1.25 29.67 29.99
--------- ------- ------- ------- -------
3 FY111 EXPIRATIONS 46,205 28.06 2.29 30.35 29.61
--------- ------- ------- ------- -------
47 CUMULATIVE EXPS 487,996 23.01 1.30 24.32 24.39
# 16-SUITE 310 RENEWAL 2
TOLL BROTHERS 5,458 9/2011 28.42 1.61 30.03 29.99
--------- ------- ------- ------- -------
1 FY112 EXPIRATIONS 5,458 28.42 1.61 30.03 29.99
--------- ------- ------- ------- -------
48 CUMULATIVE EXPS 493,454 23.07 1.31 24.38 24.45
<PAGE>
Addenda
================================================================================
Investor Survey
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET OFFICE MARKET - URBAN/CBD
- - ------------------------------------------------------------------------------------------------------------------------------------
9.5% 10.0% 10.0% 10.0% 11.5% 11.5% 3.0% 3.0% 3.0% 4.0% 10.0 10.0
9.5% 10.0% 10.0% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
13.0% 13.0% -- -- 14.0% 14.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.3% 9.3% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 9.0% 8.5% 9.0% 10.5% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
Responses 11 11 10 10 11 11 11 11 11 11 11 11
Average (%) 9.2% 9.6% 9.2% 9.7% 11.7% 12.0% 3.3% 4.2% 3.4% 3.9% 8.5 9.5
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 10.0% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
15.0% 15.0% -- -- 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
9.0% 10.0% -- -- -- -- -- -- -- -- -- --
9.0% 10.0% 9.0% 10.0% 12.0% 13.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
Responses 8 8 6 6 7 7 7 7 7 7 7 7
Average (%) 10.0% 10.4% 9.7% 10.3% 12.8% 13.1% 3.3% 4.7% 3.5% 4.0% 8.3 9.7
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
8.0% 9.0% 9.5% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0 10.0 10.0
10.0% 10.0% 10.0% 10.0% 13.0% 13.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
12.0% 12.0% -- -- 13.0% 13.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
-- -- -- -- 12.0% 13.0% 4.0% 4.0% 4.0% 4.0 5.0 10.0
Responses 8 8 7 7 9 9 9 9 9 9 9 9
Average (%) 9.4% 10.0% 9.6% 10.2% 12.8% 13.5% 3.5% 4.6% 3.5% 3.9% 7.6 8.9
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
12.0% 12.0% 12.0% 12.0% 15.0% 15.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.8% 9.8% 10.8% 10.8% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
14.0% 14.0% -- -- 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 6 6 5 5 6 6 6 6 6 6 6 6
Average (%) 10.7% 11.0% 10.5% 11.2% 14.6% 15.3% 3.2% 4.6% 3.3% 3.9% 8.0 8.8
--------------------------------------------------------------------------------------------------------
Total Responses 33 33 28 28 33 33 33 33 33 33 33 33
Weighted Average (%) 9.8% 10.3% 9.7% 10.3% 13.0% 13.5% 3.3% 4.6% 3.4% 3.9% 8.1 9.2
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
8 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET OFFICE MARKET - SUBURBAN/NON - CBD
- - ------------------------------------------------------------------------------------------------------------------------------------
9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.5% 8.5% 9.3% 9.3% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
11.0% 11.0% -- -- 12.0% 12.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0
8.5% 10.0% 9.0% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
8.0% 10.0% 9.5% 10.0% 11.5% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0
l0.0% 11.0% 10.5% 11.0% 12.0% 12.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.1% 9.1% 10.1% l0.1% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
9.0% 9.0% 10.0% 10.0% 11.5% 11.5% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.0% 9.0% 12.0% 13.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.0% 10.0% -- -- -- -- -- -- -- -- --
8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0
Responses 16 16 14 14 15 15 15 15 15 15 15 15
Average (%) 8.8% 9.5% 9.3% 9.9% 11.2% 11.6% 3.5% 4.4% 3.6% 3.8% 8.9 9.7
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.8% 8.8% 9.5% 9.5% 11.8% 11.8% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
12.0% 12.0% -- -- 18.0% 18.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0
10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0
8.0% 10.0% 9.5% 10.0% 11.0% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0
9.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 10.0% 14.0% 15.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
10.0% 11.0% -- -- -- -- -- -- -- -- -- --
10.0% 11.0% 10.0% 11.0% 12.0% 13.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0
Responses 13 13 11 11 12 12 12 12 12 12 12 12
Average (%) 9.5% 10.0% 9.8% 10.2% 12.0% 12.5% 3.4% 4.5% 3.4% 3.7% 8.6 9.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% -- -- 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0
8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
6.0% 6.0% 9.0% 9.0% 17.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.0% 10.0% -- -- -- -- -- -- -- -- -- --
12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0
Responses 10 10 8 8 9 9 9 9 9 9 9 9
Average (%) 9.1% 9.7% 9.5% 10.0% 13.4% 14.3% 3.1% 4.6% 3.4% 3.8% 7.2 8.0
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% -- -- 18.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0
10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0
11.0% 11.0% 11.0% 11.0% 14.0% 14.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.6% 9.6% 10.6% 10.6% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
6.0% 6.0% 10.0% 10.0% 20.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.0% 10.0% -- -- -- -- -- -- -- -- -- --
12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0
Responses 10 10 8 8 9 9 9 9 9 9 9 9
Average (%) 9.7% 10.0% 10.0% 10.5% 14.5% 15.2% 2.9% 4.3% 3.2% 3.6% 7.2 8.0
--------------------------------------------------------------------------------------------------------
Total Responses 49 49 41 41 45 45 45 45 45 45 45 45
Weighted Average (%) 9.3% 9.8% 9.7% 10.1% 12.8% 13.4% 3.2% 4.4% 3.4% 3.7% 8.0 8.8
--------------------------------------------------------------------------------------------------------
</TABLE>
AUTUMN 1996 9
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET INDUSTRIAL MARKET - WAREHOUSE/DISTRIBUTION
- - ------------------------------------------------------------------------------------------------------------------------------------
9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.5% 8.5% 9.3% 9.3% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
8.5% 10.0% 9.5% 10.0% 11.0% 12.0% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
9.0% 9.0% 10.0% 10.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
9.0% 9.0% 9.5% 9.5% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 10 10 10 10 10 10 10 10 10 10 10 10
Average (%) 8.8% 9.2% 9.4% 9.8% 10.9% 11.0% 2.9% 4.0% 3.3% 3.8% 9.8 10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.8% 8.8% 9.5% 9.5% 11.3% 11.3% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
10.0% 10.0% 11.0% 11.0% 12.0% 12.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 7 7 7 7 7 7 7 7 7 7 7 7
Average (%) 9.3% 9.5% 10.0% 10.2% 11.2% 11.2% 2.8% 4.3% 3.2% 3.9% 9.7 10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 12.0% 12.0% 13.0% 13.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 9.7% 9.9% 10.4% 10.8% 11.9% 11.9% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
12.0% 12.0% 13.0% 13.0% 14.0% 14.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 10.0% 10.5% 10.5% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.5% 10.5% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 10.1% 10.4% 10.9% 11.3% 12.4% 12.4% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
--------------------------------------------------------------------------------------------------------
Total Responses 25 25 25 25 25 25 25 25 25 25 25 25
Weighted Average (%) 9.5% 9.7% 10.2% 10.5% 11.6% 11.6% 2.6% 4.5% 3.2% 4.0% 9.6 10.2
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
10 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET INDUSTRIAL MARKET - BUSINESS PARKS, OTHER INDUSTRIAL & MANUFACTURING
- - ------------------------------------------------------------------------------------------------------------------------------------
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0
9.0% 9.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 3 3 4 4 4 4 4 4 4 4
Average (%) 8.9% 9.4% 9.7% 10.7% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0
10.0% 10.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 3 3 4 4 4 4 4 4 4 4
Average (%) 9.3% 9.8% 9.8% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 5 5 4 4 5 5 5 5 5 5 5 5
Average (%) 9.4% 10.0% 9.9% 10.9% 12.4% 13.2% 3.4% 4.0% 3.2% 3.8% 8.2 9.4
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.5% 10.5% 11.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.5% 10.5% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 5 5 4 4 5 5 5 5 5 5 5 5
Average (%) 9.6% 10.2% 10.0% 11.0% 12.4% 13.2% 3.4% 4.0% 3.2% 3.8% 8.2 9.4
--------------------------------------------------------------------------------------------------------
Total Responses 18 18 14 14 18 18 18 18 18 18 18 18
Weighted Average(%) 9.3% 9.8% 9.8% 10.8% 12.0% 12.4% 3.3% 4.0% 3.2% 3.9% 8.5 9.8
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
AUTUMN 1996 11
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RETAIL MARKET - NEIGHBORHOOD & COMMUNITY CENTERS
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 10.5% 9.5% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
9.5% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
10.0% 10.0% 10.5% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
10.3% 10.3% 10.8% 10.8% 13.0% 13.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0
9.0% 9.0% 10.0% 10.0% 10.0% 10.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.5% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
Responses 9 9 8 8 8 8 9 9 9 9 9 9
Average (%) 9.3% 9.8% 10.0% 10.4% 11.9% 12.1% 2.9% 3.7% 3.4% 3.9% 8.9 9.4
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8% 10.8% 11.3% 11.3% 14.0% 14.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0
10.0% 10.0% 11.0% 11.0% 12.0% 12.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.5% 10.5% -- -- -- -- -- -- -- -- -- --
Responses 6 6 4 4 4 4 5 5 5 5 5 5
Average (%) 9.5% 10.0% 10.4% 11.1% 12.3% 12.3% 2.3% 3.8% 3.3% 4.2% 9.0 9.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 12.0% 12.0% 13.0% 13.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 9.5% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.0% 10.0% -- -- -- -- -- -- -- --
11.0% 11.0% 9.5% 9.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0
Responses 7 7 5 5 5 5 6 6 6 6 6 6
Average (%) 9.7% 10.3% 10.1% 10.7% 13.8% 14.6% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
13.0% 13.0% 14.0% 14.0% 14.0% 14.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
11.0% 11.0% 10.5% 10.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0
Responses 6 6 5 5 5 5 6 6 6 6 6 6
Average (%) 10.3% 10.8% 10.8% 11.5% 14.2% 15.0% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
--------------------------------------------------------------------------------------------------------
Total Responses 28 28 22 22 22 22 26 26 26 26 26 26
Weighted Average (%) 9.7% 10.2% 10.3% 10.9% 13.0% 13.5% 2.7% 3.9% 3.2% 4.0% 8.7 9.3
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
12 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RETAIL MARKET - POWER CENTERS & "BIG BOX"
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
10.0% 10.0% 9.5% 9.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
10.5% 10.5% 10.5% 10.5% 11.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.4% 11.4% 3.8% 3.8% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 9.5% 10.0% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
9.3% 9.3% 9.5% 10.0% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.0% 9.0% -- -- -- -- -- -- -- -- -- --
9.0% 9.5% 9.5% 10.0% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
Responses 9 9 8 8 8 8 8 8 8 8 8 8
Average (%) 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8% 10.8% 10.8% 10.8% 11.0% 12.0% 2.0% 3.0% 3.0% 3.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 3 3 3 3 3 3 3 3 3 3 3 3
Average (%) 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8% 10.8% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 3 3 3 3 3 3 3 3 3 3 3 3
Average (%) 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
-- -- -- -- 15.0% 15.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 2 2 2 2 3 3 3 3 3 3 3 3
Average (%) 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3% 3.2% 3.7% 9.3 10.3
--------------------------------------------------------------------------------------------------------
Total Responses 17 17 16 16 17 17 17 17 17 17 17 17
Weighted Average (%) 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
AUTUMN 1996 13
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RETAIL MARKET - REGIONAL MALLS
- - ------------------------------------------------------------------------------------------------------------------------------------
7.5% 7.5% 8.0% 8.0% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.0% 9.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
7.5% 7.5% 7.8% 7.8% 12.0% 12.0% 1.5% 2.0% 3.0% 3.0% 10.0 10.0
7.0% 8.0% 8.0% 8.0% 10.5% 11.5% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
9.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.0% 8.0% 9.0% 10.5% 11.0% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
8.0% 8.0% 8.5% 8.5% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
7.8% 8.0% 8.3% 8.5% 11.0% 12.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0
7.0% 8.0% 7.0% 8.0% 10.0% 11.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
Responses 10 9 9 9 9 9 10 10 10 10 10 10
Average (%) 7.9% 8.2% 8.2% 8.6% 11.4% 11.8% 3.0% 3.6% 3.5% 3.8% 9.1 9.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 10.0% 10.0% 17.0% 17.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
9.0% 9.0% 9.0% 9.0% 13.5% 13.5% 2.0% 2.0% 4.0% 4.0% 7.0 7.0
9.0% 10.0% 10.0% 10.0% 12.0% 14.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
10.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
Responses 5 4 4 4 4 4 5 5 5 5 5 5
Average (%) 9.3% 9.6% 9.6% 10.0% 13.4% 13.9% 2.5% 3.4% 3.7% 4.0% 8.6 8.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 10.0% 10.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
11.0% 11.0% 11.0% 11.0% 13.0% 14.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
9.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.5% 8.5% 9.0% 11.5% 12.5% 2.5% 3.0% 2.5% 3.0% 10.0 10.0
Responses 5 4 4 4 4 4 5 5 5 5 5 5
Average (%) 9.3% 9.8% 9.8% 10.3% 13.4% 13.9% 2.6% 3.6% 3.4% 3.8% 9.2 9.2
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 11.0% 11.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
12.5% 12.5% 12.0% 12.0% 14.0% 15.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
10.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 9.0% 9.3% 9.8% 12.0% 13.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0
13.0% 13.0% 11.0% 11.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0
Responses 6 5 5 5 5 5 6 6 6 6 6 6
Average (%) 10.6% 11.0% 10.6% 11.0% 14.6% 15.0% 2.7% 3.5% 3.3% 3.7% 8.2 8.2
--------------------------------------------------------------------------------------------------------
Total Responses 26 22 22 22 22 22 26 26 26 26 26 26
Weighted Average (%) 9.3% 9.6% 9.5% 10.0% 13.2% 13.6% 2.7% 3.5% 3.5% 3.8% 8.8 8.9
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
14 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RESIDENTIAL - APARTMENTS
- - ------------------------------------------------------------------------------------------------------------------------------------
8.5% 10.0% 9.0% 10.5% -- -- -- -- 3.5% 3.5% 1.0 1.0
8.5% 9.0% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
9.8% 9.8% 10.0% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
8.3% 9.0% 9.0% 9.5% 10.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
7.5% 8.5% 8.0% 9.0% 10.0% 11.0% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.8% 8.8% 9.0% 9.0% 11.3% 11.3% 3.8% 4.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 9.0% 9.0% 9.5% 10.0% 11.5% 3.0% 4.0% 3.0% 3.0% 10.0 10.0
8.5% 9.0% 8.5% 9.0% -- -- 3.0% 3.5% 3.0% 3.5% 10.0 10.0
8.8% 9.0% 9.0% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 10 10 10 10 8 8 9 9 10 l0 l0 10
Average (%) 8.6% 9.2% 9.0% 9.6% 11.2% 11.7% 2.9% 3.9% 3.3% 3.8% 8.4 8.9
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 9.5% 9.5% 10.0% 11.0% 12.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
9.0% 10.0% 10.0% 10.0% 11.0% 12.5% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.0% 10.0% 10.0% 10.5% 10.5% 12.0% 3.0% 4.0% 3.0% 3.0% 10.0 10.0
9.0% 9.5% 9.5% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 5 5 5 5 5 5 5 5 5 5 5 5
Average (%) 8.9% 9.7% 9.7% 10.3% 11.0% 11.8% 2.5% 4.2% 3.1% 4.0% 9.6 10.2
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 11.0% 11.0% 11.0% 12.5% 13.5% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.0% 9.0% 9.0% 11.0% 12.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0
9.0% 9.0% 9.5% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 8.9% 9.4% 9.8% 10.3% 11.6% 12.1% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
12.0% 13.0% 13.0% 13.0% 13.0% 15.0% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.0% 10.0% 10.0% 11.0% 13.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0
9.5% 10.0% 10.0% 11.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 9.5% 10.1% 10.6% 11.3% 12.0% 13.0% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
Total Responses 23 23 23 23 21 21 22 22 23 23 23 23
Weighted Average (%) 9.0% 9.6% 9.8% 10.4% 11.5% 12.1% 2.7% 4.4% 3.2% 4.0% 8.4 9.3
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical
issues
AUTUMN 1996 15
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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>
- - ------------------------------------------------------------------------------------------------------------------------------------
OFFICE SUMMARY OF WEIGHTED AVERAGE
- - ------------------------------------------------------------------------------------------------------------------------------------
Urban/CBD 9.8% 10.3% 9.7% 10.3% 13.0% 13.5% 3.3% 4.6% 3.4% 3.9% 8.1 9.2
Class A - Leased Asset 9.2% 9.6% 9.2% 9.7% 11.7% 12.0% 3.3% 4.2% 3.4% 3.9% 8.5 9.5
Class B - Leased Asset 10.0% 10.4% 9.7% 10.3% 12.8% 13.1% 3.3% 4.7% 3.5% 4.0% 8.3 9.7
Class A - Value Added 9.4% 10.0% 9.6% 10.2% 12.8% 13.5% 3.5% 4.6% 3.5% 3.9 7.6 8.9
Class B - Value Added 10.7% 11.0% 10.5% 11.2% 14.6% 15.3% 3.2% 4.8% 3.3% 3.9% 8.0 8.8
Suburban 9.3% 9.8% 9.7% 10.1% 12.8% 13.4% 3.2% 4.4% 3.4% 3.7% 8.0 8.8
Class A - Leased Asset 8.8% 9.5% 9.3% 9.9% 11.2% 11.6% 3.5% 4.4% 3.6% 3.8% 8.9 9.7
Class B - Leased Asset 9.5% 10.0% 9.8% 10.2% 12.0% 12.5% 3.4% 4.5% 3.4% 3.7% 8.6 9.6
Class A - Value Added 9.1% 9.7% 9.5% 10.0% 13.4% 14.3% 3.1% 4.6% 3.4% 3.8% 7.2 8.0
Class B - Value Added 9.7% 10.0% 10.0% 10.5% 14.5% 15.2% 2.9% 4.3% 3.2% 3.6% 7.2 8.0
- - ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
- - ------------------------------------------------------------------------------------------------------------------------------------
Warehouse/Distribution 9.5% 9.7% 10.2% 10.5% 11.6% 11.6% 2.6% 4.5% 3.2% 4.0% 9.6 10.2
Class A - Leased Asset 8.8% 9.2% 9.4% 9.8% 10.9% 11.0% 2.9% 4.0% 3.3% 3.8% 9.8 10.1
Class B - Leased Asset 9.3% 9.5% 10.0% 10.2% 11.2% 11.2% 2.8% 4.3% 3.2% 3.9% 9.7 10.1
Class A - Value Added 9.7% 9.9% 10.4% 10.8% 11.9% 11.9% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
Class 8 - Value Added 10.1% 10.4% 10.9% 11.3% 12.4% 12.4% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
Business Parks 9.4% 9.9% 10.0% 10.8% 12.3% 12.9% 3.4% 4.0% 3.2% 3.8% 8.3 9.6
Class A - Leased Asset 9.0% 9.5% 9.8% 10.5% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
Class B - Leased Asset 9.3% 9.8% 10.0% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
Class A - Value Added 9.5% 10.2% 10.0% 10.8% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7
Class B - Value Added 9.7% 10.3% 10.2% 11.0% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7
0ther Industrial/
Manufacturing 9.2% 9.7% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3
Class A - Leased Asset 8.8% 9.3% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0
Class B - Leased Asset 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0
Class A - Value Added 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
Class B - Value Added 9.5% 10.0% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
- - ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
- - ------------------------------------------------------------------------------------------------------------------------------------
Neighborhood & Community
Centers 9.7% 10.2% 10.3% 10.9% 13.0% 13.5% 2.7% 3.9% 3.2% 4.0% 8.7 9.3
Class A - Leased Asset 9.3% 9.8% 10.0% 10.4% 11.9% 12.1% 2.9% 3.7% 3.4% 3.9% 8.9 9.4
Class B - Leased Asset 9.5% 10.0% 10.4% 11.1% 12.3% 12.3% 2.3% 3.8% 3.3% 4.2% 9.0 9.6
Class A - Value Added 9.7% 10.3% 10.1% 10.7% 13.8% 14.6% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
Class B - Value Added 10.3% 10.8% 10.8% 11.5% 14.2% 15.0% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
Power Center & "Big Box" 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3
Class A - Leased Asset 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1
Class B - Leased Asset 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3
Class A - Value Added 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3
Class B - Value Added 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3 3.2% 3.7% 9.3 10.3
Regional Malls 9.3% 9.6% 9.5% 10.0% 13.2% 13.6% 2.7% 3.5% 3.5% 3.8% 8.8 8.9
Class A - Leased Asset 7.9% 8.2% 8.2% 8.6% 11.4% 11.8% 3.0% 3.6% 3.5% 3.8% 9.1 9.6
Class B - Leased Asset 9.3% 9.6% 9.6% 10.0% 13.4% 13.9% 2.5% 3.4% 3.7% 4.0% 8.6 8.6
Class A - Value Added 9.3% 9.8% 9.8% 10.3% 13.4% 13.9% 2.6% 3.6% 3.4% 3.8% 9.2 9.2
Class B - Value Added 10.6% 11.0% 10.6% 11.0% 14.6% 15.0% 2.7% 3.5% 3.3% 3.7% 8.2 8.2
Specialty Retail 9.5% 10.5% 10.8% 11.5% 12.0% 12.6 1.9% 4.0% 3.3% 4.0% 10.0 10.5
Class A - Leased Asset 8.2% 9.0% 8.8% 9.7% 10.7% 11.3% 2.5% 4.0% 3.5% 4.0% 8.7 10.3
Class B - Leased Asset 9.3% 10.3% 10.8% 11.5% 11.5% 12.5% 1.8% 4.0% 3.3% 4.0% 10.5 10.5
Class A - Value Added 10.0% 11.0% 11.3% 12.0% 12.5% 13.0% 1.8% 4.0% 3.3% 4.0% 10.5 10.5
Class B - Value Added 10.8% 11.8% 12.3% 13.0% 13.5% 13.5% 1.8% 4.0% 3.3% 4.0% 10.5 10.5
- - ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL
- - ------------------------------------------------------------------------------------------------------------------------------------
Apartments 9.0% 9.6% 9.8% 10.4% 11.5% 12.1% 2.7% 4.4% 3.2% 4.0% 8.4 9.3
Class A - Leased Asset 8.6% 9.2% 9.0% 9.6% 11.2% 11.7% 2.9% 3.9% 3.3% 3.8% 8.4 8.9
Class B - Leased Asset 8.9% 9.7% 9.7% 10.3% 11.0% 11.8% 2.5% 4.2% 3.1% 4.0% 9.6 10.2
Class A - Value Added 8.9% 9.4% 9.8% 10.3% 11.6% 12.1% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
Class B - Value Added 9.5% 10.1% 10.6% 11.3% 12.0% 13.0% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
</TABLE>
16 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
Single-Tenant NNN Leased Properties
(Excludes "Bondable" Leases)
Minimum No. Going-In Cap Rate Internal Rate of Return
of Years Low High Low High
Investment Grade Tenant
- - --------------------------------------------------------------------------------
4.0 9.0% 9.0% 10.0% 12.0%
----------------------------------------------------------
10.0 8.0 9.0 10.5 11.5
----------------------------------------------------------
5.0 10.5 10.5 13.0 13.0
----------------------------------------------------------
10.0 9.0 10.5 13.0 15.0
----------------------------------------------------------
10.0 8.5 9.0 10.5 12.0
----------------------------------------------------------
10.0 9.5 10.0 10.5 11.5
----------------------------------------------------------
10.0 8.5 11.0 10.8 12.0
----------------------------------------------------------
10.0 9.5 9.5 11.0 11.0
----------------------------------------------------------
20.0 9.0 9.0 N/A N/A
----------------------------------------------------------
10.0 8.0 10.0 N/A N/A
- - --------------------------------------------------------------------------------
Responses 10.0 10.0 10.0 8.0 8.0
Average 9.9 9.0% 9.8% 11.2% 12.3%
Non-Investment Grade
Tenant
- - --------------------------------------------------------------------------------
4.0 9.5% 9.5% 10.5% 13.0%
----------------------------------------------------------
10.0 9.0 10.0 11.5 12.5
----------------------------------------------------------
5.0 13.0 13.0 15.0 15.0
----------------------------------------------------------
10.0 10.0 12.0 17.0 20.0
----------------------------------------------------------
10.0 9.0 10.0 11.0 13.0
----------------------------------------------------------
10.0 11.0 12.0 13.0 15.0
----------------------------------------------------------
10.0 10.5 10.5 13.0 13.0
----------------------------------------------------------
20.0 11.0 11.0 N/A N/A
----------------------------------------------------------
10.0 10.0 12.5 N/A N/A
----------------------------------------------------------
Responses 9.0 9.0 9.0 7.0 7.0
Average 9.9 10.3% 11.2% 13.0% 14.5%
AUTUMN 1996 17
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES BLENDED INTERNAL EQUITY INTERNAL GROWTH RATES TYPICAL PROJECTION MANAGEMENT RESERVES FOR
GOING-IN TERMINAL RATE OF RETURN RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) FEES* REPLACEMENT*
----------------------------------------------------------------------------------------------------------------------
LOW HIGH LOW HIGH LOW HIGH 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> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
LUXURY
- - ------------------------------------------------------------------------------------------------------------------------------------
8.0% 8.0% 10.0% 10.0% 18.0% 18.0% 25.0% 25.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 5.0% 5.0%
7.0% 7.0% 10.0% 10.0% 15.0% 15.0% 20.0% 20.0% 7.0% 7.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
6.0% 9.5% 10.0% 10.0% 12.0% 15.0% 15.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 5.0 2.0% 4.0% 4.0% 4.0%
8.0% 11.0% 8.5% 12.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0%
-- -- 11.0% 13.0% 15.0% 15.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 3.0% 3.0% 4.0% 4.0%
6.0% 8.0% 10.0% 12.0% 13.0% 14.0% 20.0% 22.0% 3.0% 4.0% 3.0% 4.0% 5.0 5.0 2.0% 3.0% 4.0% 5.0%
8.0% 12.0% 8.0% 10.0% 15.0% 15.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0%
Responses 7 7 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
Average (%) 7.5% 9.3% 9.8% 10.9% 14.5% 15.3% 19.5% 20.1% 4.1% 4.3% 3.8% 3.9% 6.5 6.9 2.8% 3.3% 4.1% 4.4%
- - ------------------------------------------------------------------------------------------------------------------------------------
FIRST CLASS
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 9.0% 11.0% 11.0% 12.0% 12.0% 20.0% 20.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
10.0% 10.0% 10.0% 10.0% -- -- 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 3.0% 3.0% 4.0% 5.0%
9.0% 9.0% 11.0% 11.0% 14.0% 14.0% 18.0% 18.0% 6.0% 6.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
9.5% 11.0% 11.0% 11.0% 15.0% 20.0% 18.0% 22.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 2.0% 3.0% 4.0% 4.0%
10.0% 12.0% 10.5% 13.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
7.0% 9.0% 10.0% 11.0% 11.5% 12.0% 14.0% 16.0% 4.0% 5.0% 3.0% 4.0% 5.0 5.0 2.5% 2.5% 5.0% 5.0%
9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0%
9.0% 9.0% 10.5% 10.5% 21.0% 21.0% 14.0% 14.0% 4.0% 4.0% 3.0% 3.0% 7.0 7.0 3.0% 3.0% 4.0% 4.0%
10.0% 12.0% 11.0% 11.0% -- -- -- -- 3.5% 3.5% 3.5% 3.5% 5.0 10.0 2.0% 3.0% 4.0% 4.0%
10.0% 10.0% 9.0% 9.5% 19.0% 19.0% 15.0% 15.0% 8.0% 8.0% 6.0% 6.0% -- -- 2.5% 2.5% 4.0% 4.0%
10.0% 13.0% 12.0% 13.0% 25.0% 25.0% 20.0% 20.0% 3.5% 4.0% 3.5% 4.0% 5.0 5.0 3.5% 3.5% 4.0% 4.0%
10.5% 10.5% 10.5% 10.5% 13.5% 13.5% -- -- 3.5% 3.5% 3.5% 3.5% 10.0 10.0 3.0% 3.0% 5.0% 5.0%
8.0% 12.0% 8.0% 10.0% 15.0% 15.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0%
Responses 13 13 13 13 11 11 11 11 13 13 13 13 12 12 13 13 13 13
Average (%) 9.3% 10.5% 10.4% 10.9% 15.8% 16.5% 17.3% 17.8% 4.2% 4.3% 3.7% 3.8% 6.6 7.3 2.8% 3.1% 4.2% 4.3%
- - ------------------------------------------------------------------------------------------------------------------------------------
MID-RATE
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 18.0% 18.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 11.0% 11.0% 13.0% 13.0% 17.0% 17.0% 6.0% 6.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
9.5% 11.0% 11.0% 11.0% 15.0% 18.0% 17.0% 20.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 2.0% 3.0% 4.0% 4.0%
10.0% 12.0% 10.5% 13.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0%
Responses 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
Average (%) 10.0% 10.7% 11.0% 11.5% 14.2% 15.2% 18.0% 18.6% 4.2% 4.2% 3.7% 3.7% 6.4 7.0 2.9% 3.1% 4.0% 4.0%
----------------------------------------------------------------------------------------------------------------------
Total
Responses 25 25 26 26 24 24 24 24 26 26 26 26 25 25 26 26 26 26
Weighted
Average (%) 8.9% 10.1% 10.4% 11.1% 14.8% 15.7% 18.3% 18.8% 4.2% 4.3% 3.7% 3.8% 6.5 7.0 2.9% 3.2% 4.1% 4.2%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
*as percent of total revenues
18 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES BLENDED INTERNAL EQUITY INTERNAL GROWTH RATES TYPICAL PROJECTION MANAGEMENT RESERVES FOR
GOING-IN TERMINAL RATE OF RETURN RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) FEES* REPLACEMENT*
----------------------------------------------------------------------------------------------------------------------
LOW HIGH LOW HIGH LOW HIGH 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> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
MID-RATE HOTEL - LIMITED SERVICE
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 15.0% 15.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
12.0% 12.0% 12.0% 12.0% 13.0% 13.0% 17.0% 17.0% 3.0% 3.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
8.0% 10.0% 10.0% 10.0% 12.0% 15.0% 14.0% 16.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0%
11.0% 13.0% 11.5% 14.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 11.8% 11.8% 16.0% 16.0% 19.0% 19.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 4.0% 4.0% 4.5% 4.5%
10.0% 13.0% 12.0% 13.0% 25.0% 25.0% 20.0% 20.0% 3.5% 4.0% 3.5% 4.0% 5.0 5.0 4.0% 4.0% 5.0% 5.0%
Responses 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
Average (%) 10.3% 11.5% 11.5% 12.1% 15.7% 16.5% 17.5% 17.8% 3.5% 3.6% 3.7% 3.8% 6.2 6.7 3.3% 3.5% 4.3% 4.4%
- - ------------------------------------------------------------------------------------------------------------------------------------
ECONOMY
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 15.0% 15.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 17.0% 17.0% 3.0% 3.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
9.0% 11.0% 10.0% 10.0% 12.0% 15.0% 14.0% 16.0% 3.0% 3.0% 3.0% 3.0% 5.0 5.0 4.0% 5.0% 5.0% 5.0%
11.0% 13.0% 11.5% 14.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 11.8% 11.8% 16.0% 16.0% 19.0% 19.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 4.0% 4.0% 4.5% 4.5%
Responses 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
Average (%) 10.8% 11.6% 11.7% 12.2% 13.8% 14.8% 17.0% 17.4% 3.5% 3.5% 3.9% 3.9% 6.4 7.0 3.4% 3.6% 4.3% 4.3%
Total
Responses 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Weighted
Average(%) 10.6% 11.6% 11.6% 12.1% 14.7% 15.7% 17.3% 17.6% 3.5% 3.5% 3.8% 3.8% 6.3 6.8 3.4% 3.6% 4.3% 4.4%
</TABLE>
*as percent of total revenues
AUTUMN 1996 19
<PAGE>
Addenda
================================================================================
Qualifications of Appraisers
<PAGE>
QUALIFICATIONS
================================================================================
Donald R. Morris, MAI
Professional Affiliations:
Member of the Appraisal Institute (MAI Designations #9812)
District of Columbia Certified General Real Estate Appraiser (#GA00010267)
Commonwealth of Virginia Certified General Real Estate Appraiser
(#4001002465)
State of Maryland Certified General Real Estate Appraiser (#7220)
State of West Virginia Certified General Real Estate Appraiser (#237)
Appraisal/Real Estate Experience:
Director/Manager, Cushman & Wakefield of Washington, D.C. and Assistant
Manager, Cushman & Wakefield of Texas, Inc., Dallas, Texas, Valuation
Advisory Services, a full service real estate organization specializing in
appraisal and consultation. April 1990 to present.
Associate Appraiser, Joseph A. Dengel & Company, Dallas, Texas, May 1977
to April 1990.
Other real estate experience includes work as a residential listing and
selling agent preparing market analyses and origination contracts.
Experience includes appraisal of the following types of property:
Office Buildings Medical Office Buildings
Regional Malls Power Centers
Outlet Centers Community & Neighborhood Shopping Centers
Department Stores Industrial Buildings
Residential Subdivisions Single Family Residences
Multi-Family Properties Condominiums/Duplexes
Subdivision Analysis Farm/Ranch
Mixed Use Properties Golf Courses
Grape Vineyards Special Purpose Facilities
Commercial Land Hotel/Motel
Ad Valorem Tax Appeals
Appraisal and consulting services used for mortgage loans, relocations,
gift and estate tax, condemnation and litigation purposes.
Qualified as an expert witness in state and federal real estate court
cases.
Education:
Bachelor of Arts (Political Science), 1981
University of Texas at Arlington, Arlington, Texas.
<PAGE>
QUALIFICATIONS
================================================================================
Donald R. Morris, MAI
Appraisal Institute Courses:
#1A1 - Real Estate Appraisal Principles
#1A2 - Basic Valuation Procedures
#1B1 - Capitalization Theory & Techniques, Part A
#1B2 - Capitalization Theory & Techniques, Part B
#410 - Standards of Professional Appraisal Practice, Part A (USPAP)
#420 - Standards of Professional Appraisal Practice, Part B (AI)
#21 - Case Studies in Real Estate Valuation
#22 - Report Writing and Valuation Analysis
#82 - Residential Valuation Procedures
Additional Accredited Real Estate Courses:
Real Estate Appraisal
Principles of Real Estate
Real Estate Marketing
Real Estate Finance
Property Management
Federal National Mortgage Corporation (Fannie Mae) - Appraisal
Training
Certified in the Appraisal's Institute's voluntary program of continuing
education for its designated members.
<PAGE>
QUALIFICATIONS
================================================================================
Kelly J. Small
Professional Affiliations:
Candidate Member of the Appraisal Institute (#M921847)
State of Maryland Certified General Real Estate Appraiser (#20143
Appraisal/Real Estate Experience:
Appraiser, Cushman & Wakefield of Washington, D.C., Inc., Valuation
Advisory Services, a full service real estate organization specializing in
appraisal and consultation. Member of National Affordable Housing Group.
October, 1995 to present.
Staff Appraiser, Legg Mason Realty Group, Inc., Baltimore, Maryland.
February, 1990, through October, 1995.
Other work experience includes financial analyst, market research analyst
and real estate settlement work.
Experience includes appraisal of the following types of property:
Office Buildings Shopping Centers
Subdivision Development Analyses Industrial Facilities
Commercial Land Multi-Family Properties
Single Family Residences Leasehold/Leased Fee Interests
Hotel Special Purpose Facilities
Manufacturing Facilities Warehouse Facilities
Education:
Bachelor of Science (Finance), 1990
University of Baltimore, Baltimore, Maryland
Masters of Science (Real Estate Development), 1996
The Johns Hopkins University, Baltimore, Maryland
Appraisal Institute Courses:
#1A1 - Real Estate Appraisal Principles
#1B1 - Basic Valuation Procedures
#1B1 - Capitalization Theory & Techniques, Part A
#1B2 - Capitalization Theory & Techniques, Part B
#410 - Standards of Professional Appraisal Practice, Part A (USPAP)
#420 - Standards of Professional Appraisal Practice, Part B (AI)
<PAGE>
QUALIFICATIONS
================================================================================
Kelly J. Small
Specific course work and seminars:
The new URAR Appraisal Reports, Emerging Trends
- - --------------------------------------------------------------------------------
COMPLETE APPRAISAL
OF REAL PROPERTY
TOTEM VALLEY BUSINESS CENTER
12800 N.E. 126th Place
Kirkland, King County, Washington
- - --------------------------------------------------------------------------------
IN A SELF-CONTAINED REPORT
As of May 9, 1997
Prepared for:
PRUDENTIAL SECURITIES, INCORPORATED
199 Water Street, 16th Floor
New York, New York 10292
Prepared by:
CUSHMAN & WAKEFIELD OF OREGON, INC.
Valuation Advisory Services
200 S.W. Market Street, Suite 200
Portland, Oregon 97201
<PAGE>
Cushman & Wakefield of Oregon, Inc. [LOGO]
200 SW Market Street, Suite 200
Portland, OR 97201-5730
Tel: (503) 279-1745
Fax: (503) 279-1791
May 22, 1997
Mr. Chester Piskorowski
Senior Vice President
PRUDENTIAL SECURITIES, INCORPORATED
199 Water Street, 16th Floor
New York, New York 10292
Re: Complete Appraisal of Real Property
Totem Valley Business Center
12800 N.E. 126th Place
Kirkland, Washington
Dear Mr. Piskorowski:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Oregon, Inc. is pleased to transmit our self-contained
appraisal report estimating the market value of the leased fee estate in the
Totem Valley Business Center.
The value opinion reported below is qualified by certain assumptions,
limiting conditions, certifications, and definitions, which are set forth in the
report.
This report was prepared for Prudential Securities, Incorporated and is
intended only for its specified use. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield
of Oregon, Inc.
This appraisal report has been prepared in accordance with our
interpretation of your institution's guidelines and the Uniform Standards of
Professional Appraisal Practice, including the Competency Provision.
The property was inspected by and the report was prepared by Steven A.
Zenker, MAI.
<PAGE>
Mr. Chester Piskorowski
Prudential Securities, Incorporated
Page 2
May 22, 1997
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the market value
of the leased fee estate in the referenced property, subject to the assumptions,
limiting conditions, certifications, and definitions, as of May 9, 1997, was:
SEVEN MILLION TWO HUNDRED THOUSAND DOLLARS
$7,200,000
This letter is invalid as an opinion of value if detached from the
report, which contains the text, exhibits, and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF OREGON, INC.
/s/ Steven A. Zenker, MAI
- - --------------------------
Steven A. Zenker, MAI
Director
State Certified Appraiser No. 270-11 ZE-NK-ES-A399BM
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- - --------------------------------------------------------------------------------
PROPERTY NAME: Totem Valley Business Center
LOCATION: 12800 N.E. 126th Place
Kirkland, King County Washington
GENERAL OVERVIEW: This is modern one-story seven building
industrial park of 105,115 square feet
constructed from 1983 to 1985 on an 8.19 acre
site. The improvements, which are 50.8
percent office and 49.2 percent warehouse,
has painted tilt-up concrete panels toward
the rear (interior) of each building. The
exterior walls, facing the parking areas are
finished with a rough-hewn wood sheathing
walls, and concrete slab floor. Ceiling
clearances in the warehouse area are 14 feet.
INTEREST APPRAISED: Leased Fee Estate
DATE OF VALUE: May 9, 1997
DATE OF INSPECTION: May 9, 1997
OWNERSHIP: Prudential Bache Securites and Equitec
LAND AREA: 8.19, or 356,588 square feet acres
1996-97 PROPERTY ASSESSMENT: $5,881,600
1996-97 PROPERTY TAXES: $78,497.96
ZONING: LI, Light Industrial, and PUD, Planned Unit
District, City of Kirkland
HIGHEST AND BEST USE
If Vacant: Industrial Development
As Improved: Office services/business park property. The
current improvements represent the highest
and best use.
IMPROVEMENTS
Type: Seven one-story, tilt-up concrete office
services/and warehouse buildings
Year Built: Three of the buildings were built in 1983 and
the remaining four in 1985
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- - --------------------------------------------------------------------------------
OPERATING DATA AND FORECASTS
Current Occupancy 99.1%
Forecasted Stabilized Occupancy: 92.0%
VALUE INDICATORS
Cost Approach N/A
Sales Comparison Approach $6,800,000 to $7,400,000
Value Per Square Foot: $65.00 to $70.00
Income Approach--Direct Capitalization
Current Vacancy: 99.1%
Stabilized Vacancy Rate: 8.0%
Effective Gross Income: $1,018,805
Net Operating Income: $691,497
Overall Capitalization Rate: 9.35%
Indicated Value: $7,400,000
Income Approach--Discounted Cash Flow Analysis
Stabilized Vacancy Rate: 8.0%
Estimated Vacancy Between Tenants: 2 months
Probability of Renewal 75.0%
Tenant Improvement Allowance
New Leases (Office): $5.00/SF per square foot
New Tenants in Previously
Occupied Space (Office): $2.50 per square foot
Warehouse Space: $1.00 per square foot
Estimated Market Rental Growth Rate: 3.5%
Reversion Year Capitalization Rate: 9.75%
Transaction Costs in Reversion Sale: 3.0%
Discount Rate: 11.75%
Implicit First Year Capitalization Rate: 9.74%
Indicated Value: $7,100,000
VALUE CONCLUSION: $7,200,000
Value Per Square Foot: $68.50(Net Rentable Area)
Implicit Capitalization Rate: 9.60%
EXPOSURE TIME IMPLICIT
IN MARKET VALUE ESTIMATE: 12 months
SPECIAL ASSUMPTIONS AFFECTING VALUATION:
o Please refer to the complete list of assumptions and limiting conditions
included at the end of this report.
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- - --------------------------------------------------------------------------------
SPECIAL RISK FACTORS:
Special risk factors associated with this property were taken into
consideration in our appraisal.
o None
FAVORABLE INFLUENCES
o Good market conditions
<PAGE>
TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
PAGE
PHOTOGRAPHS OF SUBJECT PROPERTY...............................................1
INTRODUCTION..................................................................4
Identification of Property...............................................4
Property Ownership and Recent History....................................4
Purpose and Intended Use of the Appraisal................................4
Extent of the Appraisal Process..........................................4
Date of Value and Property Inspection....................................5
Property Rights Appraised................................................5
Definitions of Value, Interest Appraised, and Other Pertinent Terms......5
Legal Description........................................................6
REGIONAL ANALYSIS.............................................................7
NEIGHBORHOOD ANALYSIS........................................................19
INDUSTRIAL MARKET ANALYSIS...................................................21
PROPERTY DESCRIPTION.........................................................24
Site Description........................................................24
Improvements Description................................................25
REAL PROPERTY TAXES AND ASSESSMENTS..........................................29
ZONING.......................................................................31
HIGHEST AND BEST USE.........................................................32
VALUATION PROCESS............................................................34
SALES COMPARISON APPROACH....................................................36
INCOME CAPITALIZATION APPROACH...............................................42
RECONCILIATION AND FINAL VALUE ESTIMATE......................................57
ASSUMPTIONS AND LIMITING CONDITIONS..........................................60
CERTIFICATION OF APPRAISAL...................................................62
ADDENDA......................................................................63
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
================================================================================
[PHOTO]
================================================================================
Westerly view of subject
================================================================================
[PHOTO]
================================================================================
Westerly view of subject
================================================================================
-1-
<PAGE>
================================================================================
[PHOTO]
================================================================================
Northerly view of subject
================================================================================
[PHOTO]
================================================================================
Interior view of typical office space
================================================================================
-2-
<PAGE>
================================================================================
[PHOTO]
================================================================================
Interior view of typical office space
================================================================================
[PHOTO]
================================================================================
Interior view of typical warehouse space
================================================================================
-3-
<PAGE>
INTRODUCTION
- - --------------------------------------------------------------------------------
IDENTIFICATION OF PROPERTY
The subject property, Totem Valley Business Center, consists of seven
single-story, average quality, tilt-up concrete, multi-tenant office
services/business park buildings. The improvements total 105,115 square feet and
include varying amounts of office space. We have not valued the condominium
interest.
The subject has one vacant space totaling 980 square feet. The improvements
were constructed on a 356,588 square foot, 8.19-acre, irregular, level to gently
sloping, site at street grade, on the southwest corner of 128th Lane N.E. and
N.E. 125th Place in Kirkland, Washington. Access is direct from N.E. 125th Place
via two curb-cuts and 128th Lane N.E. 128th Lane N.E. is a 40-foot, paved,
private road crossing leased to the subject by Burlington Northern Railroad.
This Private Roadway and Crossing Agreement was signed in October 1982 and can
be terminated by Burlington Northern Railroad at any time with 30 days notice.
This drive provides convenient access to the subject property. However, its
absence would not adversely affect rents.
The subject's street address is 12800 N.E. 126th Place, Kirkland,
Washington. The King County Department of Assessments identifies the subject as
Tax Account Numbers 034870-0020, -0030, 034871-0020, 866335-0010, -0020, -0040,
- - -0070, -0080.
PROPERTY OWNERSHIP AND RECENT HISTORY
The subject property is owned by Prudential Bache Securities/Equitec Real
Estate Partnership, a California limited partnership. According to public
records, the property was purchased by Prudential Bache/Equitec on February 12,
1987 for $6,179,000. There have been no recorded sales of the property over the
last three years.
PURPOSE AND INTENDED USE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of a leased
fee estate on May 9, 1997. The appraisal is to be used to assist the client in
evaluating current offers to purchase the properties from Equitec and other
offers that may arise.
EXTENT OF THE APPRAISAL PROCESS
In the process of preparing this appraisal, we:
o Inspected the building and the site improvements with Ms. Paula
Canton.
o Reviewed leasing policy, concessions, tenant build-out allowances, and
history of recent rental rates and occupancy with the Ms. Canton.
o Reviewed a detailed history of income and expense and a budget
forecast for 1997 including the budget for planned capital
expenditures and repairs.
o Conducted market research of occupancies, asking rents, concessions
and operating expenses at competing buildings which involved
interviews with on-site managers and a review of our own data base
from previous appraisal files.
- - --------------------------------------------------------------------------------
-4-
<PAGE>
INTRODUCTION
- - --------------------------------------------------------------------------------
o Prepared an estimate of stabilized income and expense (for
capitalization purposes).
o Conducted market inquiries into recent sales of similar buildings to
ascertain sales price per square foot, effective gross income
multipliers and capitalization rates. This process involved telephone
interviews with sellers, buyers and/or participating brokers. (See
detailed sales write-ups in Addenda for more complete information on
the verification process.)
o Prepared Sales Comparison and Income Approaches to value.
DATE OF VALUE AND PROPERTY INSPECTION
The date of value is May 9, 1997, which is also the date of our last
inspection.
PROPERTY RIGHTS APPRAISED
We have appraised a leased fee estate.
DEFINITIONS OF VALUE, INTEREST APPRAISED, AND OTHER PERTINENT TERMS
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
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.
- - --------------------------------------------------------------------------------
-5-
<PAGE>
INTRODUCTION
- - --------------------------------------------------------------------------------
Based on our discussions with numerous real estate professionals, coupled
with the marketing times of the sales data presented herein, we conclude
that a marketing period of no more than twelve months would be required in
order to sell the property.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
FEE SIMPLE ESTATE
Absolute ownership unencumbered by any other interest or estate, subject to
the limitations imposed by the governmental powers of taxation, eminent
domain, police power, and escheat.
LEASED FEE ESTATE
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
MARKET RENT
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space
as of the date of appraisal.
CASH EQUIVALENT
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
MARKET VALUE AS IS ON APPRAISAL DATE
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
LEGAL DESCRIPTION
The legal description is lengthy and is in the Addenda.
- - --------------------------------------------------------------------------------
-6-
<PAGE>
[GRAPHICAL REPRESENTATION OF REGIONAL
MAP OF SUBJECT AREA]
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
CENTRAL PUGET SOUND AREA
The subject property is located in the City of Kirkland. The City of
Kirkland is in the northeast portion of the Central Puget Sound area of the
State of Washington. The Puget Sound region is the central financial and
distribution core for the Pacific Northwest, as well as the largest population
center. The major share of patrons for the subject property are to be drawn from
the Central Puget Sound area, and the economic health of the overall region will
have a direct impact on the subject property. (Refer to the facing Regional
Map.)
A PERSPECTIVE
The Central Puget Sound area consists of an approximately 100-mile long
strip of land, varying in width from 30 to 50 miles with the Puget Sound to the
west and the Cascade Mountain Range to the east. This area includes four PMSAs
and MSAs as designated by the U.S. Census Bureau. They are
Seattle-Bellevue-Everett, Tacoma, Olympia and Bremerton. The chart below
summarizes the counties and major cities in each PMSA/MSA. The
Seattle-Tacoma-Bremerton CMSA includes all four PMSA's.
================================================================================
PUGET SOUND PMSAS AND MSAS
- - --------------------------------------------------------------------------------
NAME COUNTIES MAJOR CITIES
================================================================================
Seattle/Bellevue/Everett King/Snohomish/Island Seattle, Bellevue, Everett
- - --------------------------------------------------------------------------------
Tacoma Pierce Tacoma
- - --------------------------------------------------------------------------------
Olympia Thurston Olympia, Lacey
- - --------------------------------------------------------------------------------
Bremerton Kitsap Bremerton
================================================================================
In the last five years, population growth has shifted away from the core
Seattle/Bellevue/Everett area into the formerly rural areas of Pierce, Thurston
and Kitsap counties. This shift was caused by restrictive land use policies
enacted in King County and to a lesser extent Snohomish County. These land use
policies required a gauntlet of environmental, land use, and fiscal impact
reviews. Meanwhile, the rural surrounding counties took a much more moderate
approach, making development more feasible. As a result, only a fair amount of
generally high-priced housing construction occurred in King and Snohomish
counties; and rapid construction of moderately priced housing occurred in rural
Pierce, Thurston and Kitsap counties. The population figures below bear out this
occurrence.
- - --------------------------------------------------------------------------------
-7-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==========================================================================================================================
POPULATION TRENDS
- - --------------------------------------------------------------------------------------------------------------------------
% change Proj.
1980 1985 1990 April 1, 1995 1990-1995 1999
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Seattle 492,846 491,100 516,259 532,900 3.2 N/A
- - --------------------------------------------------------------------------------------------------------------------------
King County 1,269,898 1,356,552 1,507,305 1,613,600 7.1 1,755,064
- - --------------------------------------------------------------------------------------------------------------------------
Seattle PMSA 1,651,666 1,787,307 2,033,128 2,208,100 8.6 2,399,124
- - --------------------------------------------------------------------------------------------------------------------------
Tacoma PMSA 485,667 529,753 586,203 660,200 12.6 681,692
- - --------------------------------------------------------------------------------------------------------------------------
Olympia MSA 124,264 139,738 161,238 189,200 17.3 197,135
- - --------------------------------------------------------------------------------------------------------------------------
Bremerton MSA 147,152 168,709 189,731 220,600 16.3 232,453
- - --------------------------------------------------------------------------------------------------------------------------
Seattle Region CMSA 2,408,749 2,625,507 2,970,300 3,278,100 10.4 3,510,404
- - --------------------------------------------------------------------------------------------------------------------------
Washington State 4,132,353 4,415,785 4,866,692 5,429,900 11.6 5,637,869
==========================================================================================================================
</TABLE>
Source: All census figures reported by the Washington State Office of Financial
Management. 1999 Projections by Urban Decision Systems
In absolute growth in numbers of people, the Seattle PMSA had the most new
residents from 1990 to 1995, with 174,972; Tacoma was second with 73,997; and
Bremerton was third with 30,869 additional people.
DEMOGRAPHICS
The Seattle region currently ranks as the 13th largest market in the U.S.
The region enjoys a diverse economic base, which transformed the area from a
"blue collar" orientation centered on manufacturing, natural resources, and the
military to a "white collar" technology and science orientation. Although the
list of major employers belies this trend, many of the Boeing jobs are in highly
technical engineering and computer service areas. In the Seattle PMSA, 65
percent of jobs are classified as "white collar." Likewise, the Olympia PMSA
contains 64 percent "white collar" jobs. The Tacoma PMSA and the Bremerton PMSA
possess only 56 percent in this category jobs. The state wide ratio is nearly
60/40 white collar to blue collar.
The area's average income per household in 1994 ranged from 38,105 to
$44,100. The areas income growth has lagged behind the national income growth
over the last three years due to Boeing layoffs, which negatively effected
Seattle's economy. However, an increase in income per household of 24 percent is
projected for each PMSA by 1999. The chart below summarizes the average
household income by PMSA/MSA since 1990 with projected income for 1999.
- - --------------------------------------------------------------------------------
-8-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
================================================================================
AVERAGE HOUSEHOLD INCOME BY PMSA/MSA
- - -------------------------------------------------------------------------------
1990-1999
1990 1994 1999 (proj.) % change
================================================================================
Seattle $44,144 $48,720 $55,225 25.1
- - --------------------------------------------------------------------------------
Tacoma 35,682 39,219 44,420 24.5
- - --------------------------------------------------------------------------------
Olympia 35,816 39,066 43,831 22.4
- - --------------------------------------------------------------------------------
Bremerton 37,890 41,706 43,260 24.7
- - --------------------------------------------------------------------------------
Washington State 38,105 41,897 47,408 24.4
================================================================================
Source: Urban Decision Systems, 1995
Because of the concentration of "white collar" jobs in Seattle and
Bellevue, the Seattle PMSA retains the highest average income. Tacoma and
Bremerton's average income is lower due to their heavy concentration of military
personnel and a large proportion of "blue collar" jobs. Olympia employs a
similar proportion of "white collar" jobs to Seattle, but many are in lower
paying clerical and administrative state jobs. Overall, however, the region
produces incomes above national averages and in the top ten of metropolitan
areas nationwide.
Despite relatively high housing prices, between 59.4 and 64.4 percent of
the households are owner-occupied dwellings. Statewide, 61.7 percent of homes
were owner-occupied in 1994. Household size is also fairly consistent across the
region ranging from 2.43 in Seattle to 2.63 in Bremerton.
TRANSPORTATION
The Central Puget Sound region is well-served by an excellent
transportation network which include freeways, railroads, buses, an
international airport, two deep water port facilities, and a widely used ferry
system.
o There are two major interstate freeways in the region: Interstate 5
which runs north to Vancouver, B.C. and south to San Diego, and
Interstate 90 which runs east to Boston. Amtrak and
Greyhound/Trailways provide daily service in and out of the area.
There are plans to improve and expand several major state highways
including State Route 18 from Auburn to North Bend, and State Route
522 from Woodinville to Monroe.
o Public transportation within the region is provided by an extensive
system of buses. The buses generally run at the county level, but
provide service across county lines to both Tacoma and Everett. The
Regional Transit Authority ("RTA") took a regional transportation plan
to the voters for the third time in November 1996. Voters approved the
amended plan, which will include both light rail and an expanded
busing system.
- - --------------------------------------------------------------------------------
-9-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
o The Seattle-Tacoma International Airport is served by 30 scheduled
commercial passenger airlines including 11 international carriers. In
1995, SeaTac served nearly 23 million passengers, a 2 million increase
from 1994. Air cargo continues to increase significantly as well. The
graphs following demonstrate the increase in both passenger and cargo
traffic.
- - -----------------------------------------
SEA TAC INTERNATIONAL [GRAPHICAL REPRESENTATION OF
PASSENGERS BAR CHART]
Domestic International
1989 13,710,455 1,530,803
1990 14,399,529 1,840,780
1991 14,759,181 1,554,108
1992 16,462,515 1,499,702
1993 17,393,111 1,407,413
1994 19,482,971 1,489,848
1995 21,123,132 1,667,788
- - -----------------------------------------
Source: Port of Seattle, Aviation
Marketing Dept.
- - -----------------------------------------
SEA TAC INTERNATIONAL [GRAPHICAL REPRESENTATION OF
CARGO IN (METRIC TONS) BAR CHART]
Domestic International
1989 173,998 52,241
1990 186,394 59,022
1991 208,810 59,411
1992 225,736 58,505
1993 256,280 51,046
1994 274,482 50,550
- - -----------------------------------------
- - --------------------------------------------------------------------------------
-10-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
o Seattle Harbor, a natural deep water harbor comprised of Elliott Bay,
the Duwamish Waterway, Lake Union, Lake Washington and the connecting
Lake Washington Ship Canal, is the nation's leading gateway to Asia
and Alaska and is among the three busiest container ports in the
United States. In 1994, the Port of Seattle increased its TEU (20-foot
equivalent units) holdings to over 1.3 million; an increase of 250
thousand from 1993. The Port of Seattle is presently coordinating two
major expansions. The expansion of Terminal 5 for it's major tenant,
American President Lines, is currently underway, encompassing
approximately 300 acres and budgeted at approximately $300 million. In
mid 1995, the Port began coordinating a second major expansion-this
for Costco on Terminal 19. At present, approximately 60 properties are
being acquired, with the expansion expected to be complete by late
1999 or early 2000. Combined, the Port of Seattle and the Port of
Tacoma are second in container volume on the West Coast only to Los
Angeles. These expansions should enhance their already strong market
position in coming years.
EMPLOYMENT
o The Seattle CMSA historically has depended upon lumber and aircraft
for its economic base. Over the last five years, however, the State of
Washington and the Central Puget Sound area have experienced economic
diversification from increased international trade, tourism, and an
influx of high-technology.
o The chart below displays that services make up the largest sector of
regional employment at 28 percent. Wholesale/retail trade makes up 24
percent, Government employment makes up 16 percent and manufacturing
is the fourth largest sector at 15 percent. Manufacturing is third in
the Seattle PMSA, reflecting the relatively high concentration of
Boeing employment in the Seattle area.
- - --------------------------------------------------------------------------------
-11-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
- - ---------------------------------------------------------
PUGET SOUND AREA EMPLOYMENT
KING, SNOHOMISH, ISLAND & PIERCE COUNTIES
November 1995 (Revised) K,S&I Pierce Total
Manufacturing 184,800 23,500 208,300
Construction 65,300 12,800 78,100
Transportation 72,700 10,100 82,800
Wholesale & Retail Trade 290,500 56,700 347,200
F.I.R.E. 74,200 12,500 86,700
Services 332,100 61,500 393,600
Government 177,000 46,600 223,600
- - ---------------------------------------------------------
- - ---------------------------------------------------------
[PIE CHART]
Government 16%
Manufacturing 15%
Construction 5%
Transportation 6%
Wholesale & Retail Trade 24%
F.I.R.E. 6%
Services 28%
- - ---------------------------------------------------------
o The Puget Sound Economic Forecaster published by Conway Pederson
Economics, Inc. projects employment growth of 2.3 percent in 1995 and
2.9 percent in 1996. The largest growth areas are expected to be
wholesale/retail trade and services. Manufacturing and government are
projected to show small gains. Such a projection is supported by the
fact that from 1991 to 1995 the service sector increased employment by
53,000, or 19 percent across the Puget Sound Region. Likewise, the
wholesale/retail sector increased employment by 22,400 or 8 percent.
o The Olympia and Bremerton SMSA's are heavily concentrated with
government jobs with Olympia as state capital and Bremerton the home
of the U.S. Naval Shipyard. These areas are particularly vulnerable to
cuts in government spending at state and federal levels. At best, the
number of government jobs will not grow at the rate enjoyed in the
past. Nonetheless, the government (federal, state, county and city)
along with Boeing remain the dominant employers in the Puget Sound
Region; as demonstrated by the following chart:
- - --------------------------------------------------------------------------------
-12-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
================================================================================
TOP 15 EMPLOYERS OF THE PUGET SOUND REGION (1995)
- - --------------------------------------------------------------------------------
Company Employees
================================================================================
The Boeing Company 83,300
U.S. Department of Defense 75,350
U.S. Army - Fort Lewis 21,800
Puget Sound Naval Shipyard and Submarine Base (Bremerton) 21,570
Washington State Government (Olympia) 21,350
University of Washington 16,700
U.S. Postal Service (King County) 10,500
City of Seattle 10,000
Microsoft 10,000
Group Health Cooperative 9,135
Nordstrom 7,875
King County Government 7,342
Seafirst Bank 7,276
U.S. Air Force - McChord Base 7,172
U.S. West Communications 6,440
================================================================================
o Manufacturing suffered a 27 percent net loss of employment from 1991
to 1995, equaling 60,300 jobs. Much of the loss was attributed to the
elimination of 37,000 jobs by Boeing. This had a drastic effect on the
area's employment, because each Boeing job was estimated to support
2.8 other jobs in the area. However, Boeing has already re-hired
13,100 new and laid off workers for newly created jobs so far in 1996.
OUTLOOK
During the early 90's, the area's employment growth slowed due to Boeing
layoffs, however, total Puget Sound area employment grew by 0.8 percent in 1993
and 1.4 percent in 1994. This increase was caused by steady growth in services,
wholesale/retail and relatively small high-tech and bio-technology firms like
Microsoft. An additional 13,300 new Boeing jobs should further bolster the
area's employment growth during 1996. Please reference unemployment statistics
below.
================================================================================
UNEMPLOYMENT TRENDS
- - --------------------------------------------------------------------------------
November November
1995 1996
================================================================================
Seattle-Bellevue-Everett PMSA 5.2% 4.1%
- - --------------------------------------------------------------------------------
Tacoma PMSA 6.1% 5.4%
- - --------------------------------------------------------------------------------
Washington State 6.5% 5.8%
- - --------------------------------------------------------------------------------
United States 5.3% 5.0%
================================================================================
- - --------------------------------------------------------------------------------
-13-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
BOEING
Boeing, the area's largest employer, employs 52 percent of all
manufacturing workers in the Seattle PMSA. An analysis of the regional economy
is not complete without an examination of the competitive position of The Boeing
Company.
POSITIVE FACTORS FOR BOEING'S ECONOMIC FUTURE
o Commercial airplanes and related services accounted for 77 percent of
Boeing's 1994 revenues.1 Boeing is the market leader in this industry,
with a current market share of 69.7 percent. Boeing's competitors
include McDonnell Douglas, with a 9.9 percent share, and Airbus, with
a 14.8 percent share. All other 70-plus-seat jet aircraft
manufacturers accounted for 5.6 percent. Boeing is expected to
increased its market share over the next decade.2
o An upswing in ordering, delivery, and thus employment is projected for
1997. Orders for 1996 were 717 planes, with deliveries of 218
aircraft. The following graph shows projections of continuing
increases through 1998. Production goals for 1997 are 40 planes per
month by year end, up from 22.5 at January 1997, with projected of $33
billion, up from $22.7 billion for 1996. This will significantly
exceed 1994 revenues of $16.8 billion. Airplane production for
domestic carriers accounted for 60 percent of deliveries in 1995;
however, future growth is expected from international carriers. In
fact, of the 261 planes ordered in 1995, nine were for domestic
customers.
o A record year for Boeing's commercial aircraft business, combined with
major victories in defense contracting competitions, has left Boeing
scrambling for adequate personnel and facilities. McDonnell Douglas
has suffered setbacks in both sectors. On December 15, 1996 Boeing and
McDonnell Douglas announced a merger. Assuming approval by
shareholders and government regulators, Boeing should gain significant
strength in all aerospace markets, especially given its recent
purchase of Rockwell.
- - ----------
1 The Boeing Company, 1994 Annual Report.
2 "Boeing plans bigger 747 to crowd rival jumbos," Steve Wilhelm, Puget Sound
Business Journal, December 25, 1995.
- - --------------------------------------------------------------------------------
-14-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
BOEING'S PROJECTED AIRPLANE PRODUCTION
================================================================================
1992 1993 1994 1995 1996 1997
- - --------------------------------------------------------------------------------
Airplanes Ordered 207 247 120 261 717 380
Airplanes Delivered 446 330 270 205 218 340
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
[GRAPHICAL REPRESENTATION OF BAR CHART]
- - --------------------------------------------------------------------------------
Sources: 1992-1995: The Boeing Co., 1996-1998; analysts' estimates.
As of 12/22/95.
o Chief rival Airbus suffered a setback by a new World Trade
Organization rule prohibiting them from turning to government backers
for more than 30 percent of the capital required to develop new
models. Without this infusion Airbus will have to line up outside
partners to fund a new jumbo jet.
o Airbus, made a strategic decision to design and market the smaller 330
and 340 models. At present, these designs are not meeting with strong
demand. The primary strategic advantages held by Airbus are its
smaller backlog and thus shorter delivery time-frame, both factors
which continue to win Airbus contacts.
o Quiet engine requirements, coupled with aging fleets, will continue to
propel domestic orders. It is estimated that 2,250 planes are still
flying at stage II engine noise output levels, while stage III is
required by the year 2000. Assuming that 30 percent of these planes
are retrofitted with quieting devices, 1,600, or 400 per year, will
still need to be replaced. A good percentage of these orders should go
to Boeing.
o Both the new 777 and the redesigned 737 have been popular with
customers. Current demand is for larger planes, with an interior
design providing an efficient seating plan. Both the 777 and
redesigned 737 are consistent with these market requirements. Boeing
recently canceled the planned 747-600X, a stretch version of the
420-seat 747-400. Boeing felt larger capacity was not as important as
longer range.
o The establishment of a Boeing office in Bombay, India. India's economy
is rapidly growing and, as a result, the number of airlines have grown
from 2 to 17. Five of those domestic airlines use 26 Boeing 737's.
Over the past three years, the rate of travel growth within India has
exceeded 12 percent and
- - --------------------------------------------------------------------------------
-15-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
Boeing forecasts that India will need $18 billion of new aircraft over
the next 20 years to meet demand. Boeing is well-positioned within the
Indian airline market to supply these needs.
o Boeing estimates that 2,000 airplanes will be at least 25 years old by
1995. These planes will have to be replaced because of increasing
maintenance and fuel costs and more stringent noise regulations.
CHALLENGES FOR BOEING:
o Uphold its industrial leadership by doing the best job of meeting
customer needs. To satisfy its customers in additional benefits in
terms of what it calls "one-stop shopping" for customer support--in
providing spares, training and field services representatives.
o To satisfy its customers needs in an increasing complex global market,
by responding with products and services that deliver superior value.
o To ensure customers remain enthusiastic about Boeing's airplanes and
support.
CONCLUSION
Korea, Japan, Taiwan and China all have developing aerospace industries.
Foreign sales account for 60 percent of Boeing's production and is likely to
increase as a result of Boeing's strong presence in China and India. In order to
preserve its access to foreign markets, Boeing is likely to subcontract
increasingly to foreign suppliers. In the past, this has led to a drop in
employment in the Seattle area. However, with the increased demand for Boeing's
new planes (the 777 and 737-700), the Seattle area is expected to experience a
substantial growth in Boeing jobs.
INTERNATIONAL TRADE
Because of its proximity to both the Pacific Rim and the European economic
community, the region is expected to experience continued economic growth
through international trade. The dramatic economic development and trade
expansion of Pacific Rim countries has had a significant impact on the Puget
Sound region which supports two world-class ports, the Port of Seattle and the
Port of Tacoma. The economic growth of Japan and its Pacific Rim neighbors has
contributed heavily to increased trade, and trans-Pacific trade with the U.S.
surpassing trans-Atlantic trade for the first time in 1985. As a result of
increase total volume and shorter shipping time between Asia and the Northwest,
Puget Sound ports have been able to increase their share of total U.S. trade
considerably.
Through its deep water ports, Puget Sound makes a major economic
contribution to all four counties in the central Puget Sound region. The Port of
Seattle in King County dominates the Northwest ports, currently leading the
nation in container exporting. The Port of Seattle not only employs 1,200
people, it generates an additional 83,000 related jobs in King County and over
118,500 jobs state-wide.
- - --------------------------------------------------------------------------------
-16-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
Pierce County's Port of Tacoma is growing rapidly, due in part to the
attraction of four major shipping lines, Sealand, Maersk, Evergreen and K-line.
However, the growth of both the Port of Tacoma and the Port of Seattle is most
directly linked to the increase in Pacific Rim trade and the proximity of the
ports to Asian markets.
As a result, Washington currently has the highest per capita reliance on
foreign trade of any state in the nation. A total of 350,000 jobs (one in five),
are related to foreign trade, with 210,000 directly related to Asian trade. Many
U.S. manufacturers who use foreign imports are in the Puget Sound area, and over
20,000 jobs attributable to foreign-owned companies. As the number of
foreign-owned companies is increasing, direct foreign investment in Washington
will soon reach $980 million.
The economies of Snohomish and Kitsap County also are inextricably linked
to the Puget Sound. Kitsap County's economy is directly dependent on the Puget
Sound Naval Shipyard in Bremerton, which is a service and repair facility for
major naval vessels. Snohomish County employment has benefited from the recently
completed Navy Home Port Project in Everett. The Home Port is used for the
atomic-powered aircraft carrier USS Nimitz, along with 11 support vessels,
including battleships, cruisers and supply ships.
HIGH-TECH INDUSTRIES
Emerging high-tech companies have played an increasing role in economic
growth in the region. High-tech companies headquartered or with major presence
in the Seattle area include AT&T Wireless (formerly McCaw Cellular), Microsoft,
Aldus, Nintendo, John Fluke Manufacturing (test equipment), Physio Control
(medical equipment), Honeywell and Sundstrand. About 800 advanced-technology
companies employ about 75,000 workers in the Seattle-Tacoma area. These
companies have high visibility and high revenue per employee, producing economic
benefits greater than direct employment. These companies are concentrated in the
Everett to Redmond corridor along Interstate 405.
In the fall of 1995, Washington State officials and industry
representatives successfully completed negotiations with one of the newest
high-tech entrants, Intel. This developer and manufacturer of computer
processors will locate in Dupont, between Olympia and Tacoma, and will employ
approximately 6,000 workers. The attraction of Intel is significant for future
high-tech entrants, as Washington State was willing to provide more competitive
incentives in the form of various subsidiaries then was rival Oregon.
With fiscal year 1995 revenues nearly $6 billion, Microsoft has ascended
into position as a high-tech leader regionally, nationally and internationally.
Microsoft has grown from a small concern to the world's largest producer of
software for personal computers. Microsoft continues to grow with successful,
innovative operating systems and applications software. It is easy to
overestimate the impact of this sector due to its high visibility and high
output per worker, but the "computer and data processing" subcategory (part of
business services) accounts for only 18,000 jobs in the PMSA, or 1.54 percent of
total jobs in the Seattle PMSA.
- - --------------------------------------------------------------------------------
-17-
<PAGE>
REGIONAL ANALYSIS
- - --------------------------------------------------------------------------------
BIOTECHNOLOGY
Washington's growth in biotechnology continues. A 1995 survey by Washington
Biotechnology Foundation estimates current employment at 9,500, with 1,000 new
jobs expected by 1999. These are high-education, high-pay jobs with an average
salary of $43,000. Job growth over the next decade is projected at 7 percent
annually. This small but high-growth sector should continue to provide spin-off
benefits for the region.
CONCLUSION
Seattle is both the trade and financial capital of the Pacific Northwest
and enjoys a high quality of life. The region has succeeded in sustaining
continued population growth, providing a high level of government and social
services, and diversifying its economy with the introduction of new
industries-particularly high-technology. Technology-based companies including
Microsoft, Advanced Technology Labs, Space Labs Medical, Nintendo and Intel
should continue to bolster the local economy in 1996 and beyond.
- - --------------------------------------------------------------------------------
-18-
<PAGE>
[GRAPHICAL REPRESENTATION OF
NEIGHBORHOOD MAP OF SUBJECT AREA]
<PAGE>
NEIGHBORHOOD ANALYSIS
- - --------------------------------------------------------------------------------
GENERAL
Location: Totem Lake, Kirkland, Washington
Character: The area is improved with a variety of industrial,
commercial, and residential properties. The commercial
properties are oriented along N.E. 124th Street.
Boundaries
North: N.E. 132nd Street
East: Sammamish River
South: N.E. Redmond Drive
West: Interstate Highway 405
LAND USES
Primary Land Uses: Single and multi-tenant, high technology office
service/business parks and retail.
Secondary Land Uses: Single and multi-family residential and retail
Adjacent Land Uses
North: Industrial building
East: Interface Industries (industrial)
South: State Motor Vehicle Emissions Inspection facility and
a car wash
West: Totem Lake Commerce Center (high-cube warehouse
building)
Nuisances: None noted
ACCESS
Freeways: The main access to Interstate 405 is via N.E. 124th
Street.
North/South Arterials: The main north/south arterials are 124th Avenue N.E.
and 120th Avenue N.E.
East/West Arterials: The main east/west arterials are 124th Avenue N.E. and
132nd Avenue N.E.
Other Transportation:
Airlines: Seatac International Airport, 20 miles southwest
Rail:
Passenger: Twelve miles southwest
Commercial: Five blocks south
Other: Kirkland has an efficient surface bus transportation
system.
- - --------------------------------------------------------------------------------
-19-
<PAGE>
NEIGHBORHOOD ANALYSIS
- - --------------------------------------------------------------------------------
DEVELOPMENT CHARACTERISTICS
Age of Improvements: Late 1950s to 1990s for newer commercial
development.
Stage of Life Cycle: Stable to improving with vacant sites still
available for development.
Percent of Land Development: Approximately 85 percent.
Comments:
In summary, the subject neighborhood has access to the major traffic
arteries connecting the Totem Lake area of Kirkland to the Seattle MSA. Land
uses in the neighborhood are diverse but consist primarily of light industrial,
office services/business park, high technology, office space and residential.
External obsolescence, nuisances, hazards, including toxic wastes, or other
adverse influences were not observed. The labor supply is adequate, drawing not
only from adjoining communities but from the entire greater Seattle area. The
real estate in this area is in the young to mature stage of its life cycle with
an adequate infrastructure in place to serve the needs of the community.
- - --------------------------------------------------------------------------------
-20-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- - --------------------------------------------------------------------------------
PROJECT DEFINITION
The subject property is defined by the Cushman & Wakefield Research
Services Group as an Office/Service Center and Warehouse/Distribution project.
The subject is further identified as being in the Kirkland sub-market of the
Eastside industrial market.
MARKET OVERVIEW
As of the first quarter of 1997, the Eastside market had a speculative
inventory of industrial space totaling 25,675,928 square feet. This total
inventory is broken out as follows:
==========================================================================
PRODUCT TYPE Square Feet Percent
==========================================================================
Manufacturing 3,443,577 13.4
Warehouse/Distribution 8,160,407 31.8
High-Tech 6,788,279 26.4
Office/Service Center 7,283,665 28.4
----------- ------
TOTAL 25,675,928 100.0
==========================================================================
Of the eight sub-markets which comprise the Eastside market, Kirkland is
the fifth largest, with 2,453,598 square feet of industrial space, or 9.6
percent of the total. Product in the Kirkland sub-market is broken out as
follows:
===============================================================================
PRODUCT TYPE Square Feet Percent
===============================================================================
Manufacturing 647,297 26.4
Warehouse/Distribution 716,541 29.2
High Tech 128,170 5.2
Office/Service Center 961,590 39.2
---------- ------
TOTAL 2,453,598 100.0
===============================================================================
During the first quarter of 1997, the vacancy rate for the Eastside
industrial market increased 0.5 percentage points from the previous quarter to
6.6 percent. This represents total availabilities of 1,705,771 square feet.
Absorption for the quarter was a negative 141,822 square feet. This equates to
an annualized net absorption of approximately 810,000 square feet. This pace is
well ahead of the 637,529 square feet absorbed in 1992, the 713,428 square feet
absorbed in 1993 and the 99,053 square feet absorbed in 1994.
- - --------------------------------------------------------------------------------
-21-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- - --------------------------------------------------------------------------------
Of the eight sub-markets, four exhibited negative absorption in the first
quarter (Bellevue -98,595 SF; -19,296 SF; Redmond (Willows) -97,738 SF; and
Kirkland -54,579 SF. The market was supported by the 73,823 square feet absorbed
in the Woodinville sub-market and 41,515 square feet in the Bothell sub-market.
Of the four product groups, High Tech and Office/Service Center exhibited
negative absorption for the quarter.
VACANCY
The overall vacancy rate for Eastside industrial product as of the first
quarter of 1997 was 6.6 percent. This increase in the vacancy rate was partially
the result of several owner/user buildings which became available during the
quarter. The overall vacancy rate for the Kirkland sub-market was slightly
higher than the overall market at 8.9 percent. The first quarter 1997 vacancy
rates by product category for the Eastside market and the Kirkland sub-market
are shown below:
================================================================================
Eastside Kirkland
Vacancy Vacancy
PRODUCT TYPE Rate Rate
================================================================================
Manufacturing 4.9% 1.5%
Warehouse/Distribution 8.6% 12.2%
High Tech 5.0% 54.3%
Office/Service Center 6.8% 5.5%
TOTAL 6.6% 8.9%
================================================================================
The Kirkland sub-market had the second highest overall vacancy rate after
the Woodinville sub-market at 11.7 percent. All other submarkets had single
digit vacancy rates. The lower vacancy rates in the other markets reflect lower
vacancy rates in the largest product segment or warehouse/distribution space.
SUPPLY AND DEMAND OUTLOOK
Speculative development on the Eastside has been inhibited by the lack
of available land and the long delays in permit processing, plan approval and
the high mitigation fees required by the county and local municipalities.
The Eastside is continuing to see new construction in the market. At the
end of 1996, there were 15 projects with a combined building area of 1.8 million
square feet planned for the Eastside market. Most of these projects are located
in either Redmond (East) or Woodinville. There are currently eight projects
totaling 928,902 square feet that are under construction. This space is evenly
split between warehouse/distribution and high tech. None of the projects under
construction or proposed are slated for the Kirkland sub-market.
- - --------------------------------------------------------------------------------
-22-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- - --------------------------------------------------------------------------------
SUBJECT'S PRIMARY COMPETITION AND POSITION WITHIN THE KIRKLAND AREA
As will be outlined in the Income Capitalization Approach section of this
report, there are approximately five business parks within a one-and-a-half mile
radius that compete with the subject. These five parks have an average occupancy
level of 93 percent and an average age of 13 years versus the subject's
occupancy level of 99 percent and effective age of twelve years. Tenants that
are prevalent in these business parks include engineering firms, laboratories,
and computer companies. These firms are attracted to the area due to the
presence of such firms a Microsoft, Boeing, etc. Many of these firms that are
located in the area business parks are start-up companies.
CONCLUSION
The subject is in a unique market position. It is one of the few close-in
industrial spaces in the Kirkland sub-market with good access to Interstate 405.
The property has been adequately maintained and is in average condition given
the age of the improvements. The demand for industrial property in this area has
consistently been strong.
- - --------------------------------------------------------------------------------
-23-
<PAGE>
PROPERTY DESCRIPTION
- - --------------------------------------------------------------------------------
SITE DESCRIPTION
Location: The subject site is at the southwest corner of 128th
Lane N.E. and N.E. 126th Place. The street address is
12800 N.E. 126th Place, Kirkland, King County,
Washington.
Shape: Irregular, with good width and depth for development
Land Area: Metro Scan Real Estate Services indicates total land
area is 356,588 square feet, or 8.19 acres. This does
not include the additional lots owned by Prudential
Bache Securities/Equitec. Nor does it include any of
the property under Totem Valley East.
Frontage: The site has approximately 650 feet of frontage on
N.E. 125th Place, along the north property line, and
300 feet along 128th Lane N.E.
Topography/Terrain: The site slopes gently from north to south.
Street Improvements: N.E. 125th Place is improved with asphalt surfacing,
curbs and gutters and pedestrian cutaways. 128th Lane
N.E. is improved with asphalt surfacing and curbs
along the east (subject) side.
Soil Conditions: We did not receive nor review a soil report. However,
we assume that the soil's load-bearing capacity is
sufficient to support the existing structures. We did
not observe any evidence to the contrary during our
physical inspection of the property. The tract's
drainage appears to be adequate.
Utilities
Water: City of Kirkland
Sewer: City of Kirkland
Electricity: Puget Sound Power & Light Company
Gas: Washington Natural Gas
Telephone: U.S. West Communications
Access: Access to the site is via two curb cuts from N.E.
125th Place and a single drive from 128th Lane N.E.
128th Lane N.E. is a private drive and provides
parking directly from the drive.
- - --------------------------------------------------------------------------------
-24-
<PAGE>
PROPERTY DESCRIPTION
- - --------------------------------------------------------------------------------
Land Use Restrictions: We were not given a title report to review. We do not
know of any easements, encroachments, or restrictions
that would adversely affect the site's use. However,
we recommend a title search to determine whether any
adverse conditions exist.
Flood Hazard: The site is in Flood Zone X, areas determined to be
outside the 500-year flood plain, as designated on the
Flood Insurance Rate Map dated September 29, 1989. The
Community Panel Number is 530081-0337.
Wetlands: We were not given a Wetlands survey. If subsequent
engineering data reveal the presence of regulated
wetlands, it could materially affect property value.
We recommend a wetlands survey by a competent
engineering firm.
Seismic Hazard: The site is in Earthquake Zone 3, area of moderate
damage, as designated on the I.S.O. Earthquake Zone
Map, dated 1981.
Site Improvements: Please refer to the following Improvements Description
section for a discussion of the site improvements.
Hazardous Substances: We observed no evidence of toxic or hazardous
substances during our inspection of the site. However,
we are not trained to perform technical environmental
inspections and recommend the services of a
professional engineer for this purpose.
Comments: The site has adequate frontage and accessibility from
both N.E. 125th Place and 128th Lane N.E. Primary
access is via two curb cuts on N.E. 125th Place and a
single drive along 128th Lane N.E. The site has
adequate depth and width to accommodate a variety
commercial and industrial uses.
IMPROVEMENTS DESCRIPTION
The subject site is improved with seven office services/business park
buildings totaling 105,115 square feet. Each building has been finished
according to the needs of the tenant. Currently, the office build-out equates to
53,381 square feet, or 50.8 percent of the building area.
Site improvements include open asphalt paved parking spaces in good to fair
condition, asphalt surfaced truck loading areas along the interior of the
buildings and professional landscaping. The site improvements are in good to
excellent condition and are well maintained.
- - --------------------------------------------------------------------------------
-25-
<PAGE>
PROPERTY DESCRIPTION
- - --------------------------------------------------------------------------------
We were not provided with either plans or specifications. Therefore, the
details in this section are based on a physical inspection of the property on
May 9, 1997.
General Description
Year Built: Three of the buildings were built in
1983 and the remaining four in 1985
Building Area: 105,115 square feet
Construction Detail:
Foundation: 5" Reinforced concrete slab on
spread footings
Structural Framing: Painted tilt-up concrete panels.
Exterior Walls: Painted tilt-up concrete panels
toward the rear (interior) of each
building. The exterior walls, facing
the parking areas are finished with
a rough-hewn wood sheathing.
Floors: Reinforced concrete slab.
Roof Structure: Flat roof on 1/2" OSB on panelized
roof system supported by glu-lam
beams, wood joist, purlin and wood
posts. The front of the building has
a mock mansard roof system.
Roof Cover: Built-up flat roof.
Windows: 4-1/2" aluminum storefront with
double pane insulated glass.
Pedestrian Doors: Glass entry doors with required
hardware. Interior doors are solid
core, birch veneer in a metal frame
with appropriate hardware. Several
3'x7,' 18 gauge metal exit doors are
at the interior of the buildings,
next to the metal roll-up,
grade-level doors.
Loading Doors: Grade-level loading bays have
10'x10' metal roll-up doors.
Mechanical Detail
Heating and Cooling: Roof mounted HVAC systems with
individually controlled thermostats.
Plumbing: The service is assumed to meet city
code.
Electrical Service: The service is assumed to meet city
code.
Elevator Service: None
- - --------------------------------------------------------------------------------
-26-
<PAGE>
PROPERTY DESCRIPTION
- - --------------------------------------------------------------------------------
Fire Protection: The buildings are not equipped with
a sprinkler system. The owners are
currently in the process of
installing a fire monitor system.
Interior Detail
Layout: The layout of the building
improvements appears functional. The
buildings are well laid-out and can
adequately serve both single and
multi-tenant occupants.
Floor Covering: Carpet and vinyl tile in the office
areas and exposed concrete in the
warehouse areas.
Walls: Painted wallboard sheathing over
metal studs in the office area only.
Ceilings: Suspended 2'x4' T-bar grid system at
9' above finish floor in the office
area. Several of the suites have
vaulted ceilings. The warehouse
areas have exposed roof support
system.
Lighting: Ceiling recessed fluorescent
fixtures are located in the office
areas. The warehouse areas have
suspended fluorescent lighting.
Restrooms: As specified by building code.
Site Improvements
On-Site Parking: Approximately 439 open asphalt paved
parking spaces in good condition.
Additional parking is available
along the interior of the buildings.
Landscaping: Professional landscaping complements
the design of the buildings,
including the waterfall and stream.
Condition: Good
Americans With Disabilities Act: The Americans With Disabilities Act
(ADA) became effective January 26,
1992. We have not made, nor are we
qualified by training to make, a
specific compliance survey and
analysis of this property to
determine whether or not it is in
conformity with the various detailed
requirements of the ADA. It is
possible that a compliance survey
and a detailed analysis of the
requirements of the ADA could reveal
that the property is not in
compliance with one or more of the
requirements of the Act. If so, this
fact could have a negative effect
upon the value of the property.
- - --------------------------------------------------------------------------------
-27-
<PAGE>
PROPERTY DESCRIPTION
- - --------------------------------------------------------------------------------
Since we have not been provided with
the results of a survey, we did not
consider possible non-compliance
with the requirements of ADA in
estimating the value of the
property.
Hazardous Substances: We are not aware of any potentially
hazardous materials (such as
formaldehyde foam insulation,
asbestos insulation, radon gas
emitting materials, or other
potentially hazardous materials)
which may have been used in the
construction of the improvements.
However, we are not qualified to
detect such materials and urge the
client to employ an expert in the
field to determine if such hazardous
materials are thought to exist.
Comment: The quality of construction is
average. Both the site improvements
and buildings are in good condition.
The building layout is functional
and appears to serve the needs of
both the multi and single-tenant
users. Several sites within the
complex were sold as condominium
units shortly after completion of
the subject. Our physical
description and valuation analysis
does not consider these units,
although they do share in common
area maintenance charges with rental
tenants.
The Marshall Valuation Service, a
nationally recognized cost manual,
lists normal life expectancies of
buildings similar to the subject at
45 years. The improvements are
between 12 and 14 years old and
suffer some incurable physical
deterioration. Functional
obsolescence was not observed.
This improvement description is
intended to relate to the reader the
overall quality and quantity of the
subject development. The valuation
section which follows is based upon
the improvement description as set
forth above.
- - --------------------------------------------------------------------------------
-28-
<PAGE>
REAL PROPERTY TAXES AND ASSESSMENTS
- - --------------------------------------------------------------------------------
The building is subject to the taxing jurisdiction of the City of Kirkland
and King County. Under Washington State law, real estate is to be assessed at
100 percent of the fair market value. King County re-values all real estate
every year unless a change in status, such as new construction, a merger or a
change in the legal description warrants a reassessment prior to the scheduled
revaluation. Properties are physically reappraised every six years. The subject
will next be appraised in 1997- 98. The assessors' parcel identification number
is 034870-0020, -0030, 034871-0020 and 866335-0010, -0020, -0040, -0070 and
- - -0080.
The 1996-97 tax year is the most recent year for which assessed valuation
and property tax information is available. The 1996-97 assessed values of the
subject are shown below.
================================================================================
PARCEL NO. Land Improvements Total Taxes
- - --------------------------------------------------------------------------------
034870-0020 $ 92,000 $ 71,200 $ 163,200 $ 2,177.95
034870-0030 56,700 43,800 100,500 1,341.20
034871-0020 113,000 251,900 364,900 4,869.70
866335-0010 502,400 581,900 1,084,300 14,471.56
866335-0020 388,300 511,900 900,200 12,014.69
866335-0040 425,600 541,500 967,100 12,907.49
866335-0070 549,100 700,700 1,249,800 16,680.20
866335-0080 378,400 673,200 1,051,600 14,035.17
--------- ---------- ---------- -----------
Total $2,505,500 $3,376,100 $5,881,600 $78,497.96
================================================================================
The effective 1996-97 tax rate applicable to the subject is $13.3464 per
$1,000 of assessed valuation and the total 1996-97 property taxes are
$78,497.96. There were no delinquent taxes due on the property during our
investigation. The current tax rate is noted as being typical for the area.
Based on discussions with the King County Assessor's office and our
knowledge of the market, assessed values of properties have increased anywhere
from 0 to 8 percent over the last five years. In our analysis, we are projecting
that the subject will witness an average 3.5 percent increase per year.
Market value presumes a sale as of the effective date of the appraisal. The
Assessor would revalue the property using market data every year. The presumed
subject sale would be a very good indicator of market value. Based on this
presumption, in our discounted cash flow, we modeled the taxes as follows for
the subject.
- - --------------------------------------------------------------------------------
-29-
<PAGE>
REAL PROPERTY TAXES AND ASSESSMENTS
- - --------------------------------------------------------------------------------
================================================================================
FISCAL YEAR Tax Rate Estimate Value Taxes
================================================================================
1996-97 $13.3464 $5,881,6001 $78,4971
1997-98 $13.3464 $7,200,0002 $96,0942
================================================================================
1 Actual Assessed Value and Taxes
2 Based on our concluded value
After 1997-98, the taxes are increased at 3.5 percent per year.
- - --------------------------------------------------------------------------------
-30-
<PAGE>
ZONING
- - --------------------------------------------------------------------------------
The subject site is zoned LI, Light Industry District by the City of
Kirkland. This zone is intended for office services/business park, industrial,
retail and other related uses as specified by the ordinance. Zoning regulations
applicable to the subject are as follows:
Minimum Lot Area: None required
Minimum Lot Width: None required
Maximum Lot Depth: None required
Maximum Lot Coverage: 92 percent
Maximum Building Height: Thirty feet above average building elevation
Required Yards:
Front: 30 feet and must be increased one foot for each
foot that any portion of the structure exceeds
30 feet above average building elevation.
Landscaping: Required on street frontages and in the parking
areas.
Parking: One per each 1,000 square feet of gross floor
area.
The subject had been zoned L1 but was changed to LI with a Planned Unit
Development (PUD) upon annexation into Kirkland. According to Department of
Community Development file number SP-81-143, the subject improvements were
approved July 5, 1985.
We know of no deed restrictions, private or public, that further limit the
subject property's use. The research required to determine whether or not such
restrictions exist, however, is beyond the scope of this appraisal assignment.
Deed restrictions are a legal matter and only a title examination by an attorney
or title company can usually uncover such restrictive covenants. Thus, we
recommend a title search to determine if any such restrictions do exist.
- - --------------------------------------------------------------------------------
-31-
<PAGE>
HIGHEST AND BEST USE
- - --------------------------------------------------------------------------------
HIGHEST AND BEST USE OF SITE, AS THOUGH VACANT
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of The Appraisal Institute, the highest and best use of the site
as though vacant may be defined as:
Among all reasonable, alternative uses, the use that yields the highest
present land value, after payments are made for labor, capital, and
coordination. The use of a property based on the assumption that the parcel
of land is vacant or can be made vacant by demolishing any improvements. In
evaluating the site's highest and best use, as though vacant, the use must
be (1) legally permissible, (2) physically possible, (3) financially
feasible, and (4) maximally productive.
The first test concerns permitted uses. The subject property is zoned LI,
Light Industry District by the City of Kirkland. According to our understanding
of the zoning ordinance, noted earlier in this report, the site may include a
variety of industrial developments consisting of manufacturing, processing,
assembling, distribution and warehousing, personal services and business
services. Commercial service uses are limited in the zone. It does not appear
likely the LI and L1-PUD zoning could be changed to a more intensive commercial
or heavier industrial designation.
The second test is what is physically possible. As discussed in the
Property Description, there are no apparent physical factors such as topography,
ingress and egress, soil conditions, flooding or other adverse conditions.
Further, an 8.19 acre site is large enough to accommodate most light industrial
uses. Utility services are available to the site and are considered to service
the subject adequately. The site is typical with no observable characteristics
that would limit the development potential for light industrial uses.
The third and fourth tests are, respectively, what is feasible and what
will produce the highest net return. Since the subject property is located
within a light-industrial/office oriented area, we considered a
light-industrial/office property to be the most likely use of the subject, as if
vacant. As outlined in the Market Analysis section of this report, economic
conditions in the subject neighborhood, as well as the competing market area are
stable. Based on lack of land in the subject market, and the relatively low
vacancy rate, it is thought that the highest and best use of the subject, as if
vacant, would be for the development of a light-industrial/office.
HIGHEST AND BEST USE OF PROPERTY, AS IMPROVED
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one.
- - --------------------------------------------------------------------------------
-32-
<PAGE>
HIGHEST AND BEST USE
- - --------------------------------------------------------------------------------
As noted in the Property Analysis section of this report, the subject site
is improved with a 105,115 square foot service business park that was built from
1983 to 1985. The improvements are in average condition and suffer from a small
amount of deferred maintenance. The property is multi-tenant and has
historically been occupied by individual users.
The land-to-building ratio for the subject property is 3.39:1, which is
similar to other service/business parks in the area. Based upon the condition of
the local market and the age of the surrounding improvements, redevelopment of
the site is not likely.
When capitalizing this income stream into an estimate of value, it results
in a total that exceeds the value of the sites as assessed. As a result, the
current use is considered economically feasible. There is not any remodeling or
repositioning which would produce a higher return in the existing improvements.
Therefore, as improved, the property is considered a proper use within the
definition of highest and best use.
- - --------------------------------------------------------------------------------
-33-
<PAGE>
VALUATION PROCESS
- - --------------------------------------------------------------------------------
Appraisers have three approaches available to them in valuing improved
property: the Cost, the Sales Comparison and the Income Approaches. Often, the
real property interest being appraised will dictate the validity of a particular
approach. Further, the type and age of the property and the quantity and quality
of data may affect the applicability of a particular approach in a specific
appraisal situation.
In this instance, only the Sales Comparison and Income Approaches to value
will be used in the appraisal of the subject property. Specifically, the Cost
Approach was omitted from this analysis for three reasons. First, because of the
age of the improvements, replacement cost new and depreciation estimates would
be highly subjective. It has been our experience that informed buyers give
little weight to the Cost Approach in their investment decisions.
Secondly, while most market participants do not rely on the Cost Approach
as a determinant of value, some investors use only a very elementary comparison
of the purchase price/value to the replacement or reproduction costs (absent any
form of depreciation) as a benchmark in gauging property acquisitions (i.e., the
property is being acquired as a percentage of its costs, say 40 to 50 percent).
This comparison provides investors an additional level of comfort relative to
the price paid but, provides no support for market value. This elementary
comparison loses overall significance as the age of the structure increases.
Thirdly, due to the built-up nature of the neighborhood, there has been a
lack of recent land sales. For these reasons, we have not included a Cost
Approach to value in our appraisal.
IN THE SALES COMPARISON APPROACH, WE PERFORMED THE FOLLOWING STEPS:
o Searched the market for recent multi-tenanted, sales of business
parks;
o Analyzed those sales on the basis of the sales price per square foot;
and
o Correlated the value indications into a value range.
IN DEVELOPING THE INCOME CAPITALIZATION APPROACH WE:
o Studied rents in effect in this and competing buildings to estimate
potential rental income at market levels.
o Estimated income from sources other than rentals.
o Studied the recent history of operating expenses at this and competing
buildings to estimate an appropriate level of stabilized expenses and
reserves for replacement.
o Estimated net operating income by subtracting stabilized expenses from
potential gross income.
o Capitalized stabilized net operating income into an indication of
capital value.
- - --------------------------------------------------------------------------------
-34-
<PAGE>
VALUATION PROCESS
- - --------------------------------------------------------------------------------
o Prepared a discounted cash flow analysis in which net operating income
and property value at reversion are discounted to an estimate of
current market value at a market-derived discount rate. Potential
gross revenues are estimated based on modeling the actual rents and
recovery provisions in effect through the term of existing leases. As
existing leases expire, the space is estimated to rent at the then
current market rental rate with appropriate allowances for downtime.
Spaces now vacant will be rented at market rates and at the time
intervals discussed in the Income Approach section of this report.
From potential gross revenues, we subtract vacancy and operating
expenses to arrive at an estimate of net operating income over the
forecast period.
The appraisal process is concluded by a review and re-examination of the
approaches to value. Consideration is given to the type and reliability of data
used, and the applicability of each approach. Finally, the two approaches are
reconciled and a final value conclusion will be estimated.
- - --------------------------------------------------------------------------------
-35-
<PAGE>
SALES COMPARISON APPROACH
- - --------------------------------------------------------------------------------
METHODOLOGY
In the Sales Comparison Approach, we estimated value by comparing this
property 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 basic steps of this approach are:
1. research recent, relevant property sales and current offerings
throughout the competitive area;
2. select and analyze properties that are similar to the property
appraised, considering changes in economic conditions that may have
occurred between the sale date and the date of value, and other
physical, functional, or locational factors;
3. identify sales that include favorable financing and calculate the cash
equivalent price;
4. reduce the sale prices to a common unit of comparison such as price
per square foot of net rentable area, effective gross income
multiplier, and overall capitalization rate;
5. make appropriate comparative adjustments to the prices of the
comparable properties to relate them to the property being appraised;
and
6. interpret the adjusted sales data and draw a logical value conclusion.
The most widely-used and market-oriented unit of comparison for properties
such as the subject is the sales price per net rentable square foot. All
comparable sales were analyzed on this basis. We present on the following page a
summary of the improved properties that we compared with the subject property,
and a map showing their locations. Detail sheets describing these sales can be
found in the Addenda.
- - --------------------------------------------------------------------------------
-36-
<PAGE>
[GRAPHICAL REPRESENTATION OF COMPARABLE
SALES MAP OF SUBJECT AREA]
<PAGE>
<TABLE>
<CAPTION>
Totem Valley Business Center
Kirkland, Washington
Improved Sales Summary
===============================================================================================================
Comp. SF Land Cash
Sale Sale Year SF Building % Equivalent
No. Name/Location Date Built LTB Ratio Office % Occupied Sale Price
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
I-1 Springbrook II Business Park Nov-96 1984 231,304 40% 96% $4,500,000
7611 S. 180th Street 80,973
Kent, Washington 2.86:1
I-2 Willows Park I & II Oct-96 1979 234,353 49% 94% $6,100,000
15225-15265 N.E. 95th Street 96,820
Redmond, Washington 2.42:1
I-3 Willows Commerce Park Oct-96 1996 378,536 65% 100% $16,000,000
9461, 9521 Willows Road 168,370
Redmond, Washington 2.25:1
I-4 Northward Business Park Sep-96 1990 469,577 39% 100% $9,455,283
19203 68th Avenue South 213,699
Kent, Washington 2.20:1
I-5 West Valley Executive Park Jun-96 1982 734,857 38% 93% $10,655,000
6601 South 190th Street 205,655
Kent, Washington 3.57:1
Subject Totem Valley Business Center N/A 1983-85 356,588 51% 99% N/A
12800 N.E. 126th Place 105,115
Kirkland, Washington 3.39:1
- - ---------------------------------------------------------------------------------------------------------------
Low: 1979 80,973 * 38% 93% $4,500,000
Data Range: High: 1996 213,699 * 65% 100% $16,000,000
Mean: 1986 153,103 * 46% 97% $9,342,057
- - ---------------------------------------------------------------------------------------------------------------
* Building Area Only
===============================================================================================================
<CAPTION>
================================================================================
Sale
Comp. Price Overall
Sale Per SF NOI Capitalization
No. Name/Location (GLA) Per SF Rate
================================================================================
<S> <C> <C> <C> <C>
I-1 Springbrook II Business Park $55.57 $5.14 9.24%
7611 S. 180th Street
Kent, Washington
I-2 Willows Park I & II $63.00 $6.04 9.58%
15225-15265 N.E. 95th Street
Redmond, Washington
I-3 Willows Commerce Park $95.03 $8.54 8.99%
9461, 9521 Willows Road
Redmond, Washington
I-4 Northward Business Park $44.25 $4.11 9.29%
19203 68th Avenue South
Kent, Washington
I-5 West Valley Executive Park $51.81 $4.91 9.48%
6601 South 190th Street
Kent, Washington
Subject Totem Valley Business Center N/A N/A N/A
12800 N.E. 126th Place
Kirkland, Washington
- - -------------------------------------------------------------------------------
$44.25 $4.11 8.99%
Data Range: $95.03 $8.54 9.58%
$61.93 $5.75 9.32%
- - -------------------------------------------------------------------------------
* Building Area Only
================================================================================
</TABLE>
- - --------------------------------------------------------------------------------
-37-
<PAGE>
SALES COMPARISON APPROACH
- - --------------------------------------------------------------------------------
ANALYSIS OF SALES PRICE PER SQUARE FOOT
In the following discussion, we compare the sales noted on the previous
page with the subject based on these attributes: Property Rights Conveyed,
Financing Terms, Conditions of Sale, Location, Market Conditions, Investment
Desirability, Quality and Condition, and Office Build-Out.
CASH EQUIVALENCY
All of the sales were transacted on cash equivalent terms and there were no
seller financing or submarket interest rate financing provided by third party
lenders. Therefore, no adjustments are considered warranted for cash
equivalency.
PROPERTY RIGHTS CONVEYED
All of the sales were purchased on a leased fee basis, therefore, no
adjustment is required.
CONDITIONS OF SALE
Interviews with the buyer, seller, or representative indicated that each of
the six sales involved arms-length transactions. Accordingly, no adjustments for
conditions of sale are required.
LOCATION
All of the comparables are considered to have the same general location as
the subject. In addition, none of the properties have any access or related
problems. Accordingly, no adjustments for location are required.
MARKET CONDITIONS
All things considered, we find it important to analyze the most recent
sales possible. In our review of the market over the last two years, we note
there has been a decrease in capitalization rates and an increase in rental
rates. All of the sales were consummated within the last eleven months and are
considered to be fairly recent. Accordingly, no adjustments for market
conditions are required.
OCCUPANCY STATUS
Occupancy status relates to a property's tenant mix and occupancy, as well
as its acceptance within the market. The subject is considered to be a desirable
property based on its occupancy history and strength of its tenants. All of the
comparables are considered to have the same occupancy status as the subject. We
have therefore made no adjustments to the comparables for this latter property
difference.
CONDITION AND QUALITY
The sales reflect varying dates of construction ranging from 1979 up
through 1996. The subject was constructed from 1983 to 1985. All of the
comparables, with the exception of I-3 and I-4, are approximately the same age
as the subject and are considered to be the same
- - --------------------------------------------------------------------------------
-38-
<PAGE>
SALES COMPARISON APPROACH
- - --------------------------------------------------------------------------------
condition. Comparables I-3 and I-4 are newer, better quality properties than the
subject and therefore require downward adjustments.
OFFICE BUILD-OUT
The subject has an average office build-out of 51 percent while the
comparables have varying build-outs from 38 to 65 percent. Comparable I-2 is
considered to have approximately the same amount of office build-out as the
subject. By contrast, Comparables I-1, I-4, and I-5 have a lesser amount of
relative office area, thus indicating an upward adjustment. Comparable I-6 has a
greater amount of relative office build-out, indicating a downward adjustment.
After considering all of the characteristics involved with the sale
comparables, an overall comparative rating has been completed to show the
general comparability of the sales. The characteristics of the sales are shown
below.
<TABLE>
<CAPTION>
====================================================================================================================================
IMPROVED SALES ADJUSTMENT CHART
- - ------------------------------------------------------------------------------------------------------------------------------------
Cash Property Conditions Market Occupancy Condition/ Office Overall
Comp. Price/SF Equivalent Rights of Sale Location Conditions Status Quality Build-Out Adjustment
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 $55.57 None None None None None None None Upward Upward
I-2 $63.00 None None None None None None None None None
I-3 $95.03 None None None None None None Downward Downward Downward
I-4 $44.25 None None None None None None Downward Upward None
I-5 $51.81 None None None None None None None Upward Upward
====================================================================================================================================
</TABLE>
The preceding comparable sales present a range of prices between $44.25 and
$95.03 per square foot. Based on the enclosed comparables and in consideration
of the above adjustment chart, we have concluded on a market value per square
foot for the subject of $55.00 to $65.00. We have placed the greatest emphasis
on sale I-2 ($63.00 per square foot), which required no adjustments.
COMPARING PROPERTIES BASED ON NOI PER SQUARE FOOT
In addition to the aforementioned considerations, net operating income per
square foot is a key factor in the analysis of the comparables as they relate to
the subject. As a function of rent (either market or contract), the net
operating income per square foot of gross leasable area is determined by such
factors as property location, as well as the age, quality, size, relative size
of the parking facility, and physical condition of the improvements. The net
operating income per square foot collectively measures the aggregate effect of
these variables, and serves as an indication of the relative productivity of a
given property. Although we recognize this is not an independent approach to
value, it is a useful analysis when the comparables are drawn from varying
geographic areas.
Among sales of properties, price per square foot indications tend to be
influenced primarily by the earning capacity or relative productivity of the
real estate, i.e., the ability of a property to achieve a particular level of
net operating income (NOI) per square foot of gross leasable area. The office
market is particularly sensitive to this productivity factor, as high net income
and low operating costs are integral to the success of any office building.
Thus, an
- - --------------------------------------------------------------------------------
-39-
<PAGE>
SALES COMPARISON APPROACH
- - --------------------------------------------------------------------------------
industrial complex is effectively analyzed by its net operating income per
square foot, as this factor reflects the property's market performance by
accounting for its rental income producing capabilities. In review of the
comparable properties, we note a range of NOI per square foot of occupied area
from $4.11 to $8.54. The subject property reflects an NOI per square foot of
$6.583 which is within the range indicated by the comparables, hence the value
per square foot of the subject would conceivably fall within the mid portion of
the exhibited value range. The adjusted sales price for the five comparable
sales is shown below.
================================================================================
COMPARING PROPERTIES BASED ON NOI PER SQUARE FOOT
================================================================================
NOI/SF
Subject
---------- Unadjusted Adjusted Sales
Sale No. Comparable x Price/SF Price/SF
================================================================================
I-1 $6.58 $55.57 $71.14
-----
$5.14
- - --------------------------------------------------------------------------------
I-2 $6.58 $63.00 $68.63
-----
$6.04
- - --------------------------------------------------------------------------------
I-3 $6.58 $95.03 $73.22
-----
$8.54
- - --------------------------------------------------------------------------------
I-4 $6.58 $44.25 $70.84
-----
$4.11
- - --------------------------------------------------------------------------------
I-5 $6.58 $51.81 $69.43
-----
$4.91
================================================================================
On an adjusted basis, the five comparable properties indicated prices
ranging from $68.63 to $73.22 per square foot. In the Income Capitalization
Approach, we determined a reasonable overall capitalization rate (OAR) for the
subject of approximately 9.35 percent. The above adjusted sales prices do not
consider the differences in OARs of the comparable sales. We must further adjust
these figures to better represent a sale at the subject's overall level.
Comparables I-3 sold with a lower OAR than our concluded capitalization rate for
the subject. As such, a downward adjustment to the above figure for this
comparable is warranted. By contrast, Comparables I-2 and I-5 sold with higher
capitalization rates, indicating an upward adjustment. The remaining comparables
do not require adjustments.
In consideration of the above comparative factors and the subject's
projected net operating income as determined later in this report, a value
indication for the subject property is considered to be from approximately
$69.00 to $72.00 per square foot.
- - ----------
1 Based on an NOI of $691,497 (located in direct capitalization section)
divided by 105,115 SF of building area.
- - --------------------------------------------------------------------------------
-40-
<PAGE>
SALES COMPARISON APPROACH
- - --------------------------------------------------------------------------------
SUMMARY AND CONCLUSION
================================================================================
ITEM Low High
================================================================================
Value Indicated on Basis of Price Per Square
Foot of NRA: Per Square Fooot $55 $65
Value Indicated Based on Ratio of NOI to $69 $72
Sales Price Derived From Comparisonn Sales:
Per Square Foot
================================================================================
As discussed, the price per square foot indications vary considerably due
to variations in site location and exposure; improvement quality, condition, and
age; as well as functional utility and efficiencies of the improvements; and,
most importantly, the level and quality of rent (income) which is determined
collectively through the market perception of the above noted factors.
The sale price per square foot of gross leasable area, including land,
implicitly contains both the physical and economic factors of the value of an
industrial development. Such statistics, however, do not explicitly convey by
themselves many of the details surrounding a specific income producing property
like the subject. Nonetheless, the process we have undertaken here is an attempt
to quantify the unit price based upon the subject's income producing potential.
Considering the characteristics of the subject relative to the above, we
believe that a unit rate range of $65.00 to $70.00 per square foot is
appropriate. Applying this unit rate range to 105,115 square feet results in a
value of approximately $6,800,000 to $7,400,000.
- - --------------------------------------------------------------------------------
-41-
<PAGE>
INCOME CAPITALIZATION 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 cash-flow 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). We used both
methods in our analysis of the subject.
OCCUPANCY STATUS
As indicated in the property description, the subject development is
comprised of seven industrial buildings with a total area of 105,115 feet. As of
the date of appraisal, this property was 99.1 percent leased.
ESTIMATING POTENTIAL GROSS INCOME
We have estimated market rental rates by examining recent leases in this
property and by investigating recent rental rates in competitive industrial
parks.
RECENT SUBJECT LEASES
In the following table we have summarized all of the leases that have
occurred over the last year in the subject.
<TABLE>
<CAPTION>
====================================================================================================================================
RECENT SUBJECT LEASES
====================================================================================================================================
Building Area (SF) Lease Start Lease Rental Rate ($/SF/MO) Lease
----------------------- ----------------------
Tenant Name Office Warehouse Date Term Office Warehouse Basis
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Faith E. Sargent 539 N/A 12/96 2 yrs $0;87 N/A Triple Net
- - ------------------------------------------------------------------------------------------------------------------------------------
Master International 1,078 1,300 4/96 2 yrs $0.90 $0.42 Triple Net
- - ------------------------------------------------------------------------------------------------------------------------------------
Financial Center 1,022 N/A 12/96 3 yrs $0.90 N/A Triple Net
- - ------------------------------------------------------------------------------------------------------------------------------------
Virtual Eyes 1,075 1,075 02/97 3 yrs $0.90 $0.41 Triple Net
- - ------------------------------------------------------------------------------------------------------------------------------------
Control Technology 361 570 12/96 3 yrs $0.87 $0.42 Triple Net
- - ------------------------------------------------------------------------------------------------------------------------------------
Virutal Eyes N/A 832 1/97 3 yrs N/A $0.45 Triple Net
- - ------------------------------------------------------------------------------------------------------------------------------------
All Pro Enviro N/A 1,002 10/96 3 yrs N/A $0.42 Triple Net
====================================================================================================================================
</TABLE>
As seen, there were seven leases consummated at the subject over the last
year. The lease rates range from $0.87 to $0.90 per square foot per month for
office space and from
- - --------------------------------------------------------------------------------
-42-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
$0.41 to $0.45 per square foot for warehouse space. Overall, the rent levels and
lease terms achieved presently at the subject are considered consistent with
terms typically attained at other competitive properties.
MARKET RENT ANALYSIS
The tabulation on the following page summarizes the rental rates for
comparable facilities considered in our analysis.
With respect to the enclosed rent comparables, several common observations
may be drawn concerning leases in the area. In general, space in the subject's
area is generally leased on a triple-net basis. On a triple-net basis, the
lessee is responsible for all operating expenses encountered on an annual basis,
in addition to rent payments.
In the analysis and comparison of the lease rates of the enclosed
comparables, conversations with these properties' developers and/or leasing
agents revealed that lease rates for space do not typically vary according to
size, rather, rates are more typically determined by the quality of improvements
and degree of office finish. Thus, spaces generally rent for higher rates per
square foot within newer properties and within those properties that have a
higher degree of office finish. It is typical to see rental rates computed as a
blend of office rent and warehouse rent in order to account for the commensurate
rates charged for office versus warehouse space.
- - --------------------------------------------------------------------------------
-43-
<PAGE>
[GRAPHICAL REPRESENTATION OF COMPARABLE
RENTALS MAP OF SUBJECT AREA]
<PAGE>
<TABLE>
<CAPTION>
TOTEM VALLEY BUSINESS CENTER
KIRKLAND, WASHINGTON
RENT COMPARABLE SUMMARY
=======================================================================================================
Comp. Clear
No. Name/Location Building SF/ % Office Year Built Height
=======================================================================================================
<S> <C> <C> <C> <C> <C>
R-1 Willows Business Center 1-2 72,580 55% 1980 14'-24'
14920-30 N.E. 95th Street
Redmond, Washington
R-2 Willows Business Center 3-12 139,892 55% 1985 14'-16'
14620-950 N.E. 95th Street
Redmond, Washington
R-3 Pacific Business & Tech Center 120,000 55% 1986 12'-22'
15225 N.E. 90th Street
Redmond, Washington
R-4 Totem Square 64,800 45% 1980 12'
11813 124th Avenue N.E.
Redmond, Washington
R-5 Quadrant Tech Center 47,470 65% 1985 12'
12341 134th Court N.E.
Redmond, Washington
- - -------------------------------------------------------------------------------------------------------
Subject Totem Valley Business Center 105,115 51% 1983-85 14'
12800 N.E. 126th Place
Kirkland, Washington
- - -------------------------------------------------------------------------------------------------------
Low 47,470 45% 1980 12'
Data Range: High 139,892 65% 1986 24'
Mean 88,948 55% 1983 16'
=======================================================================================================
<CAPTION>
=========================================================================================
Lease Rates
Comp. -------------------- Current
No. Name/Location Warehouse Office Lease Basis Occupancy
=========================================================================================
<S> <C> <C> <C> <C>
R-1 Willows Business Center 1-2 $0.45 $0.90 Triple Net 96%
14920-30 N.E. 95th Street
Redmond, Washington
R-2 Willows Business Center 3-12 $0.45 $0.90 Triple Net 97%
14620-950 N.E. 95th Street
Redmond, Washington
R-3 Pacific Business & Tech Center $0.50 $1.00 Triple Net 96%
15225 N.E. 90th Street
Redmond, Washington
R-4 Totem Square $0.40 $0.75 Triple Net 85%
11813 124th Avenue N.E.
Redmond, Washington
R-5 Quadrant Tech Center $0.45 $0.95 Triple Net 92%
12341 134th Court N.E.
Redmond, Washington
- - ------------------------------------------------------------------------------------------
Subject Totem Valley Business Center $0.45 $0.90 Triple Net 99%
12800 N.E. 126th Place
Kirkland, Washington
- - ------------------------------------------------------------------------------------------
$0.40 $0.75 85%
Data Range: $0.50 $1.00 97%
$0.45 $0.90 93%
==========================================================================================
</TABLE>
- - --------------------------------------------------------------------------------
-44-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
As displayed by the summary, the comparables reflect an unadjusted overall
market rental range of $0.40 to $0.50 per square foot per month for warehouse
rates, and from $0.75 to $1.00 per square foot per month for office build space.
It is noted that all of the comparables consist of multi-tenanted properties. A
brief description of each of the enclosed rent comparables as they relate to the
subject is provided.
COMPARABLE R-1 consists of the Willows Business Center 1-2, which is
located southeast of the subject on N.E. 95th Street. The property has a
total rentable area of approximately 72,580 square feet with an average
office build-out of 55 percent. This property is 96 percent occupied and
exhibits rental rates of $0.45 per square foot per month for warehouse
space and $0.90 per square foot per month for office space.
The location and project amenities of this property are considered to be
similar to that of the subject. Overall, the rents indicated by this
comparable require no adjustments relative to the subject property.
COMPARABLE R-2 consists of the Willows Business Center 3-12, which is
located directly east of Comparable R-1. The property has a total rentable
area of 139,892 square feet with an average office build-out of 55 percent.
This property is 97 percent occupied and exhibits rental rates of $0.45 per
square foot per month for warehouse space and $0.90 per square foot per
month for office space.
The location and project amenities of this property are considered to be
similar to that of the subject. Overall, the rents indicated by this
comparable require no adjustments relative to the subject property.
COMPARABLE R-3 consists of the Pacific Business & Tech Center located
approximately four miles southeast of the subject on N.E. 90th Street. This
property consists of a four-building multi-tenant business park
development. The property is presently 96 percent occupied with rental
rates of $0.50 per square foot per month for warehouse space and $1.00 per
square foot per month for office space.
The project amenities, interior and exterior finish of this property are
considered to be superior to the subject. Overall, the rent indicated by
this property requires a downward adjustment.
COMPARABLE R-4 consists of Totem Square located just southwest of the
subject on 124th Avenue N.E. This three building complex was constructed in
1980. The property has an interior location making access and exposure a
problem for the development. Currently, approximately 15 percent of the
development is vacant. Quoted rental rates for this comparable are $0.45
per square foot per month for warehouse space and $0.90 per square foot per
month for office space.
The location and project amenities of this comparable are considered to be
inferior to that of the subject. Overall, we would anticipate an upward
adjustment of the rents for this comparable.
- - --------------------------------------------------------------------------------
-45-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
COMPARABLE R-5 consists of the Quadrant Tech Center located just east of
the subject off of 134th Street. This property consists of a two-building
multi-tenant business park development. The property is presently 92
percent occupied with rental rates of $0.45 per square foot per month for
warehouse space and $0.95 per square foot per month for office space.
The project amenities, interior and exterior finish of this property are
considered to be superior to the subject. Overall, the rent indicated by
this property requires a downward adjustment.
SUMMARY AND CONCLUSION
As displayed by the summary, the comparables reflect overall market rental
range of $0.40 to $0.50 per square foot per month with office space from $0.75
to $1.00 per square foot per month. It is noted that all of the comparables
consist of multi-tenanted properties. The subject's asking rental range is $0.45
per square foot per month for warehouse space and $0.90 per square foot per
month for office space. However, the most recent lease transactions have been
$0.42 per square foot per month for warehouse space and $0.90 per square foot
per month for office space.
In relation to the enclosed comparables, the subject represents a newer
development which would tend to make its rental rates at the upper end of the
range indicated by the comparables. The two properties that are similar in
quality to the subject are comparables R-2 and R-5. These latter comparables
have indicated rental rates of $0.45 per square foot per month for warehouse
space and $0.90 to $0.95 per square foot per month for office space.
Accordingly, it is our opinion that the market rent for the subject should be
$0.42 per square foot per month for warehouse space and $0.90 per square foot
per month for office space.
We will not include free rent in the rent calculation since the subject
property is an established property in the Eastside market. Lease terms will
average three years. Tenant improvements will be $5.00 for new tenants and $2.50
for roll-over tenants.
MARKET RENT GROWTH RATE
We anticipate that the market rent for the subject buildings would grow by
an annual Consumer Price Index (C.P.I.) of 3.50 percent.
RECOVERY OF OPERATING EXPENSES
All of the subject leases are written on a triple net basis. Specifically
excluded from reimbursable expenses are leasing commissions and tenant
alteration costs.
In the discounted cash flow analysis that follows, all re-leased space will
be rented on a triple basis with the tenant responsible for all expenses with
the exception of leasing commissions and tenant alteration costs.
- - --------------------------------------------------------------------------------
-46-
<PAGE>
<TABLE>
<CAPTION>
TOTEM VALLEY BUSINESS CENTER
Historical and Projected Operating Expenses
====================================================================================================================================
1995 1996 Budgeted 1997 C&W's Projected 1997
------------------- ------------------- ------------------ --------------------
Expense Item Total /SF Total /SF Total /SF Total /SF
- - ------------ -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Taxes $ 80,882 $0.77 $ 81,294 $0.77 $ 83,181 $0.79 $ 78,498 $0.75
Insurance 10,247 0.10 12,790 0.12 10,735 0.10 11,000 0.10
Repairs & Maintenance 84,690 0.81 74,749 0.71 81,849 0.78 82,000 0.78
Administrative 51,926 0.49 39,389 0.37 47,069 0.45 48,000 0.46
Utilities 46,218 0.44 40,115 0.38 47,328 0.45 47,000 0.45
Ground Rent 12,000 0.11 12,000 0.11 12,000 0.11 12,000 0.11
Management Fee 33,908 0.32 35,597 0.34 37,480 0.36 41,000 0.39
-------- ----- -------- ----- -------- ----- -------- -----
Total $319,871 $3.04 $295,934 $2.82 $319,642 $3.04 $319,498 $3.04
====================================================================================================================================
</TABLE>
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
VACANCY AND CREDIT LOSS
Both the investor and the appraiser are primarily interested in the annual
revenue 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 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 property is 99.1 percent occupied. The 980 square feet of
vacant space is anticipated to be leased within a six-month period.
The rent comparables have an average occupancy of 93 percent. All but one
of the comparables had occupancy levels greater than 92 percent. The overall
occupancy rate for the Kirkland submarket is 88.1 percent with the occupancy for
all office services/business park space at 93.4 percent. Based on this
discussion, a vacancy allowance of eight percent will be used in this analysis.
OPERATING EXPENSES
Operating expense projections for the subject property are based on a
review and analysis of the building's 1995, 1996, and budgeted 1997 and
expenses. We also spoke with Cushman & Wakefield property management personnel.
Based on our analysis, we feel the historical data (shown on the facing page) is
realistic. The only expense items which we significantly adjusted or added were
Reserves for Replacement. For the purpose of our analysis, the reserve for
replacements is considered inherent to the overall capitalization rate for
direct capitalization purposes. However, we have allocated a specific amount for
this category in the Discounted Cash Flow analysis.
The following is a general summary of stabilized expenses. All expenses are
shown based on 1997 figures. The expenses have been trended forward at an annual
rate of 3.5 percent.
It is noted that the following expenses reflect the current occupancy level
for the building (99.1%). Some of the expenses, in fact, fluctuate based on
occupancy of the building. The fluctuating expenses include: Management and
Utilities. In the discounted cash flow that follows, these latter expenses will
vary based on the occupancy of the building.
REIMBURSABLE EXPENSES
REAL ESTATE TAXES
Our assumptions regarding real estate taxes were previously detailed in the
"Real Property Taxes and Assessments" section of the appraisal. On a
calendar year basis, the following schedule is forecasted. We have
forecasted that taxes will increase by 3.5 percent per annum.
INSURANCE
We forecast that Insurance expenses would be $11,000 or $0.10 per square
foot. The 1996 Insurance expense was $12,790 and the budgeted 1997
Insurance is $10,735. Based on actual and budgeted amounts, our estimate of
$11,000 appears reasonable.
- - --------------------------------------------------------------------------------
-47-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
REPAIRS AND MAINTENANCE
The Repairs and Maintenance expense category includes all of the costs
incurred in the regular maintenance of the building including common area
maintenance, roof repair, etc. Management has projected a 9.5 percent
increase from 1996 to 1997. The budgeted amount for 1997 is similar to the
1995 amount. Based on actual and budgeted amounts, we have estimated a
Repairs and Maintenance expense of $82,000, or $0.78 per square foot.
ADMINISTRATIVE
This expense refers to costs related to the operation of the on-site
management office. Administrative expenses include but are not limited to
telephone service, travel, and office supplies. Management has projected a
20 percent increase from 1996 to 1997, but a 9 percent decrease from 1995
to 1997. Based on actual and budgeted amounts, we have estimated an
Administrative expense of $48,000, or $0.46 per square foot.
UTILITIES
This category includes the cost of electricity, gas, water and sewer
supplied to the buildings. The 1996 amount was $40,115, or $0.38 per square
foot. The budgeted 1997 amount represents an 18 percent increase over the
1996 figure. Based on actual and budgeted amounts, we have estimated a
Utilities expense of $47,000, or $0.45 per square foot. This latter amount
is supported by past and budgeted operating statements.
MANAGEMENT
This category includes on-site property management. This expense is
typically expressed as a percentage of effective gross income. Typical fees
for managing a multi-tenant industrial park ranges between 2.0 percent and
5.0 percent depending on the number of tenants and the duties involved.
Based on past operating history of the subject, we have utilized a property
management fee of 4.5 percent of effective gross income.
NON-REIMBURSABLE EXPENSE
RESERVES FOR REPLACEMENTS
It is customary and prudent to deduct an annual sum from effective gross
revenues to establish a reserve for replacing short-lived items throughout
the property. Our forecast of $0.20 per square foot of net rentable
building area is a reasonable annual amount to cover the cost of replacing
roof, the mechanical systems and completing structural maintenance of the
parking garage. In analyzing the comparable sales available in the subject
market, we noticed that most proformas and income & expense provisions do
not include a reserve for replacement. We are of the opinion that typical
investors consider this a viable potential expense and while there may not
be a line item expense allocated, the risk is inherent to the overall rate.
We have included this expense n our discounted cash flow analysis.
- - --------------------------------------------------------------------------------
-48-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
GROUND LEASE
In October of 1982, a ground lease for $12,000 per year was signed with
Burlington Northern Railroad for a 40-foot paved private road crossing.
This drive provides convenient access to the subject property. This Private
Roadway and Crossing Agreement can be terminated by Burlington Northern
Railroad at any time with 30 days notice.
ALTERATIONS
Alteration costs initially include costs to prepare the vacant suites for
tenant use. All of the subject's tenants suites have previously been
occupied (second generation space). In the discounted cash flow analysis,
we have forecasted a cost allowance for the subject office space of $5.00
per square foot with renewal tenants receiving $2.50 per square foot. For
the subject's warehouse space, we have forecasted an alterations expense of
$1.00 per square foot. Based on our renewal probability of 75/25, the
tenant allowance at rollover is equal to $4.38 per square foot for the
subject's office space and $1.00 per square foot for the subject's
warehouse space. These rates are increased at our projected growth rated
noted earlier.
LEASING COMMISSIONS
Based upon our analysis of competing properties within the market as well
as historic leasing activity at the subject, we have made an allowance for
leasing commissions for this assignment. For new leases, a commission of
5.00 percent of gross income will be charged, while renewal leases will be
charged half this rate. With the 75/25 probability assumption, the blended
commission rate is 3.13 percent of gross income.
Overall, our concluded expenses are in line with the history of operations
and the budgeted amount.
NET OPERATING INCOME/NET CASH FLOW
The total operating costs for the property are deducted from total income
to derive the net operating income, before debt service. In the first year of
the investment, the net operating income which the subject property is
forecasted to generate is $691,682. Alternatively, net income is projected at
approximately 68.0 percent of effective gross income. Following is an operating
summary for the first investment year (FY 1998).
================================================================================
OPERATING SUMMARY
TOTEM VALLEY BUSINESS CENTER FY 1998
================================================================================
Item Aggregate Sum Unit Rate* Ratio
- - --------------------------------------------------------------------------------
Effective Gross Income $1,018,805 $9.69 100.0%
- - --------------------------------------------------------------------------------
Operating Expenses $327,308 $3.11 32.0%
- - --------------------------------------------------------------------------------
Net Operating Income $691,497 $6.58 68.0%
- - --------------------------------------------------------------------------------
Alterations/Reserves $81,545 $0.78 N/A
- - --------------------------------------------------------------------------------
Net Cash Flow (1) $609,952 $5.80 N/A
================================================================================
* Based on total owned GLA of 105,115 square feet.
(1) Cash flow to the property before debt service.
- - --------------------------------------------------------------------------------
-49-
<PAGE>
<TABLE>
<CAPTION>
TOTEM VALLEY BUSINESS CENTER
ANNUAL CASH FLOW REPORT
BEGINNING 5/1/97 FOR 11 YEARS
FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
- - ------
MINIMUM RENT:
ALL TENANTS 746,398 773,308 818,240 805,420 883,514 900,431 891,167 973,452
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL MINIMUM RENT 746,398 773,308 818,240 805,420 883,514 900,431 891,167 973,452
RECOVERIES:
CAM GROUP 1 303,916 324,957 335,156 327,529 354,600 366,675 364,285 390,460
--------- --------- --------- --------- --------- --------- --------- ---------
303,916 324,957 335,156 327,529 354,600 366,675 364,285 390,460
--------- --------- --------- --------- --------- --------- --------- ---------
GROSS RENTAL
INCOME 1,050,314 1,098,265 1,153,296 1,132,949 1,238,114 1,267,106 1,255,452 1,363,912
CREDIT LOSS (31,509) (32,948) (34,602) (33,988) (37,143) (38,013) (37,663) (40,917)
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INCOME 1,018,895 1,065,317 1,118,794 1,098,961 1,200,971 1,229,093 1,217,789 1,322,995
EXPENSES
- - --------
REAL ESTATE TAXES 84,363 97,215 100,618 104,139 107,784 111,557 115,461 119,502
INSURANCE 11,128 11,518 11,921 12,338 12,770 13,217 13,680 14,158
REPAIRS & MAINT. 82,957 85,860 88,865 91,976 95,195 98,526 101,975 105,544
ADMINISTRATIVE 48,560 50,260 52,019 53,839 55,724 57,674 59,693 61,782
UTILITIES 47,548 49,213 50,935 52,718 54,563 56,473 58,449 60,495
GROUND RENT 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000
MANAGEMENT FEE 40,752 42,613 44,752 43,958 48,039 49,164 48,712 52,920
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL EXPENSES 327,308 348,679 361,110 370,968 386,075 398,611 409,970 426,401
--------- --------- --------- --------- --------- --------- --------- ---------
NET OPERATING
INCOME 691,497 716,638 757,684 727,993 814,896 830,482 807,819 896,594
ALTERATIONS 44,510 46,248 52,189 113,905 61,997 55,193 103,274 102,028
COMMISSIONS 16,012 17,150 19,078 40,010 23,176 19,850 36,544 37,442
RESERVES 21,023 21,759 22,520 23,309 24,124 24,969 25,843 26,747
--------- --------- --------- --------- --------- --------- --------- ---------
CASH FLOW 609,952 631,481 663,897 550,599 705,599 730,470 642,158 730,377
<CAPTION>
FY2006 FY2007 FY2008
<S> <C> <C> <C>
INCOME
- - ------
MINIMUM RENT:
ALL TENANTS 1,001,614 1,007,611 1,060,570
--------- --------- ---------
TOTAL MINIMUM RENT 1,001,614 1,007,611 1,060,570
RECOVERIES:
CAM GROUP 1 408,300 411,232 422,222
--------- --------- ---------
408,300 411,232 422,222
--------- --------- ---------
GROSS RENTAL
INCOME 1,409,914 1,418,843 1,482,792
CREDIT LOSS (42,297) (42,565) (44,484)
--------- --------- ---------
TOTAL INCOME 1,367,617 1,376,278 1,438,308
EXPENSES
- - --------
REAL ESTATE TAXES 123,685 128,014 132,494
INSURANCE 14,654 15,167 15,698
REPAIRS & MAINT. 109,238 113,061 117,019
ADMINISTRATIVE 63,944 66,182 68,499
UTILITIES 62,612 64,803 67,072
GROUND RENT 12,000 12,000 12,000
MANAGEMENT FEE 54,705 55,051 57,532
--------- --------- ---------
TOTAL EXPENSES 440,838 454,278 407,314
--------- --------- ---------
NET OPERATING
INCOME 929,779 922,000 967,994
ALTERATIONS 57,356 118,049 99,889
COMMISSIONS 20,643 41,897 35,777
RESERVES 27,683 28,652 29,655
--------- --------- ---------
CASH FLOW 821,097 733,402 802,673
</TABLE>
- - --------------------------------------------------------------------------------
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow is a method by which anticipated future net cash
flows and the reversionary value are discounted to an estimate of net present
value at a chosen yield rate (internal rate of return). By forecasting the
anticipated income stream and discounting future value at reversion to the
current value, the capitalization process may be applied to derive a value that
an investor would pay to receive that particular income stream. Typical
investors price real estate on their expectations of the magnitude of these
benefits and their judgment of the risks involved. Our valuation endeavors to
reflect the most likely actions of typical buyers and sellers of property
similar to the subject.
An analytical real estate computer model that simulates the behavioral
aspects of property and examines the results mathematically is employed for the
discounted cash flow analysis. In this instance, it is the Pro-Ject+ computer
model.
In the discounted cash flow analysis of Totem Valley Business Center, we
have utilized a 10-year holding period for the investment with the cash flow
analysis commencing on May 1, 1997. The effective date of value of this
appraisal is also May 1, 1997. Therefore, we have analyzed the cash flows on a
fiscal year basis.
A 10-year holding period is consistent with market based criteria. Although
an asset such as the subject has a much longer useful life, an investment
analysis becomes more meaningful if limited to a time period considerably less
than the real estate's economic life, but of sufficient length for an investor.
DISCOUNTED CASH FLOW ASSUMPTIONS
Our cash flow forecast for Totem Valley Business Center is presented on the
facing page. To reiterate, the formulation of these cash flows incorporated into
our computer model the following general assumptions.
Years in Forecast: 10
Starting Date: May 1, 1997
Market Rental Rates (Year 1):
Warehouse $0.42/SF/MO
Office: $0.90/SF/MO
Growth in Market Rental Rate: 3.5 percent
Rent Escalations: None
Expense Pass-throughs: Pro rata share of expense
Management Expense: 4.5 percent of minimum effective rent
Expense Growth Rate: 3.5 percent per annum
Free Rent: None
Lease Term (typical): 3 years
Consumer Price Index (CPI): 3.5 percent
Renewal Probability: 75 percent
Tenant Allowances:
New Leases (Office) $5.00/SF
Tenant Improvements-Renewals $2.50/SF
Warehouse Tenant Improvements $1.00/SF
- - --------------------------------------------------------------------------------
-50-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
Leasing Commissions: 5 percent of total lease amount, payable in
year 1 of the lease. (Renewals at 2.5
percent)
Vacancy at Rollover: 2 months
Vacancy and Credit Loss: 3.0 percent
Reserves for Replacement: $0.20 per square foot of center growing by
forecasted CPI.
Reversion Year: 11th
Reversion Cap Rate: 9.50 to 10.25 percent (See discussion below)
Reversion Selling Costs: 3.0 percent
Discount Rate (IRR): 11.50 to 12.25 percent (See discussion below)
SELECTION OF CAPITALIZATION RATES
OVERALL CAPITALIZATION RATE
In the capitalization method, we estimated market value by dividing
stabilized net operating income by an overall rate (OAR) derived from our
analyses of market sales and computed by dividing the net operating income from
a sold property by its sale price. The OARs derived from the improved property
sales are shown below.
===========================================
COMPARABLE NO. OAR
-------------------------------------------
I-1 9.24%
I-2 9.58%
I-3 8.99%
I-4 9.29%
I-5 9.48%
===========================================
The overall rates for the transactions range from 8.99 to 9.58 percent. In
determining an overall rate applicable to the subject property, we have not put
principle emphasis on any one comparable sale. Each sale has its positive and
negative attributes.
Based upon this analysis, we can develop a going-in capitalization rate for
the subject based upon its tenancy, investment appeal, quality, and inherent
risks. The subject appears to be well positioned in its market with strong
occupancy levels. On balance, we have looked toward a going-in capitalization
rate between 9.00 and 9.50 percent for the subject based upon a stabilized
operating basis.
TERMINAL CAPITALIZATION RATE
The residual cash flows generated annually by the subject property comprise
only the first part of the return which an investor will receive. The second
component of this investment return is the pre-tax cash proceeds from the resale
of the property at the end of a projected
- - --------------------------------------------------------------------------------
-51-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
investment holding period. Typically, investors will structure a provision in
their analyses in the form of a rate differential over a going-in capitalization
rate in projecting a future disposition price. The view is that the improvement
is then older and the future is harder to visualize; hence a slightly higher
rate is warranted for added risks in forecasting.
Therefore, to the range of stabilized overall capitalization rates, we have
added 50 basis points to arrive at a projected terminal capitalization rate
ranging from 9.50 to 10.00 percent. This provision is made for the risk of
lease-up and maintaining a certain level of occupancy, its level of revenue
collection, the prospects of future competition, as well as the uncertainty of
maintaining the forecasted growth rates over such a holding period. In our
opinion, this range of terminal rates would be appropriate for the subject.
Thus, this range of rates is applied to the following year's net operating
income before reserves, capital expenditures, leasing commissions and
alterations as it would be the first received by a new purchaser of the subject
property. Applying a rate of say 9.75 percent for disposition, a current
investor would dispose of the subject property at the end of the investment
holding period for an amount of approximately $9.9 million based on FY 2008 net
income of approximately $0.97 million.
From the projected reversionary value to an investor in the subject
property, we have made a deduction to account for the various transaction costs
associated with the sale of an asset of this type. These costs consist of 3.0
percent of the total disposition price of the subject property as an allowance
for transfer taxes, professional fees, and other miscellaneous expenses,
including an allowance for alteration costs that the seller pays at final
closing. Deducting these transaction costs from the computed reversion renders
pre-tax the net proceeds of sale to be received by an investor in the subject
property at the end of the holding period.
<TABLE>
<CAPTION>
=======================================================================================================================
NET PROCEEDS AT REVERSION
- - -----------------------------------------------------------------------------------------------------------------------
Less Costs of Sale and
Net Income FY 2008 Gross Sale Price Miscellaneous Expenses @ 3.0% Net Proceeds
=======================================================================================================================
<S> <C> <C> <C>
$967,994 $9,928,144 ($297,844) $9,630,300
=======================================================================================================================
</TABLE>
DISCOUNT RATE ANALYSIS
We estimated future cash flows, including property value at reversion, and
discounted that income stream at an internal rate of return (yield rates)
currently required by investors for similar-quality real property. The yield
rate (internal rate of return or IRR) is the single rate that discounts all
future equity benefits (cash flows and equity reversion) to an estimate of net
present value.
In order to determine appropriate internal rate of return and reversionary
capitalization rate to apply to the subject's projected Income stream, we
reviewed information contained in published surveys. The subject is considered
to be a Class A Leased Asset. The Cushman & Wakefield REAL ESTATE OUTLOOK
publication of Fall 1996 showed internal rates of return ranging from 10 to 12,
with a low average of 10.9 and a high average of 11 percent. In a Third Quarter
1996 National Investor Survey prepared by CB Commercial, internal rates of
- - --------------------------------------------------------------------------------
-52-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
return for Class A Warehouse and Distribution properties ranged from 9.8 to 12.0
percent, with an average of 11.3 percent. The real rate of return (defined as
the internal rate of return minus the inflation assumption) averaged 7.7
percent. Reversionary capitalization rates ranged from 8.5 to 11 percent, with
an average of 9.6 percent.
The Third Quarter 1996 Real Estate Investor Survey published by Peter F.
Korpacz & Associates, Inc. indicated a range in internal rates of return for
industrial property falling between 8.5 and 14 percent, with an average of 11.19
percent. Internal rates of return, real rates of return, and reversionary
capitalization rates have dropped slightly in comparison to the previous year.
The results of relevant published investor survey data are summarized in
the following table.
<TABLE>
<CAPTION>
==========================================================================================================================
SUMMARY OF INVESTOR SURVEYS
INVESTMENT INTERNAL RATES OF RETURN
INDUSTRIAL PROPERTIES
- - --------------------------------------------------------------------------------------------------------------------------
Investor Survey IRR Range IRR Average Date of Survey
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cushman & Wakefield Real Estate Outlook Fall 1996
National Industrial Market 10% -12% 10.9% - 11%
CLASS A LEASED ASSET
Korpacz Real Estate Investor Survey 3rd Qtr. 1996
National Industrial Market 8.5% - 14% 11.19%
CB Commercial National Investor Group 3rd Qtr. 1996
Industrial Warehouse/Distribution - Class A 9.8% - 12% 11.3%
- - --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
</TABLE>
The surveys indicate a range of discount rates between 8.8 and 14 percent,
with rates generally clustering in the 11.0 to 11.5 percent range. The subject
is a Class A property in a strong market. Given the subject's age, condition,
location and leasing structure, it is likely the appropriate discount rate would
fall close to the average as indicated by the surveys.
Finally, application of these rate parameters to the subject should entail
some sensitivity to the rate at which leases will be expiring over the
projection period. Provided below is a summary of the forecasted lease
expiration schedule for the subject. A complete expiration report is included in
the ADDENDA.
- - --------------------------------------------------------------------------------
-53-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
LEASE EXPIRATION SCHEDULE
-------------------------------------------------------------
Fiscal Year GLA (SF) Cumulative %
============================================================
FY 1998 28,784 27.4%
------------------------------------------------------------
FY 1999 16,061 15.3%
------------------------------------------------------------
FY 2000 14,344 23.3%
------------------------------------------------------------
FY 2001 56,402 53.7%
------------------------------------------------------------
FY 2002 21,939 20.9%
------------------------------------------------------------
FY 2003 26,774 25.5%
------------------------------------------------------------
FY 2004 49,523 47.1%
------------------------------------------------------------
FY 2005 24,713 23.5%
------------------------------------------------------------
FY 2006 23,422 22.3%
------------------------------------------------------------
FY 2007 50,275 47.8%
------------------------------------------------------------
FY 2008 27,779 26.4%
============================================================
From the above, we see that a relatively large percentage (66.0 percent) of
GLA will expire by 2000. Over the total projection period, approximately 333
percent will turnover. Overall, consideration is given to this in our selection
of an appropriate risk rate. WE WOULD ALSO NOTE THAT MUCH OF THE RISK FACTORED
INTO SUCH AN ANALYSIS IS REFLECTED IN THE ASSUMPTIONS EMPLOYED WITHIN THE CASH
FLOW MODEL, INCLUDING RENT GROWTH, TURNOVER, RESERVES FOR REPLACEMENT, AND
VACANCY PROVISIONS.
We have briefly discussed the investment risks associated with the subject.
On balance, it is our opinion that an investor in the subject property would
require an internal rate of return between 11.50 and 12.25 percent.
PRESENT VALUE ANALYSIS
Analysis by the discounted cash flow method is examined over a holding
period that allows the investment to mature, the investor to recognize a return
commensurate with the risk taken, and a recapture of the original investment.
Typical holding periods usually range from 10 to 20 years and are sufficient for
the majority of institutional grade real estate such as the subject to meet the
criteria noted above. In the instance of the subject, we have analyzed the cash
flows anticipated over a 10- year period commencing on May 1, 1997.
A sale or reversion is deemed to occur at the end of the 10th year (April
30, 2007), based upon capitalization of the following year's net operating
income. This is based upon the premise that a purchaser in the 10th year is
buying the following year's net income. Therefore, our analysis reflects this
situation by capitalizing the first year of the next holding period.
The present value is formulated by discounting the property cash flows at
various yield rates. The yield rate utilized to discount the projected cash flow
and eventual property reversion has been based on an analysis of anticipated
yield rates of investors dealing in similar investments. The rates reflect
acceptable expectations of yield to be achieved by investors currently in the
marketplace shown in their current investment criteria and as extracted from
comparable property sales.
- - --------------------------------------------------------------------------------
-54-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
For a property such as the subject, it is our opinion that an investor
would require an all cash discount rate in the range of 11.50 to 12.25 percent.
Accordingly, we have discounted the projected future pre-tax cash flows to be
received by an equity investor in the subject property to a present value so as
to yield 11.50 to 12.25 percent at 25 basis point intervals on equity capital
over the holding period. This range of rates reflects the risks associated with
the investment. Discounting these cash flows over the range of yield and
terminal rates now being required by participants in the market for this type of
real estate places additional perspective upon our analysis. A valuation matrix
for the subject appears on the following table:
<TABLE>
<CAPTION>
===================================================================================================================================
VALUATION MATRIX (000)
- - -----------------------------------------------------------------------------------------------------------------------------------
Discount Rate
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Terminal Cap Rate 11.50% 11.75% 12.00% 12.25%
===================================================================================================================================
9.50% $7,299 $7,174 $7,051 $6,932
- - -----------------------------------------------------------------------------------------------------------------------------------
9.75% $7,217 $7,094 $6,973 $6,855
- - -----------------------------------------------------------------------------------------------------------------------------------
10.00% $7,139 $7,017 $6,898 $6,782
- - -----------------------------------------------------------------------------------------------------------------------------------
10.25% $7,064 $6,944 $6,827 $6,713
===================================================================================================================================
</TABLE>
Through such a sensitivity analysis, it can be seen that the present value
of the subject property varies from approximately $6.7 to $7.3 million. Giving
consideration to all of the characteristics of the subject previously discussed,
we feel that a prudent investor would require a yield which falls near the
middle of the range outlined above for this property. Accordingly, we believe
that based upon all of the assumptions inherent in our cash flow analysis, an
investor would look toward as IRR around 11.75 percent and a terminal rate
around 9.75 percent as being most representative of the subject's value in the
market.
In view of the analysis presented here, it becomes our opinion that the
discounted cash flow analysis indicates a market value of $7,100,000 for the
subject property.
Based on this analysis, the following investment indices are indicated.
Value per SF of GLA $66.59
Implicit Going-In Cap Rate 9.74%
DIRECT CAPITALIZATION
To further support our prospective value conclusion derived via the
discounted cash flow, we have also utilized the direct capitalization method. In
direct capitalization, an overall rate is applied to the net operating income of
the subject property. In this case, we will again consider the indicated overall
rates from the comparable sales in the Sales Comparison Approach as well as
those rates established in our Investor Survey.
In view of our total analysis, we would anticipate that the subject
property would trade at an overall rate of approximately 9.00 to 9.50 percent
applied to first year income. Applying these rates to the first year net
operating income (FY 1998) before reserves, alterations, and
- - --------------------------------------------------------------------------------
-55-
<PAGE>
INCOME CAPITALIZATION APPROACH
- - --------------------------------------------------------------------------------
other expenses for the subject of $691,497 results in a value of approximately
$7.3 to $7.7 million.
=============================================
FY 1998 NOI $691,497
---------------------------------------------
---------------------------------------------
Cap Rate Indicated Value
=============================================
9.00% $7,683,300
---------------------------------------------
9.50% $7,278,916
=============================================
From this range, we would be inclined to conclude at a Market Value of
$7,400,000 via Direct Capitalization. This value is indicative of an overall
rate of 9.35 percent.
- - --------------------------------------------------------------------------------
-56-
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
- - --------------------------------------------------------------------------------
Reconciliation is the process of deriving a single point value estimate for
the subject property from the indications provided by the approaches at hand.
This process requires the weighing of each approach as they relate to the
appraisal assignment and resolving the differences among the valuation
procedures. In the end, a single estimate of market value is concluded based
upon the appropriateness of each value indication. A summary of the value
indications for the subject is set forth below.
=============================================================
AS IS VALUE SUMMARY
=============================================================
Cost Approach N/A
-------------------------------------------------------------
Sales Comparison Approach $6,800,000 to $7,400,000
-------------------------------------------------------------
Income Approach
Discounted Cash Flow $7,100,000
Direct Capitalization $7,400,000
=============================================================
Two approaches to value have been utilized for this analysis. In general
terms, the approaches included provide complimentary results, each approach or
technique supporting the other.
COST APPROACH
The Cost Approach is based on the principle of substitution which maintains
that the prudent purchaser will not pay more for a property than the cost to
construct an equally desirable substitute property. It is best applied to a
property where improvements to the site are new or of a special design and use.
The estimation of replacement cost new and developer's profit requires judgment,
based upon cost services and interviews. Land value has been estimated using a
market comparison approach based upon comparable transactions. Some limitations
do exist with this approach when estimating market value.
As discussed, this methodology has been omitted for this analysis due to
the difficulty in valuing anchor store commitments to properties of the
subject's caliber, as well as the estimation of accrued depreciation for
properties of the subject's age. We have instead performed a replacement cost
only for the improvements.
SALES COMPARISON APPROACH
The Sales Comparison Approach has arrived at a value for the subject
property by analyzing historical arms-length transactions, reducing the gathered
information to common units of comparison, adjusting the sale data for
differences with the subject, and interpreting the results to yield a meaningful
value conclusion. The basis of these conclusions was the cash-on-cash return
based on net income and the adjusted price per square foot of gross leasable
area sold.
The process of comparing historical sales data to assess what purchasers
have been paying for similar type properties is weak in estimating future
expectations. Although the unit sale price yields comparable conclusions, it is
not the primary tool by which the investor market for a property like the
subject operates. In addition, no two properties are alike with respect to
quality of construction, location, market segmentation and income profile. As
such, subjective
- - --------------------------------------------------------------------------------
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<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
- - --------------------------------------------------------------------------------
judgment necessarily becomes a part of the comparative process. The usefulness
of this approach is that it interprets specific investor parameters established
in their analysis and ultimate purchase of a property. In light of the above,
this methodology is best suited as support for the conclusions of the Income
Capitalization Approach. It provides useful market extracted rates of return,
such as overall rates, to simulate investor behavior in the Income
Capitalization Approach.
INCOME CAPITALIZATION APPROACH
DISCOUNTED CASH FLOW ANALYSIS
The subject property is highly suited to analysis by the discounted cash
flow method (DCF) as it will be bought and sold in investment circles. The focus
on property value in relation to anticipated income is well founded since the
basis for investment is profit in the form of return or yield on invested
capital.
The subject property, as an investment vehicle, is sensitive to all changes
in the economic climate and the economic expectations of investors. The
discounted cash flow analysis may easily reflect changes in the economic climate
of investor expectations by adjusting the variables used to qualify the model.
In the case of the subject property, the DCF can analyze existing leases,
probabilities of future rollovers and turnovers, and reflect the expectations of
overage rents. Essentially, the DCF can model many of the dynamics of a complex
shopping center.
Particular emphasis is placed on the results of the discounted cash flow
analysis because of the applicability of this method in accounting for the
specific characteristics of the property, as well as being the tool used by many
purchasers.
CAPITALIZATION
Direct capitalization has its basis in capitalization theory and uses the
premise that the relationship between income and sales price may be expressed as
a rate or its reciprocal, a multiplier. This process selects rates derived from
the marketplace, in much the same fashion as the "Sales Comparison Approach",
and applies this to a projected net operating income to derive a sale price. The
weakness here is the idea of using one year of cash flow as the basis for
calculating a sale price. This is simplistic in its view of expectations and may
sometimes be misleading. If the year chosen for the analysis of the sale price
contains an income steam that is over or understated, this error is compounded
by the capitalization process. Nonetheless, real estate of the subject's caliber
is commonly purchased on a direct capitalization basis. Overall, this
methodology has been given important consideration in our total analysis of the
subject property.
CONCLUSIONS
We have briefly discussed the applicability of each of the methods
presented. Because of certain vulnerable characteristics in the Sales Comparison
Approach, it has been used as supporting evidence and as a final check on the
value conclusion indicated by the Income Approach methodologies. The ranges in
value exhibited by the Income Approach are consistent with the leasing profiles.
Each indicates complimentary results with the Sales
- - --------------------------------------------------------------------------------
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<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
- - --------------------------------------------------------------------------------
Comparison Approach, the conclusions being supportive of each method employed,
and neither range being extremely high or low in terms of the other.
As a result of our analysis, we have formed an opinion that the market
value of the Leased Fee Estate in the subject property, subject to the
assumptions, limiting conditions, certifications, and definitions, as of May 9,
1997, the date of inspection, was:
SEVEN MILLION TWO HUNDRED THOUSAND DOLLARS
$7,200,000
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. Consequently, the marketing time
is subsequent to the effective date of the appraisal, whereas the exposure time,
previously identified, is presumed to precede the effective date of 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.
Based on our discussions with numerous real estate professionals, coupled
with the marketing times of the sales data presented herein, we conclude that a
marketing period of no more than twelve months would be required in order to
sell the property.
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<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.
This appraisal is 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.
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<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- - --------------------------------------------------------------------------------
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 other governmental consents have been or can
be obtained and renewed for any use on which the value estimate 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 has not reviewed lease documents and 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 the 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.
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<PAGE>
CERTIFICATION OF APPRAISAL
- - --------------------------------------------------------------------------------
We certify that, to the best of our knowledge and belief:
1. Steven A. Zenker, MAI 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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
6. No one provided significant professional assistance to the persons signing
this report.
7. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Steven A. Zenker, MAI has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ STEVEN A. ZENKER
----------------------------------------------------
Steven A. Zenker, MAI
Director
State Certified Appraiser No. 270-11 ZE-NK-ES-A399BM
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<PAGE>
ADDENDA
- - --------------------------------------------------------------------------------
Legal Description
Comparable Improved Sales
Comparable Rentals
Pro-Ject Cash Flow Assumptions
Pro-Ject Average Occupancy Report
Cushman & Wakefield's Real Estate Outlook
Eastide/Northend Industrial Market Report - First Quarter 1997
Appraiser Qualifications
- - --------------------------------------------------------------------------------
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<PAGE>
LEGAL DESCRIPTION
- - --------------------------------------------------------------------------------
PARCEL 1-A:
Lot 4 of Short Plat No. 777086, according to the Short Plat survey recorded
under King County Recording No. 7710060818;
EXCEPT that portion, if any, lying Southerly of the North line of the Burlington
Northern Railroad right-of-way;
TOGETHER WITH an easement for ingress, egress and utilities as set forth in
Short Plat No. 777086, according to the Short Plat survey recorded under
Recording No. 7710060818;
TOGETHER WITH an easement for ingress, egress and utilities over an existing
roadway from the centerline of Burlington Northern Crossing permit to N.E. 124th
Street over strips 15 feet to the East and 15 feet to the West of the centerline
of said roadway, the centerline of said easement being described as follows:
Beginning at a point on the South boundary of Lot 1, Short Plat No. 777086,
according to survey recorded under Recording No. 7710060818, said point being
310 feet Easterly of the Southwest property corner of Lot 1 of said short plat;
thence Northerly at right angles to said South boundary to a point on the South
boundary of the Burlington Northern Railroad right of way, said point also being
the intersection of the South boundary of said railroad right of way and the
centerline of an existing crossing agreement. Said easement being established
under Recording No. 8503290972.
TOGETHER WITH an easement for sign purposes on the following described property:
That portion of the South 20 feet of the East 20 feet of the West 290 feet of
Lot 1 of Short Plat 777086, as recorded under Recording No. 7710060818, records
of King County, Washington, lying Southerly and Westerly of existing curb and
pavement. Said easement being recorded under Recording No. .
TOGETHER WITH an easement for sign purposes on the following described property:
That portion of the South 20 feet of the East 20 feet of the West 345 feet of
Lot 1 of Short Plat 777086, as recorded under Recording No. 7710060818, records
of King County, Washington, lying Southerly and Easterly of existing curb and
pavement. Said easement being recorded under Recording No. .
Situate in the County of King, State of Washington.
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<PAGE>
LEGAL DESCRIPTION
- - --------------------------------------------------------------------------------
PARCEL 2-A:
Lot 1 and those portion of Lots 2 and 3 in Block A of Totem Valley Business
Center, as per plat recorded in Volume 126 of Plats, Pages 86 through 91,
records of King County, described as follows:
Beginning at the Northeast corner of said Lot 1:
thence along the arc of a curve to the left, having a radius of 746.25 feet
through a central angle of 05(degree)57'42", an arc distance of 77.05 feet to a
point of tangency;
thence South 18(degree)20'32" West 358.39 feet;
thence along the arc of a curve to the left having a radius of 2,914.93 feet,
through a central angle of 02(degree)27'59", an arc distance of 125.47 feet;
thence North 01(degree)35'19" East 406.41 feet;
thence South 89(degree)52'37" East 255.02 feet to the point of beginning;
(ALSO KNOWN AS Lot 1 of King County Lot Line Adjustment No. LL-85-107 recorded
under Recording No. 8511180890, being a revision of Lot Line Adjustment No.
LL-84-40, recorded under Recording No. 8406291555;)
TOGETHER WITH an easement for sign purposes on the following described property:
A portion of Lot 2, Block G, Plat of Totem Valley Business Center, as recorded
in Volume 126 of Plats, pages 86-91, records of King County, Wathington, located
in Section 28, Township 26 North, Range 5 East, W.M., City of Kirkland, King
County, Washington, more particularly described as follows:
That portion of the South 20 feet of Lot 2, Block G, Plat of Totem Valley
Business Center lying West of a line parallel to and 20 feet Easterly of the
East boundary of 128th Land N.E., a private road, and said East boundary of said
128th Lane N.E. Said easement being recorded under Recording No. .
TOGETHER WITH an easement for ingress, egress and utilities over the West 40
feet of Lots 1 and 2 of Block G, Totem Valley Business Center according to the
plat recorded in Volume 126 of Plats, Pages 86-91, records of King County,
Washington. Said easement established under Recording No. 8204190515.
Situate in the County of King, State of Washington.
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<PAGE>
LEGAL DESCRIPTION
- - --------------------------------------------------------------------------------
PARCEL 2-B:
Those portions of Lots 1, 2 and 3 in Block A of Totem Valley Business Center, as
per plat recorded in Volume 126 of Plats, Pages 86 through 91, records of King
County, described as follows:
Beginning at the Northwest corner of said Lot 2;
thence South 89(degree)52'37" East 147.42 feet;
thence South 01(degree)35'19" West 406.41 feet;
thence along the arc of a curve to the left having a radius of 2,914.93 feet,
through a central angle of 02(degree)53'51", an arc distance of 147.42 feet;
thence North 01(degree)35'19" East 405.67 feet to the point of beginning;
(ALSO KNOWN AS Lot 2 of King County Lot Line Adjustment No. LL-85-107, recorded
under Recording No. 8511180890, being a revision of Lot Line Adjustment No.
LL-84-40, recorded under Recording No. 8406291556;)
TOGETHER WITH an easement for sign purposes on the following described property:
A portion of Lot 2, Block G, Plat of Totem Valley Business Center, as recorded
in Volume 126 of Plats, pages 86-91, records of King County, Washington, located
in Section 28, Township 26 North, Range 5 East, W.M., City of Kirkland, King
County, Washington, more particularly described as follows:
That portion of the South 20 feet of Lot 2, Block G, Plat of Totem Valley
Business Center lying West of a line parallel to and 20 feet Easterly of the
East boundary of 128th Lane N.E., a private road, and said East boundary of said
128th Lane N.E. Said easement being recorded under Recording No. .
TOGETHER WITH an easement for ingress, egress and utilities over the West 40
feet of Lots 1 and 2 of Block G, Totem Valley Business Center according to the
plat recorded in Volume 126 of Plats, Pages 86-91, records of King County,
Washington. Said easement established under Recording No. 8204190515.
Situate in the County of King, State of Washington.
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<PAGE>
LEGAL DESCRIPTION
- - --------------------------------------------------------------------------------
PARCEL 3-A:
Lots 1, 4 and 5 in Clock B of Totem Valley Business Center, as per plat recorded
in Volume 126 of Plats, Pages 28 through 91, records of King County;
TOGETHER WITH an easement for sign purposes on the following described property:
A portion of Lot 2, Block G, Plat of Totem Valley Business Center, as recorded
in Volume 126 of Plats, Pages 86-91, records of King County, Washington,
located in Section 28, Township 26 North, Range 5 East, W.M., City of Kirkland,
King County, Washington, more particularly described as follows:
That portion of the South 20 feet of Lot 2, Block G, Plat of Totem Valley
Business Center lying West of a line parallel to and 20 feet Easterly of the
East boundary of 128th Lane N.E., a private road, and said East boundary of said
128th Lane N.E. Said easement being recorded under Recording No. .
TOGETHER WITH an easement for ingress and egress and utilities over the West 40
feet of Lots 1 and 2 of Block G, Totem Valley Business Center, according to Plat
recorded in Volume 126 of Plats, Pages 86-91, records of King County,
Washington;
Situate in the City of Kirkland, County of King, State of Washington.
PARCEL 3-B
Apartment Nos. B and C of B-2 Totem Valley Business Center, a condominium
intended for commercial use according to the condominium plan and survey map
delineating said apartments, recorded in Volume 70 of Condominiums, Pages 16
through 18, under King County Recording No. 8405290785, located at Lot 2 in
Block B of Totem Valley Business Center, as per plat recorded in Volume 126 of
Plats, Pages 86 through 91, records of King County;
TOGETHER WITH and undivided 27.1% and 16.7% interest, respectively, in the
common area and facilities appertaining to said apartments;
AND INCLUDING THEREIN limited common areas and facilities so appertaining,
according to the Condominium Declarations recorded under King County Recording
No. 8405290786;
INCLUDING THEREWITH Uncovered Parking Spaces No. 8 and 9, 17 through 21 and 35
through 38, as to Apartment B. Spaces No. 12 and 13 shall be shared in common
with Apartment C.
ALSO INCLUDING THEREWITH Uncovered Parking Spaces No. 10 and 11, 14 through 16,
39 and 40.
Spaces No. 12 and 13 shall be shared in common;
Situate in the City of Kirkland, County of King, State of Washington.
TOGETHER WITH a non-exclusive easement over that portion of Apartment A, B-2,
Totem Valley Business Center Condominium, located in the Southwest corner of
said Apartment A, being 6' X 8', more or less in size for installation,
maintenance, repair, replacement and reconstruction and use of the facilities
and related equipment located therein, Subject to the restrictions and
limitations as set forth in said easement recorded as recording no. 8405240988.
- - --------------------------------------------------------------------------------
<PAGE>
LEGAL DESCRIPTION
- - --------------------------------------------------------------------------------
PARCEL 3-C:
Apartment No. B of B-3 Totem Valley Business Center, a condominium intended for
commercial use according to the condominium plan and survey map delineating said
apartment, recorded in Volume 70 of Condominiums, Pages 24 through 26, under
King County Recording No. 8406051110, located at Lot 3 in Block B of Totem
Valley Business Center, as per plat recorded in Volume 126 of Plats, Pages 86
through 91, records of King County;
TOGETHER WITH and undivided 38.5% interest in the common areas and facilities
appertaining to said apartment;
AND INCLUDING THEREIN limited common areas and facilities so appertaining,
according to the Condominium Declarations recorded under King County Recording
No. 8406051111;
INCLUDING THEREWITH Uncovered Parking Spaces No. 17 through 26 and 40 and 41.
Situate in the City of Kirkland, County of King, State of Washington.
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<PAGE>
INDUSTRIAL BUILDING SALE I-1
================================================================================
Location Data
Property Name: Springbrook II Business Park
Location: 7611 S. 180th Street
City: Kent
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: 5.310 Acres
Gross Building Area: 80,973 SF
Number of Buildings: 1
Percent Office Area: 40%
Percent Air Conditioned: 40%
Clear Ceiling Height: 18 feet
Year Built: 1984
Land/Building Ratio: 2.86:1
Sprinklered: Yes
Rail Access: No
Condition: Good
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Grade and dock high
Parking: 2.5/1,000 SF
Sale Data
Transaction Type: Sale
Date of Transaction: 11/96
Marketing Time: N/A
Grantor: American Industrial Properties REIT
Grantee: Seafirst National Bank (Tr.)
Document No.: 9611141796
Sale Price: $4,500,000
Financing: Cash to Seller
Cash Equivalent Price: $4,500,000
Required Capital Cost: $0
Adjusted Sales Price: $4,500,000
Verification: Tom Woodworth
Financial Data
Assumptions & Forecast: Broker
Occupancy at Sale: 96%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
----- ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: $415,800 $5.14
SPRINGBROOK
CUSHMAN &
WAKEFIELD
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VALUATION ADVISORY SERVICES
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<PAGE>
INDUSTRIAL BUILDING SALE I-1
================================================================================
Analysis
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 9.24%
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A%
Price Per Square Foot: $55.57
Comments
This is a multi-tenant industrial building located in the Kent Valley area
of the southern Seattle metropolitan area. The property includes 204
parking spaces. There are both dock-high and grade level loading doors in
the building. There was no deferred maintenance at time of sale.
[PHOTO]
SPRINGBROOK
CUSHMAN &
WAKEFIELD
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VALUATION ADVISORY SERVICES
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<PAGE>
INDUSTRIAL BUILDING SALE I-2
================================================================================
Location Data
Property Name: Willows Park I & II
Location: 15225-15265 N.E. 95th Street
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: 5.380 Acres
Gross Building Area: 96,820 SF
Number of Buildings: 3
Percent Office Area: 49%
Percent Air Conditioned: 49%
Clear Ceiling Height: 18 feet
Year Built: 1979
Land/Building Ratio: 2.42:1
Sprinklered: Yes
Rail Access: No
Condition: Good
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Grade and dock high
Parking: 1.4/1,000 SF
Sale Data
Transaction Type: Sale
Date of Transaction: 10/96
Marketing Time: 8 months
Grantor: Sierra Capital Corporate Advisors
Grantee: D&H Investments
Document No.: 9610310388
Sale Price: $6,100,000
Financing: Cash to Seller
Cash Equivalent Price: $6,100,000
Required Capital Cost: $0
Adjusted Sales Price: $6,100,000
Verification: Steve Sutherland
Financial Data
Assumptions & Forecast: Broker
Occupancy at Sale: 94%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
----- ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: $584,380 $6.04
WILLOWS I&II-KENT
CUSHMAN &
WAKEFIELD
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VALUATION ADVISORY SERVICES
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<PAGE>
INDUSTRIAL BUILDING SALE I-2
================================================================================
Analysis
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 9.58%
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A%
Price Per Square Foot: $63.00
Comments
This is a three-building business park located in the northern part of
Redmond, Washington. The improvements include both dock-high and
ground-level loading. There are 140 parking spaces. The property was part
of a 1031 exchange.
[PHOTO]
WILLOWS I&II-KENT
CUSHMAN &
WAKEFIELD
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VALUATION ADVISORY SERVICES
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<PAGE>
INDUSTRIAL BUILDING SALE I-3
================================================================================
Location Data
Property Name: Willows Commerce Park
Location: 9461, 9521 Willows Road
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: 8.690 Acres
Gross Building Area: 168,370 SF
Number of Buildings: 2
Percent Office Area: 65%
Percent Air Conditioned: 65%
Clear Ceiling Height: 24 feet
Year Built: 1996
Land/Building Ratio: 2.25:1
Sprinklered: Yes
Rail Access: No
Condition: Good
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Grade and dock high
Parking: 2.4/1,000 SF
Sale Data
Transaction Type: Sale
Date of Transaction: 10/96
Marketing Time: 5 months
Grantor: Opus/Puget Western LLC
Grantee: Kay Enterprises
Document No.: 9610020860
Sale Price: $16,000,000
Financing: Market Terms
Cash Equivalent Price: $16,000,000
Required Capital Cost: $0
Adjusted Sales Price: $16,000,000
Verification: Brian Leibsohn
Financial Data
Assumptions & Forecast: Broker
Occupancy at Sale: 100%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
----- ------
Potential Gross Income: $1,544,172 $9.17
Vacancy and Credit Loss: $77,209 $0.46
Effective Gross Income: $1,466,963 $8.71
Expenses: $29,339 $0.17
Net Operating Income: $1,437,624 $8.54
WILLOWS COMM
CUSHMAN &
WAKEFIELD
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VALUATION ADVISORY SERVICES
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<PAGE>
INDUSTRIAL BUILDING SALE I-3
================================================================================
Analysis
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 8.99%
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): 10.91
Operating Expense Ratio (OER): 2.00%
Price Per Square Foot: $95.03
Comments
This two-building complex is located in the central portion of Redmond,
Washington. The property includes a 73,687 square foot multi-tenant
building and a 92,683 square foot R&D building. Some of the tenants
include AT&T, ENSR, and Cascade Contractors.
[PHOTO]
WILLOWS COMM
CUSHMAN &
WAKEFIELD
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VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING SALE I-4
================================================================================
Location Data
Property Name: Northward Business Park
Location: 19203 68th Avenue South
City: Kent
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: 10.780 Acres
Gross Building Area: 213,699 SF
Number of Buildings: 3
Percent Office Area: 39%
Percent Air Conditioned: 39%
Clear Ceiling Height: 18 to 24 feet
Year Built: 1990
Land/Building Ratio: 2.20:1
Sprinklered: Yes
Rail Access: No
Condition: Good
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Grade and dock high
Parking: 1.3/1,000 SF
Sale Data
Transaction Type: Sale
Date of Transaction: 09/96
Marketing Time: N/A
Grantor: VHM Group
Grantee: Northward Business park, Inc.
Document No.: 9609121277
Sale Price: $9,455,283
Financing: Cash to Seller
Cash Equivalent Price: $9,455,283
Required Capital Cost: $0
Adjusted Sales Price: $9,455,283
Verification: Scott Carter
Financial Data
Assumptions & Forecast: Broker
Occupancy at Sale: 100%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
----- ------
Potential Gross Income: $1,224,324 $5.73
Vacancy and Credit Loss: $48,973 $0.23
Effective Gross Income: $1,175,351 $5.50
Expenses: $297,019 $1.39
Net Operating Income: $878,332 $4.11
NORTHWARD
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING SALE I-4
================================================================================
Analysis
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 9.29%
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): 8.04
Operating Expense Ratio (OER): 25.27%
Price Per Square Foot: $44.25
Comments
This three-building industrial complex is located in the Kent Valley area
of the Seattle metropolitan area. The complex has 268 open parking stalls.
There was one vacant unit (18,770 square feet) at the time of sale.
[PHOTO]
NORTHWARD
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING SALE I-5
================================================================================
Location Data
Property Name: West Valley Executive Park
Location: 6601 South 190th Street
City: Kent
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: 16.870 Acres
Gross Building Area: 205,655 SF
Number of Buildings: 19
Percent Office Area: 38%
Percent Air Conditioned: 38%
Clear Ceiling Height: 14 feet
Year Built: 1982
Land/Building Ratio: 3.57:1
Sprinklered: Yes
Rail Access: No
Condition: Good
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Grade-level
Parking: 1.8/1,000 SF
Sale Data
Transaction Type: Sale
Date of Transaction: 06/96
Marketing Time: N/A
Grantor: T.R. Bell Kent Corp.
Grantee: Cook Inlet Region, Inc.
Document No.: 960628053
Sale Price: $10,655,000
Financing: Cash to Seller
Cash Equivalent Price: $10,655,000
Required Capital Cost: $0
Adjusted Sales Price: $10,655,000
Verification: Carol Gore
Financial Data
Assumptions & Forecast: Buyer
Occupancy at Sale: 93%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
----- ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: $1,010,094 $4.91
WEST VALLEY EX
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING SALE I-5
================================================================================
Analysis
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 9.48%
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A%
Price Per Square Foot: $51.81
Comments
This is a 19-building business park complex located in the Kent Valley
area of the Seattle metropolitan area. There are a total of 367 parking
spaces. There is no dock-high loading in the center. There was no deferred
maintenance at time of sale.
[PHOTO]
WEST VALLEY EX
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-1
================================================================================
Location Data
Property Name: Willows Business Center 1-2
Location: 14920-30 N.E. 95th Street
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: N/A
Gross Building Area: 72,580 SF
Number of Buildings: 2
Percent Office Area: 55%
Percent Air Conditioned: 55%
Clear Ceiling Height: 14 to 24 feet
Year Built: 1980
Land/Building Ratio: N/A
Sprinklered: Yes
Rail Access: No
Condition: Average
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Gound level
Parking: 2 space/1,000 NRA
Lease Data
Occupancy: 96%
Typical Size: 4,000 SF
Term: 5 years
Base Rent Per Square Foot: $0.45 (whs)/$0.90 (off)
Rent Escalations: Flat
Basis: N/A
Expense Pass-Through: Triple net
Free Rent (months): None
Tenant Improvement: As is
Leasing Agent: Steve Henderson
Phone No.: (206) 455-4500
Survey Date: 05/97
WILLOWS BC
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-1
================================================================================
Comments
This is the first phase of a two-phase multi-tenant business park located
in the central part of Redmond, Washington. The suite sizes range from
1,000 up to 10,000 square feet.
[PHOTO]
WILLOWS BC
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-2
================================================================================
Location Data
Property Name: Willows Business Center 3-12
Location: 14620-950 N.E. 95th Street
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: N/A
Gross Building Area: 139,892 SF
Number of Buildings: 10
Percent Office Area: 55%
Percent Air Conditioned: 55%
Clear Ceiling Height: 14 to 16 feet
Year Built: 1985
Land/Building Ratio: N/A
Sprinklered: Yes
Rail Access: No
Condition: Average
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Gound level
Parking: 2 space/1,000 NRA
Lease Data
Occupancy: 97%
Typical Size: 3,500 SF
Term: 5 years
Base Rent Per Square Foot: $0.45 (whs)/$0.90 (off)
Rent Escalations: Flat
Basis: N/A
Expense Pass-Through: Triple net
Free Rent (months): None
Tenant Improvement: As is
Leasing Agent: Steve Henderson
Phone No.: (206) 455-4500
Survey Date: 05/97
WILLOWS BC
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-2
================================================================================
Comments
This is the second phase of a two-phase multi-tenant business park located
in the central part of Redmond, Washington. The suite sizes range from 500
up to 5,000 square feet.
[PHOTO]
WILLOWS BC
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-3
================================================================================
Location Data
Property Name: Pacific Business & Tech Center
Location: 15225 N.E. 90th Street
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: N/A
Gross Building Area: 120,000 SF
Number of Buildings: 4
Percent Office Area: 55%
Percent Air Conditioned: 55%
Clear Ceiling Height: 12 to 22 feet
Year Built: 1986
Land/Building Ratio: N/A
Sprinklered: Yes
Rail Access: No
Condition: Good
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Gound level
Parking: 3 space/1,000 NRA
Lease Data
Occupancy: 96%
Typical Size: 5,000 SF
Term: 5 years
Base Rent Per Square Foot: $0.50 (whs)/$0.90 (off)
Rent Escalations: Flat
Basis: N/A
Expense Pass-Through: Triple net
Free Rent (months): None
Tenant Improvement: As is
Leasing Agent: N/A
Phone No.: (206) 881-5975
Survey Date: 05/97
PCFC B & T
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-3
================================================================================
Comments
This is a combination industrial and R&D industrial park. Some of the
suites are 100 percent office and some suites have two levels. According
to the leasing agent, the park has maintained an average occupancy of 95
percent for the past five years.
[PHOTO]
PCFC B & T
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-4
================================================================================
Location Data
Property Name: Totem Square
Location: 11813 124th Avenue N.E.
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: N/A
Gross Building Area: 64,800 SF
Number of Buildings: 3
Percent Office Area: 45%
Percent Air Conditioned: 45%
Clear Ceiling Height: 12 feet
Year Built: 1980
Land/Building Ratio: N/A
Sprinklered: Yes
Rail Access: No
Condition: Average
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Gound level
Parking: 2 space/1,000 NRA
Lease Data
Occupancy: 85%
Typical Size: 4,000 SF
Term: 5 years
Base Rent Per Square Foot: $0.40 (whs)/$0.75 (off)
Rent Escalations: Flat
Basis: N/A
Expense Pass-Through: Triple net
Free Rent (months): None
Tenant Improvement: As is
Leasing Agent: Don Haze
Phone No.: (206) 623-8901
Survey Date: 05/97
TOTEM SQ-REDMOND
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-4
================================================================================
Comments
This complex includes both retail and an industrial component. There are
three buildings that make-up the industrial portion of the complex. The
development has poor access and exposure and has had a history of below
market occupancy.
[PHOTO]
TOTEM SQ-REDMOND
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-5
================================================================================
Location Data
Property Name: Quadrant Tech Center
Location: 12341 134th Court
City: Redmond
County: King
State/Zip: Washington
Assessor's Parcel No(s): N/A
Atlas Reference: N/A
Physical Data
Type: Business Park
Land Area: N/A
Gross Building Area: 47,470 SF
Number of Buildings: 2
Percent Office Area: 65%
Percent Air Conditioned: 65%
Clear Ceiling Height: 12 feet
Year Built: 1985
Land/Building Ratio: N/A
Sprinklered: Yes
Rail Access: No
Condition: Average
Exterior Walls: Tilt-Up Pre-Cast
Column Spacing: N/A
Loading: Gound level
Parking: 3 space/1,000 NRA
Lease Data
Occupancy: 100%
Typical Size: 5,000 SF
Term: 5 years
Base Rent Per Square Foot: $0.50 (whs)/$1.00 (off)
Rent Escalations: Flat
Basis: N/A
Expense Pass-Through: Triple net
Free Rent (months): None
Tenant Improvement: As is
Leasing Agent: Chris Langer
Phone No.: (206)455-8500
Survey Date: 05/97
QUADRANT TCH
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
INDUSTRIAL BUILDING RENT COMPARABLE R-5
================================================================================
Comments
This industrial complex is geared more to high-tech tenants who require
more office space than warehouse space. According to the leasing agent,
the center has always maintained an above average occupancy level. The
development is located just off of 134th Street.
[PHOTO]
QUADRANT TCH
CUSHMAN &
WAKEFIELD
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
TOTEM VALLEY BUSINESS CENTER
PROJECT ASSUMPTIONS REPORT
EXCLUDING TENANTS
BUILDING PROLOGUE
- - -----------------
LEASEHOLD ANALYSIS OF TOTEM VALLEY BUSINESS CENTER BEGINNING 5/1997
FOR 15 YEARS ON A FISCAL YEAR BASIS
AREA MEASURES
- - -------------
GLA
1997 VALUE - 105,115
THEREAFTER - CONSTANT
OCCA
1997 VALUE - 102,893
1998 VALUE - 100,371
1999 VALUE - 101,740
2000 VALUE - 98,370
2001 VALUE - 96,803
2002 VALUE - 100,474
2003 VALUE - 97,413
2004 VALUE - 98,326
2005 VALUE - 99,558
2006 VALUE - 99,285
2007 VALUE - 95,583
2008 VALUE - 100,854
2009 VALUE - 99,837
2010 VALUE - 94,715
2011 VALUE - 100,067
THEREAFTER - CONSTANT
CONSTANT
GROWTH RATES
- - ------------
RNTG
1997 VALUE - 3.50
THEREAFTER - CONSTANT
EXPG
1997 VALUE - 3.50
THEREAFTER - CONSTANT
CPIG
1997 VALUE - 3.50
THEREAFTER - CONSTANT
NCOM
1997 VALUE - 5.00
THEREAFTER - CONSTANT
RCOM
1997 VALUE - 2.50
THEREAFTER - CONSTANT
BLCM
+25.0% OF NCOM + 75.0% OF RCOM
MARKET RATES
- - ------------
<PAGE>
PAGE 2
WHSR
1997 VALUE - 0.42
THEREAFTER - GROWING AT GROWTH RATE RNTG
CONSTANT
OFFC
1997 VALUE - 0.90
THEREAFTER - GROWING AT GROWTH RATE RNTG
NTIR
1997 VALUE - 5.00
THEREAFTER - GROWING AT GROWTH RATE CPIG
RTIR
1997 VALUE - 2.50
THEREAFTER - GROWING AT GROWTH RATE CPIG
BLTR
+25.0% OF NTIR + 75.0% OF RTIR
WHTR
1997 VALUE - 1.00
THEREAFTER - GROWING AT GROWTH RATE CPIG
RESR
1997 VALUE - 0.20
THEREAFTER - GROWING AT GROWTH RATE EXPG
\\
CONSTANT
\\\
CONSTANT
\\\\
CONSTANT
.
CONSTANT
..
CONSTANT
...
CONSTANT
MISCELLANEOUS INCOMES
- - ---------------------
\
ZERO
EXPENSES
- - --------
REAL ESTATE TAXES, REFERRED TO AS RETX
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 78,497
1998 VALUE - 96,094
THEREAFTER - GROWING AT GROWTH RATE EXPG
INSURANCE, REFERRED TO AS INS
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 11,000
<PAGE>
PAGE 3
THEREAFTER - GROWING AT GROWTH RATE EXPG
REPAIRS & MAINT., REFERRED TO AS MAIN
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 82,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
ADMINISTRATIVE, REFERRED TO AS ADMN
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 48,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
MANAGEMENT, REFERRED TO AS MGMT
AN INFORMATIONAL EXPENSE
1997 VALUE - 40,548
1998 VALUE - 41,727
1999 VALUE - 44,160
2000 VALUE - 44,663
2001 VALUE - 46,018
2002 VALUE - 49,114
2003 VALUE - 48,817
2004 VALUE - 51,689
2005 VALUE - 53,948
2006 VALUE - 55,306
2007 VALUE - 55,837
2008 VALUE - 61,064
2009 VALUE - 61,995
2010 VALUE - 60,860
2011 VALUE - 67,085
THEREAFTER - CONSTANT
UTILITIES, REFERRED TO AS UTIL
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 47,000
THEREAFTER - GROWING AT GROWTH RATE EXPG
CAM GROUP 1, REFERRED TO AS CAM1
AN INFORMATIONAL EXPENSE
+100.0% OF RETX+100.0% OF INS
+100.0% OF MAIN+100.0% OF ADMN
+100.0% OF MGMT+100.0% OF UTIL
CHARGED AGAINST NET OPERATING INCOME
CONSTANT
GROUND RENT, REFERRED TO AS GRNE
CHARGED AGAINST NET OPERATING INCOME
1997 VALUE - 12,000
THEREAFTER - CONSTANT
VACANCY ALLOWANCE
- - -----------------
PERCENTAGE OF POTENTIAL GROSS INCOME
FOR ALL TENANTS SUBJECT TO VACANCY
1997 VALUE - 3.00
THEREAFTER - CONSTANT
MANAGEMENT FEE
- - --------------
PERCENTAGE OF EFFECTIVE GROSS INCOME
FOR ALL TENANTS
PASSED THROUGH TO TENANTS USING EXPENSE MGMT
1997 VALUE - 4.00
<PAGE>
PAGE 4
THEREAFTER - CONSTANT
COMMISSION CALCULATIONS
- - -----------------------
STANDARD METHOD #1 - 6.000% OF TOTAL RENT
STANDARD METHOD #2 - 3.000% OF TOTAL RENT
STANDARD METHOD #3 - 3.900% OF TOTAL RENT
STANDARD METHOD #4 - 0.000% OF TOTAL RENT
STANDARD METHOD #5 - 0.000% OF TOTAL RENT
COMMISSION PAYOUTS
- - ------------------
STANDARD METHOD #1 - CASHED OUT
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
ALTERATION CALCULATION
- - ----------------------
1997 VALUE - 5.50
THEREAFTER - GROWING AT GROWTH RATE EXPG
ALTERATION PAYOUTS
- - ------------------
STANDARD METHOD #1 - CASHED OUT
STANDARD METHOD #2 - CASHED OUT
STANDARD METHOD #3 - CASHED OUT
STANDARD METHOD #4 - CASHED OUT
STANDARD METHOD #5 - CASHED OUT
COMMON AREA MAINTENANCE POOL
- - ----------------------------
NONE
CAPITAL EXPENDITURES
- - --------------------
RESERVES
MARKET RATE RESR MULTIPLIED BY AREA MEASURE GLA
PRIMARY CLASSIFICATION CODES
- - ----------------------------
<PAGE>
PAGE 5
1 - OFFICE SPACE
2 - WAREHOUSE SPACE
SECONDARY CLASSIFICATION CODES
- - ------------------------------
1 - OCCUPIED SPACE
2 - VACANT SPACE
COST CENTERS
- - ------------
NONE
SALES VOLUME PROFILE
- - --------------------
PERCENT OF RELATIVE
MONTH ANNUAL SALES VOLUME
- - ----- ------------ --------
JAN 8.33% 1.00
FEB 8.33% 1.00
MAR 8.33% 1.00
APR 8.33% 1.00
MAY 8.33% 1.00
JUN 8.33% 1.00
JUL 8.33% 1.00
AUG 8.33% 1.00
SEP 8.33% 1.00
OCT 8.33% 1.00
NOV 8.33% 1.00
DEC 8.33% 1.00
------ -----
TOTALS 100.00% 12.00
GLOBAL RECOVERIES
- - -----------------
CAM GROUP 1, REFERRED TO AS GLB1
PRO RATA SHARE RECOVERY OF EXPENSE CAM1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GLA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
TENANT PROLOGUE
- - ---------------
MINIMUM RENTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/SQUARE FOOT/MONTH
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/MONTH
SALES VOLUMES AND BREAKPOINTS:
SPECIFIED AMOUNTS INTERPRETED AS AMOUNTS/SQUARE FOOT/MONTH
MARKET RATES INTERPRETED AS AMOUNTS/SQUARE FOOT/MONTH
RENEWAL RENTS ARE COMPOUNDED ANNUALLY
RELETTING DOWNTIME AND EXPENSES ARE NOT CONDITIONAL ON GOING TO MARKET
<PAGE>
PAGE 6
REFERENCE TENANTS
- - -----------------
THERE ARE A TOTAL OF 2 REFERENCE TENANT(S)
- - --------------------------------------------------------------------------------
#1 - SUITE 1 , OFFICE TENANT
BASE LEASE DATES: 1/1991 TO 12/2005
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 1
PRIMARY CODE: 1 - OFFICE SPACE
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 0.00/SF/MO
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
1 3.00 2 NONE NONE YES YES
2 3.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE OFFC MULTIPLIED BY 1.000
RENEWAL RECOVERIES:
GLOBAL GROUPING
GLOBAL RECOVERY GLB1
RENEWAL COMMISSIONS: GROWTH RATE BLCM
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE BLTR
RENEWAL PAYOUT: CASHED OUT
- - --------------------------------------------------------------------------------
#2 - SUITE 1 , WAREHOUSE TENANT
BASE LEASE DATES: 6/1991 TO 5/1994
TYPE OF TENANT: OFFICE
SQUARE FOOTAGE: 1
PRIMARY CODE: 2 - WAREHOUSE SPACE
SUBJECT TO VACANCY ALLOWANCE
MINIMUM RENT:
INITIAL RENT - 0.00/SF/MO
RECOVERIES: NONE
COMMISSIONS: NONE
ALTERATIONS: NONE
SPECULATIVE RENEWALS:
LENGTH VACANT SQ FT MONTHS OF
TERM YEARS.MONTHS MONTHS INCREASE FREE RENT COMMISSIONS ALTERATIONS
- - ---- ------------ ------ -------- --------- ----------- -----------
<PAGE>
PAGE 7
1 3.00 2 NONE NONE YES YES
2 3.00 2 NONE NONE YES YES
3 3.00 2 NONE NONE YES YES
4 3.00 2 NONE NONE YES YES
5 3.00 2 NONE NONE YES YES
6 3.00 2 NONE NONE YES YES
RENEWAL MINIMUM RENT:
MARKET RATE WHSR MULTIPLIED BY 1.000
WITH /SF/MO STEPS OF
RENEWAL RECOVERIES:
CAM GROUP 1
PRO RATA SHARE RECOVERY OF EXPENSE CAM1
PRO RATED ON TENANT SQUARE FOOTAGE OVER AREA MEASURE GLA
CALCULATED ON AN ACCRUAL BASIS WITH A CALENDAR YEAR EXPENSE
WITH NO CAP
AND A BASE OF ZERO FOR A COMPLETE PASSTHROUGH
RENEWAL COMMISSIONS: GROWTH RATE BLCM
RENEWAL PAYOUT: CASHED OUT
RENEWAL ALTERATIONS: MARKET RATE WHTR
RENEWAL PAYOUT: CASHED OUT
<PAGE>
TOTEM VALLEY BUSINESS CENTER
AVERAGE OCCUPANCY REPORT
FOR ALL TENANTS
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 102,965 99,610 102,676 102,052 87,442 103,915 101,765 103,915 93,198 93,465 76,370 103,915 101,365
FEBRUARY 105,115 96,748 102,210 97,748 89,542 101,476 99,812 100,750 93,198 103,915 98,542 103,915 90,915
MARCH 105,115 99,436 102,210 98,858 98,410 101,476 100,852 87,442 103,915 101,765 103,915 93,198 93,465
APRIL 105,115 103,363 105,115 105,115 95,548 101,010 96,548 89,542 101,476 99,812 100,750 93,198 103,915
MAY 105,115 99,237 105,115 105,115 98,236 101,010 97,658 98,410 101,476 100,852 87,442 103,915 101,765
JUNE 99,859 99,237 105,115 105,115 102,163 101,611 103,915 95,548 101,010 96,548 89,542 101,476 99,812
JULY 97,623 105,115 102,565 105,115 98,037 101,611 103,915 98,236 101,010 97,658 98,410 101,476 100,852
AUGUST 102,879 105,115 92,115 81,743 98,037 103,915 103,915 102,163 101,611 103,915 95,548 101,010 96,548
SEPTEMBER 105,115 94,398 94,665 76,370 103,915 101,365 103,915 98,037 101,611 103,915 98,236 101,010 97,658
OCTOBER 101,950 94,398 105,115 98,542 103,915 90,915 81,743 98,037 103,915 103,915 102,163 101,611 103,915
NOVEMBER 100,885 105,115 102,968 103,915 93,198 93,465 76,370 103,915 101,365 103,915 98,037 101,611 103,915
DECEMBER 102,985 102,676 101,012 100,750 93,198 103,915 98,542 103,915 90,915 81,743 98,037 103,915 103,915
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
AVERAGE SF
OCCUPIED-OCCA 102,893 100,371 101,740 98,370 96,803 100,474 97,413 98,326 99,558 99,285 95,583 100,854 99,837
TOTAL SF-GLA 105,115 105,115 105,115 105,115 105,115 105,115 105,115 105,115 105,115 105,115 105,115 105,115 105,115
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
OCCUPANCY % 97.89 95.49 96.79 93.58 92.09 95.58 92.67 93.54 94.71 94.45 90.93 95.95 94.98
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
2010
-------
JANUARY 103,915
FEBRUARY 81,743
MARCH 76,370
APRIL 98,542
MAY 103,915
JUNE 100,750
JULY 87,442
AUGUST 89,542
SEPTEMBER 98,410
OCTOBER 95,548
NOVEMBER 98,236
DECEMBER 102,163
-------
AVERAGE SF
OCCUPIED-OCCA 94,715
TOTAL SF-GLA 105,115
-------
OCCUPANCY % 90.11
=======
2011
-------
JANUARY 98,037
FEBRUARY 98,037
MARCH 103,915
APRIL 103,915
MAY 93,198
JUNE 93,198
JULY 103,915
AUGUST 101,476
SEPTEMBER 101,476
OCTOBER 101,010
NOVEMBER 101,010
DECEMBER 101,611
-------
AVERAGE SF
OCCUPIED-OCCA 100,067
TOTAL SF-GLA 105,115
-------
OCCUPANCY % 95.20
=======
<PAGE>
Real Estate
Outlook
Autumn 1996
- - ---------------------------------
Cushman & Wakefield, Inc.
51 West 52nd Street
New York NY 10019
(212) 841-7500
- - --------------------------------------------------------------------------------
Published by Valuation Advisory Services
- - --------------------------------------------------------------------------------
THE RECOVERY CONTINUES
The focus of our survey covering the first half of 1996 has been to incorporate
the responses of a broad range of real estate investors. The respondents
included a cross section of institutional investors and their advisors, who tend
to concentrate on well-leased Class A product in favored markets nationally, as
well as a number of active, well-capitalized, local and regional-based investors
who acquire Class B or "value added" properties in both "favored" and
"out-of-favor" market locations. In some instances one or two of these
well-capitalized investors with relatively narrow geographical focus and
specific asset criteria have successfully captured a dominant share of a major
regional real estate market for a particular asset category through knowledge of
the local markets and aggressive responses to investment opportunities. In
several cases these investors had previously achieved outstanding returns on
selected real estate acquisitions during the depth of the recession in
1991-1992, and these successes early during the recovery have resulted in
additional sources of discretionary capital
(Continued on page 2)
[Logo] CUSHMAN & WAKEFIELD WORLDWIDE(SM)
Participants in Investor Survey
Autumn 1996:
American General Hospitality, Inc. * American Realty Advisors * Amresco
Advisors, Inc. * Arden Realty Group * Ares Realty Capital * Ashford Financial
Corporation * Bedford Property Investors * Capstar Hotels * Cornerstone Real
Estate Advisors * Corporate Property Investors * Dean Witter Realty * DRA
Advisors, Inc. * Equity Office Properties, Inc. * General Growth * Hotel
Partners * Ivanhoe Inc. * K&F Development * Kensington Realty Advisors * Koll *
The L&B Group * Layton-Belling & Associates * Lehman Brothers * Lincoln
Investment Management, Inc. * Loews Hotels * Macerich Co. * Met Life Realty
Group * MIG Realty Advisors, Inc. * N.Y. State Common Retirement Fund * New
Castle Hotels * O'Connor Realty Advisors * Office Opportunity Fund * Plascencia
Group * Prudential Real Estate Investors * Red Lion Hotels * The Rouse Company *
Sedko Interest * Summit Commercial * Teachers Insurance and Annuities Assoc. *
Westin Hotels and Resorts * Westrust Financial * The Yarmouth Group, Inc.
CUSHMAN &
WAKEFIELD
Improving your place
in the world.(SM)
<PAGE>
The Recovery Continues
(Continued from page 1)
and favorable debt as the markets have continued to recover. The lack of
investment activity by many of the major institutions and their advisors during
the first portion of this decade left a void which was filled to a degree by
more localized, entrepreneurial investors. These investors have been "first
in-first out" in recovering markets across the country, often achieving
attractive returns through short-term holds and re-sale at a premium to
institutional buyers. Local market knowledge coupled with a short
decision-making timeframe has enabled well-capitalized local investors to tie up
vacant or partially occupied commercial buildings and lease all or most of the
space prior to the closing of escrow. We are familiar with several properties
which have transferred ownership three times during the past two years, to
buyers higher up the "investment food chain," with each sale at a premium above
the prior transaction.
This pricing trend reflects the increased competition from buyers, which
is evident in the number of bidders for available product and the shortened
timeframe required to market properties and complete transactions. Of
approximately 60 properties marketed for sale by Cushman & Wakefield's Financial
Services Group (FSG) during the first five months of 1996, nearly 50% closed or
were under contract by June, 1996. The sellers in these marketing efforts have
received an average of roughly 7 offers per property.
Excluding the hotel survey participants, the breakdown on a percentage
basis of respondents to our survey and the reported capital sources for their
investments are as follows:
Investor Profile % of Total
Domestic Pension Funds 4
Insurance Companies 4
Investment Banks 4
Investment Advisors 35
REITs 18
Individual U.S. Investors 14
U.S. Investment Funds 7
"Other" 7
Total 100
Primary Capital Sources % of Total
REITs 11
Investment Banks/Wall Street 6
Pension Funds 40
Endowment Funds 11
U.S. Individuals or Funds 17
Offshore 7
Life Insurance/General Account 8
Total 100
The survey results have been re-categorized to a degree in this issue in
order to offer a more detailed breakdown of appropriate criteria by both
property type (office, industrial, retail, residential, hotel) and asset quality
(Class A and B, including both "leased" and "Value Added"). For the most part
the more specific definitions for the asset categories have resulted in a more
narrow range of investment parameters than in previous surveys.
- - --------------------------------------------------------------------------------
The Fundamentals of Continued Recovery
- - --------------------------------------------------------------------------------
Other than retail properties, particularly regional malls, which continue to be
out of favor for many investors, the real estate market recovery continued
through the first half of 1996. This trend appears likely to continue through at
least year end. With the benefit of hindsight the market fundamentals appear to
have supported, in most instances, the soundness of real estate acquisitions
during the past three years. The movement of capital on a regional basis during
the past several years has followed fairly consistently the markets which have
demonstrated improvement in employment, absorption, and a corresponding decline
in vacancy rates. The basis for the allocation of capital for real estate on a
regional basis over time is perhaps most easily analyzed through a review of
vacancy trends in the office market over the past five years.
- - --------------------------------------------------------------------------------
Office Market Vacancy Trends and Investors' Preferences
- - --------------------------------------------------------------------------------
With assistance from Cushman & Wakefield's Research Services we compiled and
analyzed vacancy trends over the past five years on a national, regional, and
local basis. Cushman & Wakefield's Research Services tracks office market supply
and demand statistics in approximately 50 markets across the United States. The
accompanying charts and graphs provide an overview of the direct vacancy trends
for office markets tracked consistently from 1991 through 1995. The figures are
allocated to "CBD" and "Non-CBD" (or suburban) locations on a regional basis.
The vacancy trends are based on 44 major and secondary office markets
containing nearly 2.4 billion square feet of rentable area. The CBD and suburban
sectors of the market have experienced substantially different vacancy trends
during the past five years. While the non-CBD, or suburban office market direct
vacancy level has declined more than five full percentage points from 18.6% to
13.5 % from 1991 through 1995, the CBD
CBD Versus Suburban Office Investments
Weighted Average Rates
Property Type Category(1) Going-In Cap Rates IRRs
CBD Office Class A-Leased 9.2%-9.6% 11.7%-12.0%
Suburban Office Class A-Leased 8.8%-9.5% 11.2%-11.6%
CBD Office Class B-Leased 10.0%-10.4% 12.8%-13.1%
Suburban Office Class B-Leased 9.5%-10.0% 12.0%-12.5%
CBD Office Class A-Value Added 9.4%-10.0% 12.8%-13.5%
Suburban Office Class A-Value Added 9.1%-9.7% 13.4%-14.3%
CBD Office Class B-Value Added 10.7%-11.0% 14.6%-15.3%
Suburban Office Class B-Value Added 9.7%-10.0% 14.5%-15.2%
CBD Office All Categories 9.8%-10.3% 13.0%-13.5%
Suburban Office All Categories 9.3%-9.8% 12.8%-13.4%
(1) "Leased Asset" refers to predominantly "passive" investments involving
substantially leased assets.
"Value Added" denotes properties which require more active management due
to leasing issued and/or additional capital investment for physical
issues.
2 REAL ESTATE OUTLOOK
<PAGE>
Direct CBD Vacancy Rates
Direct CBD 1991 1992 1993 1994 1995
- - --------------------------------------------------------------------------------
East 13.9% 15.6% 15.2% 14.2% 12.8%
Midwest 18.2 20.1 19.8 16.1 16.6
South 23.8 25.6 26.9 25.0 24.3
West 16.4 16.6 15.3 14.5 13.2
Totals 16.0% 17.5% 17.0% 15.7% 14.6%
[GRAPHICAL REPRESENTATION OF BAR CHART]
Direct Non-CBD Vacancy Rates
Direct Non-CBD 1991 1992 1993 1994 1995
- - --------------------------------------------------------------------------------
East 16.2% 18.4% 17.0% 15.2% 13.4%
Midwest 20.3 19.7 17.9 12.5 11.9
South 22.5 21.2 19.0 16.8 14.7
West 17.5 16.7 15.7 14.2 13.0
Totals 18.6% 18.8% 17.3% 15.1% 13.5%
[GRAPHICAL REPRESENTATION OF BAR CHART]
vacancy level of 14.6% as of year-end 1995 represents a decrease of only 1.4%
from the 1991 vacancy rate of 16.0%. When sublease space is included in the
analysis, the improvement in the suburban office vacancy rate over the past five
years is even more substantial, with a decrease of 6.4% from year-end 1991
(21.5% nationally) through 1995 (15.1%). The basis for investor preference for
suburban versus CBD office product is evident in the vacancy trends shown by the
data, and this trend is supported by the responses to our survey. As shown in
the two tables summarizing the respondents' criteria for CBD office versus
suburban office properties, the Going-In Capitalization Rates and Internal Rates
of Return (IRR's) were lower for nearly all suburban office categories than for
CBD office buildings. The chart "CBD Versus Suburban Office Investments"
summarizes these results on a comparison basis.
The going-in capitalization rates for suburban office properties
demonstrate a pattern from roughly 20 basis points to 50 basis points below the
reported criteria for CBD properties of comparable caliber. Excluding the "Value
Added" category, the reported IRR's for suburban office properties display a
similar pattern. The similar IRR's for suburban office properties in this
category versus CBD properties are attributable in part to the shorter-term
holding periods (on average) used by the investors responding to this category.
- - --------------------------------------------------------------------------------
Regional Trends
- - --------------------------------------------------------------------------------
The vacancy trend data and investors' regional preferences can be further
refined through a comparison of CBD and suburban office market vacancy trends in
specific major U.S. markets over the past five years. The accompanying chart
illustrates the direct and overall (including sublease availablities) vacancy
rates for 14 major U.S. markets from 1991 through 1995. The relative performance
of the office markets in these cities has fluctuated considerably when compared
to the previous chart summarizing the aggregate national and regional data.
Within the individual cities the CBD and suburban components of the market have
also experienced different trends. Examples of substantial gaps in performance
of CBD versus suburban office markets include Chicago, with year-end 1995 direct
vacancies of 15.5% for the CBD versus 11.8% for suburban office space; Atlanta,
with 1995 direct vacancy of 15.9% for CBD compared to 9.9% for suburban office;
and Dallas, with a year-end 1995 vacancy gap of nearly 22 percentage points:
35.4% in the CBD and 13.5% for suburban office space. Miami, Los Angeles, and
Phoenix also have significant spreads between the CBD and suburban office market
vacancies. The "24-hour" cities tend to counter this trend, as shown by the
figures for Boston, New York, San Francisco and Seattle.
- - --------------------------------------------------------------------------------
Timing the Markets
- - --------------------------------------------------------------------------------
The timing for major capital influxes to regional markets during the past
several years has coincided generally with the first year of stabilization or
improvement in the markets: Phoenix, Atlanta, and Denver, for example,
experienced significant declines in both CBD and suburban office vacancies
during 1993-1994, which the Boston, Chicago, and Dallas (suburban) markets have
begun to recover more recently during 1994-1995. The movement of capital to
office properties, particularly suburban office buildings, coincided with the
initial stabilization of the vacancy rates in these market locations, in some
cases just prior to evidence of actual improvement. The investors who achieved
the greatest returns to date have typically been the buyers who were" ahead of
the curve" and anticipated the initial market improvement. These buyers were
usually the local and regional
AUTUMN 1996 3
<PAGE>
Historical Office Market Statistics
[MAP] Cushman & Wakefield Valuation Advisory Services
1991 through 1995
Direct Vacancy Rate Overall Vacancy Rate
Market Year CBD Non-CBD Total CBD Non-CBD Total
- - --------------------------------------------------------------------------------
Boston, MA 1991 17.5% 17.2% 17.4% 19.2% 20.3% 19.8%
1992 16.0 13.7 14.8 17.1 15.3 16.2
[MAP] 1993 13.0 11.6 12.3 14.0 13.5 13.7
1994 10.2 9.0 9.6 11.4 11.4 11.4
1995 8.1 7.9 8.0 9.2 9.6 9.5
- - --------------------------------------------------------------------------------
New York, NY 1991 14.6% - 14.6% 17.7% - 17.7%
1992 15.5 - 15.5 18.4 - 18.4
[MAP] 1993 15.3 - 15.3 17.5 - 17.5
1994 14.2 - 14.2 15.9 - 15.9
1995 13.0 - 13.0 14.7 - 14.7
- - --------------------------------------------------------------------------------
Washington, DC 1991 12.0% - 12.0% 12.0% - 12.0%
1992 13.2 - 13.2 13.2 - 13.2
[MAP] 1993 12.0 - 12.0 12.0 - 12.0
1994 11.8 - 11.8 11.8 - 11.8
1995 10.1 - 10.1 12.2 - 12.2
- - --------------------------------------------------------------------------------
Chicago, IL 1991 18.8% 21.0% 19.6% 20.7% 22.9% 21.5%
1992 20.2 20.5 20.3 21.8 22.4 22.0
[MAP] 1993 19.6 18.5 19.2 20.9 21.0 20.9
1994 17.6 15.9 17.0 18.8 17.5 18.3
1995 15.5 11.8 14.2 16.7 13.9 15.7
- - --------------------------------------------------------------------------------
Atlanta, GA 1991 20.2% 17.3% 17.7% 22.7% 19.3% 19.8%
1992 23.0 17.1 18.0 26.3 19.0 20.1
[MAP] 1993 22.4 13.3 14.7 24.4 16.0 17.3
1994 18.0 12.4 13.2 19.0 15.2 15.8
1995 15.9 9.9 10.9 17.8 11.7 12.6
- - --------------------------------------------------------------------------------
Dallas, TX 1991 30.2% 26.2% 27.2% 30.2% 26.2% 27.2%
1992 32.6 25.0 26.9 34.0 26.1 28.1
[MAP] 1993 36.7 22.7 26.1 37.3 23.4 26.8
1994 36.2 17.9 22.3 36.4 18.6 22.9
1995 35.4 13.5 18.7 36.0 14.1 19.3
- - --------------------------------------------------------------------------------
Houston, TX 1991 20.3% 23.1% 22.4% 21.9% 24.6% 23.9%
1992 21.6 22.5 22.3 23.3 24.6 24.3
[MAP] 1993 24.0 21.6 22.2 24.6 23.2 23.5
1994 22.2 20.8 21.1 24.5 22.3 22.8
1995 22.3 21.0 21.3 25.1 22.5 23.1
- - --------------------------------------------------------------------------------
Miami, FL 1991 25.3% 20.7% 22.3% 27.8% 21.2% 23.5%
1992 23.4 14.7 17.7 25.4 15.4 18.9
[MAP] 1993 23.3 12.1 15.9 24.7 13.8 17.4
1994 22.9 13.0 16.4 24.4 14.1 17.6
1995 22.4 12.3 15.8 23.9 13.3 16.9
- - --------------------------------------------------------------------------------
Denver, CO 1991 19.0% 20.0% 19.7% 22.4% 21.6% 21.9%
1992 17.5 18.6 18.2 20.2 19.7 19.9
[MAP] 1993 15.4 15.4 15.4 18.3 16.7 17.2
1994 11.9 12.9 12.6 13.6 14.2 14.0
1995 12.1 9.9 10.6 14.3 10.6 11.8
- - --------------------------------------------------------------------------------
4 REAL ESTATE OUTLOOK
<PAGE>
Historical Office Market Statistics
[MAP] Cushman & Wakefield Valuation Advisory Services
1991 through 1995
Direct Vacancy Rate Overall Vacancy Rate
Market Year CBD Non-CBD Total CBD Non-CBD Total
- - --------------------------------------------------------------------------------
Los Angeles, CA 1991 18.5% 19.2% 19.0% 23.3% 22.4% 22.6%
1992 20.7 18.9 19.4 26.6 21.5 22.9
[MAP] 1993 20.0 18.3 18.8 26.3 21.2 22.5
1994 22.6 17.3 18.7 28.1 19.5 21.8
1995 22.4 17.3 18.7 24.8 19.6 21.0
- - --------------------------------------------------------------------------------
Phoenix, AZ 1991 25.0% 23.7% 24.2% 25.6% 24.4% 24.8%
1992 24.9 20.9 22.3 25.9 21.5 23.0
[MAP] 1993 20.1 17.8 18.6 20.5 18.2 19.0
1994 16.6 13.0 14.3 18.9 13.8 15.6
1995 15.9 10.4 12.4 19.4 11.7 14.5
- - --------------------------------------------------------------------------------
Portland, OR 1991 14.8% 12.5% 13.9% 15.8% 12.8% 14.6%
1992 13.6 11.2 12.6 15.0 11.6 13.6
[MAP] 1993 9.2 8.2 8.8 11.7 8.8 10.5
1994 8.0 7.1 7.6 8.4 8.0 8.2
1995 8.6 6.5 7.7 9.6 7.4 8.6
- - --------------------------------------------------------------------------------
San Francisco, CA 1991 10.7% 13.8% 11.6% 13.2% 14.6 13.6
1992 10.8 12.2 11.2 12.8 13.5 13.0
[MAP] 1993 12.4 11.8 12.2 14.0 12.9 13.7
1994 9.6 9.1 9.5 11.4 10.2 11.0
1995 7.6 8.4 7.8 10.6 9.5 10.3
- - --------------------------------------------------------------------------------
Seattle, WA 1991 13.0% 12.1% 12.8% 14.3% 13.4% 14.1%
1992 13.0 10.6 12.5 14.6 15.3 14.7
[MAP] 1993 10.8 17.9 12.3 13.6 25.8 16.2
1994 8.5 26.2 12.2 9.2 27.7 13.0
1995 6.0 22.3 9.1 7.7 22.8 10.6
- - --------------------------------------------------------------------------------
investors with strong local market knowledge. The initial recovering markets of
Phoenix, Denver, and Atlanta are now considered by some as relatively
high-priced. With the benefit of hindsight the best time to invest in suburban
office product in selected cities would have been during 1993 for Phoenix,
Denver, and Atlanta, and early 1995 for Chicago and Dallas.
- - --------------------------------------------------------------------------------
Market and Property Ratings
- - --------------------------------------------------------------------------------
In our current survey we asked investors to rate various regions of the country
by property type based on the strength of the market fundamentals (i.e. supply,
demand, absorption, near-term construction trends) excluding considerations of
whether or not the real estate is over- or undervalued. Ratings were on a scale
of 1 to 5, with 5 as most favorable. We also asked the participants to rate the
markets and property types as investment opportunities, with 1 corresponding to
the most undervalued assets and 5 corresponding to the most overvalued assets.
The accompanying charts "Market and Property Ratings" and "Best Investment
Opportunities" summarize the responses from our participants.
A comparison of the ratings for office investment based on market
fundamentals and the historical office market vacancy trends shown previously
suggests that our participants have been "doing their homework" and analyzing
the data prior to investing in the markets. On a "global" basis the higher
weighted average rating of 3.7 for suburban office versus 2.9 for CBD office
product is consistent with the demonstrated relative strengths of these asset
categories. The tightest correlation between rankings for CBD and suburban
office product corresponds to the "24-hour" cities mentioned previously:
Northern California (San Francisco), New York, the Pacific Northwest (Seattle
and Portland), and New England (Boston). The greatest "gaps" between these two
product types exist in the markets which have (for the most part) the most
significant vacancy spreads between CBD and suburban product (Dallas, Chicago,
and Phoenix).
The weighted average rating "spread" between CBD and suburban office
markets is more narrow when rated on the basis of investment opportunity (3.0 to
3.2) rather than fundamentals (2.9 to 3.7). CBD office product in Chicago, New
York, and Miami was rated among the most undervalued asset categories in our
survey.
The most recent cycle in real estate, from the onset of the recession in
1989-1990 to the current period of recovery has demonstrated (again) that good
timing (both buying and selling) remains one of the most important requirements
for achieving superior returns from real estate investments. A number of
regional markets for suburban office
Continued on pages 22, 23
AUTUMN 1996 5
<PAGE>
Rethinking the Regional Mall
by Richard W. Latella, MAI, Senior Director
The unprecedented number of industry bankruptcies, consolidations and
outright liquidations over the past 12 to 18 months have caused mall owners to
look hard at their operations. Reportedly, approximately 4,000 stores were
closed in 1995 and some analysts forecast that 7,000 more may close in 1996.
Some of the more recognized examples include:
o Merry-Go-Round liquidated its chain of 560+/- stores including its
Merry-Go-Round, Dejaiz, and Cignal units.
o Petrie Retail, a company which operates such chains as M.J. Carroll, G&G, Jean
Nicole, and Marianne and Stuarts is in bankruptcy.
o Edison Brothers, with such divisions as Jeans West, J. Riggins, Oak Tree, and
5-7-9 Shops is closing up to 500 stores.
o Melville Corporation continues its repositioning strategy which will leave it
concentrating on its drug store division - CVS. In November 1995 it sold
Marshalls (495 units - $2.25 billion in sales) to off-price rival TJX Companies.
In May of this year it sold Kay-Bee Toys to Consolidated Stores and spun off
Wilson's Leather. Its furniture chain, This End Up, will be sold shortly to an
investor group and Melville plans to spin off its Footstar Unit (Meldisco,
Footaction, and Thom McAn) in July. Mid next year, the company will likely spin
off its Linen N' Things and Bob's Stores.
o Herman's Sporting Goods, an 80-year-old company which had filed Chapter 11
twice, decided to liquidate rather than reorganize.
o Discovery Zone, the nation's largest operator of children's indoor-recreation
centers, filed Chapter 11 in March.
Developers have come to the realization that the programmed or "cookie
cutter" approach to regional mall development which was so successful in the
1970s and 1980s is no longer a prescription for success. While the heightened
levels of store closures will inevitably accelerate the death knell for the
often cited prediction that up to 15 percent of all regional centers
(approximately 250-275) will close over the next five years, many owners now
have exciting opportunities to begin the process of re-inventing their malls.
The realization that has occurred from this period of turbulence is the
homogeneity of malls (i.e. anchors, layout, food court) is no longer sufficient
to compete against the myriad types of competition for the retail dollar. The
proliferation of value-driven alternates as evidenced by the surge in
construction of power centers, warehouse clubs, outlet centers, and electronic
shopping has served to undermine sales at traditional centers. The current
construction figures point toward a fundamental shift in consumer trends. For
example, in the early 1990s new mall development nearly stopped. With financing
again available, only five to seven malls per year are being delivered. In
contrast, it is estimated that nearly 80 percent of all new retail construction
(260+/- million square feet) was built by big box retailers least year. This is
up on average from about 55 percent during the period 1992-1994.
Instead of competing against them, some owners are finding opportunities
to bring category killers into the mall as mini or junior anchor tenants.
Evidence of success is seen with such retailers as Circuit City, Media Play,
Borders Books/Barnes & Noble, and in the northeast such chains as Nobody Beats
the Wiz and Dick's Sporting Goods. Since the rent that these deals typically
generate falls in between the subsidized low rent of the traditional department
stores and the average in-line rent paid by the specialty shops, careful
consideration must be given to the financial feasibility of the deal. Of equal
importance is the long-term effect on the investment appeal and value to the
center as a whole.
One of the most debated themes of late is the introduction of
entertainment into a center. This loosely defined term covers a myriad of
concepts available ranging from mini-amusement parks to multiplex theater and
restaurant themes to interactive virtual reality applications. Clearly, choosing
the right formula is a difficult task. Nonetheless, the underlying agenda is to
not only attract the shopper but to entice the entire family to come and extend
their stay at the mall.
One formula which appears to be working is the trend in moving the cinema
back into the mall from an outparcel location. The major theater companies have
enjoyed a resurgence of patronage and are responding with 20 to 30 screen
formats. In order to encourage length of stay and facilitate cross-shopping,
owners are expending the food component to include several themed sit-down
restaurants to enhance the repetitious food court operations found at many
malls. An excellent example of this is the new "thEATery" concept, a term coined
by Eklec Co., an affiliate of The Pyramid Companies at its West Nyack, New York
project known as Palisades Center.
Upon completion, this 3.3 million square foot "power mall" will be a
super-regional retail/entertainment complex. The entertainment component
consists of a 20-plex Sony Theater with a wide selection of casual dining and
themed restaurants and themed concept clubs. The mall will contain a 50,000
square foot Dave & Busters, a Q-ZAR laser tag arena, and a skating rink. The
project will be anchored with a mix of traditional department stores such as
Lord & Taylor, JC Penney, and Filenes, along with several discount department
stores and category killers including Wal-Mart, BJ's Wholesale Club, Home Depot,
Toys R Us, Dick's Sporting Goods, Border's Books, The Wiz, and Bed, Bath &
Beyond.
Cushman & Wakefield, Inc. has been retained to provide appraisal and
consulting
Overall Capitalization Rates
Regional Mall Sales
Year Range Mean Basis Point
Change
1988 5.00% - 8.00% 6.16% -
1989 4.58% - 7.26% 6.05% -11
1990 5.06% - 9.11% 6.33% +28
1991 5.60% - 7.82% 6.44% +11
1992 6.00% - 7.97% 7.31% +87
1993 7.00% - 10.10% 7.92% +61
1994 6.98% - 10.29% 8.37% +45
1995 7.75% - 11.10% 9.20% +83
1996 7.15% - 10.67% 8.69% -51
6 REAL ESTATE OUTLOOK
<PAGE>
services in connection with this unique project.
This trend toward mega malls can probably first be traced to The Mills
Corporation. Its "Mills" projects typically contain 1.5 to 1.8 million square
feet and offer an assortment of value-oriented merchants built around 12 to 20
anchor and junior anchor tenants. These projects contain a unique mix of
manufacturer, department store, and specialty store outlets, category killers,
off-price retailers, and catalogs outlets. Entertainment is also a very
important feature. The Mills projects each have a focused tourism program which
has resulted in Potomac Mills being the top-rated tourist attraction in the
Commonwealth of Virginia, and Sawgrass Mills being number 2 behind Disney World
in the state of Florida. Cushman & Wakefield has been involved in each of these
projects over the years, most recently having provided appraisal services for
the bank group which financed the construction of the 1.7 million-square-foot
Ontario Mills due to open in November in Ontario, California.
As valuation consultants, we must constantly keep abreast of the dynamics
of the retail industry which interplay to affect value. As retail continues to
evolve and reinvent itself, Cushman & Wakefield will watch these trends closely.
We continue to monitor regional mall transactions and have seen some signs that
the rising trend in capitalization rates may be stabilizing. These trends are
displayed in the chart on page 20. while retail has moved down on the scale of
preferred investments by many of the institutional players, prices may be at a
point now which signal significant buying opportunities. To date, there have
been no significant transactions involving new or repositioned centers with a
large entertainment theme from which capitalization rates can be extracted. Once
an inevitable sale does occur, we will make every effort to secure and analyze
the thought process of both parties.
Cushman & Wakefield's Retail Valuation Group specializes in the appraisal
and consultation of complex retail assets. Through July 1996 we have been
awarded assignments involving 80 regional/superregional mall properties across
the United States.
THE INSIDE STORY
The Upward Beat Continues...
by Daniel H. Lesser, Director, MAI,
CRE, CHA
and Mitchell S. Roberts, Director
The hospitality industry maintains its strong performance since our last survey.
Occupancies continue to rise in most markets and average rate growth is
exceeding inflation. According to Smith Travel Research (STR), national
occupancy was 65.3 percent through June 1996 compared with 64.4 percent for the
same period last year. The national average rate was $71.40, a 6.2 percent
increase from last year. Of the top 25 markets followed by STR, Orlando, Florida
had the greatest occupancy change for the first six months, a 6.7 increase from
1995. It also had the highest occupancy, 82.9 percent. With an 11.3% increase,
Phoenix, Arizona had the highest increase in average rate between 1995 and 1996.
New York City recorded the highest average rate of $141.12. According to Smith
Travel Research, industry profitability increased from $5.5 billion in 1994 to
$8.8 billion in 1995, a 60 percent increase in one year. The strength of the
industry is attributed to revenue increases through occupancy and rate,
increased expense efficiency, and overall lower fixed charges. At this point in
time, many of the overleveraged properties of the 1980's and early 1990's have
either been sold or restructured with financing based upon current market
values.
As a result of the strong performance results and the ability to achieve
higher yields than other real estate types, the capital markets now view the
hotel industry as a preferred investment type. Debt financing is now more
readily available from the traditional sources such as commercial banks and
insurance companies. Many of these lenders had stopped making hotel loans when
the majority of the hotel markets were oversupplied. Today, there are a number
of new capital sources including the public debt and equity markets.
Historically, hotels investors had limited access to public debt capital, as
loans were typically sourced from the private sector. As Wall Street has entered
the market, the access to various forms of capital is unprecedented in the
industry. However, with loan-to-value ratios ranging from 50% to 70% the overall
underwriting is more conservative than experienced in the 1980's. Either through
mortgage conduit programs or directly through the investment bankers, these
programs make individual property and portfolio loans and through the public
debt markets, package the loans to sell to investors. Hotels franchisors are now
offering financing as well, through programs established with investment banks.
This enables the individual franchisee to tap into a much larger source of
financing than ever before.
Equity financing continue to increase with REIT offerings and IPO's for
public corporations. Recently, Interstate Hotels Co. with an approximate $204
million offering and Wyndham Hotels Corporation with an approximate $50 million
offering entered the public equity markets. Also, Extended Stay America recently
raised $290 million in a 9.7 million-share offering. In the last few years there
has been tremendous growth in public hotel companies. These companies have a
much wider access to capital which is being used to acquire additional hotel
properties and retire debt. As evidenced by the most recent performance of the
lodging stocks, the market views these stocks as good investments. Various
lodging indexes, developed by Bankers Trust, had returns between 22 and 30
percent over the last seven months, compared to six percent return for the S&P
500.
The development cycle is occurring with limited service and extended stay
all-suite properties, due in part to less restrictive barriers to entry, lower
construction costs, and less operating risk than their full service and luxury
counterparts. Currently, it appears that wide scale development of full service
hotels is still two or three years off. Full service hotels that are being
developed usually involved some form of public subsidy or are located in gaming
markets. Most full service hotels can still be acquired for less than the
construction costs. Investors are assuming that with very few new full service
hotels on the horizon, they will be able to ride the occupancy wave and increase
average rates beyond inflation, therefore increasing overall profits and
resultant values.
Hotel operators are continuing to segment the markets further. The newest
products being offered are middle market and budget extended stay products.
Based on the success of the traditional extended stay products such as Residence
Inn and Summerfield Suites, the hotel firms perceive a market need for products
that target a
Continued on page 20
AUTUMN 1996 7
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET OFFICE MARKET - URBAN/CBD
- - ------------------------------------------------------------------------------------------------------------------------------------
9.5% 10.0% 10.0% 10.0% 11.5% 11.5% 3.0% 3.0% 3.0% 4.0% 10.0 10.0
9.5% 10.0% 10.0% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
13.0% 13.0% -- -- 14.0% 14.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.3% 9.3% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 9.0% 8.5% 9.0% 10.5% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
Responses 11 11 10 10 11 11 11 11 11 11 11 11
Average (%) 9.2% 9.6% 9.2% 9.7% 11.7% 12.0% 3.3% 4.2% 3.4% 3.9% 8.5 9.5
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 10.0% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
15.0% 15.0% -- -- 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
9.0% 10.0% -- -- -- -- -- -- -- -- -- --
9.0% 10.0% 9.0% 10.0% 12.0% 13.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
Responses 8 8 6 6 7 7 7 7 7 7 7 7
Average (%) 10.0% 10.4% 9.7% 10.3% 12.8% 13.1% 3.3% 4.7% 3.5% 4.0% 8.3 9.7
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
8.0% 9.0% 9.5% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0 10.0 10.0
10.0% 10.0% 10.0% 10.0% 13.0% 13.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
12.0% 12.0% -- -- 13.0% 13.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
-- -- -- -- 12.0% 13.0% 4.0% 4.0% 4.0% 4.0 5.0 10.0
Responses 8 8 7 7 9 9 9 9 9 9 9 9
Average (%) 9.4% 10.0% 9.6% 10.2% 12.8% 13.5% 3.5% 4.6% 3.5% 3.9% 7.6 8.9
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
12.0% 12.0% 12.0% 12.0% 15.0% 15.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.8% 9.8% 10.8% 10.8% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
14.0% 14.0% -- -- 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 6 6 5 5 6 6 6 6 6 6 6 6
Average (%) 10.7% 11.0% 10.5% 11.2% 14.6% 15.3% 3.2% 4.6% 3.3% 3.9% 8.0 8.8
--------------------------------------------------------------------------------------------------------
Total Responses 33 33 28 28 33 33 33 33 33 33 33 33
Weighted Average (%) 9.8% 10.3% 9.7% 10.3% 13.0% 13.5% 3.3% 4.6% 3.4% 3.9% 8.1 9.2
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
8 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET OFFICE MARKET - SUBURBAN/NON - CBD
- - ------------------------------------------------------------------------------------------------------------------------------------
9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.5% 8.5% 9.3% 9.3% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
11.0% 11.0% -- -- 12.0% 12.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0
8.5% 10.0% 9.0% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
8.0% 10.0% 9.5% 10.0% 11.5% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0
l0.0% 11.0% 10.5% 11.0% 12.0% 12.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.1% 9.1% 10.1% l0.1% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
9.0% 9.0% 10.0% 10.0% 11.5% 11.5% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.0% 9.0% 12.0% 13.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.0% 10.0% -- -- -- -- -- -- -- -- --
8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0
Responses 16 16 14 14 15 15 15 15 15 15 15 15
Average (%) 8.8% 9.5% 9.3% 9.9% 11.2% 11.6% 3.5% 4.4% 3.6% 3.8% 8.9 9.7
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.8% 8.8% 9.5% 9.5% 11.8% 11.8% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
12.0% 12.0% -- -- 18.0% 18.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0
10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0
8.0% 10.0% 9.5% 10.0% 11.0% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0
9.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 10.0% 14.0% 15.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
10.0% 11.0% -- -- -- -- -- -- -- -- -- --
10.0% 11.0% 10.0% 11.0% 12.0% 13.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0
Responses 13 13 11 11 12 12 12 12 12 12 12 12
Average (%) 9.5% 10.0% 9.8% 10.2% 12.0% 12.5% 3.4% 4.5% 3.4% 3.7% 8.6 9.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% -- -- 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0
8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
6.0% 6.0% 9.0% 9.0% 17.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.0% 10.0% -- -- -- -- -- -- -- -- -- --
12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0
Responses 10 10 8 8 9 9 9 9 9 9 9 9
Average (%) 9.1% 9.7% 9.5% 10.0% 13.4% 14.3% 3.1% 4.6% 3.4% 3.8% 7.2 8.0
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% -- -- 18.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0
10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0
11.0% 11.0% 11.0% 11.0% 14.0% 14.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
9.6% 9.6% 10.6% 10.6% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
6.0% 6.0% 10.0% 10.0% 20.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0
9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.0% 10.0% -- -- -- -- -- -- -- -- -- --
12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0
Responses 10 10 8 8 9 9 9 9 9 9 9 9
Average (%) 9.7% 10.0% 10.0% 10.5% 14.5% 15.2% 2.9% 4.3% 3.2% 3.6% 7.2 8.0
--------------------------------------------------------------------------------------------------------
Total Responses 49 49 41 41 45 45 45 45 45 45 45 45
Weighted Average (%) 9.3% 9.8% 9.7% 10.1% 12.8% 13.4% 3.2% 4.4% 3.4% 3.7% 8.0 8.8
--------------------------------------------------------------------------------------------------------
</TABLE>
AUTUMN 1996 9
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET INDUSTRIAL MARKET - WAREHOUSE/DISTRIBUTION
- - ------------------------------------------------------------------------------------------------------------------------------------
9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.5% 8.5% 9.3% 9.3% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
8.5% 10.0% 9.5% 10.0% 11.0% 12.0% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
9.0% 9.0% 10.0% 10.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
9.0% 9.0% 9.5% 9.5% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 10 10 10 10 10 10 10 10 10 10 10 10
Average (%) 8.8% 9.2% 9.4% 9.8% 10.9% 11.0% 2.9% 4.0% 3.3% 3.8% 9.8 10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
8.8% 8.8% 9.5% 9.5% 11.3% 11.3% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
10.0% 10.0% 11.0% 11.0% 12.0% 12.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 7 7 7 7 7 7 7 7 7 7 7 7
Average (%) 9.3% 9.5% 10.0% 10.2% 11.2% 11.2% 2.8% 4.3% 3.2% 3.9% 9.7 10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 12.0% 12.0% 13.0% 13.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 9.7% 9.9% 10.4% 10.8% 11.9% 11.9% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
12.0% 12.0% 13.0% 13.0% 14.0% 14.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0
10.0% 10.0% 10.5% 10.5% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.5% 10.5% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 10.1% 10.4% 10.9% 11.3% 12.4% 12.4% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
--------------------------------------------------------------------------------------------------------
Total Responses 25 25 25 25 25 25 25 25 25 25 25 25
Weighted Average (%) 9.5% 9.7% 10.2% 10.5% 11.6% 11.6% 2.6% 4.5% 3.2% 4.0% 9.6 10.2
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
10 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET INDUSTRIAL MARKET - BUSINESS PARKS, OTHER INDUSTRIAL & MANUFACTURING
- - ------------------------------------------------------------------------------------------------------------------------------------
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0
9.0% 9.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 3 3 4 4 4 4 4 4 4 4
Average (%) 8.9% 9.4% 9.7% 10.7% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0
10.0% 10.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 3 3 4 4 4 4 4 4 4 4
Average (%) 9.3% 9.8% 9.8% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 5 5 4 4 5 5 5 5 5 5 5 5
Average (%) 9.4% 10.0% 9.9% 10.9% 12.4% 13.2% 3.4% 4.0% 3.2% 3.8% 8.2 9.4
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.5% 10.5% 11.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.5% 10.5% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 5 5 4 4 5 5 5 5 5 5 5 5
Average (%) 9.6% 10.2% 10.0% 11.0% 12.4% 13.2% 3.4% 4.0% 3.2% 3.8% 8.2 9.4
--------------------------------------------------------------------------------------------------------
Total Responses 18 18 14 14 18 18 18 18 18 18 18 18
Weighted Average(%) 9.3% 9.8% 9.8% 10.8% 12.0% 12.4% 3.3% 4.0% 3.2% 3.9% 8.5 9.8
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
AUTUMN 1996 11
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RETAIL MARKET - NEIGHBORHOOD & COMMUNITY CENTERS
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 10.5% 9.5% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0
9.5% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
10.0% 10.0% 10.5% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
10.3% 10.3% 10.8% 10.8% 13.0% 13.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0
9.0% 9.0% 10.0% 10.0% 10.0% 10.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.5% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
Responses 9 9 8 8 8 8 9 9 9 9 9 9
Average (%) 9.3% 9.8% 10.0% 10.4% 11.9% 12.1% 2.9% 3.7% 3.4% 3.9% 8.9 9.4
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8% 10.8% 11.3% 11.3% 14.0% 14.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0
10.0% 10.0% 11.0% 11.0% 12.0% 12.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.5% 10.5% -- -- -- -- -- -- -- -- -- --
Responses 6 6 4 4 4 4 5 5 5 5 5 5
Average (%) 9.5% 10.0% 10.4% 11.1% 12.3% 12.3% 2.3% 3.8% 3.3% 4.2% 9.0 9.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 12.0% 12.0% 13.0% 13.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 9.5% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.0% 10.0% -- -- -- -- -- -- -- --
11.0% 11.0% 9.5% 9.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0
Responses 7 7 5 5 5 5 6 6 6 6 6 6
Average (%) 9.7% 10.3% 10.1% 10.7% 13.8% 14.6% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
13.0% 13.0% 14.0% 14.0% 14.0% 14.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0
10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0
9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
11.0% 11.0% 10.5% 10.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0
Responses 6 6 5 5 5 5 6 6 6 6 6 6
Average (%) 10.3% 10.8% 10.8% 11.5% 14.2% 15.0% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
--------------------------------------------------------------------------------------------------------
Total Responses 28 28 22 22 22 22 26 26 26 26 26 26
Weighted Average (%) 9.7% 10.2% 10.3% 10.9% 13.0% 13.5% 2.7% 3.9% 3.2% 4.0% 8.7 9.3
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
12 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RETAIL MARKET - POWER CENTERS & "BIG BOX"
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
10.0% 10.0% 9.5% 9.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
10.5% 10.5% 10.5% 10.5% 11.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0
9.5% 9.5% 10.0% 10.0% 11.4% 11.4% 3.8% 3.8% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 9.5% 10.0% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
9.3% 9.3% 9.5% 10.0% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
9.0% 9.0% -- -- -- -- -- -- -- -- -- --
9.0% 9.5% 9.5% 10.0% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
Responses 9 9 8 8 8 8 8 8 8 8 8 8
Average (%) 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8% 10.8% 10.8% 10.8% 11.0% 12.0% 2.0% 3.0% 3.0% 3.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
10.0% 10.0% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 3 3 3 3 3 3 3 3 3 3 3 3
Average (%) 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.8% 10.8% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.5% 9.5% 10.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 3 3 3 3 3 3 3 3 3 3 3 3
Average (%) 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
-- -- -- -- 15.0% 15.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 2 2 2 2 3 3 3 3 3 3 3 3
Average (%) 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3% 3.2% 3.7% 9.3 10.3
--------------------------------------------------------------------------------------------------------
Total Responses 17 17 16 16 17 17 17 17 17 17 17 17
Weighted Average (%) 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
AUTUMN 1996 13
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RETAIL MARKET - REGIONAL MALLS
- - ------------------------------------------------------------------------------------------------------------------------------------
7.5% 7.5% 8.0% 8.0% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
9.0% 9.0% 9.0% 9.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
7.5% 7.5% 7.8% 7.8% 12.0% 12.0% 1.5% 2.0% 3.0% 3.0% 10.0 10.0
7.0% 8.0% 8.0% 8.0% 10.5% 11.5% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
9.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.0% 8.0% 9.0% 10.5% 11.0% 3.0% 3.5% 3.0% 3.5% 10.0 10.0
8.0% 8.0% 8.5% 8.5% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0
7.8% 8.0% 8.3% 8.5% 11.0% 12.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0
7.0% 8.0% 7.0% 8.0% 10.0% 11.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0
Responses 10 9 9 9 9 9 10 10 10 10 10 10
Average (%) 7.9% 8.2% 8.2% 8.6% 11.4% 11.8% 3.0% 3.6% 3.5% 3.8% 9.1 9.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 10.0% 10.0% 17.0% 17.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
9.0% 9.0% 9.0% 9.0% 13.5% 13.5% 2.0% 2.0% 4.0% 4.0% 7.0 7.0
9.0% 10.0% 10.0% 10.0% 12.0% 14.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
10.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
Responses 5 4 4 4 4 4 5 5 5 5 5 5
Average (%) 9.3% 9.6% 9.6% 10.0% 13.4% 13.9% 2.5% 3.4% 3.7% 4.0% 8.6 8.6
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 10.0% 10.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
11.0% 11.0% 11.0% 11.0% 13.0% 14.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
9.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.5% 8.5% 9.0% 11.5% 12.5% 2.5% 3.0% 2.5% 3.0% 10.0 10.0
Responses 5 4 4 4 4 4 5 5 5 5 5 5
Average (%) 9.3% 9.8% 9.8% 10.3% 13.4% 13.9% 2.6% 3.6% 3.4% 3.8% 9.2 9.2
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
11.0% 11.0% 11.0% 11.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0
12.5% 12.5% 12.0% 12.0% 14.0% 15.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0
10.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 9.0% 9.3% 9.8% 12.0% 13.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0
13.0% 13.0% 11.0% 11.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0
Responses 6 5 5 5 5 5 6 6 6 6 6 6
Average (%) 10.6% 11.0% 10.6% 11.0% 14.6% 15.0% 2.7% 3.5% 3.3% 3.7% 8.2 8.2
--------------------------------------------------------------------------------------------------------
Total Responses 26 22 22 22 22 22 26 26 26 26 26 26
Weighted Average (%) 9.3% 9.6% 9.5% 10.0% 13.2% 13.6% 2.7% 3.5% 3.5% 3.8% 8.8 8.9
--------------------------------------------------------------------------------------------------------
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical issues
14 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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 A - LEASED ASSET RESIDENTIAL - APARTMENTS
- - ------------------------------------------------------------------------------------------------------------------------------------
8.5% 10.0% 9.0% 10.5% -- -- -- -- 3.5% 3.5% 1.0 1.0
8.5% 9.0% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0
9.8% 9.8% 10.0% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0
8.3% 9.0% 9.0% 9.5% 10.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
7.5% 8.5% 8.0% 9.0% 10.0% 11.0% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.8% 8.8% 9.0% 9.0% 11.3% 11.3% 3.8% 4.0% 4.0% 4.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.5% 9.0% 9.0% 9.5% 10.0% 11.5% 3.0% 4.0% 3.0% 3.0% 10.0 10.0
8.5% 9.0% 8.5% 9.0% -- -- 3.0% 3.5% 3.0% 3.5% 10.0 10.0
8.8% 9.0% 9.0% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 10 10 10 10 8 8 9 9 10 l0 l0 10
Average (%) 8.6% 9.2% 9.0% 9.6% 11.2% 11.7% 2.9% 3.9% 3.3% 3.8% 8.4 8.9
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - LEASED ASSET
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 9.5% 9.5% 10.0% 11.0% 12.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0
9.0% 10.0% 10.0% 10.0% 11.0% 12.5% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
9.0% 10.0% 10.0% 10.5% 10.5% 12.0% 3.0% 4.0% 3.0% 3.0% 10.0 10.0
9.0% 9.5% 9.5% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 5 5 5 5 5 5 5 5 5 5 5 5
Average (%) 8.9% 9.7% 9.7% 10.3% 11.0% 11.8% 2.5% 4.2% 3.1% 4.0% 9.6 10.2
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS A - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 11.0% 11.0% 11.0% 12.5% 13.5% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.0% 9.0% 9.0% 11.0% 12.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0
9.0% 9.0% 9.5% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 8.9% 9.4% 9.8% 10.3% 11.6% 12.1% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
- - ------------------------------------------------------------------------------------------------------------------------------------
CLASS B - VALUE ADDED
- - ------------------------------------------------------------------------------------------------------------------------------------
12.0% 13.0% 13.0% 13.0% 13.0% 15.0% 0.0% 5.0% 3.0% 5.0% 10.0 10.0
8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0
8.0% 8.0% 10.0% 10.0% 11.0% 13.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0
9.5% 10.0% 10.0% 11.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0
Responses 4 4 4 4 4 4 4 4 4 4 4 4
Average (%) 9.5% 10.1% 10.6% 11.3% 12.0% 13.0% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
Total Responses 23 23 23 23 21 21 22 22 23 23 23 23
Weighted Average (%) 9.0% 9.6% 9.8% 10.4% 11.5% 12.1% 2.7% 4.4% 3.2% 4.0% 8.4 9.3
</TABLE>
"Leased Asset" refers to predominantly "passive" investments involving
substantially leased Properties
"Value Added" denotes properties which require more active management due
to leasing issues and/or additional capital investment for physical
issues
AUTUMN 1996 15
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION
GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (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>
- - ------------------------------------------------------------------------------------------------------------------------------------
OFFICE SUMMARY OF WEIGHTED AVERAGE
- - ------------------------------------------------------------------------------------------------------------------------------------
Urban/CBD 9.8% 10.3% 9.7% 10.3% 13.0% 13.5% 3.3% 4.6% 3.4% 3.9% 8.1 9.2
Class A - Leased Asset 9.2% 9.6% 9.2% 9.7% 11.7% 12.0% 3.3% 4.2% 3.4% 3.9% 8.5 9.5
Class B - Leased Asset 10.0% 10.4% 9.7% 10.3% 12.8% 13.1% 3.3% 4.7% 3.5% 4.0% 8.3 9.7
Class A - Value Added 9.4% 10.0% 9.6% 10.2% 12.8% 13.5% 3.5% 4.6% 3.5% 3.9 7.6 8.9
Class B - Value Added 10.7% 11.0% 10.5% 11.2% 14.6% 15.3% 3.2% 4.8% 3.3% 3.9% 8.0 8.8
Suburban 9.3% 9.8% 9.7% 10.1% 12.8% 13.4% 3.2% 4.4% 3.4% 3.7% 8.0 8.8
Class A - Leased Asset 8.8% 9.5% 9.3% 9.9% 11.2% 11.6% 3.5% 4.4% 3.6% 3.8% 8.9 9.7
Class B - Leased Asset 9.5% 10.0% 9.8% 10.2% 12.0% 12.5% 3.4% 4.5% 3.4% 3.7% 8.6 9.6
Class A - Value Added 9.1% 9.7% 9.5% 10.0% 13.4% 14.3% 3.1% 4.6% 3.4% 3.8% 7.2 8.0
Class B - Value Added 9.7% 10.0% 10.0% 10.5% 14.5% 15.2% 2.9% 4.3% 3.2% 3.6% 7.2 8.0
- - ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL
- - ------------------------------------------------------------------------------------------------------------------------------------
Warehouse/Distribution 9.5% 9.7% 10.2% 10.5% 11.6% 11.6% 2.6% 4.5% 3.2% 4.0% 9.6 10.2
Class A - Leased Asset 8.8% 9.2% 9.4% 9.8% 10.9% 11.0% 2.9% 4.0% 3.3% 3.8% 9.8 10.1
Class B - Leased Asset 9.3% 9.5% 10.0% 10.2% 11.2% 11.2% 2.8% 4.3% 3.2% 3.9% 9.7 10.1
Class A - Value Added 9.7% 9.9% 10.4% 10.8% 11.9% 11.9% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
Class 8 - Value Added 10.1% 10.4% 10.9% 11.3% 12.4% 12.4% 2.4% 4.8% 3.3% 4.1% 9.5 10.3
Business Parks 9.4% 9.9% 10.0% 10.8% 12.3% 12.9% 3.4% 4.0% 3.2% 3.8% 8.3 9.6
Class A - Leased Asset 9.0% 9.5% 9.8% 10.5% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
Class B - Leased Asset 9.3% 9.8% 10.0% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
Class A - Value Added 9.5% 10.2% 10.0% 10.8% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7
Class B - Value Added 9.7% 10.3% 10.2% 11.0% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7
0ther Industrial/
Manufacturing 9.2% 9.7% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3
Class A - Leased Asset 8.8% 9.3% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0
Class B - Leased Asset 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0
Class A - Value Added 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
Class B - Value Added 9.5% 10.0% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5
- - ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
- - ------------------------------------------------------------------------------------------------------------------------------------
Neighborhood & Community
Centers 9.7% 10.2% 10.3% 10.9% 13.0% 13.5% 2.7% 3.9% 3.2% 4.0% 8.7 9.3
Class A - Leased Asset 9.3% 9.8% 10.0% 10.4% 11.9% 12.1% 2.9% 3.7% 3.4% 3.9% 8.9 9.4
Class B - Leased Asset 9.5% 10.0% 10.4% 11.1% 12.3% 12.3% 2.3% 3.8% 3.3% 4.2% 9.0 9.6
Class A - Value Added 9.7% 10.3% 10.1% 10.7% 13.8% 14.6% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
Class B - Value Added 10.3% 10.8% 10.8% 11.5% 14.2% 15.0% 2.8% 4.0% 3.1% 3.8% 8.5 9.0
Power Center & "Big Box" 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3
Class A - Leased Asset 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1
Class B - Leased Asset 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3
Class A - Value Added 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3
Class B - Value Added 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3 3.2% 3.7% 9.3 10.3
Regional Malls 9.3% 9.6% 9.5% 10.0% 13.2% 13.6% 2.7% 3.5% 3.5% 3.8% 8.8 8.9
Class A - Leased Asset 7.9% 8.2% 8.2% 8.6% 11.4% 11.8% 3.0% 3.6% 3.5% 3.8% 9.1 9.6
Class B - Leased Asset 9.3% 9.6% 9.6% 10.0% 13.4% 13.9% 2.5% 3.4% 3.7% 4.0% 8.6 8.6
Class A - Value Added 9.3% 9.8% 9.8% 10.3% 13.4% 13.9% 2.6% 3.6% 3.4% 3.8% 9.2 9.2
Class B - Value Added 10.6% 11.0% 10.6% 11.0% 14.6% 15.0% 2.7% 3.5% 3.3% 3.7% 8.2 8.2
Specialty Retail 9.5% 10.5% 10.8% 11.5% 12.0% 12.6 1.9% 4.0% 3.3% 4.0% 10.0 10.5
Class A - Leased Asset 8.2% 9.0% 8.8% 9.7% 10.7% 11.3% 2.5% 4.0% 3.5% 4.0% 8.7 10.3
Class B - Leased Asset 9.3% 10.3% 10.8% 11.5% 11.5% 12.5% 1.8% 4.0% 3.3% 4.0% 10.5 10.5
Class A - Value Added 10.0% 11.0% 11.3% 12.0% 12.5% 13.0% 1.8% 4.0% 3.3% 4.0% 10.5 10.5
Class B - Value Added 10.8% 11.8% 12.3% 13.0% 13.5% 13.5% 1.8% 4.0% 3.3% 4.0% 10.5 10.5
- - ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL
- - ------------------------------------------------------------------------------------------------------------------------------------
Apartments 9.0% 9.6% 9.8% 10.4% 11.5% 12.1% 2.7% 4.4% 3.2% 4.0% 8.4 9.3
Class A - Leased Asset 8.6% 9.2% 9.0% 9.6% 11.2% 11.7% 2.9% 3.9% 3.3% 3.8% 8.4 8.9
Class B - Leased Asset 8.9% 9.7% 9.7% 10.3% 11.0% 11.8% 2.5% 4.2% 3.1% 4.0% 9.6 10.2
Class A - Value Added 8.9% 9.4% 9.8% 10.3% 11.6% 12.1% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
Class B - Value Added 9.5% 10.1% 10.6% 11.3% 12.0% 13.0% 2.6% 4.8% 3.1% 4.0% 7.8 9.0
</TABLE>
16 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
Single-Tenant NNN Leased Properties
(Excludes "Bondable" Leases)
Minimum No. Going-In Cap Rate Internal Rate of Return
of Years Low High Low High
Investment Grade Tenant
- - --------------------------------------------------------------------------------
4.0 9.0% 9.0% 10.0% 12.0%
----------------------------------------------------------
10.0 8.0 9.0 10.5 11.5
----------------------------------------------------------
5.0 10.5 10.5 13.0 13.0
----------------------------------------------------------
10.0 9.0 10.5 13.0 15.0
----------------------------------------------------------
10.0 8.5 9.0 10.5 12.0
----------------------------------------------------------
10.0 9.5 10.0 10.5 11.5
----------------------------------------------------------
10.0 8.5 11.0 10.8 12.0
----------------------------------------------------------
10.0 9.5 9.5 11.0 11.0
----------------------------------------------------------
20.0 9.0 9.0 N/A N/A
----------------------------------------------------------
10.0 8.0 10.0 N/A N/A
- - --------------------------------------------------------------------------------
Responses 10.0 10.0 10.0 8.0 8.0
Average 9.9 9.0% 9.8% 11.2% 12.3%
Non-Investment Grade
Tenant
- - --------------------------------------------------------------------------------
4.0 9.5% 9.5% 10.5% 13.0%
----------------------------------------------------------
10.0 9.0 10.0 11.5 12.5
----------------------------------------------------------
5.0 13.0 13.0 15.0 15.0
----------------------------------------------------------
10.0 10.0 12.0 17.0 20.0
----------------------------------------------------------
10.0 9.0 10.0 11.0 13.0
----------------------------------------------------------
10.0 11.0 12.0 13.0 15.0
----------------------------------------------------------
10.0 10.5 10.5 13.0 13.0
----------------------------------------------------------
20.0 11.0 11.0 N/A N/A
----------------------------------------------------------
10.0 10.0 12.5 N/A N/A
----------------------------------------------------------
Responses 9.0 9.0 9.0 7.0 7.0
Average 9.9 10.3% 11.2% 13.0% 14.5%
AUTUMN 1996 17
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES BLENDED INTERNAL EQUITY INTERNAL GROWTH RATES TYPICAL PROJECTION MANAGEMENT RESERVES FOR
GOING-IN TERMINAL RATE OF RETURN RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) FEES* REPLACEMENT*
----------------------------------------------------------------------------------------------------------------------
LOW HIGH LOW HIGH LOW HIGH 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> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
LUXURY
- - ------------------------------------------------------------------------------------------------------------------------------------
8.0% 8.0% 10.0% 10.0% 18.0% 18.0% 25.0% 25.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 5.0% 5.0%
7.0% 7.0% 10.0% 10.0% 15.0% 15.0% 20.0% 20.0% 7.0% 7.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
6.0% 9.5% 10.0% 10.0% 12.0% 15.0% 15.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 5.0 2.0% 4.0% 4.0% 4.0%
8.0% 11.0% 8.5% 12.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0%
-- -- 11.0% 13.0% 15.0% 15.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 3.0% 3.0% 4.0% 4.0%
6.0% 8.0% 10.0% 12.0% 13.0% 14.0% 20.0% 22.0% 3.0% 4.0% 3.0% 4.0% 5.0 5.0 2.0% 3.0% 4.0% 5.0%
8.0% 12.0% 8.0% 10.0% 15.0% 15.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0%
Responses 7 7 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
Average (%) 7.5% 9.3% 9.8% 10.9% 14.5% 15.3% 19.5% 20.1% 4.1% 4.3% 3.8% 3.9% 6.5 6.9 2.8% 3.3% 4.1% 4.4%
- - ------------------------------------------------------------------------------------------------------------------------------------
FIRST CLASS
- - ------------------------------------------------------------------------------------------------------------------------------------
9.0% 9.0% 11.0% 11.0% 12.0% 12.0% 20.0% 20.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
10.0% 10.0% 10.0% 10.0% -- -- 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 3.0% 3.0% 4.0% 5.0%
9.0% 9.0% 11.0% 11.0% 14.0% 14.0% 18.0% 18.0% 6.0% 6.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
9.5% 11.0% 11.0% 11.0% 15.0% 20.0% 18.0% 22.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 2.0% 3.0% 4.0% 4.0%
10.0% 12.0% 10.5% 13.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
7.0% 9.0% 10.0% 11.0% 11.5% 12.0% 14.0% 16.0% 4.0% 5.0% 3.0% 4.0% 5.0 5.0 2.5% 2.5% 5.0% 5.0%
9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0%
9.0% 9.0% 10.5% 10.5% 21.0% 21.0% 14.0% 14.0% 4.0% 4.0% 3.0% 3.0% 7.0 7.0 3.0% 3.0% 4.0% 4.0%
10.0% 12.0% 11.0% 11.0% -- -- -- -- 3.5% 3.5% 3.5% 3.5% 5.0 10.0 2.0% 3.0% 4.0% 4.0%
10.0% 10.0% 9.0% 9.5% 19.0% 19.0% 15.0% 15.0% 8.0% 8.0% 6.0% 6.0% -- -- 2.5% 2.5% 4.0% 4.0%
10.0% 13.0% 12.0% 13.0% 25.0% 25.0% 20.0% 20.0% 3.5% 4.0% 3.5% 4.0% 5.0 5.0 3.5% 3.5% 4.0% 4.0%
10.5% 10.5% 10.5% 10.5% 13.5% 13.5% -- -- 3.5% 3.5% 3.5% 3.5% 10.0 10.0 3.0% 3.0% 5.0% 5.0%
8.0% 12.0% 8.0% 10.0% 15.0% 15.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0%
Responses 13 13 13 13 11 11 11 11 13 13 13 13 12 12 13 13 13 13
Average (%) 9.3% 10.5% 10.4% 10.9% 15.8% 16.5% 17.3% 17.8% 4.2% 4.3% 3.7% 3.8% 6.6 7.3 2.8% 3.1% 4.2% 4.3%
- - ------------------------------------------------------------------------------------------------------------------------------------
MID-RATE
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 18.0% 18.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 11.0% 11.0% 13.0% 13.0% 17.0% 17.0% 6.0% 6.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
9.5% 11.0% 11.0% 11.0% 15.0% 18.0% 17.0% 20.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 2.0% 3.0% 4.0% 4.0%
10.0% 12.0% 10.5% 13.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0%
Responses 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
Average (%) 10.0% 10.7% 11.0% 11.5% 14.2% 15.2% 18.0% 18.6% 4.2% 4.2% 3.7% 3.7% 6.4 7.0 2.9% 3.1% 4.0% 4.0%
----------------------------------------------------------------------------------------------------------------------
Total
Responses 25 25 26 26 24 24 24 24 26 26 26 26 25 25 26 26 26 26
Weighted
Average (%) 8.9% 10.1% 10.4% 11.1% 14.8% 15.7% 18.3% 18.8% 4.2% 4.3% 3.7% 3.8% 6.5 7.0 2.9% 3.2% 4.1% 4.2%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
*as percent of total revenues
18 REAL ESTATE OUTLOOK
<PAGE>
- - --------------------------------------------------------------------------------
CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY
- AUTUMN 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION RATES BLENDED INTERNAL EQUITY INTERNAL GROWTH RATES TYPICAL PROJECTION MANAGEMENT RESERVES FOR
GOING-IN TERMINAL RATE OF RETURN RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) FEES* REPLACEMENT*
----------------------------------------------------------------------------------------------------------------------
LOW HIGH LOW HIGH LOW HIGH 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> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
MID-RATE HOTEL - LIMITED SERVICE
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 15.0% 15.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
12.0% 12.0% 12.0% 12.0% 13.0% 13.0% 17.0% 17.0% 3.0% 3.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
8.0% 10.0% 10.0% 10.0% 12.0% 15.0% 14.0% 16.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0%
11.0% 13.0% 11.5% 14.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 11.8% 11.8% 16.0% 16.0% 19.0% 19.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 4.0% 4.0% 4.5% 4.5%
10.0% 13.0% 12.0% 13.0% 25.0% 25.0% 20.0% 20.0% 3.5% 4.0% 3.5% 4.0% 5.0 5.0 4.0% 4.0% 5.0% 5.0%
Responses 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
Average (%) 10.3% 11.5% 11.5% 12.1% 15.7% 16.5% 17.5% 17.8% 3.5% 3.6% 3.7% 3.8% 6.2 6.7 3.3% 3.5% 4.3% 4.4%
- - ------------------------------------------------------------------------------------------------------------------------------------
ECONOMY
- - ------------------------------------------------------------------------------------------------------------------------------------
10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 15.0% 15.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 17.0% 17.0% 3.0% 3.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0%
9.0% 11.0% 10.0% 10.0% 12.0% 15.0% 14.0% 16.0% 3.0% 3.0% 3.0% 3.0% 5.0 5.0 4.0% 5.0% 5.0% 5.0%
11.0% 13.0% 11.5% 14.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0%
11.0% 11.0% 11.8% 11.8% 16.0% 16.0% 19.0% 19.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 4.0% 4.0% 4.5% 4.5%
Responses 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5
Average (%) 10.8% 11.6% 11.7% 12.2% 13.8% 14.8% 17.0% 17.4% 3.5% 3.5% 3.9% 3.9% 6.4 7.0 3.4% 3.6% 4.3% 4.3%
Total
Responses 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11
Weighted
Average(%) 10.6% 11.6% 11.6% 12.1% 14.7% 15.7% 17.3% 17.6% 3.5% 3.5% 3.8% 3.8% 6.3 6.8 3.4% 3.6% 4.3% 4.4%
</TABLE>
*as percent of total revenues
AUTUMN 1996 19
<PAGE>
1996 Significant Hotel Transactions
<TABLE>
<CAPTION>
Property Location Number of Rooms Estimated Estimated
Sales Price Price/Room Status
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Four Seasons New York, NY 367 $190,000,000 $518,000 Closed
- - ---------------------------------------------------------------------------------------------------------
Regent Beverly Wilshire Beverly Hills, CA 295 $100,000,000 $339,000 Closed
- - ---------------------------------------------------------------------------------------------------------
Copley Plaza Boston, MA 379 $ 70,000,000 $185,000 Pending
- - ---------------------------------------------------------------------------------------------------------
Mayfair Hotel New York, NY 203 $ 61,000,000 $300,000 Pending
- - ---------------------------------------------------------------------------------------------------------
Biltmore Hotel Los Angeles, CA 687 $ 61,000,000 $ 89,000 Closed
- - ---------------------------------------------------------------------------------------------------------
Ritz Carlton Phoenix, AZ 281 $ 37,000,000 $132.000 Closed
- - ---------------------------------------------------------------------------------------------------------
Clarion Hotel Millbrae, CA 442 $ 30,000,000 $ 68,000 Closed
- - ---------------------------------------------------------------------------------------------------------
Midland Hotel Chicago, IL 257 $ 21,000,000 $ 82,000 Closed
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
The Inside Story
The Upward Beat Continues...
(Continued from page 7)
demand segment that on average would rather spend $50.00 to $60.00 per night
than $80.00 to $90.00. Examples of these products include Candlewood Suites, a
joint venture between Doubletree Hotels and Jack DeBoer (the original founder of
Residence Inns and Summerfield Suites), Choice's Mainstay Suites, Marriott's
Townplace Suites, and Extended Stay America. Studio Plus, a budget-oriented
lodging concept with limited services represents another niche product. Since
these properties do not yet have a critical mass, it is not known whether the
traveling public will discern the difference among the various suite products.
The hotel gaming sector continues to show strength through both operations
and merger activity. Casino gaming profits have continued to rise since 1990.
Hilton recently announced its acquisition of Bally Entertainment Corporation in
a $2 billion transaction. Hilton will now have 15 casino hotels worldwide with
four more under construction in Las Vegas, Kansas City, and Uruguay. ITT
Sheraton purchased Caesar's World to expand its presence in the gaming market,
and plans a major addition and renovation of Caesar's Palace in Las Vegas.
Furthermore, it has also formed a venture with Planet Hollywood to build new
hotels in Las Vegas and Atlantic City.
Individual and portfolio transactions continue at a torrid pace. In the
past year, Starwood Lodging has spent about $700 million to acquire 25 hotels.
It recently announced two major transactions. The first, a $309 million deal,
involved a portfolio from Teachers Insurance and Annuity Association. The total
price per room is less than $98,000, and includes Ritz-Carlton, Doubletree,
Westin, and Sheraton brands. The second is a $134 million transaction to acquire
the Hotels of Distinction Ventures Inc.'s entire nine-property portfolio. The
total price per room is $55,000, and includes Embassy Suite, Raddison, and
independently flagged hotels. Omni Hotels was purchased from Wharf Holdings for
$500 million. Patriot American purchased five hotels from Wyndham for $96
million, or $87,000 per room. Polylinks, a Hong Kong-based group, recently
acquired the Regent Beverly Wilshire Hotel for $100 million and the Four Seasons
in New York for $190 million (the hotel was built for $360 million).
Investor Survey Highlights
We continue to monitor the investment parameters and rationale of active
participants in the industry. Highlights of our responses are shown above.
The most desirable markets for hotel investment include New York, Chicago,
San Francisco, and Hawaii. The respondents view these markets as one with strong
occupancies, barriers to entry, and the greatest upside potential. Many of the
investors interviewed believe the less desirable markets are Orlando, Detroit,
and San Antonio, primarily due to the potential of oversupply.
All respondents reported that REITs are the most active buyers. The next
categories of active buyers are the hotel companies and pension funds, followed
by individual investors and international companies. It is interesting to note,
however, that although our respondents reported international investors are the
least active of the buyers, two of the major transactions this year were
completed by one international group. The most active sellers are the individual
investor groups and international investors. Many of the hotels sold by
international investors are properties purchased at elevated prices during the
1980's. Pension funds and hotel corporations were the next active sellers,
followed by the REIT's. According to our respondents, financing is most readily
available at commercial banks and credit companies followed by the insurance
companies, mortgage conduits, and foreign institutions. Due to the strength of
the market, seller financing was the least active form of financing.
Floating rates in today's markets range from 150 to 300 basis points over
an index, either treasury bills or LIBOR. Fixed rates range from 9.25 to 10
percent. The amortization schedules range from 15 to 25 years with terms of five
to 10 years.
For full-service hotels, when asked about when average rates and
occupancies will be high enough to justify new construction, the ranges were
from now to six years. Most respondents stated 18 months to three
20 REAL ESTATE OUTLOOK
<PAGE>
years, with more towards two years.
With regard to the value changes of both limited-service and full-service
hotels, the respondents perceive that full-service hotels would increase nine
percent in 1996 and 1997 and six percent in 1998. Limited service hotels are
perceived to increase three percent in 1996, one percent in 1997, and to remain
flat in 1998. The potential for over-building in this segment is most likely the
reason for slow growth in values. When asked about the increases in ADR over the
next three years, the respondents perceive that full service hotels would be
able to increase rates on average 5.5 percent in 1996, 5.4 percent in 1997, and
four percent in 1998. For limited-service hotels, the increases are perceived to
be on average 3.5 percent in 1996, 3.3 percent in 1997, and 2.5 percent in 1998.
Also included in the charts are the tabulations of expected returns
(capitalization rates, internal rates of return, etc.)
In summary, the U.S. hospitality industry remains strong and vibrant. Most
markets continue to experience increasing rates and occupancies. The
profitability of the industry continues on an upward movement. With limited
amounts of new supply in the full-service and luxury sector, investors perceive
these hotels to have the strongest upside potential. Hotel sales are continuing
at a rapid pace and prices are increasing as well. There is some concern
regarding the limited service sector as some markets may soon encounter
plentiful new supply which may dampen occupancy rates.
For more information, please contact:
Daniel H. Lesser, MAI, CRE, CHA
Director, Hospitality Valuation Group
212-841-7828
Mitchell S. Roberts
Director, Hospitality Valuation Group
213-955-6442
Cushman & Wakefield's hospitality advisors have a broad base of experience
affording a high level of competence for valuation, consulting, and brokerage
assignments. Our hospitality advisors combine their real estate knowledge with a
firm understanding of hotel operations, marketing strategies, and physical
plants. Hotel debt and equity investors, seeking to make sound investment
decisions must have the confidence that the advisor's judgment is based on a
solid foundation and that this judgment is translated into an accurate
assessment of the situation.
We are committed to serving our clients with the highest degree of
professionalism. Each assignment is tailored to the client's individual
requirements with the objective of assisting them to attain their specific
goals. An individual advisor or team of hospitality experts is available,
depending upon the complexity of the property or the assignment.
Our services include:
o Appraisal and Valuations
o Workout and Restructuring Advice
o Acquisition and Disposition Analysis
o Sales & Financings
o Asset Management
o Management/Franchise Agreement
o Selection and Negotiation
o Architectural/Renovation Reviews
o Marketing Repositioning Studies
o Financial and Operational Reviews
o Property Tax Consulting
o Expert Testimony & Litigation
Support
AUTUMN 1996 21
<PAGE>
Market and Property Rating
<TABLE>
<CAPTION>
Office Retail (Other Retail
Region CBD Non-CBD Industrial Than Malls) Malls Apartments
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pacific Northwest 3.75 4.13 4.38 3.60 3.63 4.33
- - -----------------------------------------------------------------------------------------
Northern California 3.91 3.96 4.23 3.25 3.10 4.44
- - -----------------------------------------------------------------------------------------
Southern California 2.30 3.50 4.14 2.43 2.70 4.00
- - -----------------------------------------------------------------------------------------
Denver 3.17 4.13 3.93 3.25 3.14 3.40
- - -----------------------------------------------------------------------------------------
Houston 1.83 3.38 3.58 3.50 2.71 3.00
- - -----------------------------------------------------------------------------------------
Dallas 1.80 4.14 4.17 3.33 3.l4 3.00
- - -----------------------------------------------------------------------------------------
Phoenix 2.40 3.88 4.00 3.50 2.83 4.00
- - -----------------------------------------------------------------------------------------
Chicago 2.33 3.57 3.86 3.00 3.50 4.50
- - -----------------------------------------------------------------------------------------
Other Midwest 3.00 3.00 3.50 3.00 3.20 4.00
- - -----------------------------------------------------------------------------------------
New England 3.40 3.60 3.40 2.67 3.33 3.67
- - -----------------------------------------------------------------------------------------
New York City 3.25 3.00 2.33 2.50 2.60 2.67
- - -----------------------------------------------------------------------------------------
Northeast Corridor 2.50 3.50 3.00 3.25 3.67 3.33
- - -----------------------------------------------------------------------------------------
Georgia and Carolinas 3.00 3.86 3.63 3.50 3.29 3.60
- - -----------------------------------------------------------------------------------------
Florida 3.33 3.86 3.71 3.50 3.29 3.20
- - -----------------------------------------------------------------------------------------
Average 2.86 3.68 3.70 3.16 3.15 3.65
Scale: 1 = least favorable; 5 = most favorable
</TABLE>
Beat Investment Opportunities
<TABLE>
<CAPTION>
Office Retail (Other Retail
Region CBD Non-CBD Industrial Than Malls) Malls Apartments
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pacific Northwest 3.14 3.44 4.00 3.67 3.14 3.60
- - -----------------------------------------------------------------------------------------
Northern California 2.90 3.31 3.80 3.00 3.00 4.13
- - -----------------------------------------------------------------------------------------
Southern California 2.82 3.29 3.64 3.50 2.90 4.11
- - -----------------------------------------------------------------------------------------
Denver 3.60 3.50 3.57 3.25 3.00 2.75
- - -----------------------------------------------------------------------------------------
Houston 3.50 3.13 3.50 3.00 2.83 2.75
- - -----------------------------------------------------------------------------------------
Dallas 3.50 2.86 3.17 3.00 3.17 3.00
- - -----------------------------------------------------------------------------------------
Phoenix 3.17 3.44 3.43 2.75 3.29 3.60
- - -----------------------------------------------------------------------------------------
Chicago 2.00 3.00 3.43 3.33 2.86 3.00
- - -----------------------------------------------------------------------------------------
Other Midwest 3.00 3.00 3.25 2.50 3.14 3.00
- - -----------------------------------------------------------------------------------------
New England 3.75 3.40 3.20 3.00 2.67 4.25
- - -----------------------------------------------------------------------------------------
New York City 2.00 2.75 3.75 4.00 2.60 4.67
- - -----------------------------------------------------------------------------------------
Northeast Corridor 3.00 2.60 3.00 2.75 2.71 3.00
- - -----------------------------------------------------------------------------------------
Georgia and Carolinas 3.60 3.71 3.43 3.00 3.38 3.20
- - -----------------------------------------------------------------------------------------
Florida 2.40 3.00 3.29 3.00 2.75 3.00
- - -----------------------------------------------------------------------------------------
Average 3.03 3.17 3.46 3.13 2.96 3.43
Scale: 1 = most undervalued; 5 = most overvalued
</TABLE>
The Recovery Continues
(Continued from page 5)
buildings, for example, have experienced pricing increases in the range of 50%
over relatively short timeframes, but the best "window" of opportunity for the
regional/local investors is often only 12 to 24 months within a given market and
asset type. The more localized, entrepreneurial buyers use shorter holding
periods, and often re-sell the assets to institutional buyers who hold assets
over a longer term.
Buyer Profile
The best quality "institutional" properties are "in play" in many markets, and
these assets typically trade relatively late in a market recovery. As the
recovery has moved through the U.S. during the past three years investors have
followed the recovery on a market-by-market basis. The more recent trend of the
availability of and investment in higher-quality assets has coincided with the
increasing profile of major institutional buyers including domestic pension
funds. The greater magnitude of the individual deals, the lower costs of capital
and corresponding lower return requirements for the institutional buyers has
resulted in more limited roles (on the buy side) for the more opportunistic
investors as market fundamentals have improved in different locations.
The respondents to our survey were asked to indicate which categories of
real estate investor were expected to be "net" sellers or buyers during the next
12 months. The responses are compiled in the following chart, with the relative
weighted percentages for each category. Our respondents frequently indicated
more than one category as sellers or buyers, and the percentage figures shown
are based on the total selections for either sellers or buyers, rather than on
the percentage of
Category Sellers Buyers
Domestic Pension Funds 5% 18%
Insurance Companies 27% 3%
Investment Banks 5% 11%
Investment Advisors 4% 12%
REITs 4% 21%
Banks/Lending Institutions 23% 0%
Individual U.S. Investors 8% 6%
Individual Offshore Investors 12% 10%
U.S. Investment Funds 3% 12%
Offshore Investment Funds 9% 7%
Total 100% 100%
22 REAL ESTATE OUTLOOK
<PAGE>
Near-Term Value Trends
<TABLE>
<CAPTION>
Office Retail (Other Retail
Region CBD Non-CBD Industrial Than Malls) Malls Apartments
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------
Pacific Northwest 4.33 4.44 4.00 3.67 2.57 3.67
- - -----------------------------------------------------------------------------------------
Northern California 4.10 4.58 4.22 3.00 2.67 4.43
- - -----------------------------------------------------------------------------------------
Southern California 3.10 4.29 4.42 3.00 2.40 4.56
- - -----------------------------------------------------------------------------------------
Denver 3.80 4.44 4.83 3.25 2.50 3.40
- - -----------------------------------------------------------------------------------------
Houston 3.00 4.44 4.25 3.25 2.50 4.00
- - -----------------------------------------------------------------------------------------
Dallas 3.25 4.86 4.57 3.00 2.83 2.67
- - -----------------------------------------------------------------------------------------
Phoenix 3.50 4.38 4.80 3.00 2.83 4.20
- - -----------------------------------------------------------------------------------------
Chicago 3.20 4.67 4.50 - 3.00 4.25
- - -----------------------------------------------------------------------------------------
Other Midwest 3.00 3.75 4.00 3.00 2.57 4.00
- - -----------------------------------------------------------------------------------------
New England 3.50 4.00 4.25 - 2.83 3.75
- - -----------------------------------------------------------------------------------------
New York City 3.63 3.30 3.33 - 2.40 4.00
- - -----------------------------------------------------------------------------------------
Northeast Corridor 3.50 4.00 3.75 2.50 2.86 3.75
- - -----------------------------------------------------------------------------------------
Georgia and Carolinas 4.00 4.29 4.17 3.00 3.00 3.60
- - -----------------------------------------------------------------------------------------
Florida 4.50 4.57 4.86 3.25 2.75 4.20
- - -----------------------------------------------------------------------------------------
Average 3.60 4.29 4.28 3.08 2.69 3.89
Scale: 1 = decreasing; 3 = flat, 5 = increasing
</TABLE>
respondents selecting each category. Insurance companies, for example, were
selected by virtually all the respondents as "net" sellers during the next 12
months.
Insurance companies, with increased capital reserve requirements for real
estate, are expected to continue to be significant sellers in the market. Banks
and lending institutions are also expected to be active sellers, particularly of
major, institutional quality office product than has been withheld from the
market until conditions improved. Japanese banks are expected to dispose of
major assets as well. Dominant players on the "buy" side are expected to include
a mix of pension funds (and their advisors), REITs, and well-capitalized U.S.
and offshore funds. The offshore investors, particularly from Malaysia,
Indonesia, The Philippines, Taiwan, Hong Kong, and Singapore have become
increasingly active in west coast markets not currently favored by pension funds
(CBD markets in particular).
Near-Term Outlook
In order to forecast near-term real estate investment we asked our participants
to offer their opinions on near-term value changes by region and property type.
The accompanying chart "Near-Term Value Trends" summarizes the responses, with
rankings based on a 1 to 5 scale (1 = Decreasing; 3 = Flat; 5 = Increasing).
Excluding the hotel/lodging market, which is analyzed under a separate heading,
suburban office and industrial properties are considered to have the most
favorable near-term outlook, while retail malls are the least favorable (see
accompanying article "Re-Thinking the Regional Mall") in terms of value trends.
Within the office sector of the market suburban office properties, with all
market locations perceived favorably except New York. The northeast corridor
(which includes Washington D.C., with uncertainty regarding federal government
employment trends) is also rated below other suburban markets. Once again CBD
office properties in the Pacific Northwest (Portland and Seattle) and San
Francisco (Northern California) are expected to experience value increases, as
are CBD properties in the southeast regions.
Next in Line
If you start with the major assets of the largest components of the "net"
sellers in the previous chart -- insurance companies and banks/lending
institutions (including Japanese banks), add in the capital capabilities of the
"net" buyers -- pension funds and their advisors and offshore buyers, "mix" in
the only remaining property category which has yet to be favored in the current
recovery, and "stir" with the most significant discount to replacement cost
remaining in the market, the recipe results in the next hot property: CBD
Office.
/s/ Brian R. Corcoran
- - ----------------------------
Brian R. Corcoran, MAI, CRE
Executive Managing Director
Valuation Advisory Services
/s/ Frank P. Liantonio
- - ----------------------------
Frank P. Liantonio, MAI, CRE
Executive Managing Director
Valuation Advisory Services
/s/ James W. Myers, MAI
- - ----------------------------
Senior Director
Valuation Advisory Services
CUSHMAN &
WAKEFIELD
Improving your place
in the world.(SM)
AUTUMN 1996 23
<PAGE>
VALUATION ADVISORY SERVICES MANAGEMENT DIRECTORY
NATIONAL
Brian Corcoran, MAI CRE
Executive Managing Director
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019
(212) 841-7885
Frank Liantonio, MAI, CRE
Executive Managing Director
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019
(212) 841-7887
Roy L. Gordon, Jr., MAI, CRE
Managing Director,
Appraisal Standards
Cushman & Wakefield of Georgia, Inc.
3300 One Atlantic Center
1201 W. Peachtree Street
Atlanta, GA 30309
(404) 853-5224
John Coldren, MAI
Managing Director
Cushman & Wakefield of California, Inc.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071
(213) 955-5100
Michael McKinney, MAI
Managing Director
Cushman & Wakefield of Texas, Inc.
Three Lincoln Center
5430 LBJ Freeway, Suite 1400
Dallas, TX 75240
(972) 770-2500
SPECIALIZED SERVICES
Douglas Koch, MAI
Director,
Affordable Housing Group
Cushman & Wakefield of Massachusetts, Inc.
101 Arch Street, 21st Fl.
Boston, MA 02110
(617) 330-6966
Daniel Lesser, MAI, CRE, CHA
Director, Hospitality Valuation Group
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019
(212) 841-7828
Mitchell Roberts
Director
Hospitality Valuation Group
Cushman & Wakefield of California, Inc.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071
(213) 955-5100
Richard Latella, MAI
Senior Director
Retail Valuation Services
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019
(212) 841-7675
Joseph Dondiego, MAI
Managing Director
Tax Consulting Services
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019
(212) 841-5070
Mark B. Victor, MAI
Director
Corporate Business Development
Cushman & Wakefield of Connecticut, Inc.
107 Elm Street
4 Stamford Plaza, 8th Fl.
Stamford, CT 06902
(203) 348-8550
Stephen A. Remseur
Associate Director
Corporate Business Development
Cushman & Wakefield of Texas, Inc.
Three Lincoln Center
5430 LBJ Freeway, Suite 1400
Dallas, TX 75240
(972) 770-2500
Joseph Smurdon
Associate Director
Corporate Business Development
Cushman & Wakefield of Oregon, Inc.
200 S.W. Market Street, Suite 200
Portland, OR 97201
(503) 279-1745
- - -------------------------------------------
EASTERN REGION
- - -------------------------------------------
Wallace White, MAI
Director
Cushman & Wakefield of Georgia, Inc.
3300 One Atlantic Center
1201 W. Peachtree Street
Atlanta, GA 30309
(404) 853-5200
Alan Bascom, MAI
Managing Director
Cushman & Wakefield of Massachusetts, Inc.
101 Arch Street, 21st Fl.
Boston, MA 02110
(617) 330-6966
Ron Potts, MAI
Director
Cushman & Wakefield of Texas, Inc.
Three Lincoln Center
5430 LBJ Freeway, Suite 1400
Dallas, TX 75240
(972) 770-2500
Robert DiFalco, MAI
Director
Cushman & Wakefield of New Jersey, Inc.
One Meadowlands Plaza, Suite 1100
East Rutherford, NJ 07073
(201) 896-9400
John Littman, MAI
Director
Cushman & Wakefield of Texas, Inc.
First Interstate Bank Tower
1300 Post Oak Boulevard, Suite 1600
Houston, TX 77056
(713) 961-3700
Thomas Landon, MAI
Director
Cushman & Wakefield of Florida, Inc.
601 Brickell Key Drive, Suite 600
Miami, FL 33131
(305) 371-4411
John Busi, MAI
Director
Cushman & Wakefield, Inc.
51 West 52nd Street
New York, NY 10019
(212) 841-7792
John Rush, MAI
Director
Cushman & Wakefield of Pennsylvania, Inc.
Two Logan Square, 20th Fl.
Philadelphia, PA 19103
(215) 963-4000
Robert DiFalco, MAI
Director
Cushman & Wakefield of Connecticut, Inc.
107 Elm Street
4 Stamford Plaza, 8th Floor
Stamford, CT 06902
(203) 348-8550
Kenneth Foltz, MAI
Director
Cushman & Wakefield of Florida, Inc.
One Tampa City Center, Suite 1900
Tampa, FL 33602
(813) 223-6300
Donald Morris, MAI
Director
Cushman & Wakefield of
Washington, DC, Inc.
1875 Eye Street N.W., Suite 700
Washington, DC 20006
(202) 467-0600
- - -------------------------------------------
WESTERN REGION
- - -------------------------------------------
Stanley Dennis, MAI
Director
Cushman & Wakefield of Illinois, Inc.
150 South Wacker Drive, Suite 3100
Chicago, IL 60606
(312) 853-0030
John Emmerling, MAI
Director
Cushman & Wakefield of Colorado, Inc.
410 Seventeenth Street, Suite 200
Denver, CO 80202
(303) 571-4100
Robert Bell, MAI
Director
Cushman & Wakefield of California, Inc.
2100 Main Street, Suite 100
Irvine, CA 92714
(714) 474-4004
James Myers, MAI
Senior Director
Cushman & Wakefield of California, Inc.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071-2418
(213) 955-5100
Stephen Leach, MAI
Director
Cushman & Wakefield of Arizona, Inc.
1850 North Central Avenue, Suite 300
Phoenix, AZ 85004
(602) 253-7900
John Vissotzky, MAI
Director
Cushman & Wakefield of Oregon, Inc.
200 S.W. Market Street, Suite 200
Portland, OR 97201-5730
(503) 279-1745
Kenneth Matlin, MAI
Director
Cushman & Wakefield of California, Inc.
2055 Gateway Place, Suite 550
San Jose, CA 95110
(408) 436-5500
Kenneth Barnes, MAI
Director
Cushman & Wakefield of Washington, Inc.
Key Tower
700 Fifth Avenue, Suite 2700
Seattle, WA 98104
(206) 521-0243
Cushman & Wakefield
Office Locations
Headquarters
51 West 52nd Street
New York, NY 10019
Arizona
Phoenix
California
Contra Costa
Los Angeles
Los Angeles North
Los Angeles South Bay
Los Angeles West
Oakland
Ontario
Orange County
San Francisco
San Jose
Colorado
Denver
Connecticut
Hartford
Stamford
Delaware
Wilmington
District of Columbia
Washington, DC
Florida
Ft. Lauderdale
Miami
Orlando
Tampa
Georgia
Atlanta
Illinois
Chicago
Chicago Suburban
Massachusetts
Boston
Michigan
Detroit
Minnesota
Minneapolis
Missouri
St. Louis
New Hampshire
Manchester
New Jersey
East Rutherford
Parsippany
New York
Long Island
New York (Downtown)
New York (Midtown)
Oregon
Portland
Pennsylvania
Bethlehem
Philadelphia
Texas
Dallas
Houston
Virginia
Fairfax
Tysons Corner
Washington
Bellevue
Seattle
<PAGE>
Eastside/Northend
Industrial
Market Report
First Quarter 1997
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Bellevue Office - 777 108th Avenue N.E. - Suite 1850 -
Bellevue, WA 98004 - 206-455-4500
Seattle Office - 700 Fifth Avenue - Suite 2700 -
Seattle, WA 98104 - 206-682-0666
<PAGE>
- - --------------------------------------------------------------------------------
Table of Industrial Market Report
Contents First Quarter 1997
- - --------------------------------------------------------------------------------
Cushman & Wakefield in Seattle and Bellevue ............................ Page 2
Eastside/Northend Industrial Market Summary
Eastside ............................................................ Page 3
Northend ............................................................ Page 5
Eastside/Northend Industrial Market Statistical Summary
Market and Submarket Statistics (by market) ......................... Page 6
Market and Space Type Statistics .................................... Page 7
Market and Submarket Statistics (by space type) ..................... Page 8
Comparative Market Statistics ....................................... Page 9
1997 Construction Deliveries / List of Projects Under Construction .. Page 10
List of Projects Proposed ........................................... Page 11
Market Definitions ..................................................... Page 12
Glossary ............................................................... Page 14
Cushman & Wakefield Offices ............................................ Page 16
EASTSIDE/NORTHEND INDUSTRIAL MARKET REPORT
1997 Cushman & Wakefield, Inc.
The data compiled in the Eastside/Northend Industrial Market Report is the legal
property of Cushman & Wakefield of Washington, Inc. Reproduction or
dissemination of the information contained herein is strictly prohibited without
the express written consent of Cushman & Wakefield of Washington. Inc.
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
<PAGE>
- - --------------------------------------------------------------------------------
Cushman & Wakefield Industrial Market Report
In Seattle and Bellevue First Quarter 1997
- - --------------------------------------------------------------------------------
Cushman & Wakefield of Washington is pleased to present the Eastside/Northend
Industrial Market Report, a quarterly overview of the area's major industrial
markets. The information included in this report is based on First Quarter 1997
figures.
Since 1978, Cushman & Wakefield has been providing real estate solutions to
companies in the greater Seattle area. In 1986, Cushman & Wakefield expanded its
operations with the opening of a suburban office in Bellevue to service the
growing needs of the Eastside and Northend office and industrial markets.
Today, the firm's combined Seattle and Bellevue offices employ more than 42
professionals providing local and national clients with solutions for all real
estate needs and expertise in the following areas:
Core Capabilities
Office and Industrial Brokerage Services
o Tenant Representation
o Landlord Representation
o Leasing and Sales
Financial Services
o Acquisition
o Disposition
o Finance
Valuation Advisory Services
o Appraisal
o Valuation Advisory
o Tax Consulting
Asset Services
o Property Management
o Facilities Management
o Construction Services
o Agency Leasing
Research Services
o Market Analysis
o Location Strategies
o Demographic Studies
Corporate Services
o Strategic Advisory
o Transaction Management
o Portfolio Management
- - --------------------------------------------------------------------------------
Senior Managing Directors Valuation Advisory Services
Gordon J. Ahalt Kenneth A. Barnes, Manager
Thomas J. Usher Scott Biethan
Valerie Foster
Brokerage Services Frank Rojas
Thomas Abbott Michael Shigley
Steve Amey
Greg Berry Tax Consulting
Thomas Bobman Joseph C. Smurdon
Gary Burlington
Jennifer Casselli Asset Services
Douglas Hanafin Mark Floistad, Manager
Steve Henderson John Blackburn
Chris Hughes Richard Shorett
Joe Lane
Michael Livingston Financial Services
David Magee Gary Danklefsen
David Miller Reynolds Haas
Garth Olsen Scott Langley
Janet Reese-Backus Robert Larsen
Jim Welle J. Patrick Mahoney
Matt Wood Bruce Rawlinson
David Young
Louis Zonta Financial Systems
Jeffrey A. James
Research Services
Marilyn Bontrager, Area Manager Mortgage Brokerage
Kelly Everett Gary J. Griff
Lori Hill
Lane Meyer
- - --------------------------------------------------------------------------------
Nationally, Cushman & Wakefield is one of the largest real estate firms,
exclusively serving the needs of business. Founded in 1917 in New York City,
Cushman & Wakefield is a subsidiary of The Rockefeller Group.
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
2
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
First Quarter 1997
- - --------------------------------------------------------------------------------
Eastside
Overall Inventory 25,675,928
Overall Vacancy Rate 6.6%
Availabilities:
Manufacturing 170,091
Warehouse/Distribution 698,170
High Tech 341,735
Office/Service Center 495,775
Wtd. Avg. Rental Rate:
Manufacturing $0.49
Warehouse/Distribution $0.48
High Tech $0.88
Office/Service Center $0.59
YTD Net Absorption (141,822)
YTD Leasing Activity 554,361
YTD Owner/User Sales Activity 0
The Eastside industrial market experienced a lull in activity during the
quarter. New availabilities entering the market outpaced fairly strong leasing
activity, resulting in negative net absorption and a slight increase in the
vacancy rate. Construction activity, however, maintained an active pace and
investor interest in the market remained strong.
The overall vacancy rate climbed 0.6 percentage points from the beginning of the
year to 6.6%. This was caused by several new availabilities that came on-line
during the quarter, including 60,000 square feet (sf) of high tech space at the
North Building in the Kirkland submarket and 21,000 sf of high tech space at
Westpark G-1 in the Redmond Willows submarket. As a result, the overall vacancy
rate for high tech space was boosted to 5.0%, up from 3.2% at the beginning of
the year. Numerous smaller availabilities in various office/service center parks
caused the overall vacancy rate for that space type to jump 1.5 percentage
points during the quarter to 6.8%. It is important to note that despite the
increase in available space for these two space types, options for large space
remains extremely limited. There are currently only six high tech spaces greater
than 20,000 sf available on the entire Eastside, and only two office/service
center spaces over 20,000 sf are vacant at this time. Meanwhile, available space
within manufacturing and warehouse/distribution buildings continued to dwindle,
as the overall vacancy rates for those space types dropped slightly to 4.9% and
8.6%, respectively.
YEAR-TO-DATE LEASING ACTIVITY
Eastside Northend
[BAR CHART] [BAR CHART]
MF 60,672 sf MF 29,080 sf
WD 193,863 sf WD 28,655 sf
HT 135,699 sf HT 5,300 sf
OS 164,127 sf OS 7,360 sf
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
3
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
First Quarter 1997
- - --------------------------------------------------------------------------------
Although leasing activity totaled over 500,000 sf for the quarter, net
absorption was marginal, totaling a negative 140,000 sf. The bulk of the space
leased during the quarter was warehouse/distribution space, primarily in
Woodinville; therefore, net absorption for that space type reached the modest
figure of 50,000 sf. The high tech and office service center vacancies mentioned
above caused net absorption for those two space types to total a combined
negative 220,000 sf for the quarter, which adversely impacted the overall net
absorption figure.
Despite lackluster net absorption performance during the quarter, the outlook
for the industrial market remains positive. Given the strong demand for
industrial space and the relative lack of large available spaces, new
availabilities are expected to have a fairly short shelf life. Impending
construction deliveries, which will total nearly one million square feet (msf),
will substantially boost net absorption in the coming months, as most of the
space under construction has already been preleased.
INVENTORY AND AVAILABLE SPACE
[GRAPHICAL REPRESENTATION OF BAR CHART]
<DATA POINTS TO COME>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
4
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
First Quarter 1997
- - --------------------------------------------------------------------------------
Northend
Overall Inventory 8,389,607
Overall Vacancy Rate 7.6%
Availabilties:
Manufacturing 264,971
Warehouse/Distribution 273,569
High Tech 82,086
Office/Service Center 17,979
Wtd. Avg. Rental Rate:
Manufacturing $0.42
Warehouse/Distribution $0.55
High Tech $0.93
Office/Service Center $0.77
YTD Net Absorption (120,180)
YTD Leasing Activity 70,395
YTD Owner/User Sales Activity 0
Similar to the Eastside market, activity in the Northend was sluggish during the
quarter, as the market posted an increase in supply of available space. Leasing
activity was modest and failed to offset new availabilities entering the market.
This resulted in weak net absorption for the quarter. Despite this, options for
existing space remained limited and construction activity continued to progress.
The overall vacancy rate increased 0.9 percentage points from January to end the
quarter at 6.7%. This represents approximately 640,000 sf currently available
for lease. The increase in the overall vacancy rate is primarily the result
150,000 sf of warehouse/distribution space that became available at the Everett
Industrial Center. This caused the vacancy rate for warehouse/distribution space
to jump to 9.9%, up from 4.4% in January. This also affected the vacancy rate
for the Everett submarket, which climbed to 11.4%, compared to 7.9% at the
beginning of the year. All other space types actually registered decreases in
overall vacancy rate.
Not surprisingly, warehouse/distribution space recorded a net absorption total
of a negative 151,000 sf for the quarter, while net absorption in the Everett
submarket totaled a negative 133,000 sf. Minimal leasing totaling 70,000 sf
could not offset the negative impact of new availabilities, therefore, net
absorption for the overall market totaled a negative 120,000 sf.
While the effects of the strong preleasing activity that occurred in 1996 have
yet to be felt in the Northend market, impending built-to-suit construction
deliveries will help to reverse the weak absorption levels achieved thus far
this year. There is currently nearly 400,000 sf under construction, much of
which is due to be completed in April and May. Of the space being built, only
29,000 sf remains vacant. Additionally, over 1.2 msf of new industrial space is
proposed for the Northend, and with large contiguous space in short supply,
build-to-suit opportunities are expected to continue to attract the interest of
companies seeking to expand.
================================================================================
FIRST QUARTER 1997 SIGNIFICANT TRANSACTIONS
<TABLE>
<CAPTION>
Square Transaction
Tenant/Buyer Building Footage Type Submarket
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spieker Properties Quadrant Corporate Center 205,000 Sale Bothell
Elizabeth Lynn Trust Lang Manufacturing Building 111,018 Sale Everett
UVAG Realty Partnership 95 Riverside Park 94,000 Sale Willows
Matsushita Canyon Park East Building J 71,402 Prelease Bothell
Rosche Finanz of Germany Eddie Bauer Call Center 65,000 Sale Bothell
============================================================================================
</TABLE>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
5
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
Statistical Summary First Quarter 1997
- - --------------------------------------------------------------------------------
MARKET AND SUBMARKET STATISTICS
<TABLE>
<CAPTION>
Overall Net Absorption
No. of Overall Overall Vacancy ----------------------------
Market Projects Inventory Availabilities Rate 4th Qtr 1996 1st Qtr 1997
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EASTSIDE 416 25,675,928 1,705,771 6.6% 204,396 (141,822)
- - ----------------------------------------------------------------------------------------------------------------
Bellevue 76 4,040,652 268,502 6.6% 25,087 (98,595)
Issaquah/East 1-90 15 1,529,905 53,818 3.5% (5,440) (19,296)
Redmond (Overlake) 17 2,294,161 121,285 5.3% 22,835 3,380
Redmond (Willows) 80 4,332,783 300,190 6.9% (23,203) (97,738)
Redmond (East) 54 2,871,509 80,752 2.8% 36,797 9,668
Kirkland 45 2,453,598 219,322 8.9% 55,932 (54,579)
Woodinville 63 4,020,925 469,694 11.7% 41,167 73,823
Bothell 66 4,132,395 192,208 4.7% 51,221 41,515
================================================================================================================
NORTHEND 154 8,389,607 638,605 7.6% 48,153 (120,180)
- - ----------------------------------------------------------------------------------------------------------------
Edmonds/Mountlake Terrace 18 462,747 0 0.0% 0 0
Lynnwood 44 1,485,136 107,049 7.2% (4,953) 7,255
Mukilteo 34 2,388,233 69,976 2.9% 40,196 6,178
Everett 58 4,053,491 461,580 11.4% 12,910 (133,613)
================================================================================================================
TOTAL 570 34,065,535 2,344,376 6.9% 252,549 (262,002)
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
OVERALL AVAILABILITIES
BY SIZE RANGE
[GRAPHICAL REPRESENTATION OF BAR CHART]
<DATA POINTS TO COME>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
6
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
Statistical Summary First Quarter 1997
- - --------------------------------------------------------------------------------
MARKET AND SPACE TYPE STATISTICS
<TABLE>
<CAPTION>
Overall Net Absorption
No. of Overall Overall Vacancy -----------------------------
Market Projects Inventory Availabilities Rate 4th Qtr 1996 1st Qtr 1997
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EASTSIDE 416 25,675,928 1,705,771 6.6% 204,396 (141,822)
- - ---------------------------------------------------------------------------------------------------------
Manufacturing 64 3,443,577 170,091 4.9% (26,198) 33,372
Warehouse/Distribution 140 8,160,407 698,170 8.6% 93,726 47,545
High Tech 101 6,788,279 341,735 5.0% 79,693 (87,012)
Office/Service Center 111 7,283,665 495,775 6.8% 57,175 (135,727)
=========================================================================================================
NORTHEND 154 8,389,607 638,605 7.6% 48,153 (120,180)
- - ---------------------------------------------------------------------------------------------------------
Manufacturing 63 4,131,759 264,971 6.4% 2,901 20,028
Warehouse/Distribution 68 2,766,022 273,569 9.9% 30,101 (151,624)
High Tech 10 1,044,612 82,086 7.9% 9,000 5,300
Office/Service Center 13 447,214 17,979 4.0% 6,151 6,116
=========================================================================================================
TOTAL 570 34,065,535 2,344,376 6.9% 252,549 (262,002)
- - ---------------------------------------------------------------------------------------------------------
Manufacturing 127 7,575,336 435,062 5.7% (23,297) 53,400
Warehouse/Distribution 208 10,926,429 971,739 8.9% 123,827 (104,079)
High Tech 111 7,832,891 423,821 5.4% 88,693 (81,712)
Office/Service Center 124 7,730,879 513,754 6.6% 63,326 (129,611)
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
YEAR-TO-DATE NET ABSORPTION
[GRAPHICAL REPRESENTATION OF BAR CHART]
<DATA POINTS TO COME>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
7
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
Statistical Summary First Quarter 1997
- - --------------------------------------------------------------------------------
MARKET AND SUBMARKET STATISTICS
<TABLE>
<CAPTION>
Manufacturing Warehouse/Distribution
---------------------------------------- ---------------------------------------------
Overall Overall
Overall Overall Vacancy Overall Overall Vacancy
Market Inventory Availabilities Rate Inventory Availabilities Rate
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EASTSIDE 3,443,577 170,091 4.9% 8,160,407 698,170 8.6%
- - -------------------------------------------------------------------------------------------------------------------------
Bellevue 548,807 0 0.0% 1,417,263 106,170 7.5%
Issaquah/East 1-90 22,603 0 0.0% 513,430 31,669 6.2%
Redmond (Overlake) 123,341 0 0.0% 246,050 0 0.0%
Redmond (Willows) 561,023 116,676 20.8% 457,102 18,800 4.1%
Redmond (East) 207,646 7,000 34% 1,046,187 31,400 3.0%
Kirkland 647,297 9,715 1.5% 716,541 87,602 12.2%
Woodinville 531,286 36,700 6.9% 3,002,662 400,529 13.3%
Bothell 801,574 0 0.0% 761,172 22,000 2.9%
=========================================================================================================================
NORTHEND 4,131,759 264,971 6.4% 2,766,022 273,569 9.9%
- - -------------------------------------------------------------------------------------------------------------------------
Edmonds/Mountlake Terrace 85,342 0 0.0% 315,787 0 0.0%
Lynnwood 429,652 7,200 1.7% 691,454 12,930 1.9%
Mukilteo 1,560,294 39,951 2.6% 291,489 23,875 8.2%
Everett 2,056,471 217,820 10.6% 1,467,292 236,764 16.1%
=========================================================================================================================
TOTAL 7,575,336 435,062 5.7% 10,926,429 971,739 8.9%
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
High Tech Office/Service Center
---------------------------------------- ---------------------------------------------
Overall Overall
Overall Overall Vacancy Overall Overall Vacancy
Market Inventory Availabilities Rate Inventory Availabilities Rate
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EASTSIDE 6,788,279 341,735 5.0% 7,283,665 495,775 6.8%
- - -------------------------------------------------------------------------------------------------------------------------
Bellevue 328,288 0 0.0% 1,746,294 162,332 9.3%
Issaquah/East 1-90 366,017 11,389 3.1% 627,855 10,760 1.7%
Redmond (Overlake) 825,023 0 0.0% 1,099,747 121,285 11.0%
Redmond (Willows) 2,236,196 111,564 5.0% 1,078,462 53,150 4.9%
Redmond (East) 722,688 3,709 0.5% 894,988 38,643 4.3%
Kirkland 128,170 69,570 54.3% 961,590 52,435 5.5%
Woodinville 52,872 9,000 17.0% 434,105 23,465 5.4%
Bothell 2,129,025 136,503 6.4% 440,624 33,705 7.6%
=========================================================================================================================
NORTHEND 1,044,612 82,086 7.9% 447,214 17,979 4.0%
- - -------------------------------------------------------------------------------------------------------------------------
Edmonds/Mountlake Terrace 0 0 N/A 61,618 0 0.0%
Lynnwood 193,936 73,936 38.1% 170,094 12,983 7.6%
Mukilteo 439,300 6,150 1.4% 97,150 0 0.0%
Everett 411,376 2,000 0.5% 118,352 4,996 4.2%
=========================================================================================================================
TOTAL 7,832,891 423,821 5.4% 7,730,879 513,754 6.6%
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
8
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
Statistical Summary First Quarter 1997
- - --------------------------------------------------------------------------------
COMPARATIVE MARKET STATISTICS
<TABLE>
<CAPTION>
Overall Availabilities Overall Vacancy Rate Net Absorption
------------------------------ ------------------------------ ---------------------------
Market 1st Qtr 1996 1st Qtr l997 1st Qtr 1996 1st Qtr 1997 YTD 1996 YTD 1997
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EASTSIDE 1,469,493 1,705,771 6.0% 6.6% 716,757 (141,822)
- - -----------------------------------------------------------------------------------------------------------------------------
Bellevue 107,126 268,502 3.1% 6.6% (21,744) (98,595)
Issaquah/East I-90 13,964 53,818 0.9% 3.5% 59,102 (19,296)
Redmond (Overlake) 105,678 121,285 4.6% 5.3% 244,712 3,380
Redmond (Willows) 311,648 300,190 7.3% 6.9% 218,384 (97,738)
Redmond (East) 171,970 80,752 6.2% 2.8% (13,078) 9,668
Kirkland 188,828 219,322 8.2% 8.9% 14,651 (54,579)
Woodinville 259,567 469,694 7.1% 11.7% 182,550 73,823
Bothell 310,712 192,208 7.5% 4.7% 32,180 41,515
=============================================================================================================================
NORTHEND 408,246 638,605 4.9% 7.6% 98,269 (120,180)
- - -----------------------------------------------------------------------------------------------------------------------------
Edmonds/Mountlake Terrace 0 0 0.0% 0.0% 0 0
Lynnwood 103,713 107,049 7.1% 7.2% 28,358 7,255
Mukilteo 188,625 69,976 7.9% 2.9% 32,465 6,178
Everett/Mukilteo 115,908 461,580 2.9% 11.4% 37,446 (133,613)
=============================================================================================================================
TOTAL 1,877,739 2,344,376 5.7% 6.9% 815,026 (262,002)
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
OVERALL VACANCY RATE TRENDS
[GRAPHICAL REPRESENTATION OF BAR CHART]
Eastside Northend
-------- --------
1st Quarter 1996 6.0% 4.9%
2nd Quarter 1996 7.3% 10.3%
3rd Quarter 1996 6.5% 8.0%
4th Quarter 1996 6.1% 7.1%
1st Quarter 1997 6.6% 7.6%
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
9
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
Statistical Summary First Quarter 1997
- - --------------------------------------------------------------------------------
1997 CONSTRUCTION DELIVERIES
<TABLE>
<CAPTION>
Space Completion Total Available
Project Submarket Type Owner/Developer Date Sq. Ft. Sq. Ft.
============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
FIRST QUARTER 28,000 6,277
- - ------------------------------------------------------------------------------------------------------------
Par Mac 100 Building Annex Kirkland WD Thomas Schafer 3/97 28,000 6,277
============================================================================================================
GRAND TOTAL 28,000 6,277
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
LIST OF PROJECTS
UNDER CONSTRUCTION
<TABLE>
<CAPTION>
Space Completion Total Available
Project Submarket Type Owner/Developer Date Sq. Ft. Sq. Ft.
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
EASTSIDE 928,902 101,760
- - ----------------------------------------------------------------------------------------------------------------------------
Universal Avionics Building Willows HT Quadrant Corporation 4/97 65,000 0
Underwood Johnson Corp. Pk. Redmond East WD Underwood Johnson Group 4/97 400,000 0
Western Medical Building Woodinville WD Teutsch Partners 5/97 26,000 19,800
Ridgewood Corp. Park Woodinville WD Teutsch Partners 5/97 103,500 81,960
AT&T Wireless Bldg II Bothell HT Jack Martin Development 5/97 103,000 0
SeaMed - Canyon Park Bothell HT Washington Capital 5/97 95,000 0
Eddie Bauer Call Center Bothell HT Quadrant Corporation 7/97 65,000 0
Canyon Park East Bldg J Bothell HT WRC Properties 12/97 71,402 0
============================================================================================================================
NORTHEND 393,218 28,819
- - ----------------------------------------------------------------------------------------------------------------------------
Synsor Building Everett WD Partners Trust 1 4/97 90,000 0
Intracorp Seaway Ctr Tract I Everett WD Intracorp Industrial Group 4/97 192,200 28,819
Lang Manufacturing Building Everett MF Quadrant Corporation 5/97 111,018 0
============================================================================================================================
TOTAL 1,322,120 130,579
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
10
<PAGE>
- - --------------------------------------------------------------------------------
Eastside/Northend Industrial Market Report
Statistical Summary First Quarter 1997
- - --------------------------------------------------------------------------------
LIST OF PROJECTS
PROPOSED
<TABLE>
<CAPTION>
Estimated
Space Completion Total
Project Submarket Type Owner/Developer Date Sq. Ft.
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
EASTSIDE 2,402,868
- - ------------------------------------------------------------------------------------------------------------------------------------
Mercer Island Building Issaquah/I-90 HT Trammell Crow Company TBD 30,000
I-90/Preston Ind. Park III Issaquah/I-90 WD Bernard Development TBD 60,000
Willows Commerce Park II Willows HT Opus Northwest L.L.C. TBD 220,000
Quadrant Willows Corp. Ctr. Willows HT Quadrant Corporation TBD 338,500
Redmond Hilltop Buildings Redmond (East) HT Redmond Hilltop Associates TBD 95,180
Northwest Business Center Redmond (East) WD Not Available TBD 119,867
Guincher Project Redmond (East) HT Luis Guincher TBD 600,000
Touchstone Building Kirkland HT Key Bank Tacoma 9/97 100,179
Park 144 - Phase II Woodinville MF Schoening TBD 20,000
Construction Trade Center II Woodinville MF RRR Partnership TBD 21,675
Woodinville Business Ctr. II Woodinville OS Marcol Development TBD 30,882
Woodview Business Park 8/9 Woodinville MF Harvey M. Anderson TBD 48,300
Seavestco Corporate Center Woodinville WD Seavestco TBD 128,756
Quadrant Bus. Park Lot 1 Bothell OS Quadrant Corporation TBD 22,200
Monte Villa Lot 10 Bothell HT Quadrant Corporation TBD 26,850
Monte Villa Lot 6 Bothell HT Quadrant Corporation TBD 43,200
Canyon Park East Bldg L Bothell HT WRC Properties TBD 45,630
Monte Villa Lots 19 & 20 Bothell HT Quadrant Corporation TBD 45,800
Highlands Tract 42, Bldg C Bothell HT Roger Belanich TBD 51,440
Highlands Tract 44, Bldg F Bothell HT Roger Belanich TBD 54,000
Highlands Tract 44, Bldg E Bothell HT Roger Belanich TBD 54,500
Highlands Tract 42, Bldg B Bothell HT Roger Belanich TBD 57,830
Monte Villa Lot 1A Bothell HT Quadrant Corporation TBD 58,250
Highlands Tract 42, Bldg A Bothell HT Roger Belanich TBD 64,229
Monte Villa Lot 11 Bothell HT Quadrant Corporation TBD 65,600
====================================================================================================================================
NORTHEND 1,271,427
- - ------------------------------------------------------------------------------------------------------------------------------------
Lincoln Way Industrial Park I Lynnwood WD First Western Development TBD 35,997
Lincoln Way Industrial Park II Lynnwood WD First Western Development TBD 48,305
Quadrant I-5 Corporate Ctr. Lynnwood HT Quadrant Corporation TBD 240,600
Harbour Pointe Industrial Bldg Mukilteo WD Not Available TBD 25,000
Pointe 525 Business Center II Mukilteo OS The Petersons TBD 26,000
Viking Freight Building Everett WD Viking Freight TBD 35,000
Frito Lay Distribution Center Everett WD Frito Lay TBD 36,250
Casino Industrial Center Everett WD Jack Martin Development TBD 70,000
Quadrant Seaway Lot 2C Everett MF Quadrant Corporation TBD 99,975
Quadrant Seaway Lot 5B Everett MF Quadrant Corporation TBD 104,300
Intracorp Seaway Ctr Tract III Everett WD Intracorp Industrial Group TBD 300,000
Intracorp Seaway Ctr Tract II Everett WD Intracorp Industrial Group TBD 250,000
====================================================================================================================================
TOTAL 3,674,295
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
11
<PAGE>
- - --------------------------------------------------------------------------------
Market Industrial Market Report
Definitions First Quarter 1997
- - --------------------------------------------------------------------------------
Bellevue
Including all buildings located within the Bellevue city limits, this area
features some of the Eastside's initial light industrial business park
developments. While growth continues to move to the perimeter markets due to the
decreasing supply of zoned land, this area has begun to experience the
conversion of industrial buildings to other uses. Major multi-tenant projects
include Evans Industrial Park and Twelfth Place.
Issaquah/I-90 Corridor
Proximity to Interstate 90 is a key consideration for industrial users located
in the Issaquah/I-90 market. Extending from Mercer Island along I-90 to North
Bend, the I-90 Corridor provides immediate freeway access and high visibility.
Redmond (Overlake)
Providing immediate access to SR-520 and to 148th Avenue Northeast, the Overlake
market offers a central location to the entire Eastside and close proximity to
retail support services. Overlake Business Center is the largest project in this
market and is available to both office and industrial users. Major tenants in
this market include Microsoft, Nintendo, Eddie Bauer and Spacelabs.
Redmond (Willows)
Situated along Willows Road, this area contains the highest concentration of
tenants on the Eastside, including Data I/0, Physio Control and AT&T Wireless.
The submarket contains a high concentration of high tech projects, including
Westpark, Pacific Business & Tech Center, and Willows Commerce Center.
Redmond (East)
Surrounding the eastern border of the city of Redmond, this area contains
primarily build-to-suit and owner-user buildings and offers immediate access to
SR-520. Major projects include Marymoor Business Campus, Park East, Redmond East
Business Campus and Underwood Johnson Corporate Park.
Kirkland
Consisting of buildings located within the Kirkland city limits, this area
features immediate access to Interstate 405, which intersects this market. Spot
zoning has limited development primarily to the Totem Lake area, yet the market
is quite expansive. Major projects include Kirkland 405 Corporate Center, Par
Mac Industrial Park and the Totem Valley Business Center.
Woodinville
Consisting of projects located within the Woodinville city limits, industrial
development continues to expand north to this area. Over 50 percent of the built
space in this market consists of warehouse/distribution space, including The
Park at Woodinville, Woodinville Corporate Center and K & S Business Park.
Bothell
Consisting primarily of light industrial and high technology space, the city of
Bothell is located in the northeast corner of King county and the southeast
corner of Snohomish county. Home to the Technology Corridor, this area offers
the largest concentration of planned business parks in the area, including
Quadrant Business Park, Koll North Creek Business Center and Canyon Park
Business Center.
Edmonds/Mountlake Terrace
Bordered by Puget Sound to the west and the King/Snohomish county line to the
south, this area consists of all buildings located within the Edmonds and
Mountlake Terrace city limits. Intersected by both Highway 99 and Interstate 5,
this area offers immediate freeway access north to Lynnwood and Everett and
south to Seattle.
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
12
<PAGE>
- - --------------------------------------------------------------------------------
Market Industrial Market Report
Definitions continued First Quarter 1997
- - --------------------------------------------------------------------------------
Lynnwood
Lynnwood's central location within Snohomish county contributes to its appeal
for industrial development. The majority of the projects consist of
manufacturing or warehouse/distribution space. Building sizes typically total
100,000 sf or less, with the exception of Quadrant 1-5 Center, a 300,000-square
foot high tech project. Bordered on the east by the interchange of Interstates 5
and 405, Lynnwood offers easy access to Seattle, the Eastside and north to
Everett.
Mukilteo
The city of Mukilteo is bordered by the Puget Sound and the cities of Everett
and Lynnwood. The 2,500 acre Harbor Pointe development is located within its
southern boundary. Major projects include Hers Industrial Park and Quadrant
Business Park/Mukilteo.
Everett
Consisting of buildings located within the Everett city limits, this area
contains the largest concentration of industrial space in the Northend, totaling
over 3.9 msf. Major tenants include Boeing, Intermec and Alliant Techsystems.
Everett is also the location of the Navy Homeport.
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
13
<PAGE>
- - --------------------------------------------------------------------------------
Glossary Industrial Market Report
First Quarter 1997
- - --------------------------------------------------------------------------------
Overall Inventory
Includes all existing competitive single tenant and multi-tenant industrial
buildings; located in King County on the east side of Lake Washington including
the cities of Edmonds, Mountlake Terrace, Lynnwood and Mukilteo in Snohomish
county; consisting of 10,000 rentable square feet in size or larger as well as
significant buildings less than 10,000 sf. Owner occupied buildings are
included.
Speculative Inventory
Includes all existing competitive single tenant and multi-tenant industrial
buildings; located in King county on the east side of Lake Washington including
the cities of Edmonds, Mountlake Terrace, Lynnwood, Everett and Mukilteo in
Snohomish county; consisting of 10,000 rentable square feet in size or larger as
well as significant buildings less than 10,000 sf. Owner occupied buildings are
not included.
High Tech/R&D/Flex Space
Buildings which are primarily used for research and development, engineering,
bio-technology or electronic assembly. Part of the space could be built-out for
certain types of office or warehouse use. Buildings are characterized by
landscaped office park type construction, state-of-the-art amenities, typically
high parking ratios (3.5/1000), with an emphasis on office and common area, and
may include wiring for heavy amps. High tech facilities can incorporate a design
that can accommodate 100% office build-out, loading capabilities and an
extensive amount of glass.
Warehouse/Distribution Space
Buildings that contain high-cubed ceilings, dock high and/or grade level doors
which would accommodate a distribution or warehouse user. Warehouse/distribution
facilities are typically constructed with a functional design which will
accommodate larger bay sizes and easily accessible loading capabilities. The
facilities typically offer extensive maneuvering areas and truck circulation
around each building, as well as provisions for constructing mezzanine office
space. Characteristics include a low parking ratio, minimal landscaping and
maximum lot coverage.
Manufacturing Space
Facilities used for manufacturing and fabrication purposes with some
warehouse/storage capabilities. Building features may include craneways, heavy
power and grade level doors. Manufacturing buildings typically consist of a
functional design created to accommodate larger bay size users and which provide
generous maneuvering areas and truck circulation between buildings.
Manufacturing facilities typically include both dock high and grade level
loading, high bay storage and provisions for mezzanine office space.
Office/Service Center (Business Park) Space
Primarily buildings with storefront/showroom areas, grade level loading, lower
ceiling heights and service/repair areas. The buildings generally contain a high
showroom/office versus warehouse build-out ratio. Incubator space is designed
primarily for small bay users and is characterized by an extensive use of glass
in office areas, a minimum parking ratio (3/1000), drive-in loading capabilities
and maximum maneuvering area. Flex space offers additional features, including
upper-level glass areas, the potential to build-out mezzanine office space, and
both grade level and dock high loading capabilities.
Will Build-to-Suit Space
A developable parcel of industrial property in which the owner will improve the
land to a particular tenant's specific needs within certain zoning, square
footage and height limitations.
Construction Deliveries
Buildings that received their Certificate of Occupancy in 1997. Tenancy may not
yet have taken place.
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
14
<PAGE>
- - --------------------------------------------------------------------------------
Glossary Industrial Market Report
continued First Quarter 1997
- - --------------------------------------------------------------------------------
Under Construction
Projects which are beyond site preparation and contain predominantly industrial
space. A certificate of final completion has not been issued. Under construction
projects do not include projects undergoing renovation.
Proposed
Projects that are in the planning stages that may or may not have been approved.
Construction has not yet begun.
Direct Vacancy Rate
Space, available for lease through the landlord, divided by the speculative
inventory. Space in buildings under construction is not included.
Overall Vacancy Rate
Space, available both directly and through sublease, divided by the inventory,
including space available in buildings for sale. Space in buildings under
construction is not included.
Direct Space
Space available for lease through the building owner.
Sublease Space
Space available for lease through the lessee to a third party for the remainder
of the lessee's term and/or beyond.
Rental Rates
Triple net asking rental rates for direct space.
Net Absorption
The net change in occupied space during a given period of time excluding sublet
space and preleasing activity.
Leasing Activity
The sum of all completed lease transactions in a given period of time including
sublet space and preleasing activity and excluding renewals.
Preleasing Activity
The sum of all completed transactions in under construction, under renovation
and proposed projects.
Sales Activity
The sum of all completed owner/user sales transactions in a given period of
time.
Symbols
TBD: to be determined
N/A: not available
SF: square feet
MSF: million square feet
MF: manufacturing
WD: warehouse/distribution
HT: high tech
OS: office/service center
BTS: build-to-suit
*Inventory numbers may vary somewhat due to building additions, deletions or
other changes; therefore, inventory numbers may not match those reported last
quarter.
CUSHMAN &
WAKEFIELD (R)
Improving your place
in the world. (SM)
Source: Cushman & Wakefield of Washington Research Services
15
<PAGE>
QUALIFICATIONS
================================================================================
Steven A. Zenker, MAI
Professional Affiliations
Member Appraisal Institute (MAI designation #11,006)
OREGON Certified Real Estate Appraiser - #C000202
WASHINGTON Certified Real Estate Appraiser - General -
#270-11 ZE-NK-ES-A399BM
CALIFORNIA Certified General Real Estate Appraiser - #AG001948
State of California Real Estate Broker
ALASKA Certified General Real Estate Appraiser - #AA 169
IDAHO Certified General Appraiser - #CGA-159
UTAH Temporary Permit - Certified General - #94-04-04
Real Estate Experience
Director, Cushman & Wakefield of Oregon, Inc., Valuation Advisory
Services Group, a full service real estate organization specializing in
appraisal and consulting. November 1991 to present.
Associate, Diversified Realty Appraisal, Newport Beach, California. 1986-1991.
Research Assistant, Grubb & Ellis, Newport Beach, California. 1985-1986.
Office Buildings Residential Income
Hotels/Motels Residential Condominiums
Shopping Centers Regional Malls
Commercial Land Golf Courses/Country Clubs
Auto Dealerships Industrial Land
Industrial Facilities Special Purpose
Education
Bachelor of Arts Degree (Economics/Mathematics), 1983
University of California, Irvine
Appraisal Institute
#1A1 Real Estate Appraisal Principles
#1A2 Basic Valuation Procedures
#1BA Capitalization Theory and Techniques, Part A
#1BB Capitalization Theory and Techniques, Part B
#SPP Standards of Professional Practice
#2-1 Case Studies in Real Estate Valuation
#2-2 Report Writing and Valuation Analysis
CUSHMAN &
WAKEFIELD (R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
<PAGE>
QUALIFICATIONS
================================================================================
Steven A. Zenker, MAI
University of California, Irvine and Coastline Community College
Real Estate Principles
Real Estate Law
Real Estate Finance
Real Estate Economics
Real Estate Management
Real Estate Investment Analysis
CUSHMAN &
WAKEFIELD (R)
---------------------------
VALUATION ADVISORY SERVICES
---------------------------
==============================================================================
COMPLETE APPRAISAL
OF REAL PROPERTY
GATEWAY PROFESSIONAL CENTER
801 12th Street
Sacramento, Sacramento County, California
===============================================================================
IN A SELF-CONTAINED REPORT
As of May 21, 1997
PRUDENTIAL SECURITIES INCORPORATED
199 Water Street, 16th Floor
New York, New York 10292
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
Valuation Advisory Services
2055 Gateway Plaza, Suite 550
San Jose, California 95110
<PAGE>
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC. CUSHMAN & WAKEFIELD LOGO
2055 Gateway Plaza, Suite 550
San Jose, California 95110
Tel: (408) 436-5500
Fax: (408) 437-9129
June 5, 1997
Mr. Chester Piskorowski, Senior Vice President
PRUDENTIAL SECURITIES INCORPORATED
199 Water Street, 16th Floor
New York, New York 10292
Re: Complete Appraisal of Real Property
Gateway Professional Center
801 12th Street
Sacramento, California
-----------------------------------
Dear Mr. Piskorowski:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of California, Inc. is pleased to transmit our
self-contained appraisal report estimating the market value of the leased fee
estate in the Gateway Professional Center.
The value opinion reported below is qualified by certain assumptions,
limiting conditions, certifications, and definitions, which are set forth in the
report.
This report was prepared for Prudential Securities Incorporated and is
intended only for its specified use. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield
of California, Inc.
This appraisal report has been prepared in accordance with the Uniform
Standards of Professional Appraisal Practice, including the Competency
Provision.
The property was inspected by and the report was prepared by John C.
Vaughan under the supervision of Kenneth E. Matlin, MAI.
<PAGE>
Mr. Chester Piskorowski, Senior Vice President
Prudential Securities Incorporated
June 5, 1997
Page 2
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the market value
of the leased fee estate in the referenced property, subject to the assumptions,
limiting conditions, certifications, and definitions, as of May 21, 1997, was:
FOUR MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
$4,250,000
This letter is invalid as an opinion of value if detached from the report,
which contains the text, exhibits, and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
/s/ JOHN C. VAUGHAN
- - --------------------------------------
John C. Vaughan
State Certified Appraiser No. AG002680
/s/ KENNETH E. MATLIN, MAI
- - --------------------------------------
Kenneth E. Matlin, MAI
State Certified Appraiser No. AG002022
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
===============================================================================
Property Name: Gateway Professional Center
Location: 801 12th Street
Sacramento, Sacramento County California
General Overview: The subject site is improved with a six-story,
multi-tenant office building, with a concrete
paved parking garage on the first floor
containing 44 spaces, concrete curbs, gutters
and sidewalks. The parking garage contributes
to the income for the subject. The building
square footage is 48,578 of rentable area. The
top two floors of the building are improved as
executive suites. The grounds have minimal
landscaping. The building was constructed in
1981 on a 0.30-acre site. On the effective date
of appraisal, occupancy stood at 95.8 percent.
Assessor's Parcel Number: 006-0051-021
Interest Appraised: Leased Fee Estate
Date of Value: May 21, 1997
Date of Inspection: May 21, 1997
Ownership: Prudential Bache/Equitec Real Estate Partnership
Land Area: 0.30 acres
Current Property Assessment $5,053,598
Current Property Taxes: $54,136.66
Zoning: C-2: General Commercial
Highest and Best Use
If Vacant: Hold for build to suit office development.
As Improved: Multi-tenant office building as improved.
Improvements
Type: Multi-tenant office building
Year Built: 1981
Type of Construction: Steel and reinforced concrete frame with
painted metal siding.
Gross Building Area: 50,713 square feet.
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
===============================================================================
Net Rentable Area: 48,578 square feet.
Usable Area: 40,062 square feet.
Load Factor: 16.47%
Operating Data and Forecasts
Current Occupancy: 95.8%
Forecasted Stabilized Occupancy: The property is at stabilized occupancy
Value Indicators
Cost Approach N/A
Sales Comparison Approach: $4,370,000 to $4,610,000
Value Per Square Foot: $90 to $95
Income Approach--Direct Capitalization
Estimated Market Rental Rate: $1.25 per square foot per month, fully
serviced.
Current Vacancy: 4.2%
Stabilized Vacancy Rate: 5.0%
Effective Gross Income: $701,604
Net Operating Income: $436,503
Overall Capitalization Rate: 10.5%
Indicated Value: $4,210,000
Value Conclusion: $4,250,000
Value Per Square Foot: $87.49
Implicit Capitalization Rate: 10.27%
Marketing Time: 12 months or less.
SPECIAL ASSUMPTIONS AFFECTING VALUATION:
1. It is assumed that the operating statements and rent roll provided by the
property manager are accurate.
2. Please refer to the complete list of assumptions and limiting conditions
included at the end of this report.
<PAGE>
TABLE OF CONTENTS
================================================================================
PAGE
PHOTOGRAPHS OF SUBJECT PROPERTY..............................................1
INTRODUCTION.................................................................3
REGIONAL ANALYSIS............................................................6
NEIGHBORHOOD ANALYSIS.......................................................10
OFFICE MARKET ANALYSIS......................................................13
PROPERTY DESCRIPTION........................................................18
REAL PROPERTY TAXES AND ASSESSMENTS.........................................23
ZONING......................................................................24
HIGHEST AND BEST USE........................................................25
VALUATION PROCESS...........................................................26
SALES COMPARISON APPROACH...................................................27
INCOME APPROACH.............................................................33
RECONCILIATION AND FINAL VALUE ESTIMATE.....................................48
ASSUMPTIONS AND LIMITING CONDITIONS.........................................49
CERTIFICATION OF APPRAISAL..................................................51
ADDENDA.....................................................................52
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
===============================================================================
[PHOTO]
================================================================================
Subject Front
================================================================================
===============================================================================
[PHOTO]
Subject's H Street Facade
================================================================================
================================================================================
-1-
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
===============================================================================
[PHOTO]
================================================================================
Street Scene with Subject Property on Left
===============================================================================
[PHOTO]
Rear of Subject Property
================================================================================
================================================================================
-2-
<PAGE>
INTRODUCTION
================================================================================
IDENTIFICATION OF PROPERTY
The subject property is an existing office building which is currently 95.8
percent occupied by five tenants. Two of the floors are built-out and utilized
as executive suites. The executive suites are currently 94.2% occupied. The
subject property contains 48,578 square feet of rentable area situated on a
0.30-acre, or 12,880 square foot, site. The location of the site is on the
southeast corner of H and 12th Streets. The street address is 801 12th Street,
in the city of Sacramento, Sacramento County, California. The Sacramento County
Assessor has designated the property as parcel number 006-0051-021.
PROPERTY OWNERSHIP AND RECENT HISTORY
Ownership of the subject is reportedly vested in Prudential Bache/Equitec
Real Estate Partnership. Public records indicate that the property has not sold
in the past three years.
PURPOSE AND INTENDED USE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of a leased
fee estate on May 21, 1997. The appraisal is to assist Prudential in evaluating
current offers to purchase the properties from Equitec and other offers that may
arise.
EXTENT OF THE APPRAISAL PROCESS
In the process of preparing this appraisal, we:
o Inspected the exterior of the building and the site improvements
and a representative sample of tenant spaces with Anne
Weatherford, the manager.
o Interviewed Carla Alexander, Portfolio Manager for the property
management company, Glenborough.
o Reviewed leasing policy, concessions, tenant build-out
allowances, and history of recent rental rates and occupancy with
the building manager.
o Reviewed a detailed history of income and expenses, and a budget
forecast for 1997 including the budget for planned capital
expenditures and repairs.
o Conducted market research of occupancies, asking rents,
concessions and operating expenses at competing buildings which
involved interviews with on-site managers and a review of our own
data base from previous appraisal files.
o Prepared an estimate of stabilized income and expense (for
capitalization purposes).
o Conducted market inquiries into recent sales of similar buildings
to ascertain sales price per square foot, effective gross income
multipliers and capitalization rates. This process involved
telephone interviews with sellers, buyers and/or participating
brokers. (See detailed sales write-ups in Addenda for more
complete information on the verification process.)
o Prepared Sales Comparison and Income Approaches to value.
===============================================================================
-3-
<PAGE>
INTRODUCTION
================================================================================
DATE OF VALUE AND PROPERTY INSPECTION
The date of value is May 21, 1997, which is also the date of our last
inspection.
PROPERTY RIGHTS APPRAISED
We have appraised a leased fee estate.
DEFINITIONS OF VALUE, INTEREST APPRAISED, AND OTHER PERTINENT TERMS
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
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.
The estimate exposure time for the subject property is 12 months or less,
based on information about days on the market gathered through discussion
with market participants and information gathered during the sales
verification process.
================================================================================
-4-
<PAGE>
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
LEASED FEE ESTATE
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
MARKET RENT
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space
as of the date of appraisal.
CASH EQUIVALENT
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
MARKET VALUE AS IS ON APPRAISAL DATE
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
LEGAL DESCRIPTION
The subject property is identified as:
All that land lying within the State of California, County of Sacramento,
City of Sacramento, described as follows:
The North and South Halves of Lot 1 in the Block bounded by "H"
and "I", Twelfth and Thirteenth Streets, of the City of Sacramento,
according to the official plan or plat thereof.
================================================================================
-5-
<PAGE>
[GRAPHICAL REPRESENTATION OF REGIONAL LOCATION OF SUBJECT AREA]
<PAGE>
REGIONAL ANALYSIS
================================================================================
INTRODUCTION
The subject property is located in the Downtown area of the City of
Sacramento, Sacramento County, California. Given its location within the
Sacramento city limits, the subject is within the Sacramento Metropolitan
Statistical Area (MSA) and the sphere of influence of the City of Sacramento.
Sacramento is approximately 90 miles northeast of San Francisco. The map on the
facing page shows the subject's location within the Sacramento Region.
SACRAMENTO MARKET OVERVIEW
o According to the Employment Development Department (EDD), the Sacramento
MSA's civilian labor force was 741,900 as of February 1997. This reflects
an increase of 20,900 persons over the preceding year.
o Employment rose during this period by 27,400 to a level of 698,500.
Correspondingly, the unemployment rate dropped 100 basis points to 5.9
percent from 6.9 percent as of the prior February.
o The February 1997 unemployment rate was down compared to the January rate
of 6.2 percent due to gains in service sector jobs.
o The unemployment rate for the Sacramento MSA compares favorably to the
State average of 7.0 percent, but is slightly above the national
unemployment rate of 5.7 percent.
o During the previous year (February 1996 to February 1997), total wage and
salary jobs increased by 3.8 percent for the year. The service sector
showed the largest gain in jobs, adding 10,900 positions. Other sectors
showing significant job gains were education (5,200 new jobs), and
construction (2,800 jobs).
o The EDD projects that employment will continue to expand through the spring
with job gains realized in most major industries.
The following is a summary of jobs by industry sector showing the percent
and actual gain over the previous year.
================================================================================
-6-
<PAGE>
REGIONAL ANALYSIS
================================================================================
CIVILIAN LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT
FEBRUARY 1996- FEBRUARY 1997
- - -----------------------------------------------------------------------
Sacramento Metropolitan Statistical Area
(El Dorado, Placer, and Sacramento Counties)
- - -----------------------------------------------------------------------
Items 1996 1997 Change % Change
- - -----------------------------------------------------------------------
Civilian Labor Force(1) 721,000 741,900 20,900 2.9%
Employment 671,100 698,500 27,400 4.1%
Unemployment 49,900 43,400 -6,500 -13.0%
Unemployment Rate(2) 6.9% 5.9 -1.0% -14.5%
- - -----------------------------------------------------------------------
Total Farm 2,800 3,100 300 10.7%
- - ----------------------------------------------------------------------
Mining 200 200 0 0%
- - ----------------------------------------------------------------------
Construction 26,800 29,600 2,800 10.4%
- - ----------------------------------------------------------------------
Manufacturing 42,400 43,500 1,100 2.6%
- - ----------------------------------------------------------------------
Transportation & Utilities 25,100 25,200 100 0.4%
- - ----------------------------------------------------------------------
Trade 130,300 133,400 3,100 2.4%
- - ----------------------------------------------------------------------
FIRE 39,500 38,900 -600 -1.5%
- - ----------------------------------------------------------------------
Services 163,700 174,600 10,900 6.7%
- - ----------------------------------------------------------------------
Government 166,500 171,300 4,800 2.9%
======================================================================
Notes: (1) Labor force by place of residence. Employment includes persons
involved in labor-management trade disputes
(2) The unemployment rate is computed from unrounded data; therefore, it
may differ from rates developed using the rounded figures in
these tables.
Source: EDD, March, 1997
o The health care and service industry sectors of the economy will be the
driving forces behind job growth in the future. Other sectors of the
economy projected to show healthy growth rates include the finance,
insurance, and real estate (FIRE) sector and retail trade employment.
o The government's position as the dominant employer in the region will
continue to decline. As of February 1997, federal, state and local
government accounted for about 28 percent of all jobs in the Sacramento
MSA, the second largest percentage reported for any industry division. The
largest is the Services sector which only recently surpassed Government.
================================================================================
-7-
<PAGE>
REGIONAL ANALYSIS
================================================================================
Below are the Major Private Sector Employers in the Sacramento metropolitan
area.
=============================================================================
MAJOR PRIVATE SECTOR EMPLOYERS
SACRAMENTO METROPOLITAN AREA
=============================================================================
Number of
Name Employees Type of Business
=============================================================================
Sutter Health 6,071 Healthcare
- - -----------------------------------------------------------------------------
Kaiser Permanente 5,686 Health Maintenance Organization
- - -----------------------------------------------------------------------------
Mercy Healthcare Sacrament 5,119 Healthcare
- - -----------------------------------------------------------------------------
Raley's Inc. 4,900 Supermarket and drug stores
- - -----------------------------------------------------------------------------
Pacific Bell 4,566 Local telephone service and data
transmission
- - -----------------------------------------------------------------------------
Hewlett-Packard Co. 4,000 Manufacture of computers
- - -----------------------------------------------------------------------------
Packard Bell 3,800 Personal computer manufacturer
- - -----------------------------------------------------------------------------
Intel Corp. 3,750 Mfg. of semiconductor components
- - -----------------------------------------------------------------------------
United Parcel Service 2,913 Package delivery
- - -----------------------------------------------------------------------------
Foundation Health Corp. 2,419 Health Maintenance Organization
- - -----------------------------------------------------------------------------
Bank of America 2,335 Banking
- - -----------------------------------------------------------------------------
The Money Store, Inc. 2,100 Home and business lending
- - -----------------------------------------------------------------------------
NEC Electronics, Inc. 2,050 Manufacturer of semiconductor devices
- - -----------------------------------------------------------------------------
U.S. Computer Services 1,923 Management information systems
- - -----------------------------------------------------------------------------
PRIDE Industries 1,839 Various business services
- - -----------------------------------------------------------------------------
Lucky Stores 1,828 Retail grocery stores
- - -----------------------------------------------------------------------------
Campbell Soup Co. 1,700 Heat-processed foods
- - -----------------------------------------------------------------------------
Aerojet 1,650 Rocket engine manufacturing
- - -----------------------------------------------------------------------------
Union Pacific Railroad 1,600 Rail transportation
- - -----------------------------------------------------------------------------
The Sacramento Bee 1,524 Daily newspaper
- - -----------------------------------------------------------------------------
MCI 1,508 Telecommunications
- - -----------------------------------------------------------------------------
A. Teichert & Son Inc. 1,300 (peak) Concrete products, Construction
- - -----------------------------------------------------------------------------
Electronic Data Systems
Corp. 1,300 Information technology services
- - -----------------------------------------------------------------------------
USAA Property & Casualty 1,106 Property & Casualty insurance
- - -----------------------------------------------------------------------------
MTS Inc. 1,100 Retail sales of records, books, & videos
=============================================================================
Source: Sacramento Business Journal; February 10, 1997
DEMOGRAPHIC ANALYSIS
o The City of Sacramento had a population of 384,800 as of January 1, 1997,
an increase of 0.13 percent over the January 1, 1996 population (384,300).
o The 1997 population within Sacramento County was 1,123,400, showing a 0.74
percent increase over the January 1996 county population.
o The California Department of Finance projects that the Sacramento MSA's
population will increase 29.5 percent from 1990 to 2000, with an absolute
population increase of approximately 400,000 persons.
================================================================================
-8-
<PAGE>
REGIONAL ANALYSIS
================================================================================
o Historic and projected population trends for the Sacramento MSA, Sacramento
County and the City of Sacramento are indicated in the following chart.
================================================================================
City
of Sacramento Sacramento County Sacramento MSA
---------------------- --------------------- ---------------------
% Annual % Annual % Annual
Year Population Increase* Population Increase* Population Increase*
================================================================================
1960 191,667 - - - 510,300 - - - 654,893 --
1970 257,105 3.0 634,373 2.2 847,626 2.6
1980 275,741 0.7 783,381 2.1 1,099,814 2.6
1990 369,365 3.0 1,041,219 2.9 1,481,102 3.0
1996 384,800 0.7 1,123,400 1.3 1,626,400 1.6
2000 (Proj.) 432,608 3.0 1,218,457 2.0 1,608,917 N/A
================================================================================
* Compound Annual Percentage Increase
** As of January, 1997
*** Population projections as of 2000 provided by ENDS. Percent change reflects
ENDS projections and does not compute with State Department of Finance 1996
population estimates.
Source: Employment Development Department (EDD), Sacramento County, May, 1996.
Demographic Research Unit, State Department of Finance, February 1996.
o Future population growth within the region is projected at between 2.0 and
3.0 percent per year, compounded, over the next four years. This is
relatively moderated growth compared to historic population growth rates.
CONCLUSION
The Sacramento Metropolitan Area over the past several years has felt the
compounded effects of California's recession and military base closures.
However, indicators show that the region's economy is recovering with strong
gains in employment. The government jobs lost as a result of the closure of
three military bases in the region are slowly being replaced by manufacturing
and service positions in the private sector. The population of the region is
projected to continue growing at moderate rates through the end of the decade.
================================================================================
-9-
<PAGE>
[GRAPHICAL REPRESENETATION OF NEIGHBORHOOD MAP OF SUBJECT AREA]
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
LOCATION
o The subject property is located in the Downtown area of the City of
Sacramento, Sacramento County, California. The downtown district is located
near the northwestern edge of the city limits.
o The boundaries of the neighborhood are delineated as the American River to
the north; Business Interstate 80 to the east and south; and the Sacramento
River to the west.
ACCESS
o Access to the district is considered well provided for via both public and
private transportation modes. Two major regional freeways border the
district which provide access to all areas of the metropolitan area and
state.
o Public transportation available in the district include the Sacramento
Light Rail Transit, Sacramento Regional buses, Greyhound bus lines, as well
as Amtrak whose Sacramento station is located near the north end of the
neighborhood.
o Major arterials serving the neighborhood include Interstate 5 and
Interstate Business 80 which provide access to areas north and south
(Interstate 5), and east and west (Business 80) of the neighborhood. In
addition, U.S. Highway 50 and State Highway 99 merge with Interstate 80 at
the southeastern edge of the neighborhood. The district is also served by a
good system of paved surface streets which are either two or three-lanes in
width.
o At this time, no changes in the existing transit and road systems are
planned or under construction.
NEIGHBORHOOD CHARACTERISTICS
o The district contains the original city limits of Sacramento, dating back
to when the city took shape in the 1850's along the banks of the American
and Sacramento Rivers. Later, Sacramento was chosen as the State's seat of
government, and the State Capital building was constructed in the heart of
the district. Today, much of the existing office space in the downtown
Sacramento is occupied by state agencies and the area still serves as a
major commerce center for the region.
o Since the district was originally built up over 100 years ago, the district
has matured and is nearly 100% built-up.
o Generally, the existing improvements in the neighborhood run the gamut from
mid-rise, Class A office buildings, to historical homes. The following is a
more distinct breakdown of the types of improvements.
o Approximately 50% of existing construction is commercial in nature.
This includes newer, Class A office buildings (some with ground floor
retail), multi-story hotels, numerous public facilities, stores,
restaurants, and various other commercial structures which are
typically found in an urban area. They range in age from nearly new to
over 100 years old, in some cases.
o Approximately 10% percent of the sites in the area are improved with
light industrial uses. These are typically single-story, concrete
structures which range in age from 20 to 50 years old.
================================================================================
-10-
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
o The balance is residential development composed of both single and
multi-family structures which range in age from historical buildings
to constructed within the last 10 years. Most residential construction
is wood frame with wood or stucco exteriors and two-stories in height.
o As discussed above, the major influence for the downtown area is the
existence of the California State Capital building and State offices.
Additionally, Sacramento County and the City of Sacramento have their
main offices in the downtown area. Tourism is another major influence
in the area with the Old Sacramento State Historic Park and Sutter's
Fort State Historic Park located in the area. Sacramento's Community
Center, and the Memorial Auditorium are also situated here.
o Overall, the downtown district is in a revitalization mode following
numerous years of decline. Over the past 10 years, several new
prestigious office buildings have been completed in the area. The
completion of the light rail line through downtown made it a more
desirable area for companies to locate since it is easier for
employees to travel into downtown. Also, the completion of the
rehabilitation of the K Street Shopping Mall has helped to attract
more shoppers to the area after business hours
NEARBY AND ADJACENT USES
o The Sacramento County Courthouse is located three blocks northwest of the
subject.
o The State Capitol is five blocks south of the subject.
o The recently renovated K Street Mall, an outdoor plaza, is three blocks
south of the subject.
o Adjacent to the subject on the west is a Motor Inn. Office buildings are
located immediately north and east of the subject. To the south is a vacant
lot owned by the State of California, which most likely will be utilized
for office development.
o The subject is adjacent to a Metro Light Rail Stop, which provides public
transportation to the region's outlying areas.
SPECIAL HAZARDS OR ADVERSE INFLUENCES
o The neighborhood abuts the Sacramento and American Rivers, thus is located
within a 100-year flood plane. However, the Army Corp of Engineers is in
the process of completing projects which would alleviate any future
flooding hazards.
PLANNED IMPROVEMENTS/DEMOLITION
o Currently, there are a total of 730,000 square feet of office space under
construction in the downtown area. This is comprised of the 600,000 square
foot Federal Courthouse and the 130,000 square foot County Administration
Building. These projects reflect the magnitude of demand from government
agencies for office space in the downtown area.
CONCLUSION
o The neighborhood has reached stability and is currently in the midst of a
period of revitalization as evidenced by the new construction which has
been completed over the past ten years.
================================================================================
-11-
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
o Due to the amount of interest shown by investors and tenants in the
downtown market the overall outlook for the area is good. The State,
County, and City offices situated in the area will continue to provide a
strong tenant base for offices in the area.
o All of these forces, combined with recent market evidence that the office
leasing market is tightening, should eHnsure the long-term viability of the
subject property as a multi-tenant office building.
================================================================================
-12-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
SACRAMENTO AREA OFFICE MARKET
The metropolitan area has approximately 34.3 million square feet of
existing office space. The bulk of the office space is in downtown Sacramento
(8.6 million square feet), the Highway 50 corridor (8.1 million square feet) and
the Point West area (2.3 million square feet) submarkets. These three submarkets
contain about 53% of the total office space in Sacramento.
At the end of the 1st Quarter 1997, Sacramento's office space vacancy rate
was 10.9 percent, which reflects a slight increase over the 10.3% recorded at
the end of 1995. This increase is the result of several new build-to-suit
developments that came on-line during 1996 and early 1997. The majority of these
buildings were located in the I-50 Corridor and were for single tenant users.
There is a total of 2,701,882 square feet of office space currently under
construction in the Sacramento Metropolitan Area. As this space reaches the
market, vacancy rates will increase, resulting in downward pressure on rental
rates. As the majority of this space is outside of the subject's competitive
market area, it will not directly affect the subject property.
Total square footage, new construction, vacancy rates and net absorption
levels since 1986 are shown below for the Sacramento region:
======================================================================
Regional Occupied Net
YEAR Total New Vacancy Space Absorption
Sq. Ft. Constr. Rate (Sq. Ft.) (Sq. Ft.)
======================================================================
1986 20,599,874 ------- 23.1% 15,837,183 -------
- - ----------------------------------------------------------------------
1987 23,835,038 3,235,164 20.2% 19,032,278 3,195,095
- - ----------------------------------------------------------------------
1988 25,867,077 2,032,039 17.1% 21,438,633 2,406,355
- - ----------------------------------------------------------------------
1989 28,842,168 2,975,091 18.5% 23,509,251 2,070,618
- - ----------------------------------------------------------------------
1990 30,043,835 1,201,667 13.3% 26,035,987 2,526,736
- - ----------------------------------------------------------------------
1991 31,491,412 1,447,577 13.6% 27,206,584 1,170,597
- - ----------------------------------------------------------------------
1992 33,270,536 1,779,124 16.8% 27,676,677 470,093
- - ----------------------------------------------------------------------
1993 33,448,309 177,773 16.0% 28,098,392 421,715
- - ----------------------------------------------------------------------
1994 33,513,723 135,035 13.0% 29,156,939 1,062,568
- - ----------------------------------------------------------------------
1995 33,636,714 311,418 10.3% 30,172,132 1,053,918
- - ----------------------------------------------------------------------
1996 34,027,556 2,206,518 12.4% 29,812,893 355,211
- - ----------------------------------------------------------------------
1st Qtr 97 34,310,953 2,701,882 10.9% 30,585,432 442,407
======================================================================
SOURCE: CB Commercial, Grubb & Ellis and Cushman & Wakefield
As the statistics in the table indicate, the Sacramento region has seen a
steady amount of growth in office space over the past several years. The market
continued to grow throughout
================================================================================
-13-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
1992 and 1993 but the effects of the national recession and the state's economic
problems slowed demand for office space.
Approximately 1.8 million square feet of office space came on line in 1992
and an additional 177,773 square feet was added in 1993 (2.0 million square feet
combined in 1992-93) but net absorption of office space only totaled
approximately 900,000 square feet over that same period (470,093 square feet in
1992 and 421,715 in 1993). This net absorption level is down from approximately
1.2 million square feet in 1991 and 2 million square feet or more in the
previous four years. This accounts for the jump in the overall vacancy level
from 13.6% at year-end 1991 to 16.0% at year-end 1993.
With the easing of the recession in 1994 and the much slower pace of
construction at that time, net absorption increased by 152% from the prior year.
As a result, overall vacancy declined to 13.0%. Net absorption in 1995 was again
over 1 million square feet, thus reducing overall vacancy to 10.3%. In 1996 net
absorption was reported at 355,211 square feet, the lowest amount in several
years. The vacancy rate in 1996 rose to a high of 13.2% in the third quarter but
finished the year at 12.4%.
DOWNTOWN OFFICE MARKET
The subject property is located in the Downtown submarket, the largest
office submarket in the Sacramento region. This submarket consists of low- to
high-rise, Class A and B buildings. The majority of the tenants in this
submarket are state and federal government offices or related tenants.
Investor demand for office product in the downtown market is focused
primarily on Class A buildings with solid tenant bases. Most government agency
leases include escape clauses, and investors assign greater risk to these
leases. Class B buildings have not yet drawn the investment activity currently
associated with the top tier buidings. However, market particpants expect
competition among investors to push demand into the Class B product.
VACANCY RATES AND NET ABSORPTION
Office inventory in the Downtown submarket as of the first quarter 1997 was
8,586,967 square feet, located in 134 buildings. As of the first quarter 1997
survey, there was 853,647 square feet of vacant space, indicating a vacancy rate
for the submarket of 9.94 percent. Net absorption for this submarket was 118,971
square feet during the first quarter, indicating an annual absorption rate of
475,884 square feet. Based on the current absorption rate, the downtown market
has a 1.8 year supply of office space.
Government tenants drive construction in this submarket by commissioning
build-to-suit Class A office buildings. These government entities typically
consolidate as they relocate from various secondary buildings. While speculative
development of office buildings is not common in this market, government
agencies will often commission buildings in soft markets. Further exacerbating
this facet of the market is the practice among local developers to build excess
capacity into government commissioned projects and "backfilling" with other
tenants. These factors tend to have a negative impact on the Class B buildings.
================================================================================
-14-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
CLASS B SUBMARKET
The downtown market has a significant inventory of Class B buildings.
Brokers report that there are currently over 60 Class B buildings competing for
tenants in the downtown market. Many of these buildings are occupied at least
partially by government agencies.
The State Government has stated that it wants to consolidate operations
into centrally located facilities. This relocation from various outlying
locations into the CBD area is expected to take from 5 to 7 years,which is
longer than the current administration will be in office. While actual
relocations have been limited, investors perceive higher roll-over risk with
government tenancies in Class B buildings. This roll-over risk is increased
because most government leases have early out clauses after a space has been
occupied for a specific time, usually two years.
If the consolidation of state agencies occurs, the net effect will be to
increase demand for large blocks of space with increased vacancies in the
smaller blocks of space. This space would increase the already large inventory
of space in the 1,000 to 10,000 SF range. As there are few remaining large
blocks of space on the market, new development will occur to meet government
demand.
NEW CONSTRUCTION
As stated in the Neighborhood Analysis, there is 730,000 square feet of new
construction in this submarket. This is contained entirely in two government
buildings; the 600,000 square foot Federal Courthouse and the 130,000 square
foot County Administration building. The most recently completed government
office in the downtown area was the Attorney's General office building in 1995.
Developer's in the Sacramento area are actively competing for future government
build-to-suit contracts. The most recently awarded project is the California
Environmental Protection Agency's 25-year lease for a new 15 to 25-story
highrise that will be developed by Thomas Development Partners. Construction
will commence during the latter-half of 1998.
RENTAL RATES
Rents are generally quoted on a fully-serviced basis where tenants
reimburse the landlord for their pro-rata share of increases in the operating
expenses over the base lease year, in addition to the rent. As of the first
quarter of 1997, asking monthly rental rates ranged from a low of $1.25 to a
high of $2.55 per square foot per month. This range is the highest in all of the
region's submarkets.
Based on our most recent market rent survey, discussed in detail in the
Income Capitalization Approach, asking rental rates for Class B buildings in the
subject submarket typically range from $1.25 to $1.65 per square foot per month.
Class A buildings are achieving rental rates from $1.75 to $2.55 per square
foot, per month. Brokers interviewed agree that rental rates for Class A
buildings have stabilized and are expected to rise next year. Rental rates for
Class B space, however, are not expected to until 1998.
================================================================================
-15-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
Currently, little free rent is being given in Class A buildings and leases
generally include fixed rent steps or periodic CPI adjustments. Class B leases
reflect on average one months free rent on a three year lease, with up to one
month per year of a five year lease.
INVESTMENT CLIMATE
Market particapants report increased activity among pension funds and REITS
in the Sacramento region as it is still perceived as a buyer's market. Demand
from REIT's for large blocks of investment grade real estate is reportedly very
high. This is reflected in Prentiss Properties recent purchase of six office
buildings and 11-acres of land in the South Natomas submarket. The total price
was reported at $81.7 million, and included all capital costs expected in the
first year of the holding period. The buildings comprise 564,606 square feet in
two Class A and four Class-B buildings. The transaction closed in the first
quarter of 1997 and was the second largest transaction in the region's history.
The scale of this purchase has enabled Prentiss to leverage their property
management and leasing functions. Other REIT's are reportedly interested in
establishing a presence in the Sacramento market and are actively seeking
portfolios of investment grade real estate.
The current listing of 925 L Street is another indication of the investment
climate in Sacramento. The listing broker reported that competition from buyers
resulted in a contract price that was reported to be very close to the asking
price, albeit 13% lower than the 1992 sales price. While this Class A- building
has an excellent location, investor concerns over roll-over risk and the age of
the mechanical systems resulting in a going-in capitalization rate above 9.5
percent.
Brokers report that investors continue to analyze property based on the
existing tenancy and current income with little or no premium for potential
upside in the market. Government tenants that could relocate as part of the
state's consolidation mandate are perceived as high-roll-over risks and
investors are requiring higher rates of return on income associated with these
tenants.
The Bay Area office markets to the west have experienced significant rent
spikes and there is the perception among investors that there could be upside in
Sacramento's Class A product.
CONCLUSIONS
The subject property is located in the downtown submarket of the Sacramento
metropolitan office market. This is the region's primary submarket and serves
the State, County and City governments. These tenants have a significant impact
on the market and exacerbate market forces, particularly in Class B buildings.
The Class B segment of this market has a large inventory of available space
in the 1,000 to 10,000 square foot range. If the mandated consolidation of State
agencies does occur it could add to this inventory and have a direct impact on
the subject property.
Competition for tenants among Class B buildings is expected to remain
intense for the foreseeable future. This segment of the submarket continues to
utilize leasing concessions to
================================================================================
-16-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
attract tenants. Currently, landlords are offering free rent of one month on
three year leases and three months free rent for five year leases.
Investors are active in the Sacramento region which is currently viewed as
a buyer's market. Purchases are analyzed based on existing income with higher
risk associated with government tenants that are candidates for consolidation.
The subject property currently leases space to the State of California
Employment Development Department (EDD) a potential candidate for relocation if
the mandate to consolidate State Agencies is carried out.
MARKETING TIME
Based on the comparable sales used in this analysis, and our conversations
with brokers active in the subject market, it is our opinion that the subject
property would sell within a 12-month period if actively marketed for sale.
The Appraisal Standards Board of the Appraisal Foundation defines exposure
time as, "the estimated length of time that the property interest being
appraised would have been offered on the market prior to the hypothetical
consummation of a sale at market value on the effective date of the appraisal; a
retrospective estimate based upon an analysis of past events assuming a
competitive and open market." Based on historical market conditions and the
sales analyzed above, we estimated the exposure time for the subject property to
be roughly equal to the marketing time previously stated at 12 months.
================================================================================
-17-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
SITE DESCRIPTION
Location: 801 12th Street
Sacramento, Sacramento County, California
Shape: Rectangular
Land Area: 0.30 acres
Frontage/Terrain: 80.3 feet on H Street and 160.4 feet on 12th
Street.
Street Improvements: 12th and H Streets are fully improved
thoroughfares, with concrete sidewalks, curbs,
gutters and street lights. The intersection of
these two streets is signalized.
Soil Conditions: We did not receive nor review a soil report.
However, we assume that the soil's load-bearing
capacity is sufficient to support the existing
structure. We did not observe any evidence to
the contrary during our physical inspection of
the property. The tract's drainage appears to be
adequate.
Utilities
Water: City of Sacramento
Sewer: City of Sacramento
Electricity:: Pacific Gas & Electric
Gas: Pacific Gas & Electric
Telephone Pacific Bell
Access: The subject property has good access to the
region's primary transportation corridors.
Land Use Restrictions: We were not given a title report to review. We
do not know of any easements, encroachments, or
restrictions that would adversely affect the
site's use. However, we recommend a title search
to determine whether any adverse conditions
exist.
Flood Hazard: The entire downtown Sacramento area is protected
from flooding by a series of levees. According
to Community Panel No. 060266-0025E, National
Flood Insurance Rate Map, effective November 15,
1989, the subject property is in Flood Hazard
Zone A99 and, therefore, does require flood
hazard insurance.
Wetlands: We were not given a Wetlands survey. If
subsequent engineering data reveal the presence
of regulated wetlands, it could materially
affect property value. We
================================================================================
-18-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
recommend a wetlands survey by a competent
engineering firm.
Seismic Hazard The site is not located in a Special Study Zone
as established by the Alquist-Priolo Geological
Hazards Act.
Site Improvements: The site is improved with concrete sidewalks and
perimter landscaping.
Parking: The subject has a covered garage on the ground
level. There are 46 parking spaces, all of which
are leased to tenants.
Hazardous Substances: We observed no evidence of toxic or hazardous
substances during our inspection of the site.
However, we are not trained to perform technical
environmental inspections and recommend the
services of a professional engineer for this
purpose.
Comments: The site is typical of most commercial sites in
the area, with good visibility and access.
IMPROVEMENTS DESCRIPTION
The improvements consist of a 6-story Class B office building containing a
total rentable area of 48,578 square feet. There is a concrete paved parking
garage on the first floor containing 45 covered spaces which are leased to
tenants in the building.
The following description of improvements is based upon our physical
inspection of the improvements along with our discussions with the building
manager.
General Description
Year Built: 1981
Number of Floors: 6
Net Rentable Area: 48,578 square feet
Usable Area: Not available.
Common Area Factor: 16%
Typical Floor Plate: 9,600 square feet
Parking Deck:
Stories: 1
Spaces: 46
Construction: Concrete
================================================================================
-19-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Construction Detail:
Foundation: Unknown: assumed adequate.
Framing: Reinforced concrete with steel framed
curtain wall.
Floors: Concrete over steel.
Exterior Walls: Reinforced concrete, poured in place with metal
framed window wall. The facade is aluminum
siding and glass.
Roof Cover: Built-up.
Windows: Metal frame.
Pedestrian Doors: Single light chrome finish entry doors.
Loading Doors N/A
Mechanical Detail
Heating and Cooling: Assumed adequate.
Plumbing: Assumed adequate.
Electrical Service: Assumed adequate.
Elevator Service: Two electric elevators.
Fire Protection: None noted.
Security: The building has keyed access after business
hours. During business hours, there is a
security guard in the lobby.
Interior Detail
Layout: Central core design with perimeter offices.
Floor Covering: Carpet in office areas and elevator lobbies.
Main lobby has tile flooring.
Walls: Drywall with paint or wallpaper finish.
Ceilings: Finished drywall ceilings in the executive
suite areas. Drop ceilings on other floors.
Lighting: Recessed lighting in most areas. There are
hanging light fixtures in the executive suite
areas.
================================================================================
-20-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Restrooms: Two restrooms on each floor with tile flooring
and wainscoting.
Site Improvements
Parking: 46 spaces on first level garage.
On-Site Landscaping: Minimal perimeter landscaping.
Condition: The improvements were in average condition for
their age.
Americans With Disabilities
Act: The Americans With Disabilities Act (ADA) became
effective January 26, 1992. We have not made,
nor are we qualified by training to make, a
specific compliance survey and analysis of this
property to determine whether or not it is in
conformity with the various detailed
requirements of the ADA. It is possible that a
compliance survey and a detailed analysis of the
requirements of the ADA could reveal that the
property is not in compliance with one or more
of the requireme could have a negative effect
upon the value of the property. Since we have
not been provided with the results of a survey,
we did not consider possible non-compliance with
the requirements of ADA in estimating the value
of the property.
Hazardous Substances: We are not aware of any potentially hazardous
materials (such as formaldehyde foam insulation,
asbestos insulation, radon gas emitting
materials, or other potentially hazardous
materials) which may have been used in the
construction of the improvements. However, we
are not qualified to detect such materials and
urge the client to employ an expert in the field
to determine if such hazardous materials are
thought to exist.
Design Features and
Functionality: The building's design is suitable for
multi-tenant occupancy and the floorplates lend
themselves to full-floor users. The top two
floors are built-out with executive suites which
enables the building to compete for smaller
tenants active in the area around the County
Courthouse.
Physical Condition: The subject property is considered a Class B
building in its competitive submarket. It
compares favorably in terms of age and condition
to other Class B product in the area.
================================================================================
-21-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
We did not inspect the roof of the building or
make a detailed inspection of the mechanical
systems. The appraisers, however, are not
qualified to render an opinion as to the
adequacy or condition of these components. The
client is urged to retain an expert in this
field if detailed information is needed about
the adequacy and condition of mechanical
systems.
================================================================================
-22-
<PAGE>
REAL PROPERTY TAXES AND ASSESSMENTS
================================================================================
The building is subject to the taxing jurisdiction of the City of
Sacramento and the County of Sacramento County. The assessors' parcel
identification number is 006-0051-021.
Assessed Values
Land $526,511
Improvements $4,527,087
----------
Total Market Value $5,053,598
Tax Rate 1.0204%
----------
Total Assessment $51,566.91
Direct Assessments $2,569.75
----------
Total Taxes and Assessments $54,136.66
o Cushman and Wakefield assumes that all taxes are current. When the subject
is sold, a reassessment at the sales price will most likely occur, with tax
increases limited to 2% annually thereafter until the property is sold
again. The consequences of this reassessment have been considered in the
appropriate valuation sections.
================================================================================
-23-
<PAGE>
ZONING
================================================================================
The subject is zoned C-2, General Commercial, under the City of
Sacramento's zoning ordinance. The principal purpose of this zoning district is
to provide for general commercial uses. Most retail uses are allowed in this
district as well as office uses.
We are not experts in the interpretation of complex zoning ordinances, but
based on the available information, the existing improvements comply with the
constraints imposed by the city's zoning ordinance.
To the best of our knowledge, there are no known deed restrictions which
would further limit the use of the subject property. However, this statement
should not be taken as a guarantee or warranty that no such restrictions exist.
Deed restrictions are a legal matter and only a title examination by an attorney
would normally uncover such restrictive covenants. Thus, an updated title search
of the subject property is recommended to determine the existence of such
restrictions.
================================================================================
-24-
<PAGE>
HIGHEST AND BEST USE
================================================================================
HIGHEST AND BEST USE OF SITE AS THOUGH VACANT
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of the Appraisal Institute, the highest and best use of the site
as though vacant is defined as:
Among all reasonable, alternative uses, the use that yields the highest
present land value, after payments are made for labor, capital, and
coordination. The use of a property based on the assumption that the parcel
of land is vacant or can be made vacant by demolishing any improvements.
Overall, it is our opinion that the ultimate highest and best use of the
subject site is for development of a multi-tenant office use. However, it is our
opinion that based upon the current market conditions, the financial feasibility
of a speculative office development would be questionable. The maximally
profitable use for the subject site would be resale to either a developer or
user. Thus, it is our opinion that the current highest and best use of the
subject site, as if vacant, is for eventual development of a build-to-suit
office building when market conditions and/or demand warrants.
HIGHEST AND BEST USE OF PROPERTY AS IMPROVED
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one.
As noted earlier, the subject site is zoned C-2, General Commercial
District, and the improvements appear to conform to the underlying legal
restrictions. The existing improvements are well designed for office use and
have many years of remaining economic life. The improvements contribute to the
overall property value and it is unlikely that a purchaser would raze the
existing improvements. For these reasons, it is our opinion that the highest and
best use of this site, as improved, is for continued use as a multi-tenanted
office building.
================================================================================
-25-
<PAGE>
VALUATION PROCESS
================================================================================
In this appraisal we considered the Cost Approach, the Sales Comparison
Approach and the Income Approach. The Cost Approach was considered but not
utilized in this appraisal due to the substantial level of economic obsolescence
associated with the current market conditions and a lack of comparable land
sales. Also limiting the reliability of the Cost Approach is the subjectiveness
of estimating the subject's physical depreciation. Finally, investors in Class B
buildings such as the subject are not utilizing the Cost Approach in their
purchase decisions. Rather, market participants are basing valuations on
existing income and testing the reasonableness of these conclusions based on
comparative sales. Therefore, we have utilized the Sales Comparison Approach and
the Income Approach in this appraisal.
o In the Sales Comparison Approach, we performed the following steps:
o Searched the market for recent sales.
o Analyzed those sales on the basis of the sales price per square foot.
o Correlated the various value indications into a point value estimate
from within the range.
In developing the Income Approach we:
o Studied rents in effect in this and competing buildings to estimate
potential rental income at market levels.
o Estimated income from sources other than office rentals.
o Studied the recent history of operating expenses at this and competing
buildings to estimate an appropriate level of stabilized expenses and
reserves for replacement.
o Estimated net operating income by subtracting stabilized expenses from
potential gross income.
o Capitalized stabilized net operating income into an indication of
capital value.
================================================================================
-26-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
METHODOLOGY
In the Sales Comparison Approach, we estimated value by comparing this
property 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 basic steps of this approach are:
1. research recent, relevant property sales and current offerings
throughout the competitive area;
2. select and analyze properties that are similar to the property
appraised, considering changes in economic conditions that may have
occurred between the sale date and the date of value, and other
physical, functional, or locational factors;
3. identify sales that include favorable financing and calculate the cash
equivalent price;
4. reduce the sale prices to a common unit of comparison such as price
per square foot of net rentable area, effective gross income
multiplier, and overall capitalization rate;
5. make appropriate comparative adjustments to the prices of the
comparable properties to relate them to the property being appraised;
and
6. interpret the adjusted sales data and draw a logical value conclusion.
The most widely-used and market-oriented unit of comparison for properties
such as the subject is the sales price per net rentable square foot. All
comparable sales were analyzed on this basis. We present on the following page a
summary of the improved properties that we compared with the subject property,
and a map showing their locations. Detail sheets describing these sales can be
found in the Addenda.
================================================================================
-27-
<PAGE>
[GRAPHICAL REPRESENTATION OF COMPARABLE SALES MAP OF SUBJECT AREA]
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Office Building Sales Summary
====================================================================================================================================
Number Net Land Cash Sale Expense Overall
Sale Sale Year of Rentable Area Percent Equivalent Price Per Ratio Capitalization
No. Name/Location Date Built Stories Area (SF) (Acres) Occupied Sale Price SF (NRA) (EGI) Rate
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Capitol Place Jan-93 1976 13 151,440 0.48 96% $26,675,000 $176.14 27% 10.60%
915 L Street
Sacramento, CA
I-2 Christofer Centre Nov-95 1985 5 72,900 1.25 70% $6,500,000 $89.16 N/A N/A
1000 G Street
Sacramento, CA
I-3 Sacramento Corporate Center May-96 1983 6 177,991 2.27 96% $23,200,000 $130.34 33% 11.12%
501 J Street
Sacramento, CA
I-4 900 8th Street Nov-96 1959 3 68,819 1.18 0% $7,300,000 $106.08 N/A N/A
Sacramento, CA
I-5 925 L Street Listing 1973 13 165,919 0.35 84% $26,000,000 $156.70 36% 9.48%
Sacramento, CA Adjusted for TI & Capital Costs: $26,900,000 $162.13 9.17%
====================================================================================================================================
</TABLE>
-28-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
ANALYSIS OF SALES PRICE PER SQUARE FOOT
The five comparables summarized on the previous page reflect the most
relevant transactions in the downtown area. Although three of the sales
represent Class A office buildings, these properties were considered competitive
with the subject on an investment basis. Thus, we included them in our analysis.
The following is a discussion of the comparables and adjustments made to each.
Comparable I-1 is the sale of the Capitol Place office building located at
915 L Street. This 13-story, Class A- building was originally constructed in
1976, and contains a total building area of 151,440 square feet of rentable
area. The building sold in January, 1993, for a total price of $26,675,000. The
terms of sale were all cash to the seller. It was leased to stabilized occupancy
as of the date of sale. The major tenant in the structure was the State of
California which leased 76,000 square feet. This lease was at $1.90 per square
foot, fully serviced and had another ten years remaining on the term. The
remaining space was leased to 26 tenants at an average monthly rental rate of
$2.20 per square foot fully serviced. The sale price equated to a unit price of
$176.14 per rentable square foot.
This property is located across the street from the State Capital and is
adjacent to the downtown high-rise parking garage. Adownward adjustment for
location is required for comparison to the subject property. The overall quality
and condition of the improvements are considered superior to the subject
property and require downward adjustments.
The market for office properties in Sacramento declined after this sale
occurred but has recently shown signs of improvement. Overall, an upward
adjustment for market conditions is warranted, as investors are more optimistic
toward the Sacramento office market now than they were when this sale occured.
This building was leased to stabilized occupancy with approximately half
the space leased on a long-term basis to the State of California. The stability
of the income flow for this property is reflected in the higher price paid for
the property. Due to the superior location, condition, and quality as well as
the strength of this comparable's tenancy, this comparable required significant
downward adjustment.
Comparable I-2 is the sale of the Cristofer Building at 1000 G Street,
approximately two blocks northwest of the subject property. This transaction
involved the REO sale of a 5-story Class B office building and a 3-story parking
garage. The improvements were built in 1985 and were in average condition at the
time of sale. The office building contains 72,900 square feet of net rentable
area and the parking garage has 222 parking spaces. The transaction closed in
November 1995, and the sale price was $6,500,000. The terms of sale were all
cash to the seller. The price equated to a unit price of $89.16 per square foot
of rentable area.
An upward adjustment is warranted for the condition of this sale as it was
an REO transaction. The office leasing market has improved since this sale
closed, thus an upward adjustment for date of sale was made. The property is
located in close proximity to the County Courthouse which is considered a
superior office location relative to the subject. Thus, a downward adjustment
was made for location. The physical characteristics of the improvements were
rated superior to the subject property, requiring a downward adjustment. An
additional
================================================================================
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<PAGE>
SALES COMPARISON APPROACH
================================================================================
downward adjustment was necessary due to the higher parking ratio at this
property. Finally, the economic characteristics of this building, with a 30%
vacancy factor, warrant an upward adjustment for comparison with the subject
property. Overall, the adjustments negate each other and we would expect the
subject to achieve a price per square foot similar to that indicated by this
comparable.
Comparable I-3 is the May 1996 sale of the Sacramento Corporate Center, a
6-story, Class A- office building located at 501 J Street in downtown. This
property sold for $23,200,000 or $130.34 per square foot. The terms of sale were
all cash to the seller. The improvements contain a total rentable area of
177,991 square feet and were built in 1983. The property also has 520 parking
spaces. At the time of sale the property was leased to stabilized occupancy and
nearly 63% of the building was leased to various State agencies.
No adjustment is required for financing, conditions of sale or market
conditions. The location of this sale, however, is rated superior to the subject
property's, requiring a downward adjustment. The quality and condition of this
comparable are also superior to the subject's, warranting additional downward
adjustments. . Downward adjustments were also warranted for the superior
economic characteristics of this comparable and its greater number of parking
spaces. Overall, a downward adjustment was made to the comparable.
Comparable I-4 is the November, 1996, sale of 900 8th Street, a 68,819
square foot Class B building in downtown with 70 parking spaces. This
three-story building was vacant at the time of sale and was purchased by the
County of Sacramento for conversion to a new police headquarters. The
improvements were originally constructed in 1959 as a bank branch. The buyer
paid $7,300,000 which equates to a unit value of $106.08 per square foot of
building area. The terms were all cash to the seller.
No adjustment is necessary for financing, conditions of sale or market
conditions. This property is considered similar to the subject in terms of
locational factors. This sale reflects demand in the downtown market for large
blocks of contiguous space, which the subject does not currently have,
warranting a downward adjustment. Although this comparable was vacant at the
time of sale no adjustment for occupancy is considered necessary due to the
motivations of this buyer and the special purpose of the building. This
comparable was inferior to the subject at the time of sale, in terms of physical
characteristics, warranting an upward adjustment. A downward adjustment is
warranted for the higher parking ratio at this building. Overall, a downward
adjustment was made to the comparable.
Comparable I-5 is 925 L Street, a 13-story, Class A- building located
across the street from the State Capital and adjacent to the downtown high-rise
parking garage. The property is currently listed for sale at $26,000,000 or
$156.70 per square foot of rentable area. The building is currently 84.15%
occupied and the listing broker estimates stabilized occupancy will be achieved
within 6 months. The building recently underwent a $1.5 million renovation and
is wire-linked to all the departments in the State Capitol Building. The asking
price reflects an overall rate of 9.48% based on a 92% occupancy level. The
listing broker reported that approximately $900,000 in capital and tenant
improvements would be required in the first year of the holding period. The
resulting cost to the buyer is $26,900,000 which equates to an overall rate of
9.17% after accounting for these added costs.
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<PAGE>
SALES COMPARISON APPROACH
================================================================================
This comparable requires a downward adjustment for condition of sale in
order to reflect its listing status. No adjustment is necessary for financing or
market conditions. A downward adjustment is warranted for this comparable's
superior location. Also requiring downward adjustment are the superior physical
characteristics of this property. Overall, this comparable requires a
significant downward adjustment for comparison to the subject property.
The following table summarizes the overall comparability of the sales to
the subject property.
================================================================================
IMPROVED SALES COMPARABLES
================================================================================
Indicated
Sale Rentable Sale Price Occupancy at Overall
No. Property Name Area (SF) Per SF Time of Sale Adjustment
================================================================================
I-1 Capitol Place 151,440 $176.14 96% Downward
I-2 Christofer Centre 72,900 $ 89.16 70% None
I-3 Sacramento Corp. Cente 177,991 $130.34 96% Downward
I-4 900 8th Street 68,819 $106.08 0% Downward
I-5 925 L Street 165,919 $156.70 84% Downward
================================================================================
A degree of subjectivity is involved in these adjustments as insufficient
market data were available to perform a paired sales analysis. However, the
adjustments do illustrate our thought processes in comparing one transaction
with another.
SUMMARY AND CONCLUSION
Before adjustment, the comparables range from $89.16 to $176.14 on a price
per square foot basis. Most consideration is given to Comparable No. 2 with
secondary consideration given to Comparable No. 4. Comparable Nos. 1, 3 and 5
are Class A- buildings and are given least consideration. The preceding analysis
determined that the subject would achieve a price per unit similar to that
indicated by Comparable No. 2 but below that indicated by Comparable No. 4.
These sales represent the low end of the value range; which is considered
appropriate for the subject property, given the fact that other three
comparables were Class A- buildings. Overall, we would expect the subject to
realize a unit price ranging between $90 and $95 per square foot. The resulting
value indications for the subject property, after rounding, are presented in the
following table.
================================================================================
Low High
================================================================================
Value Indicated on Basis of Price Per Square Foot of NRA $4,370,000 $4,610,000
================================================================================
There has been limited sales activity of buildings directly comparable to
the subject property. This weakens the reliability of this approach and the data
available is not considered adequate to derive a single value point for the
subject property. Investors in this market are not relying on the Sales
Comparison Approach as a basis for purchase decisions. Rather, they are
===============================================================================
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<PAGE>
SALES COMPARISON APPROACH
================================================================================
analyzing buildings based on existing tenancy and income. Therefore, we have
relied upon this approach to provide a test of reasonableness for the Income
Approach.
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<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 cash flow 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, the direct capitalization method is appropriate here as it
is the method utilized most often by investors in properties such as the
subject.
OCCUPANCY STATUS
Based on the rent roll provide to the appraisers, this was the property's
occupancy status on the date of appraisal:
================================================================================
Square Feet
-----------------------------------------------------------
Type Space Occupied Vacant Percent Vacant
================================================================================
Office 46,486 2,053 4.2%
================================================================================
A copy of the rent roll is provided in the addenda. Current lease rates at
the subject property range from $1.27 to $1.70 per square foot per month, fully
serviced. Nearly forty percent of the subject's net rentable area is operated as
executive suites by the property management company.
EXECUTIVE SUITES
The fifth and six floors of the subject are operated by the property
management company as executive suites. The subject's 18,372 square feet of
executive suites are occupied by 39 tenants, all of whom are on month to month
leases. Rental rates range from $1.59 to $2.65 per square foot per month fully
serviced. Occupancy of the subject's executive suites has increased
substantially over the past 12 months, from 60% to 94.2% in April of this year.
The Executive Suites represent a going-concern that targets a small niche
in the downtown office market. The tenants at the subject's executive suites are
mostly attorneys as the subject is the only building in the County Courthouse
area offering this service.
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<PAGE>
INCOME APPROACH
================================================================================
ESTIMATING POTENTIAL GROSS INCOME
Office suites in the subject's competitive market are typically leased on a
full service gross basis, with the rental rate based on a per square foot per
month charge. Landlords are responsible for all operating expenses in the base
year while tenants pay for the increase in operating expenses in subsequent
years. In order to estimate potential gross income we analyzed the subject's
current contract rent and the asking rental rates at competitive buildings. Most
of the subject's leases were signed over four years ago and are not considered
reflective of current market conditions.
We have estimated market rental rates by examining recent leases in this
building and by investigating recent rental rates in competitive buildings. The
table on the following page summarizes the competitive buildings.
================================================================================
-34-
<PAGE>
[GRAPHICAL REPRESENTATION OF COMPARABLE RENTALS MAP OF SUBJECT AREA]
<PAGE>
<TABLE>
===================================================================================================================================
Office Building Rent Comparables Summary
<CAPTION>
===================================================================================================================================
Tenant Improvement Cost
Quoted Rental Rate Per Square Foot
No. Of Net Per Square Foot Lease Expense --------------------------
Rent Year Blt/ Floors Rentable Percent ------------------- Term Stop First Second
No. Name/Location Eff. age Load Area (SF) Leased Low High (Years) (SF) Generation Generation
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Executive Place 1983 3 37,500 49% $1.35 $1.35 3-5 years Base Year $25 on shell $5 to $10
777 12th Street 1983 10%
Sacramento
R-2 1201 J Street 1957 3 35,000 41% $1.25 $1.30 3-5 years Base Year N/A $5 to $10
Sacramento 1980 10%
R-3 1112 I Street Unk. 3 24,900 86% $1.25 $1.35 3-5 years Base Year N/A $5 to $10
Sacramento 1985 10%
R-4 1527 I Street 1982 3 12,000 95% $1.35 $1.35 3-5 years Base Year N/A $5 to $10
Sacramento 1982 12%
R-5 Trust Building Unk. 4 30,000 36% $1.00 $1.35 3-5 years Base Year N/A $5 to $10
1020 12th Street 1980 12%
===================================================================================================================================
</TABLE>
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INCOME APPROACH
================================================================================
ANALYSIS OF MARKET COMPARISONS AND ESTIMATION OF MARKET RENT FOR THIS BUILDING
Comparable No. 1 is the Executive Place building at 777 12th Street,
located directly across the street from the subject property. The building
consists of a three-story building with two levels of office space over ground
level parking. The improvements were built in 1983 by the same developer that
built the subject property.
Currently, there is a full floor available at this building with 19,000
square feet of rentable area. The previous tenant improvements for this space
were not marketable so the landlord took the space back to shell condition. The
space being marketed at $1.35 per square foot per month, fully serviced and the
landlord will build the space out with up to $25 per square foot in tenant
improvements. Normal tenant improvement allowances in this market range from $5
to $10 per square foot on improved second generation space.
This comparable is considered for its similar locational and physical
characteristics. Although the landlord is offering above market TI's, it is only
to bring the building up to current market standards and no adjustment is
considered necessary. Overall, we would expect the subject to achieve a rental
rate slightly lower than the asking rate for this building.
Comparable No. 2 is 1201 J Street, a three-story office building with two
full floors available. The asking rent ranges from $1.25 to $1.30 per square
foot per month. The building was originally constructed in 1957 but due to
renovation has an effective age of 17 years. The locational characteristics of
this comparable are similar to the subject's but the physical charateristics of
this comparable are rated inferior to the subject's, warranting an upward
adjustment to the indicated rental rate. The landlord is offering minimal free
rent and a tenant improvement allowance of $5 to $10 per square foot.
This comparable is considered a good indicator of market rent for the
subject property due to its similar locational characteristics. A downward
adjustment is necessary to account for the free rent offered at this building.
This is offset by the subject's superior physical characteristics. Overall, we
would expect the subject to achieve a rental rate similar to the asking rate for
this building
Comparable No. 3 is 1112 I Street, a three-story office building with
24,900 square feet of rentable area. This comparable is similar to the subject
in regards to locational and physical characteristics. Currently, 3,500 square
feet of space is available at this building on a sublease with less than two
years remaining on the term. The asking rent is $1.25 per square foot per month.
The listing broker reported that 6,000 square feet of space was recently
leased at this building. The starting lease rate was $1.35 per square foot per
month, fully serviced. The term was five years with annual increases of $0.10
per square foot. The landlord did not provide a tenant improvement allowance as
the space had good quality tenant improvements that were in good condition.
Reportedly, there was no free rent included in this lease.
This comparable is considered for its recent leasing activity and similar
locational and physical characteristics. The sublease space requires an upward
adjustment for comparison with the subject due to the limited term available.
The recent lease at this building is
================================================================================
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<PAGE>
INCOME APPROACH
================================================================================
considered a strong indicator of market rent for the subject. No tenant
improvement allowance was provided by the landlord but the existing improvements
were of good quality and were in good condition; therefore, no adjustment is
considered necessary. Overall, we would expect the subject to achieve a rental
rate similar to the recently negotiated lease at this building.
Comparable No. 4 is 1527 I Street, a three-story office building with
12,000 square feet of rentable area. Currently, there is 570 square feet of
space available at this building, with an asking rent of $1.35 per square foot
per month, fully serviced. The landlord is offering tenant improvement
concessions of up to $10 per square foot on this space. The building was
constructed in 1982 and has locational characteristics similar to the subject's.
The physical characteristics of this building are rated slightly inferior to the
subject's, warranting an upward adjustment to the indicated rental rate.
This comparable is considered as an indication of market rent for smaller
spaces in the competitive market. Overall, we would expect the subject to
achieve a rental rate slightly lower than the asking rent from this comparable.
Comparable No. 5 is the Trust Building, which is located at 1020 12th
Street, three blocks south of the subject. This is an older four-story building
with approximately 30,000 square feet of rentable area. There is currently
19,302 square feet of space available at this building, with asking rents
ranging from $1.00 to $1.35 per square foot per month, fully serviced. The
landlord is offering free rent of up to three months on a five year lease and
tenant improvement allowances of up to $10 per square foot.
This comparable is considered inferior to the subject in terms of age and
condition., warranting an upward adjustment to the indicated rental rate. The
locational characteristics of this comparable are considered similar to the
subject's. Overall, we would expect the subject to achieve a rental rate at the
high end of the range of asking rates for this building.
CONCLUSION
The subject has an available suite with 2,035 square feet on the second
floor that is being currently being marketed at $1.35 per square foot per month
fully serviced. The subject's leasing broker stated that tenant improvements are
negotiable within a range of $5 to $10 per square foot. Free rent is being
offered with up to one month free on a three year lease or three months free
rent on a five year lease. After adjusting for free rent, the effective asking
rate for the subject's vacant space is $1.28 on a five year lease and $1.31 on a
three year lease. It is reasonable to expect an actual lease to be negotiated at
a rate slightly lower than the current asking rent.
Based on the preceding analysis, we have estimated market rent for the
subject property to be $1.25 per square foot per month, fully serviced. This is
based on a tenant improvement allowance of $7.50 per square foot and is net of
any free rent. The following table summarizes our conclusion.
================================================================================
TYPE SPACE MARKET RENT
===============================================================================
Office $1.25/sf/month
===============================================================================
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<PAGE>
INCOME APPROACH
================================================================================
Aside from the executive suites, the subject is currently leased to three
tenants, with rental rates ranging from $1.27 to $1.70 per square foot per
month. The State of California leases 21,756 square feet at an effective rate of
$1.27 per square foot. This lease is flat and expires in August of 2002. It is
considered generally reflective of market rent. The other two tenants have
contract rent that is higher than the concluded market rent for the building.
EXECUTIVE SUITE RENT
The subject's executive suites are operated by the on-site management team,
which provides secretarial services for the tenants. The executive suites
represent a going-concern at the subject property. After deducting the expenses
from the executive suite operations, the property manager reports net income to
the building for the executive suites. The net executive suite income is then
included with the gross income from the other leases at the building to arrive
at potential gross income. In order to remain consistent with the accounting
procedure utilized by the building's management, we have analyzed the property
in a similar fashion.
The subject's executive suites are currently over 94% occupied, which is a
signficant improvement over the 60% occupancy rate of the previous year. This
increase in the occupancy level is attributed to an overall improvement in the
market and a consolidation of the executive suite operation at 1303 J Street.
We have projected net executive suite income based on the year to date
figures provided by Glenboruough, the property manager. The current budget
projects net income of $249,489 from the executive suites. As of April 30, the
net income from the executive suites was $72,494 which equates to an annualized
figure of $217,482. The disparity between the budget and the year to date
figures is attributed to a one time operating expense associated with staff
roll-over in March.
We have concluded at net executive suite income of $240,000, which is below
the property manager's 1997 budget due to the higher operating costs in March.
It should be noted that the net income from the executive suites equates to less
than $1.10 per square foot, which is lower than the subject's concluded market
rent.
On the surface it would appear more profitable to discontinue the executive
suites and lease the space as tradional office space. However, it is important
to note that the current market is extremely competitive among Class B
buildings. The subject property is located close to the County Courthouse and
the executive suites allow the subject property to establish a market niche by
targeting legal professionals.
The executive suite space would require substantial tenant improvements for
use as traditional office space and could take up to a year to lease up. The
costs associated with leasing this space outweighs the additional income.
Therefore, the current use is considered appropriate at this time and we have
analyzed the potential income accordingly.
PARKING INCOME
The subject property has 46 parking spaces. In 1996, the building
terminated its lease with an operator of the parking facilities and started
leasing the parking spaces to the existing tenants. This greatly reduced the
parking expenses and increased the net parking income to
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INCOME APPROACH
================================================================================
the building. Currently, parking spaces in the subject's area lease for $80 to
$90 per month. We have projected annual parking income of $44,160 based on a
monthly rental rate of $80 per space. This projection is supported by the
building's 1996 parking income of $43,797.
EXPENSE STOPS AND PASS-THROUGH PROVISIONS
The majority of the space at the subject is leased without pass through
provisions. Therefore, income from expense pass throughs is limited. We have
estimated this income at $1,280 based on the subject's current lease structure.
POTENTIAL GROSS INCOME
Based on the preceding analysis, the subject's gross potential income is
calculated in the following table:
================================================================================
Revenue Source Potential Income
================================================================================
Office Rent: 30,206 SF at $1.25/SF/Month $453,090
Net Executive Suite Income $240,000
Parking Income $44,160
Expense Reimbursements $1,280
- - --------------------------------------------------------------------------------
POTENTIAL GROSS INCOME $738,530
================================================================================
The concluded potential gross income of $738,530 is based on market rent of
$1.25 per square foot per month for the traditional office space. There are two
leases at the subject property that have contract rent higher than the conlcuded
market rent. These are 1,953 square feet on the second floor that is leased to
an attorney's association for $1.66 per square foot per month. This lease
expires in November of 1997 and it is reasonable to expect the lease to roll to
market rent. The other above market lease is to the California Optometric
Association which leases 6,440 square feet on the second floor. The contract
rent is $1.70 per square foot and the lease expires in October 1998.
Based on the limted time remaining on these leases, we have estimated
potential gross income based on market rent. The present value of the above
market rent has then been added to the capitalized value derived from market
rent.
VACANCY AND COLLECTION LOSS
Both the investor and the appraiser are primarily interested in the cash
revenue that an income property is likely to produce annually over a specified
period time rather than what it could produce if it were always 100 percent
occupied and all the tenants were actually paying their rent in full and on
time. It is normally a prudent practice to expect some income loss, either in
the form of actual vacancy or in the form of turnover, non-payment, or slow
payment of rent.
We have projected a 4.0 percent vacancy factor for the subject property.
This is based on a 60 percent renewal probability and 6 months downtime for
space that is vacated. Additionally, a collection loss factor of 1.0 percent is
being projected for all tenants.
================================================================================
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<PAGE>
INCOME APPROACH
================================================================================
The subject is currently 95.8% occupied which is considered reflective of
its stabilized occupancy level.
OPERATING EXPENSES
We estimated the property's annual operating expenses after reviewing its
historical performance and reviewing the operating statements of similar
buildings with which we are familiar. We analyzed each item of expense and
estimated amounts a typical informed investor would consider normal. We also
examined industry norms as reported in the Building Owners and Managers
Experience Exchange Report.
A two-year operating history for the property, a 1997 budget, and our
operating expense estimate for the property are presented in the table on the
following page.
================================================================================
-40-
<PAGE>
<TABLE>
==========================================================================================================================
Operating Income and Expense Analysis Buidling's
==========================================================================================================================
<CAPTION>
Cushman & Wakefield
Actual 1995 Actual 1996 Budget 1997 1997 Projections
-------------------- -------------------- -------------------- --------------------
Actual Actual
Amount Per SF Amount Per SF Amount Per SF Amount Per SF
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE FROM OPERATIONS
Rental Income $525,312 $17.39 $529,382 $17.53 $527,913 $17.48 $453,090 $15.00
Other Income $2,127 $0.04 $618 $0.01 $1,281 $0.03 $1,280 $0.03
Parking Income $23,925 $0.49 $43,797 $0.90 $11,160 $0.23 $44,160 $0.91
Net Executive Suite Income $71,509 $3.89 $169,895 $9.25 $249,489 $13.58 $240,000 $13.06
-------- ------ -------- ------ -------- ------ -------- ------
Total Income $622,873 $12.82 $743,692 $15.31 $789,843 $16.26 $738,530 $15.20
Vacancy and Collection Loss $8,608 $0.18 $33,929 $0.70 $20,350 $0.42 $36,927 $0.76
-------- ------ -------- ------ -------- ------ -------- ------
Effective Gross Income $614,265 $12.64 $709,763 $14.61 $769,493 $15.84 $701,604 $14.44
OPERATING EXPENSES
Management Fees $17,986 $0.37 $17,565 $0.36 $18,200 $0.37 $16,137 $0.33
Insurance $11,525 $0.24 $16,839 $0.35 $11,950 $0.25 $11,950 $0.25
Taxes, Licenses & Fees $53,948 $1.11 $54,936 $1.13 $56,810 $1.17 $42,930 $0.88
Security, Life Safety $14,583 $0.30 $2,826 $0.06 $1,681 $0.03 $1,681 $0.03
Repairs & Maintenance $25,317 $0.52 $22,059 $0.45 $23,920 $0.49 $24,289 $0.50
Cleaning $41,062 $0.85 $38,634 $0.80 $39,370 $0.81 $40,000 $0.82
Utilities $80,148 $1.65 $71,686 $1.48 $63,643 $1.31 $64,000 $1.32
Administrative $43,779 $0.90 $48,090 $0.99 $58,841 $1.21 $58,294 $1.20
Landscape $4,519 $0.09 $3,456 $0.07 $3,605 $0.07 $3,600 $0.07
Parking $18,510 $0.38 $20,023 $0.41 $2,220 $0.05 $2,220 $0.05
-------- ------ -------- ------ -------- ------ -------- -------
Total Operating Expenses $311,377 $6.41 $296,114 $6.10 $280,240 $5.77 $265,101 $5.46
NET OPERATING INCOME $302,888 $6.24 $413,649 $8.52 $489,253 $10.07 $436,503 $8.99
=========================================================================================================================
</TABLE>
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<PAGE>
INCOME APPROACH
================================================================================
ANALYSIS OF OPERATING EXPENSES
We analyzed each item of expense and estimated a level of expense we
believe a typical investor in a property like this would consider reasonable. We
made our estimates on a calendar year basis.
MANAGEMENT
Typical professional management fees in the local market range from 2.0 to
3.5 percent of effective gross income, based on data provided by property
management companies active in this market. The 1997 budget estimates a
management fee for the subject of 2.3 percent of effective gross income. Given
the subject's age, condition and tenancy, a management fee of 2.3% is considered
reasonable and has been utilized in our analysis.
INSURANCE
The subject's budgeted expense for insurance is $11,950 which equates to
slightly less than $0.25 per square foot. This is typical for the Sacramento
market and has been utilized in our projection.
REAL ESTATE TAXES
This expense is calculated by applying the subject's tax rate of 1.0204% to
the value conclusion from the Income Approach.
SECURITY AND LIFE SAFETY
The life safety systems were renovated in 1995 at a cost of $14,583 or
$0.30 per square foot of rentable area. The stabilized expense for this category
has been projected at $1,681 based on the budgeted expense and the 1996 expense.
REPAIRS & MAINTENANCE
Repairs and Maintenance typically includes all payroll and payroll related
items of staff employed as an operating engineers, maintenance personnel or
chief engineers and/or the contract service costs for elevators, HVAC,
electrical, plumbing, structural and roof, life/safety systems, and other repair
and maintenance expenses. Expenses include all supplies and/or materials. The
historical expense data ranges between $0.45 and $0.52 per square foot. We have
placed most emphasis on the historical data in estimating the subject's
anticipated Repairs and Maintenance expense. The subject's 1997 budget estimates
this expense at $0.49 per square foot, which is considered reasonable based on
data contained in our files and given the age and condition of the property. We
have estimated a Repairs & Maintenance expense of $0.50 per square foot for the
first year of the holding period.
CLEANING
This expense typically includes all payroll and payroll related items
relative to cleaning and/or the expenses of janitorial contractors, including
window cleaning, trash removal, and supplies. The historical expense and the
year to date information place cleaning expenses in the common area maintenance
(CAM) category. The 1997 budget estimates cleaning expenses at $39,370 or $0.81
per square foot, a slight increase over the 1996 cleaning
================================================================================
-42-
<PAGE>
INCOME APPROACH
================================================================================
expense of $0.80 per square foot but lower than the 1995 of $0.85 per square
foot. We have estimated stabilized cleaning expenses of $0.82 per square foot or
$40,000.
UTILITIES
Utilities include electricity, natural gas, water, sewer, and trash
removal. The subject's historical utility expenses declined in 1996 and the 1997
budget projects a further decline in utility costs. The budgeted expense is
considered reasonable and has been relied upon in our analysis. We have
estimated utility expenses at $64,000 or $1.32 per square foot.
OFFICE AND ADMINISTRATIVE
Administrative expenses typically include all payroll and payroll related
items for all directly-employed administrative personnel such as building
managers, secretaries, and bookkeepers. Leasing personnel are not included nor
are the salaries or fees for off-site management firm personnel and services.
Administrative expenses include legal costs pertaining to the operation of the
building, such as labor disputes and contract agreements, but excluding legal
costs associated with leasing, general litigation, and/or nonbuilding-related
items; accounting, excluding income tax, which is not provided by off-site
management such as data processing or audit costs associated with tenant expense
pass-through; building office expense including rent at market (if reflected
under income), telephone, supplies, furniture, temporary help, etc.
The subject's 1997 budget is again given most consideration, as
administrative expenses increased significantly between 1995 and 1996. We have
estimated office and administrative expenses of $1.20 per square foot.
LANDSCAPING
The subject has limited landscaping and this expense has remained
relatively stable. Therefore, we have relied upon the budget in estimating a
landscaping expense of $3,600.
PARKING
The subject's parking expense dropped significantly when the management
agreement with the garage operator was terminated. Parking is now leased by the
building's management directly to the tenants. Therefore, we have relied upon
the budget in estimating this expense at $0.045 per square foot or $2,220
annually.
================================================================================
-43-
<PAGE>
INCOME APPROACH
================================================================================
NON-RECOVERABLE EXPENSES
TENANT IMPROVEMENT ALLOWANCES
Tenant improvement allowances at the competitive properties ranged from $5
to $10 per square foot in most cases. The subject is currently marketing space
with a tenant improvement allowance of $5 to $10 per square foot. In our
estimate of market rent, we concluded that a tenant improvement allowance of
$7.50 would be necessary to attract tenants.
LEASING COMMISSIONS
In the Sacramento market leasing commissions are typically 5.0% of the
total lease value.
RESERVES FOR REPLACEMENT
Given the age and condition of the subject property, a replacement reserve
of $0.15 per square foot is considered reasonable. However, the capitalization
rates from the comparable sales were derived before replacement reserves.
Therfore, to remain consistent, we have analyzed the subject's net operating
income before deducting replacement reserves.
================================================================================
-44-
<PAGE>
INCOME APPROACH
================================================================================
INCOME AND EXPENSE SUMMARY
Here we present our estimate of stabilized income and expenses.
================================================================================
Stabilized Income and Expenses
================================================================================
REVENUE FROM OPERATIONS
Rental Income $453,090
Operating Expense Recovery $1,280
Parking Income $44,160
Net Executive Suite Income $240,000
--------
Total Income $738,530
Vacancy and Collection Loss $36,927
--------
Effective Gross Income $701,604
OPERATING EXPENSES
Management Fees $16,137
Insurance $11,950
Real Estate Taxes $42,930
Security $1,681
Repairs and Maintenance $24,289
Cleaning $40,000
Utilities $64,000
Administrative $58,294
Landscape $3,600
Parking $2,220
--------
Total Operating Expenses $265,101
NET OPERATING INCOME $436,503
================================================================================
-45
<PAGE>
INCOME APPROACH
================================================================================
DIRECT CAPITALIZATION
In the direct capitalization method, we estimated market value by dividing
stabilized net operating income by an overall rate derived from our analyses of
market sales and computed by dividing the net operating income from a sold
property by its sale price. The overall capitalization rates derived from the
improved property sales are shown below.
================================================================================
SUMMARY OF CAPITALIZATION RATES
================================================================================
Sale Capitalization
No. Rate
- - --------------------------------------------------------------------------------
I-1 10.60%
I-3 11.12%
I-5 9.48%
STABILIZED CAPITALIZATION RATE SELECTED 10.5%
================================================================================
The comparable sales result in capitalization rates that range from 9.48 to
11.12 percent. The low end of the range is represented by the current listing
price of 925 L Street. This property was determined to be superior to the
subject and we would expect the subject to achieve a higher overall rate than
that indicated by this comparable. Comparable No. 3 represents the high end of
the range at 11.12% and we would expect the subject to achieve a lower
capitalization rate than that indicated by this sale due to improved market
conditions. Comparable No. 1 represents the middle of the range at 10.60%. This
comparable is significantly superior to the subject, warranting an upward
adjustment to the indicated rate. This upward adjustment is offset by the
improved market conditions that currently exist. Therefore, based on the
comparable sales, we have concluded at an overall rate of 10.5% for the subject
property.
We also surveyed market participants In order to support our concluded
capitalization rate. Based on our discussions with investors and brokers active
in the Sacramento region, an overall rate between 10.5 and 10.8 percent would be
necessary to attract capital to a property such as the subject. Given the
subject's physical characteristics and tenant roster, it is considered
reasonable to conclude at the low end of this range or at 10.5 percent. This
rate has been applied to the subject's net operating income based on market
rent. The present value of the subject's above market leases is then added to
the capitalized value.
PRESENT VALUE OF ABOVE MARKET RENT
There are two leases at the subject property with above market rent. The
California Applicat Attorneys Association has six months remaining on its lease
of Suite 201. This lease consists of 1,953 square feet with contract rent of
$1.66 per square foot per month. The lease provides for rent abatement in July
of 1997. Thus, there are five rental payments remaining on this lease, which is
above current market rent by $0.41 per square foot per month.
================================================================================
-46
<PAGE>
INCOME APPROACH
================================================================================
The other above market lease at the subject property is with the California
Optometric Association which leases 6,440 square feet on the second floor. The
contract rent is $1.70 per square foot and the lease expires in October 1998
with 17 rental payments remaining. This lease is above current market rent by
$0.45 per square foot per month.
We have estimated the present value of the subject's above market rent by
discounting the lease payments over the term of the lease. Because there is only
five payments remaining on the first lease, we have not discounted this income
stream. The second lease has been discounted at an 8.0% interest rate. This
discount rate is based on the fact that the tenant has been in the building and
paying rent since October 1991, which indicates minimal risk associated with the
income stream. Furthermore, this tenant has a right of first refusal to purchase
the building as well as a five year option to renew at market rent. Based on
these factors, this income stream is considered relatively risk free and is
discounted at a rate reflective of the time value of money.
The present value of the above market leases at the subject property is
estimated as follows:
================================================================================
PRESENT VALUE OF ABOVE MARKET RENT
================================================================================
Above No. of Discount Present
Market Rent Sq. Ft. Pmts Total Rate Value
- - ------------ ------- ------ ----- -------- -------
$0.41/sf/mo 1,953 5 $ 4,004 N/A $ 4,004
$0.45/sf/mo 6,440 17 $109,480 8.0% $46,431
- - --------------------------------------------------------------------------------
TOTAL $50,435
================================================================================
ANALYSIS AND CONCLUSION
Based on the preceding analysis, the indicated value for the subject
property is $4,207,606 which we have rounded to $4,210,000 as our value
conclusion from the Income Approach. The calculations are presented in the
following table.
=============================================================
DIRECT CAPITALIZATION
=============================================================
Net Operating Income $436,503
Divided by Overall Capitalization Rate 10.5%
Indicated Value $4,157,171
Plus Present Value of Above Market Rent $50,435
Indicated Value: $4,207,606
- - - --------------------------------------------------------------
Rounded to: $4,210,000
================================================================================
-47
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
================================================================================
The two approaches indicated the following values:
Sales Comparison Approach $4,370,000 to $4,610,000
Income Approach $4,210,000
In this appraisal we considered the Cost Approach, the Sales Comparison
Approach and the Income Approach. The Cost Approach was considered but not
utilized in this appraisal due to the substantial level of economic obsolescence
associated with the current market conditions and a lack of comparable land
sales. Also limiting the reliability of the Cost Approach is the subjectiveness
of estimating the subject's physical depreciation. Finally, investors in Class B
buildings such as the subject are not utilizing the Cost Approach in their
purchase decisions. Rather, market participants are basing valuations on
existing income and testing the reasonableness of these conclusions based on
comparative sales. Therefore, we utilized the Sales Comparison Approach and the
Income Approach in this appraisal.
Sales activity of buildings directly comparable to the subject property was
limited. This weakened the reliability of the Sales Comparison Approach as the
data available was not considered adequate to derive a single value point for
the subject property.
Investors in this market are not relying on the Sales Comparison Approach
as a basis for purchase decisions. Rather, they are analyzing buildings based on
existing tenancy and income. Therefore, the Sales Comparison Approach was relied
upon to provide a test of reasonableness for the Income Approach.
The Income Approach was the final technique used in our analysis. This
approach reflects the actions of the most likely buyer and was given strong
consideration in our final value conclusion. Given the subject's existing lease
structure, we analyzed the property's income potential based on market rents.
The present value of the above market rents were added to the capitalized value
indication based on market rent.
MARKET VALUE CONCLUSION
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the Market Value
for the subject property, subject to the assumptions, limiting conditions,
certifications, and definitions, as of May 21, 1997 was:
FOUR MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
$ 4,250,000
================================================================================
-48
<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.
This appraisal is 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 th
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.
================================================================================
-49
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
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 other governmental consents have been or can
be obtained and renewed for any use on which the value estimate 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 has not reviewed lease documents and 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 the 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.
================================================================================
-50-
<PAGE>
CERTIFICATION OF APPRAISAL
================================================================================
We certify that, to the best of our knowledge and belief:
1. John C. Vaughan inspected the property, and Kenneth E. Matlin, Manager,
Valuation Advisory Services, has reviewed and approved the report and but
did not inspect 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 upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
6. No one provided significant professional assistance to the persons signing
this report.
7. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the
Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Kenneth E. Matlin has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ JOHN C. VAUGHAN
---------------------------------------------
John C. Vaughan
State Certified Appraiser No. AG002680
/s/ KENNETH E. MATLIN, MAI
---------------------------------------------
Kenneth E. Matlin, MAI
State Certified Appraiser No. AG002022
================================================================================
-51-
<PAGE>
ADDENDA
================================================================================
SUBJECT RENT ROLL
COMPARABLE SALE DATA SHEETS
COMPARABLE SALE PHOTOGRAPHS
COMPARABLE RENTAL PHOTOGRAPHS
QUALIFICATIONS
================================================================================
-52-
<PAGE>
<TABLE>
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E, PSH RIP Page: 1
Time: 9:25 Rent Roll for May /97 Total Building Square Ft: 50,556
Oper: CARLA GATEWAY PROFESSIONAL CENTER Type of Building: Rentable
- - ------------------------------------------------------------------------------------------------------------------
Suite Rentable Prorata Tenant Name Lease Lease Occupancy Lease
Number Sq Ft % Start End Date Type Type
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0201-02 1,953 3.8630 CA. APPLICANT ATTORNEYS ASSOC. 11/09/92 11/30/97 11/09/92 R RENT
ESCLT
PARK
INS EXP Jul 10/95
0260-01 2,035 4.0252 Vacant
0300-01 10,878 21.5167 EMPLOYMENT DEVELOPMENT DEPT. 10/01/92 08/31/02 10/01/92 L
(STATE OF CALIFORNIA)
INS EXP Jul 10/95
0400-02 10,878 21.5167 EMPLOYMENT DEVELOPMENT DEPT. 10/01/92 08/31/02 10/01/92 L RENT
STATE OF CALIFORNIA
INS EXP Jul 10/95
0500-01 8,909 17.6220 EXECUTIVE SUITES 07/01/91 12/99/49 07/01/91 M
INS EXP Jul 10/95
0600-01 9,463 18.7179 EXECUTIVE SUITES 07/01/91 12/99/49 07/01/91 M
INS EXP Jul 10/95
2020-01 6,440 12.7383 CALIFORNIA OPTOMETRIC ASSN 12/25/91 10/31/98 10/25/91 L RENT
PARK
Lease Types: L - Lease M - Month to Month S - Sublet R - Renewal H - Holdover
<CAPTION>
- - -------------------------------------------------------------------------------------------
Monthly Annual Rent Increases
Suite Monthly Charges Charges Charges and Concessions
Number Start End Amount PSF PSF Date Type Amount
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0201-02 12/01/96-11/30/97 3,241.98 1.66 19.92 11/09/92 C 2043.74
01/01/97-12/31/97 116.48 0.06 0.72 12/01/92 C 2786.93
06/01/96-12/99/49 270.00 0.14 1.66 12/01/93 C 2964.65
12/01/94 C 3046.68
12/01/95 C 3144.33
12/01/96 C 3241.98
12/01/92 C (2786.93)
07/01/93 C (2786.93)
07/01/94 C (2964.65)
07/01/95 C (3046.68)
07/01/96 C (3144.33)
07/01/97 C (3241.98)
----------------------------------
3,628.46 1.86 22.29
0260-01
0300-01
0400-02 11/01/92-08/31/97 27,717.59 1.27 15.29 10/01/92 C 27943.76
11/01/92 C 27717.59
09/01/97 C 29073.66
10/01/92 C (13971.88)
----------------------------------
27,717.59 1.27 15.29
0500-01
0600-01
2020-01 11/01/96-10/31/97 10,948.00 1.70 20.40 10/25/91 C 9338.00
06/01/96-12/99/49 570.00 0.09 1.06 11/01/92 C 9660.00
11/01/93 C 9982.00
11/01/94 C 10304.00
11/01/95 C 10626.00
11/01/96 C 10948.00
11/01/97 C 11270.00
11/01/91 C (9338.00)
11/01/92 C (9660.00)
11/01/93 C (9982.00)
<CAPTION>
- - -------------------------------------------------------------
Options
Suite Security And
Number Deposit Comments
- - -------------------------------------------------------------
<S> <C> <C>
0201-02 (1848.00)
0260-01
0300-01
0400-02 RTT - EXERBY 9/30/97-30 DAY NOTICE
0500-01
0600-01
2020-01 (9883.00) OPTREN - MRKT 5 YR/EXERBY 7/1/98.
ROFR - UNIT #201/260.
ROFR - TO PURCHASE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E, PSH RIP Page: 2
Time: 9:25 Rent Roll for May /97 Total Building Square Ft: 50,556
Oper: CARLA GATEWAY PROFESSIONAL CENTER Type of Building: Rentable
- - ---------------------------------------------------------------------------------------------------------------------
Suite Rentable Prorata Tenant Name Lease Lease Occupancy Lease
Number Sq Ft % Start End Date Type
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA OPTOMETRIC ASSN continued,
INS EXP Feb 04/95
======= ========
Prorata 100.0000
Occupied 48,521
Vacant 2,035
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Monthly Annual Rent Increases Options
Suite Rentable Monthly Charges Charges Charges and Concessions Security And
Number Sq Ft Type Start End Amount PSF PSF Date Type Amount Deposit Comments
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA OPTOMETRIC
----------------------------------
11,518.00 1.79 21.46
======= ================================== ==========
Prorata RENT 41,907.57 1.54 18.54 (11,731.00)
Occupied 48,521 ESCLT 116.48 0.06 0.72
Vacant 2,035 PARK 840.00 0.12 1.36
</TABLE>
<PAGE>
OFFICE BUILDING SALE 1
- - --------------------------------------------------------------------------------
LOCATION DATA
Property Name: CAPITOL PLACE
Location: 915 L Street
City: Sacramento
County: Sacramento
State/Zip: California
Assessor's Parcel No(s): 006-0102-017,019
Atlas Reference: N/A
PHYSICAL DATA
Type: CBD
Land Area: 0.4800 Acres
Gross Building Area: N/A
Net Rentable Area: 151,440SF
Usable Building Area: N/A
Year Built: 1976
# of Stories: 13
Parking: 1.5/1,000
Condition: Good
Exterior Walls: Glass Panels
Amenities: Parking garage
Class: A
SALE DATA
Transaction Type: Sale
Date of Transaction: 01/93
Marketing Time: 6 months
Grantor: The Capitol Place Co.
Grantee: Capitol Place, Inc.
Document No.: 09021598 Rec. Date:09/02/93
Sale Price: $26,675,000
Financing: Cash to Seller
Cash Equivalent Price: $26,675,000
Required Capital Cost: $0
Adjusted Sale Price: $26,675,000
Verification: Bill Robbins
FINANCIAL DATA
Assumptions & Forecast: Buyer
Occupancy at Sale: 96%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
---------- --------
Potential Gross Income: $4,038,413 $26.67
Vacancy and Credit Loss: $201,921 $1.33
Effective Gross Income: $3,836,492 $25.33
Expenses: $1,014,648 $6.70
Net Operating Income: $2,821,844 $18.63
CAPITOL PLACE
<PAGE>
OFFICE BUILDING SALE 1
- - --------------------------------------------------------------------------------
ANALYSIS
Value Indicators: Direct Cap
Overall Capitalization Rate (CAR): 10.58 %
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): 6.95
Operating Expense Ratio (CER): 26.45 %
Price Per Square Foot: $176.14
COMMENTS
The State of California leased 76,000 sf at sale at a monthly rental rate
of $1 .90/sf, fully serviced. Ten years remained 9n the lease at sale. The
remaining space was leased to 26 tenants at an average monthly rental rate
of $2.20/sf, fully-serviced.
CAPITOL PLACE
<PAGE>
================================================================================
[PHOTO]
Sales Comparable 1
================================================================================
<PAGE>
OFFICE BUILDING SALE 2
- - --------------------------------------------------------------------------------
LOCATION DATA
Property Name: CHRISTOFER CENTRE
Location: 1000 G Street
City: Sacramento
County: Sacramento
State/Zip: California 95814
Assessor's Parcel No(s): N/A
Atlas Reference: 2g7-D/3
PHYSICAL DATA
Type: CBD
Land Area: 1.2489 Acres
Gross Building Area: 72,900 SF
Net Rentable Area: 72,900 SF
Usable Building Area: N/A
Year Built: 1985
# of Stories: 5
Parking: 222
Condition: Avg to Good
Exterior Walls: Concrete
Amenities: N/A
Class: B
SALE DATA
Transaction Type: Sale
Date of Transaction: 11/95
Marketing Time: 4 months
Grantor: Realty Advisors
Grantee: Aetna Casualty
Document No.: 11290366 Rec. Date:11/29/95
Sale Price: $6,500,000
Financing: Cash to Seller
Cash Equivalent Price: $6,500,000
Required Capital Cost: $0
Adjusted Sale Price: $6,500,000
Verification: Doug Barnett
FINANCIAL DATA
Assumptions & Forecast: N/A
Occupancy at Sale: 70%
Existing or Pro Forma Income: Pro Forma
TOTAL P.S.F.
--------- ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: N/A N/A
CHRISTOFER CENTRE
<PAGE>
OFFICE BUILDING SALE 2
- - --------------------------------------------------------------------------------
ANALYSIS
Value Indicators: Price Per S.F.
Overall Capitalization Rate (OAR): N/A %
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $89~16
Comments
CHRISTOFER CENTRE
<PAGE>
================================================================================
[PHOTO]
Sales Comparable 2
================================================================================
<PAGE>
OFFICE BUILDING SALE 3
- - --------------------------------------------------------------------------------
LOCATION DATA
Property Name: SACRAMENTO CORPORATE CENTER
Location: 501 J Street
City: Sacramento
County: Sacramento
State/Zip: California
Assessor's Parcel No(s): 006-0026-018
Atlas Reference: N/A
PHYSICAL DATA
Type: CBD
Land Area: 2.2700 Acres
Gross Building Area: N/A
Net Rentable Area: 177,991 SF
Usable Building Area: N/A
Year Built: 1983
# of Stories: 6
Parking: 2.9/1,000
Condition: Average
Exterior Walls: Glass Panels
Amenities: Covered Parking
Class: B
SALE DATA
Transaction Type: Sale
Date of Transaction: 05/96
Marketing Time: 3 months
Grantor: Fifth/I Associates (Sares Regis Group)
Grantee: Sacramento Corporate Center (JS Karlton)
Document No.: 05221322 Rec. Date:05/22/96
Sale Price: $23,200,000
Financing: Cash to Seller
Cash Equivalent Price: $23,200,000
Required Capital Cost: $0
Adjusted Sale Price: $23,200,000
Verification: Dan Sheldon, CB Commercial
FINANCIAL DATA
Assumptions & Forecast: Buyer
Occupancy at Sale: 96%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
---------- ------
Potential Gross Income: $4,073,280 $22.88
Vacancy and Credit Loss: $203,664 $1.14
Effective Gross Income: $3,869,616 $21.74
Expenses: $1,288,897 $7.24
Net Operating Income: $2,580,719 $14.50
SACRAMENTO
<PAGE>
OFFICE BUILDING SALE 3
- - --------------------------------------------------------------------------------
ANALYSIS
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 11.12%
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): 6.00
Operating Expense Ratio (OER): 33.31 %
Price Per Square Foot: $130.34
COMMENTS
Various State of California agencies leased approximately 111,300 sf of the
building at sale. The building was leased to 13 tenants at monthly rental
rates ranging from $1.51 to $2.85/sf, fully-serviced. Most leases were
between $1.65 and $1.85/sf. Reportedly, the State of California leases do
not include firm terms.
SACRAMENTO
<PAGE>
================================================================================
[PHOTO]
Sales Comparable 3
================================================================================
<PAGE>
OFFICE BUILDING SALE 4
- - --------------------------------------------------------------------------------
LOCATION DATA
Property Name: 900 8TH STREET
Location: 900 8th Street
City: Sacramento
County: Sacramento
State/Zip: California 95814
Assessor's Parcel No(s): N/A
Atlas Reference: 297-C/3
PHYSICAL DATA
Type: Single Tenant
Land Area: 1.1800 Acres
Gross Building Area: 68,819 SF
Net Rentable Area: 68,819 SF
Usable Building Area: N/A
Year Built: 1959
# of Stories: 3
Parking: 70
Condition: Average
Exterior Walls: Concrete
Amenities: N/A
Class: C
SALE DATA
Transaction Type: Sale
Date of Transaction: 11/96
Marketing Time: 1 months
Grantor: Bank of America
Grantee: County of Sacramento
Document No.: 11040984 Rec. Date:1 1/04/96.
Sale Price: $7,300,000
Financing: Cash to Seller
Cash Equivalent Price: $7,300,000
Required Capital Cost: $0
Adjusted Sale Price: $7,300,000
Verification: Mark Hefner
FINANCIAL DATA
Assumptions & Forecast: N/A
Occupancy at Sale: N/A
Existing or Pro Forma Income: N/A
TOTAL P.S.F
------ ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: N/A N/A
900 8TH STREET
<PAGE>
OFFICE BUILDING SALE 4
- - --------------------------------------------------------------------------------
ANALYSIS
Value Indicators: Price Per S.F.
Overall Capitalization Rate (OAR): N/A %
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $106.08
Comments
900 8TH STREET
<PAGE>
================================================================================
[PHOTO]
Sales Comparable 4
================================================================================
<PAGE>
OFFICE BUILDING SALE 5
- - --------------------------------------------------------------------------------
LOCATION DATA
Property Name: 925 L STREET
Location: 925 L Street
City: Sacramento
County: Sacramento
State/Zip: California
Assessor's Parcel No(s): 006-0102-007
Atlas Reference: N/A
PHYSICAL DATA
Type: CBD
Land Area: 0.3453 Acres
Gross Building Area: 180,347 SF
Net Rentabae Area: 165,919 SF
Usable Building Area: N/A
Year Built: 1973
# of Stories: 13
Parking: N/A
Condition: Avg to Good
Exterior Walls: Concrete
Amenities: N/A
Class: A
SALE DATA
Transaction Type: Listing
Date of Transaction:
Marketing Time: 6months
Grantor: N/A
Grantee: N/A
Document No.: N/A
Sale Price: $26,000,000
Financing:
Cash Equivalent Price: $26,000,000
Required Capital Cost: $900,000
Adjusted Sale Price: $26,900,000
Verification: Larry Lea
FINANCIAL DATA
Assumption~ & Forecast: Seller
Occupancy at Sale: N/A
Existing or Pro Forma Income: N/A
TOTAL P.S.F.
---------- -------
Potential Gross Income: $4,395,496 $26.49
Vacancy and Credit Loss: $351,640 $2.12
Effective Gross Income: $4,043,856 $24.37
Expenses: $1,587,202 $9.57
Net Operating Income: $2,456,654 $14.81
925 L STREET
<PAGE>
OFFICE BUILDING SALE 5
- - --------------------------------------------------------------------------------
ANALYSIS
Value Indicators: Direct Cap and DCF
Overall Capitalization Rate (OAR): 9.13 %
Projected IRR: 0.12 %
Effective Gross Multiplier (EGIM): 6.65
Operating Expense Ratio (CER): 39.25 %
Price Per Square Foot: $162.13
COMMENTS
925 L STREET
<PAGE>
================================================================================
[PHOTO]
Sales Comparable 5
================================================================================
<PAGE>
================================================================================
[PHOTO]
Rent Comparable 1
================================================================================
<PAGE>
================================================================================
[PHOTO]
Rent Comparable 2
================================================================================
<PAGE>
================================================================================
[PHOTO]
Rent Comparable 3
================================================================================
<PAGE>
================================================================================
[PHOTO]
Rent Comparable 4
================================================================================
<PAGE>
================================================================================
[PHOTO]
Rent Comparable 5
================================================================================
<PAGE>
QUALIFICATIONS OF APPRAISER
- - --------------------------------------------------------------------------------
KENNETH E. MATLIN, MAI
ASSOCIATION MEMBERSHIP
Member Appraisal Institute (MA No.8397) Senior Residential Appraiser
Senior Member, American Society of Real Estate Appraisers - Past
President of San Jose Chapter
Brokers License - State of California
Certified - General, Certificate Number AG002022
Kenneth E. Matlin has completed the requirements of the continuing
education programs
of the Appraisal Institute and the American Society of Appraisers
REAL ESTATE EXPERIENCE
Director and Manager, Cushman & Wakefield Valuation Advisory Services, San
Jose and San Francisco Divisions. San Jose and San Francisco Divisions are
responsible for the appraisal and consulting function of Cushman & Wakefield
of California, Inc., a national full service real estate organization.
Regional Chief Appraiser, California First Bank, San Jose, California,
between 1974 and 1983.
EDUCATION
California State University of San Diego, California
Bachelor of Science Degree - Major: Real Estate, Minor: Political Science
(1973)
American Institute of Real Estate Appraisers:
No. 1-Al - Real Estate Appraisal Principles (6-86)
No. 1-A2 - Basic Valuation Procedures (3-87)
No. 1-BA - Capitalization Theory & Techniques, Part A (9-87)
No. 1-BB - Capitalization Theory & Techniques, Part B (9-87)
No. 2-1 - Case Studies (3-87)
No. 2-2 - Valuation Analysis and Reporting Writing (10-86)
No. 2-3 - Standard of Professional Practice (6-86)
No. 410 - USPAP
No. 420 - Standards of Professional Practice (11-93)
No. 510 - Advanced Capitalization Theory (7-93)
- - --------------------------------------------------------------------------------
<PAGE>
QUALIFICATIONS OF APPRAISER
- - --------------------------------------------------------------------------------
KENNETH E. MATLIN, MAI
Society of Real Estate Appraisers:
No. 101 - Introduction to Appraising Real Property (8-76)
No. 201 - Principles of Income Property Appraising (6-75)
No. 202 - Case Problems (6-83)
No. R-2 - Single Family Report Exam (2-77)
LITIGATION EXPERIENCE
Qualified as expert witness Santa Clara County Superior Court
Qualified as expert witness Alameda County Superior Court
Qualified as expert witness Federal Bankruptcy Court
- - --------------------------------------------------------------------------------
<PAGE>
QUALIFICATIONS OF APPRAISER
- - --------------------------------------------------------------------------------
JOHN C. VAUGHAN
PROFESSIONAL AFFILIATION AND LICENSE
Associate Member of Appraisal Institute
State of California Certified General Real Estate Appraiser (ID
#AG002680)
REAL ESTATE EXPERIENCE
More than nine years of Real Estate Appraisal and Consulting experience
throughout California.
1996-Present Cushman & Wakefield, Inc. San Francisco, CA
1991-1996 CB Commercial Real Estate Group, Inc. San Francisco, CA
1991 Bank of California San Francisco, CA
198-1991 Security Pacific National Bank Los Angeles, Orange
County, and San
Francisco, CA
EDUCATION
Bachelor of Science, Specialization Managerial Economics University of
California, Davis
Appraisal Institute Courses:
Advanced Applications (1995)
Capitalization Theory and Techniques - Parts A & B (1991-1992)
Standards of Professional practice, Parts A & B (1990-1993)
Appraisal Principles (1993)
Basic Valuation (1993)
Residential Valuation (1987)
- - --------------------------------------------------------------------------------
=====================================================
COMPLETE APPRAISAL
OF REAL PROPERTY
PARK PLAZA PROFESSIONAL CENTER
1303 J Street
Sacramento, Sacramento County, California
=====================================================
IN A SELF-CONTAINED REPORT
As of May 21, 1997
PRUDENTIAL SECURITIES INCORPORATED
199 Water Street, 16th Floor
New York, New York 10292
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
Valuation Advisory Services
2055 Gateway Plaza, Suite 550
San Jose, California 95110
<PAGE>
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC. CUSHMAN & WAKEFIELD(R)
2055 Gateway Plaza, Suite 550
San Jose, CA 95110-1068
Tel: (408) 436-5500
Fax: (408) 437-9129
June 5, 1997
Mr. Chester Piskorowski, Senior Vice President
PRUDENTIAL SECURITIES INCORPORATED
199 Water Street, 16th Floor
New York, New York 10292
Re: Complete Appraisal of Real Property
Park Plaza Professional Center
1303 J Street
Sacramento, California
Dear Mr. Piskorowski:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of California, Inc. is pleased to transmit our
self-contained appraisal report estimating the market value of the leased fee
estate in the Park Plaza Professional Center.
The value opinion reported below is qualified by certain assumptions,
limiting conditions, certifications, and definitions, which are set forth in the
report.
This report was prepared for Prudential Securities Incorporated and is
intended only for its specified use. It may not be distributed to or relied upon
by other persons or entities without written permission of Cushman & Wakefield
of California, Inc.
This appraisal report has been prepared in accordance with the Uniform
Standards of Professional Appraisal Practice, including the Competency
Provision.
The property was inspected by and the report was prepared by John C.
Vaughan under the supervision of Kenneth E. Matlin, MAI.
<PAGE>
Mr. Chester Piskorowski, Senior Vice President
Prudential Securities Incorporated
June 5, 1997
Page 2
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the market value
of the leased fee estate in the referenced property, subject to the assumptions,
limiting conditions, certifications, and definitions, as of May 21, 1997, was:
SIX MILLION SIX HUNDRED SEVENTY THOUSAND DOLLARS
$6,670,000
This letter is invalid as an opinion of value if detached from the report,
which contains the text, exhibits, and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
/s/ JOHN C. VAUGHAN
- - ----------------------------------------
John C. Vaughan
State Certified Appraiser No. AG002680
/s/ KENNETH E. MATLIN, MAI
- - ----------------------------------------
Kenneth E. Matlin, MAI
State Certified Appraiser No. AG002022
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
================================================================================
Property Name: Park Plaza Professional Center
Location: 1303 J Street
Sacramento, Sacramento County California
General Overview: The subject site is improved with a
seven-story, multi-tenant office building.
The building contains 71,226 square feet
of rentable area. The building was
constructed in 1981 on a 0.29-acre site.
On the effective date of appraisal,
occupancy stood at 76.2 percent.
Assessor's Parcel Number: 006-0054-024
Interest Appraised: Leased Fee Estate
Date of Value: May 21, 1997
Date of Inspection: May 21, 1997
Ownership: Prudential Bache/Equitec Real Estate
Partnership
Land Area: 0.29 acres
Current Property Assessment $7,874,214
Current Property Taxes: $86,105
Zoning: C-3: General Commercial
Highest and Best Use
If Vacant: Hold for build to suit office development.
As Improved: Multi-tenant office building as improved.
Improvements
Type: Multi-tenant office building
Year Built: 1981
Type of Construction: Steel and reinforced concrete frame with
concrete and glass exterior.
Gross Leasable Area: 71,226 square feet
Operating Data and Forecasts
Current Occupancy: 76.2%
Forecasted Stabilized Occupancy: 95%
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
================================================================================
Value Indicators
Cost Approach N/A
Sales Comparison Approach:
Value Per Square Foot: $85 to $90
Indicated Value: $6,050,000 to $6,410,000
Income Approach--Direct
Capitalization
Estimated Market Rental Rate: $1.25 Per Square Foot Per Month
Current Vacancy: 23.8%
Stabilized Vacancy Rate: 5.0%
Forecast Date of
Stabilized Occupancy: December 1997
Effective Gross Income: $1,115,919
Net Operating Income: $759,117
Overall Capitalization Rate: 10.5%
Estimated Cost of Achieving
Stabilized Occupancy: $295,726
Estimated Capital Costs: $180,483
Indicated Value: $6,670,000
Value Conclusion: $6,670,000
Value Per Square Foot: $93.65
Implicit Capitalization Rate: 11.2% based on pro forma income.
Marketing Time: 12 months or less.
SPECIAL ASSUMPTIONS AFFECTING VALUATION:
1. It is assumed that the rent roll provided by the property manager is
accurate.
2. Please refer to the complete list of assumptions and limiting conditions
included at the end of this report.
<PAGE>
TABLE OF CONTENTS
================================================================================
PAGE
PHOTOGRAPHS OF SUBJECT PROPERTY.............................................. 1
INTRODUCTION................................................................. 3
REGIONAL ANALYSIS............................................................ 6
NEIGHBORHOOD ANALYSIS........................................................ 10
OFFICE MARKET ANALYSIS....................................................... 13
PROPERTY DESCRIPTION......................................................... 18
REAL PROPERTY TAXES AND ASSESSMENTS.......................................... 23
ZONING....................................................................... 24
HIGHEST AND BEST USE......................................................... 25
VALUATION PROCESS............................................................ 26
SALES COMPARISON APPROACH.................................................... 27
INCOME APPROACH.............................................................. 33
RECONCILIATION AND FINAL VALUE ESTIMATE...................................... 47
ASSUMPTIONS AND LIMITING CONDITIONS.......................................... 48
CERTIFICATION OF APPRAISAL................................................... 50
ADDENDA...................................................................... 51
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Subject Front
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Subject Lobby
================================================================================
-1-
<PAGE>
PHOTOGRAPHS OF SUBJECT PROPERTY
================================================================================
-------------------------------------------------
[PHOTO]
-------------------------------------------------
6th Floor Suite
-------------------------------------------------
[PHOTO]
-------------------------------------------------
Street Scene
================================================================================
-2-
<PAGE>
INTRODUCTION
================================================================================
IDENTIFICATION OF PROPERTY
The subject property is an existing office building which is currently 76.2
percent occupied by fourteen tenants. The subject property contains 71,226
square feet of rentable area situated on a 0.29-acre site. The property is
located at the northeast corner of J and 13th Streets. The street address is
1303 J Street, in the city of Sacramento, Sacramento County, California. The
Sacramento County Assessor has designated the property as parcel number
006-0054-024.
PROPERTY OWNERSHIP AND RECENT HISTORY
Ownership of the subject is reportedly vested in Prudential Bache/Equitec
Real Estate Partnership. Public records indicate that the property has not sold
in the past three years.
PURPOSE AND INTENDED USE OF THE APPRAISAL
The purpose of this appraisal is to estimate the market value of a leased
fee estate on May 21, 1997. The appraisal is to assist Prudential in evaluating
current offers to purchase the properties from Equitec and other offers that may
arise.
EXTENT OF THE APPRAISAL PROCESS
In the process of preparing this appraisal, we:
o Inspected the exterior of the building and the site improvements and a
representative sample of tenant spaces with Anne Weatherford, the
manager.
o Interviewed Carla Alexander, Portfolio Manager for the property
management company, Glenborough.
o Reviewed leasing policy, concessions, tenant build-out allowances, and
history of recent rental rates and occupancy with the building
manager.
o Reviewed a detailed history of income and expenses, and a budget
forecast for 1997 including the budget for planned capital
expenditures and repairs.
o Conducted market research of occupancies, asking rents, concessions
and operating expenses at competing buildings which involved
interviews with on-site managers and a review of our own data base
from previous appraisal files.
o Prepared an estimate of stabilized income and expense (for
capitalization purposes).
o Conducted market inquiries into recent sales of similar buildings to
ascertain sales price per square foot, effective gross income
multipliers and capitalization rates. This process involved telephone
interviews with sellers, buyers and/or participating brokers. (See
detailed sales write-ups in Addenda for more complete information on
the verification process.)
o Prepared Sales Comparison and Income Approaches to value.
DATE OF VALUE AND PROPERTY INSPECTION
The date of value is May 21, 1997, which is also the date of our last
inspection.
================================================================================
-3-
<PAGE>
INTRODUCTION
================================================================================
PROPERTY RIGHTS APPRAISED
We have appraised a leased fee estate.
DEFINITIONS OF VALUE, INTEREST APPRAISED, AND OTHER PERTINENT TERMS
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
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.
The estimate exposure time for the subject property is 12 months or less,
based on information about days on the market gathered through discussion
with market participants and information gathered during the sales
verification process.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
LEASED FEE ESTATE
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
================================================================================
-4-
<PAGE>
INTRODUCTION
================================================================================
MARKET RENT
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space
as of the date of appraisal.
CASH EQUIVALENT
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
MARKET VALUE AS IS ON APPRAISAL DATE
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
LEGAL DESCRIPTION
The subject property is identified as:
All that land lying within the State of California, County of Sacramento,
City of Sacramento, described as follows:
The North and South Halves of Lot 1 in the Block bounded by "H" and "I",
Twelfth and Thirteenth Streets, of the City of Sacramento, according to the
official plan or plat thereof.
================================================================================
-5-
<PAGE>
INTRODUCTION
================================================================================
[GRAPHICAL REPRESENTATION OF REGIONAL
LOCATION MAP OF SUBJECT AREA]
================================================================================
<PAGE>
REGIONAL ANALYSIS
================================================================================
INTRODUCTION
The subject property is located in the Downtown area of the City of
Sacramento, Sacramento County, California. Given its location within the
Sacramento city limits, the subject is within the Sacramento Metropolitan
Statistical Area (MSA) and the sphere of influence of the City of Sacramento.
Sacramento is approximately 90 miles northeast of San Francisco. The map on the
facing page shows the subject's location within the Sacramento Region.
SACRAMENTO MARKET OVERVIEW
o According to the Employment Development Department (EDD), the Sacramento
MSA's civilian labor force was 741,900 as of February 1997. This reflects
an increase of 20,900 persons over the preceding year.
o Employment rose during this period by 27,400 to a level of 698,500.
Correspondingly, the unemployment rate dropped 100 basis points to 5.9
percent from 6.9 percent as of the prior February.
o The February 1997 unemployment rate was down compared to the January rate
of 6.2 percent due to gains in service sector jobs.
o The unemployment rate for the Sacramento MSA compares favorably to the
State average of 7.0 percent, but is slightly above the national
unemployment rate of 5.7 percent.
o During the previous year (February 1996 to February 1997), total wage and
salary jobs increased by 3.8 percent for the year. The service sector
showed the largest gain in jobs, adding 10,900 positions. Other sectors
showing significant job gains were education (5,200 new jobs), and
construction (2,800 jobs).
o The EDD projects that employment will continue to expand through the spring
with job gains realized in most major industries.
The following is a summary of jobs by industry sector showing the percent
and actual gain over the previous year.
================================================================================
-6-
<PAGE>
REGIONAL ANALYSIS
================================================================================
=========================================================================
CIVILIAN LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT
FEBRUARY 1996-FEBRUARY 1997
-------------------------------------------------------------------------
Sacramento Metropolitan Statistical Area
(El Dorado, Placer, and Sacramento Counties)
-------------------------------------------------------------------------
Items | 1996 | 1997 | Change | % Change
----------------------------|-----------|-----------|----------|---------
Civilian Labor Force(1) | 721,000 | 741,900 | 20,900 | 2.9%
Employment | 671,100 | 698,500 | 27,400 | 4.1%
Unemployment | 49,900 | 43,400 | -6,500 | -13.0%
Unemployment Rate(2) | 6.9% | 5.9 | -1.0% | -14.5%
----------------------------|-----------|-----------|----------|---------
Total Farm | 2,800 | 3,100 | 300 | 10.7%
----------------------------|-----------|-----------|----------|---------
Mining | 200 | 200 | 0 | 0%
----------------------------|-----------|-----------|----------|---------
Construction | 26,800 | 29,600 | 2,800 | 10.4%
----------------------------|-----------|-----------|----------|---------
Manufacturing | 42,400 | 43,500 | 1,100 | 2.6%
----------------------------|-----------|-----------|----------|---------
Transportation & Utilities | 25,100 | 25,200 | 100 | 0.4%
----------------------------|-----------|-----------|----------|---------
Trade | 130,300 | 133,400 | 3,100 | 2.4%
----------------------------|-----------|-----------|----------|---------
FIRE | 39,500 | 38,900 | -600 | -1.5%
----------------------------|-----------|-----------|----------|---------
Services | 163,700 | 174,600 | 10,900 | 6.7%
----------------------------|-----------|-----------|----------|---------
Government | 166,500 | 171,300 | 4,800 | 2.9%
=========================================================================
Notes: (1) Labor force by place of residence. Employment includes persons
involved in labor-management trade disputes
(2) The unemployment rate is computed from unrounded data; therefore,
it may differ from rates developed using the rounded figures in
these tables.
Source: EDD, March, 1997
o The health care and service industry sectors of the economy will be the
driving forces behind job growth in the future. Other sectors of the
economy projected to show healthy growth rates include the finance,
insurance, and real estate (FIRE) sector and retail trade employment.
o The government's position as the dominant employer in the region will
continue to decline. As of February 1997, federal, state and local
government accounted for about 28 percent of all jobs in the Sacramento
MSA, the second largest percentage reported for any industry division. The
largest is the Services sector which only recently surpassed Government.
================================================================================
-7-
<PAGE>
REGIONAL ANALYSIS
================================================================================
Below are the Major Private Sector Employers in the Sacramento metropolitan
area.
================================================================================
MAJOR PRIVATE SECTOR EMPLOYERS
SACRAMENTO METROPOLITAN AREA
================================================================================
| Number of |
Name | Employees | Type of Business
=======================|===========|============================================
Sutter Health | 6,071 | Healthcare
- - -----------------------|-----------|--------------------------------------------
Kaiser Permanente | 5,686 | Health Maintenance Organization
- - -----------------------|-----------|--------------------------------------------
Mercy Healthcare | |
Sacramento | 5,119 | Healthcare
- - -----------------------|-----------|--------------------------------------------
Raley's Inc. | 4,900 | Supermarket and drug stores
- - -----------------------|-----------|--------------------------------------------
Pacific Bell | 4,566 | Local telephone service and
| | data transmission
- - -----------------------|-----------|--------------------------------------------
Hewlett-Packard Co. | 4,000 | Manufacture of computers
- - -----------------------|-----------|--------------------------------------------
Packard Bell | 3,800 | Personal computer manufacturer
- - -----------------------|-----------|--------------------------------------------
Intel Corp. | 3,750 | Mfg. of semiconductor components
- - -----------------------|-----------|--------------------------------------------
United Parcel Service | 2,913 | Package delivery
- - -----------------------|-----------|--------------------------------------------
Foundation Health Corp.| 2,419 | Health Maintenance Organization
- - -----------------------|-----------|--------------------------------------------
Bank of America | 2,335 | Banking
- - -----------------------|-----------|--------------------------------------------
The Money Store, Inc. | 2,100 | Home and business lending
- - -----------------------|-----------|--------------------------------------------
NEC Electronics, Inc. | 2,050 | Manufacturer of semiconductor devices
- - -----------------------|-----------|--------------------------------------------
U.S. Computer Services | 1,923 | Management information systems
- - -----------------------|-----------|--------------------------------------------
PRIDE Industries | 1,839 | Various business services
- - -----------------------|-----------|--------------------------------------------
Lucky Stores | 1,828 | Retail grocery stores
- - -----------------------|-----------|--------------------------------------------
Campbell Soup Co. | 1,700 | Heat-processed foods
- - -----------------------|-----------|--------------------------------------------
Aerojet | 1,650 | Rocket engine manufacturing
- - -----------------------|-----------|--------------------------------------------
Union Pacific Railroad | 1,600 | Rail transportation
- - -----------------------|-----------|--------------------------------------------
The Sacramento Bee | 1,524 | Daily newspaper
- - -----------------------|-----------|--------------------------------------------
MCI | 1,508 | Telecommunications
- - -----------------------|-----------|--------------------------------------------
A. Teichert & Son Inc. | 1,300 | Concrete products, Construction
| (peak) |
- - -----------------------|-----------|--------------------------------------------
Electronic Data | |
Systems Corp. | 1,300 | Information technology services
- - -----------------------|-----------|--------------------------------------------
USAA Property & | |
Casualty | 1,106 | Property & Casualty insurance
- - -----------------------|-----------|--------------------------------------------
MTS Inc. | 1,100 | Retail sales of records, books, & videos
================================================================================
Source: Sacramento Business Journal; February 10, 1997
DEMOGRAPHIC ANALYSIS
o The City of Sacramento had a population of 384,800 as of January 1, 1997,
an increase of 0.13 percent over the January 1, 1996 population (384,300).
o The 1996 population within Sacramento County was 1,123,400, showing a 0.74
percent increase over the January 1996 county population.
o The California Department of Finance projects that the Sacramento MSA's
population will increase 29.5 percent from 1990 to 2000, with an absolute
population increase of approximately 400,000 persons.
================================================================================
-8-
<PAGE>
REGIONAL ANALYSIS
================================================================================
o Historic and projected population trends for the Sacramento MSA, Sacramento
County and the City of Sacramento are indicated in the following chart.
<TABLE>
<CAPTION>
=========================================================================================
| City | |
| of Sacramento | Sacramento County | Sacramento MSA
|-------------------------|-------------------------|-----------------------
| | % Annual | | % Annual | | % Annual
Year | Population | Increase* | Population | Increase* | Population | Increase*
=============|============|============|=============|===========|============|==========
<S> <C> <C> <C> <C> <C> <C>
1960 | 191,667 | -- | 510,300 | -- | 654,893 | --
1970 | 257,105 | 3.0 | 634,373 | 2.2 | 847,626 | 2.6
1980 | 275,741 | 0.7 | 783,381 | 2.1 | 1,099,814 | 2.6
1990 | 369,365 | 3.0 | 1,041,219 | 2.9 | 1,481,102 | 3.0
1996 | 384,800 | 0.7 | 1,123,400 | 1.3 | 1,626,400 | 1.6
2000 (Proj.) | 432,608 | 3.0 | 1,218,457 | 2.0 | 1,608,917 | N/A
=========================================================================================
</TABLE>
* Compound Annual Percentage Increase
Source: Employment Development Department (EDD), Sacramento County,
May, 1997.
Demographic Research Unit, State Department of Finance, February 1997.
o Future population growth within the region is projected at between 2.0 and
3.0 percent per year, compounded, over the next four years. This is
relatively moderated growth compared to historic population growth rates.
CONCLUSION
The Sacramento Metropolitan Area over the past several years has felt the
compounded effects of California's recession and military base closures.
However, indicators show that the region's economy is recovering with strong
gains in employment. The government jobs lost as a result of the closure of
three military bases in the region are slowly being replaced by manufacturing
and service positions in the private sector. The population of the region is
projected to continue growing at moderate rates through the end of the decade.
================================================================================
-9-
<PAGE>
REGIONAL ANALYSIS
================================================================================
[GRAPHICAL REPRESENTATION OF NEIGHBORHOOD
MAP OF SUBJECT AREA]
================================================================================
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
LOCATION
o The subject property is located in the Downtown area of the City of
Sacramento, Sacramento County, California. The downtown district is located
near the northwestern edge of the city limits.
o The boundaries of the neighborhood are delineated as the American River to
the north; Business Interstate 80 to the east and south; and the Sacramento
River to the west.
ACCESS
o Access to the district is considered well provided for via both public and
private transportation modes. Two major regional freeways border the
district which provide access to all areas of the metropolitan area and
state.
o Public transportation available in the district include the Sacramento
Light Rail Transit, Sacramento Regional buses, Greyhound bus lines, as well
as Amtrak whose Sacramento station is located near the north end of the
neighborhood.
o Major arterials serving the neighborhood include Interstate 5 and
Interstate Business 80 which provide access to areas north and south
(Interstate 5), and east and west (Business 80) of the neighborhood. In
addition, U.S. Highway 50 and State Highway 99 merge with Interstate 80 at
the southeastern edge of the neighborhood. The district is also served by a
good system of paved surface streets which are either two or three-lanes in
width.
o At this time, no changes in the existing transit and road systems are
planned or under construction.
NEIGHBORHOOD CHARACTERISTICS
o The district contains the original city limits of Sacramento, dating back
to when the city took shape in the 1850's along the banks of the American
and Sacramento Rivers. Later, Sacramento was chosen as the State's seat of
government, and the State Capital building was constructed in the heart of
the district. Today, much of the existing office space in the downtown
Sacramento is occupied by state agencies and the area still serves as a
major commerce center for the region.
o Since the district was originally built up over 100 years ago, the district
has matured and is nearly 100% built-up.
o Generally, the existing improvements in the neighborhood run the gamut from
mid-rise, Class A office buildings, to historical homes. The following is a
more distinct breakdown of the types of improvements.
o Approximately 50% of existing construction is commercial in nature.
This includes newer, Class A office buildings (some with ground floor
retail), multi-story hotels, numerous public facilities, stores,
restaurants, and various other commercial structures which are
typically found in an urban area. They range in age from nearly new to
over 100 years old, in some cases.
o Approximately 10% percent of the sites in the area are improved with
light industrial uses. These are typically single-story, concrete
structures which range in age from 20 to 50 years old.
================================================================================
-10-
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
o The balance is residential development composed of both single and
multi-family structures which range in age from historical buildings
to constructed within the last 10 years. Most residential construction
is wood frame with wood or stucco exteriors and two-stories in height.
o As discussed above, the major influence for the downtown area is the
existence of the California State Capital building and State offices.
Additionally, Sacramento County and the City of Sacramento have their main
offices in the downtown area. Tourism is another major influence in the
area with the Old Sacramento State Historic Park and Sutter's Fort State
Historic Park located in the area. Sacramento's Community Center, and the
Memorial Auditorium are also situated here.
o Overall, the downtown district is in a revitalization mode following
numerous years of decline. Over the past 10 years, several new prestigious
office buildings have been completed in the area. The completion of the
light rail line through downtown made it a more desirable area for
companies to locate since it is easier for employees to travel into
downtown. Also, the completion of the rehabilitation of the K Street
Shopping Mall has helped to attract more shoppers to the area after
business hours.
NEARBY AND ADJACENT USES
o The subject is bounded by high-rise, Class A buildings to the north and
east. To the north is the State Attorney General's Building and to the east
is 1325 J Street, which serves as the California headquarters for the Army
Corp of Engineers and the General Services Administration.
o The newly remodeled Convention Center is located directly across the street
from the subject property.
o The State Capitol is four blocks south of the subject.
o The recently renovated K Street Mall, an outdoor plaza, is one block west
of the subject.
SPECIAL HAZARDS OR ADVERSE INFLUENCES
o The neighborhood abuts the Sacramento and American Rivers, thus is located
within a 100-year flood plane. However, the Army Corp of Engineers is in
the process of completing projects which would alleviate any future
flooding hazards.
PLANNED IMPROVEMENTS/DEMOLITION
o Currently, there are a total of 730,000 square feet of office space under
construction in the downtown area. This is comprised of the 600,000 square
foot Federal Courthouse and the 130,000 square foot County Administration
Building.
CONCLUSION
o The neighborhood has reached stability and is currently in the midst of a
period of revitalization as evidenced by the new construction which has
been completed over the past ten years.
o Due to the amount of interest shown by investors and tenants in the
downtown market the overall outlook for the area is good. The State,
County, and City offices situated in the area will continue to provide a
strong tenant base for offices in the area.
================================================================================
-11-
<PAGE>
NEIGHBORHOOD ANALYSIS
================================================================================
o All of these forces, combined with recent market evidence that the office
leasing market is tightening, should ensure the long-term viability of the
subject property as a multi-tenant office building.
================================================================================
-12-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
SACRAMENTO AREA OFFICE MARKET
The metropolitan area has approximately 34.3 million square feet of
existing office space. The bulk of the office space is in downtown Sacramento
(8.6 million square feet), the Highway 50 corridor (8.1 million square feet) and
the Point West area (2.3 million square feet) submarkets. These three submarkets
contain about 53% of the total office space in Sacramento.
At the end of the 1st Quarter 1997, Sacramento's office space vacancy rate
was 10.9 percent, which reflects a slight increase over the 10.3% recorded at
the end of 1995. This increase is the result of several new build-to-suit
developments that came on-line during 1996 and early 1997. The majority of these
buildings were located in the I-50 Corridor and were for single tenant users.
There is a total of 2,701,882 square feet of office space currently under
construction in the Sacramento Metropolitan Area. As this space reaches the
market, vacancy rates will increase, resulting in downward pressure on rental
rates. As the majority of this space is outside of the subject's competitive
market area, it will not directly affect the subject property.
Total square footage, new construction, vacancy rates and net absorption
levels since 1986 are shown below for the Sacramento region:
==============================================================================
Regional Occupied Net
YEAR Total New Vacancy Space Absorption
Sq. Ft. Constr. Rate (Sq. Ft.) (Sq. Ft.)
==============================================================================
1986 20,599,874 -- 23.1% 15,837,183 --
- - ------------------------------------------------------------------------------
1987 23,835,038 3,235,164 20.2% 19,032,278 3,195,095
- - ------------------------------------------------------------------------------
1988 25,867,077 2,032,039 17.1% 21,438,633 2,406,355
- - ------------------------------------------------------------------------------
1989 28,842,168 2,975,091 18.5% 23,509,251 2,070,618
- - ------------------------------------------------------------------------------
1990 30,043,835 1,201,667 13.3% 26,035,987 2,526,736
- - ------------------------------------------------------------------------------
1991 31,491,412 1,447,577 13.6% 27,206,584 1,170,597
- - ------------------------------------------------------------------------------
1992 33,270,536 1,779,124 16.8% 27,676,677 470,093
- - ------------------------------------------------------------------------------
1993 33,448,309 177,773 16.0% 28,098,392 421,715
- - ------------------------------------------------------------------------------
1994 33,513,723 135,035 13.0% 29,156,939 1,062,568
- - ------------------------------------------------------------------------------
1995 33,636,714 311,418 10.3% 30,172,132 1,053,918
- - ------------------------------------------------------------------------------
1996 34,027,556 2,206,518 12.4% 29,812,893 355,211
- - ------------------------------------------------------------------------------
1st Qtr 97 34,310,953 2,701,882 10.9% 30,585,432 442,407
==============================================================================
SOURCE: CB Commercial, Grubb & Ellis and Cushman & Wakefield
As the statistics in the table indicate, the Sacramento region has seen a
steady amount of growth in office space over the past several years. The market
continued to grow throughout
================================================================================
-13-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
1992 and 1993 but the effects of the national recession and the state's economic
problems slowed demand for office space.
Approximately 1.8 million square feet of office space came on line in 1992
and an additional 177,773 square feet was added in 1993 (2.0 million square feet
combined in 1992-93) but net absorption of office space only totaled
approximately 900,000 square feet over that same period (470,093 square feet in
1992 and 421,715 in 1993). This net absorption level is down from approximately
1.2 million square feet in 1991 and 2 million square feet or more in the
previous four years. This accounts for the jump in the overall vacancy level
from 13.6% at year-end 1991 to 16.0% at year-end 1993.
With the easing of the recession in 1994 and the much slower pace of
construction at that time, net absorption increased by 152% from the prior year.
As a result, overall vacancy declined to 13.0%. Net absorption in 1995 was again
over 1 million square feet, thus reducing overall vacancy to 10.3%. In 1996 net
absorption was reported at 355,211 square feet, the lowest amount in several
years. The vacancy rate in 1996 rose to a high of 13.2% in the third quarter but
finished the year at 12.4%.
DOWNTOWN OFFICE MARKET
The subject property is located in the Downtown submarket, the largest
office submarket in the Sacramento region. This submarket consists of low- to
high-rise, Class A and B buildings. The majority of the tenants in this
submarket are state and federal government offices or related tenants.
Investor demand for office product in the downtown market is focused
primarily on Class A buildings with solid tenant bases. Most government agency
leases include escape clauses, and investors assign greater risk to these
leases. Class B buildings have not yet drawn the investment activity currently
associated with the top tier buidings. However, market particpants expect
competition among investors to push demand into the Class B product.
VACANCY RATES AND NET ABSORPTION
Office inventory in the Downtown submarket as of the first quarter 1997 was
8,586,967 square feet, located in 134 buildings. As of the first quarter 1997
survey, there was 853,647 square feet of vacant space, indicating a vacancy rate
for the submarket of 9.94 percent. Net absorption for this submarket was 118,971
square feet during the first quarter, indicating an annual absorption rate of
475,884 square feet. Based on the current absorption rate, the downtown market
has a 1.8 year supply of office space.
Government tenants drive construction in this submarket by commissioning
build-to-suit Class A office buildings. These government entities typically
consolidate as they relocate from various secondary buildings. While speculative
development of office buildings is not common in this market, government
agencies will often commission buildings in soft markets. Further exacerbating
this facet of the market is the practice among local developers to build excess
capacity into government commissioned projects and "backfilling" with other
tenants. These factors tend to have a negative impact on the Class B buildings.
================================================================================
-14-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
CLASS B SUBMARKET
The downtown market has a significant inventory of Class B buildings.
Brokers report that there are currently over 60 Class B buildings competing for
tenants in the downtown market. Many of these buildings are occupied at least
partially by government agencies.
The State Government has stated that it wants to consolidate operations
into centrally located facilities. This relocation from various outlying
locations into the CBD area is expected to take from 5 to 7 years which is
longer than the current administration will be in office. While actual
relocations have been limited, investors perceive higher roll-over risk with
government tenancies in Class B buildings. This roll-over risk is increased
because most government leases have early out clauses after a space has been
occupied for a specific time, usually two years.
If the consolidation of state agencies occurs, the net effect will be to
increase demand for large blocks of space with increased vacancies in the
smaller blocks of space. This space would increase the already large inventory
of space in the 1,000 to 10,000 SF range. As there are few remaining large
blocks of space on the market, new development will occur to meet government
demand.
NEW CONSTRUCTION
As stated in the Neighborhood Analysis, there is 730,000 square feet of new
construction in this submarket. This is contained entirely in two government
buildings; the 600,000 square foot Federal Courthouse and the 130,000 square
foot County Administration building. The most recently completed government
office in the downtown area was the Attorney's General office building in 1995.
Developer's in the Sacramento area are actively competing for future government
build-to-suit contracts. The most recently awarded project is the California
Environmental Protection Agency's 25-year lease for a new 15 to 25-story
highrise that will be developed by Thomas Development Partners. Construction
will commence during the latter-half of 1998.
RENTAL RATES
Rents are generally quoted on a fully-serviced basis where tenants
reimburse the landlord for their pro-rata share of increases in the operating
expenses over the base lease year, in addition to the rent. As of the first
quarter of 1997, asking monthly rental rates ranged from a low of $1.25 to a
high of $2.55 per square foot per month. This range is the highest in all of the
region's submarkets.
Based on our most recent market rent survey, discussed in detail in the
Income Capitalization Approach, asking rental rates for Class B buildings in the
subject submarket typically range from $1.25 to $1.65 per square foot per month.
Class A buildings are achieving rental rates from $1.75 to $2.55 per square
foot, per month. Brokers interviewed agree that rental rates for Class A
buildings have stabilized and are expected to rise next year. Rental rates for
Class B space, however, are not expected to until 1998.
================================================================================
-15-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
Currently, little free rent is being given in Class A buildings and leases
generally include fixed rent steps or periodic CPI adjustments. Class B leases
reflect on average one months free rent on a three year lease, with up to one
month per year of a five year lease.
INVESTMENT CLIMATE
Market particapants report increased activity among pension funds and REITS
in the Sacramento region as it is still perceived as a buyer's market. Demand
from REIT's for large blocks of investment grade real estate is reportedly very
high. This is reflected in Prentiss Properties recent purchase of six office
buildings and 11-acres of land in the South Natomas submarket. The total price
was reported at $81.7 million, and included all capital costs expected in the
first year of the holding period. The buildings comprise 564,606 square feet in
two Class A and four Class-B buildings. The transaction closed in the first
quarter of 1997 and was the second largest transaction in the region's history.
The scale of this purchase has enabled Prentiss to leverage their property
management and leasing functions. Other REIT's are reportedly interested in
establishing a presence in the Sacramento market and are actively seeking
portfolios of investment grade real estate.
The current listing of 925 L Street is another indication of the investment
climate in Sacramento. The listing broker reported that competition from buyers
resulted in a contract price that was reported to be very close to the asking
price, albeit 13% lower than the 1992 sales price. While this Class A- building
has an excellent location, investor concerns over roll-over risk and the age of
the mechanical systems resulting in a going-in capitalization rate above 9.5
percent.
Brokers report that investors continue to analyze property based on the
existing tenancy and current income with little or no premium for potential
upside in the market. Government tenants that could relocate as part of the
state's consolidation mandate are perceived as high-roll-over risks and
investors are requiring higher rates of return on income associated with these
tenants.
The Bay Area office markets to the west have experienced significant rent
spikes and there is the perception among investors that there could be upside in
Sacramento's Class A product.
CONCLUSIONS
The subject property is located in the downtown submarket of the Sacramento
metropolitan office market. This is the region's primary submarket and serves
the State, County and City governments. These tenants have a significant impact
on the market and exacerbate market forces, particularly in Class B buildings.
The Class B segment of this market has a large inventory of available space
in the 1,000 to 10,000 square foot range. If the mandated consolidation of State
agencies does occur it could add to this inventory.
Competition for tenants among Class B buildings is expected to remain
intense for the foreseeable future. This segment of the submarket continues to
utilize leasing concessions to
================================================================================
-16-
<PAGE>
OFFICE MARKET ANALYSIS
================================================================================
attract tenants. Currently, landlords are offering free rent of one month on
three year leases and three months free rent for five year leases.
Investors are active in the Sacramento region which is currently viewed as
a buyer's market. Purchases are analyzed based on existing income with higher
risk associated with government tenants that are candidates for consolidation.
The subject property currently leases 14,674 square feet to two state tenants
which are potential candidate for relocation if the mandate to consolidate State
Agencies is carried out.
MARKETING TIME
Based on the comparable sales used in this analysis, and our conversations
with brokers active in the subject market, it is our opinion that the subject
property would sell within a 12-month period if actively marketed for sale.
The Appraisal Standards Board of the Appraisal Foundation defines exposure
time as, "the estimated length of time that the property interest being
appraised would have been offered on the market prior to the hypothetical
consummation of a sale at market value on the effective date of the appraisal; a
retrospective estimate based upon an analysis of past events assuming a
competitive and open market." Based on historical market conditions and the
sales analyzed above, we estimated the exposure time for the subject property to
be roughly equal to the marketing time previously stated at 12 months.
================================================================================
-17-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
SITE DESCRIPTION
Location: 1303 J Street
Sacramento, Sacramento County, California
Shape: Rectangular
Land Area: 0.29 acres
Frontage/Terrain: 80 feet on J Street and 160 feet on
13th Street.
Street Improvements: 13th and J Streets are fully improved
thoroughfares, with concrete sidewalks, curbs,
gutters and street lights. The intersection of
these two streets is signalized.
Soil Conditions: We did not receive nor review a soil report.
However, we assume that the soil's load-bearing
capacity is sufficient to support the existing
structure. We did not observe any evidence to
the contrary during our physical inspection of
the property. The tract's drainage appears to
be adequate.
Utilities
Water: City of Sacramento
Sewer: City of Sacramento
Electricity: Pacific Gas & Electric
Gas: Pacific Gas & Electric
Telephone Pacific Bell
Access: The subject property has good access to the
region's primary transportation corridors.
Land Use Restrictions: We were not given a title report to review.
We do not know of any easements, encroachments,
or restrictions that would adversely affect the
site's use. However, we recommend a title
search to determine whether any adverse
conditions exist.
Flood Hazard: The entire downtown Sacramento area is
protected from flooding by a series of levees.
According to Community Panel No. 060266-0025E,
National Flood Insurance Rate Map, effective
November 15, 1989, the subject property is in
Flood Hazard Zone A99 and, therefore, does
require flood hazard insurance.
Wetlands: We were not given a Wetlands survey. If
subsequent engineering data reveal the presence
of regulated wetlands, it could materially
affect property value. We
================================================================================
-18-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
recommend a wetlands survey by a competent
engineering firm.
Seismic Hazard The site is not located in a Special Study Zone
as established by the Alquist-Priolo Geological
Hazards Act.
Site Improvements: The site is improved with concrete sidewalks
and perimter landscaping.
Parking: 23 parking spaces located in a ground floor
garage.
Hazardous Substances: We observed no evidence of toxic or hazardous
substances during our inspection of the site.
However, we are not trained to perform
technical environmental inspections and
recommend the services of a professional
engineer for this purpose.
Comments: The site is typical of most commercial sites in
the area, with good visibility and access.
IMPROVEMENTS DESCRIPTION
The improvements consist of a 6-story Class B office building containing a
total rentable area of 71,226 square feet. The reinforced concrete structure was
completed in 1981 and is in good condition for its age. The following
description of improvements is based upon our physical inspection of the
improvements along with our discussions with the building manager.
General Description
Year Built: 1981
Number of Floors: 7
Net Rentable Area: 71,226 square feet
Usable Area: 63,560.
Common Area Factor: 12%
Typical Floor Plate: 10,000 square feet
Parking 23 spaces located in the ground floor garage.
Construction Detail:
Foundation: Concrete: unknown structural design.
Framing: Structural steel framing with pre-cast
concrete panels at the exterior walls.
================================================================================
-19-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Floors: Concrete over steel.
Exterior Walls: Pre-cast concrete panels and glass.
Roof Cover: Built-up: assumed adequate.
Windows: Anodized aluminum frames.
Pedestrian Doors: Single light commercial entry doors.
Loading Doors N/A
Mechanical Detail
Heating and Cooling: Heating is provided from a hot water boiler
and colling is provided from refrigeration
compressors. There is one source for all
tenants except when tenants have separate
systems for computer rooms.
Plumbing: Assumed adequate.
Electrical Service: Assumed adequate.
Elevator Service: Two electric powered, overhead traction
elevators.
Fire Protection: The building is not sprinklered and there are
no pull stations.
Security: There is a swipe card access system.
Interior Detail
Layout: The building has a central core design with
floorplates designed for multi-tenant use. The
building design can also accomodate full floor
users.
Floor Covering: Carpet, vinyl tile and hardwood.
Walls: Painted drywall and wallpaper.
Ceilings: Drop ceilings in most areas; although the
6th floor has drywall ceilings.
Lighting: Recessed flourescent lighting.
Restrooms: Two restrooms on each floor with tile flooring
and wainscoting.
================================================================================
-20-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
Site Improvements
On-Site Landscaping: Minimal perimeter landscaping.
Other: Concrete and tile sidewalk at entry.
Condition: The improvements were in average condition
overall for their age.
Americans With
Disabilities Act: The Americans With Disabilities Act (ADA)
became effective January 26, 1992. We have not
made, nor are we qualified by training to make,
a specific compliance survey and analysis of
this property to determine whether or not it is
in conformity with the various detailed
requirements of the ADA. It is possible that a
compliance survey and a detailed analysis of
the requirements of the ADA could reveal that
the property is not in compliance with one or
more of the requir could have a negative effect
upon the value of the property. Since we have
not been provided with the results of a survey,
we did not consider possible non-compliance
with the requirements of ADA in estimating the
value of the property.
Hazardous Substances: We are not aware of any potentially hazardous
materials (such as formaldehyde foam
insulation, asbestos insulation, radon gas
emitting materials, or other potentially
hazardous materials) which may have been used
in the construction of the improvements.
However, we are not qualified to detect such
materials and urge the client to employ an
expert in the field to determine if such
hazardous materials are thought to exist.
Design Features and
Functionality: The building's design is suitable for
multi-tenant occupancy and the floorplates lend
themselves to full-floor users. The 6th floor
is built-out with executive suites but is
currently vacant.
Physical Condition: The subject property is considered a Class B
building in its competitive submarket. It
compares favorably in terms of age and
condition to other Class B product in the area.
We did not inspect the roof of the building or
make a detailed inspection of the mechanical
systems. The appraisers, however, are not
qualified to render an opinion as to the
adequacy or condition of these
================================================================================
-21-
<PAGE>
PROPERTY DESCRIPTION
================================================================================
components. The client is urged to retain an
expert in this field if detailed information is
needed about the adequacy and condition of
mechanical systems.
================================================================================
-22-
<PAGE>
REAL PROPERTY TAXES AND ASSESSMENTS
================================================================================
The building is subject to the taxing jurisdiction of the City of
Sacramento and the County of Sacramento County. The assessors' parcel
identification number is 006-0054-024.
=======================================================
Assessed Values
Land $ 986,036
Improvements $6,888,178
----------
Total Market Value $7,874,214
Tax Rate 1.0204%
----------
Total Assessment $80,348.48
Direct Assessments $ 5,756.84
----------
Total Taxes and Assessments $86,105.32
=======================================================
o Cushman and Wakefield assumes that all taxes are current. When the subject
is sold, a reassessment at the sales price will most likely occur, with tax
increases limited to 2% annually thereafter until the property is sold
again. The consequences of this reassessment have been considered in the
appropriate valuation sections.
================================================================================
-23-
<PAGE>
ZONING
================================================================================
The subject is zoned C-3, General Commercial, under the City of
Sacramento's zoning ordinance. The principal purpose of this zoning district is
to provide for general commercial uses. Most retail uses are allowed in this
district as well as office uses.
We are not experts in the interpretation of complex zoning ordinances, but
based on the available information, the existing improvements comply with the
constraints imposed by the city's zoning ordinance.
To the best of our knowledge, there are no known deed restrictions which
would further limit the use of the subject property. However, this statement
should not be taken as a guarantee or warranty that no such restrictions exist.
Deed restrictions are a legal matter and only a title examination by an attorney
would normally uncover such restrictive covenants. Thus, an updated title search
of the subject property is recommended to determine the existence of such
restrictions.
================================================================================
-24-
<PAGE>
HIGHEST AND BEST USE
================================================================================
HIGHEST AND BEST USE OF SITE AS THOUGH VACANT
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of the Appraisal Institute, the highest and best use of the site
as though vacant is defined as:
Among all reasonable, alternative uses, the use that yields the
highest present land value, after payments are made for labor,
capital, and coordination. The use of a property based on the
assumption that the parcel of land is vacant or can be made vacant
by demolishing any improvements.
Overall, it is our opinion that the ultimate highest and best use of the
subject site is for development of a multi-tenant office use. However, it is our
opinion that based upon the current market conditions, the financial feasibility
of a speculative office development would be questionable. The maximally
profitable use for the subject site would be resale to either a developer or
user. Thus, it is our opinion that the current highest and best use of the
subject site, as if vacant, is for eventual development of a build-to-suit
office building when market conditions and/or demand warrants.
HIGHEST AND BEST USE OF PROPERTY AS IMPROVED
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues
to contribute to the total market value of the property, or until the
return from a new improvement would more than offset the cost of
demolishing the existing building and constructing a new one.
As noted earlier, the subject site is zoned C-3, General Commercial
District, and the improvements appear to conform to the underlying legal
restrictions. The existing improvements are well designed for office use and
have many years of remaining economic life. The improvements contribute to the
overall property value and it is unlikely that a purchaser would raze the
existing improvements. For these reasons, it is our opinion that the highest and
best use of this site, as improved, is for continued use as a multi-tenanted
office building.
================================================================================
-25-
<PAGE>
VALUATION PROCESS
================================================================================
In this appraisal we considered the Cost Approach, the Sales Comparison
Approach and the Income Approach. The Cost Approach was considered but not
utilized in this appraisal due to the substantial level of economic obsolescence
associated with the current market conditions and a lack of comparable land
sales. Also limiting the reliability of the Cost Approach is the subjectiveness
of estimating the subject's physical depreciation. Finally, investors in Class B
buildings such as the subject are not utilizing the Cost Approach in their
purchase decisions. Rather, market participants are basing valuations on
existing income and testing the reasonableness of these conclusions based on
comparative sales. Therefore, we have utilized the Sales Comparison Approach and
the Income Approach in this appraisal.
In the Sales Comparison Approach, we performed the following steps:
o Searched the market for recent sales.
o Analyzed those sales on the basis of the sales price per square foot.
o Correlated the various value indications into a point value estimate
from within the range.
In developing the Income Approach we:
o Studied rents in effect in this and competing buildings to estimate
potential rental income at market levels.
o Estimated income from sources other than office rentals.
o Studied the recent history of operating expenses at this and competing
buildings to estimate an appropriate level of stabilized expenses and
reserves for replacement.
o Estimated net operating income by subtracting stabilized expenses from
potential gross income.
o Capitalized stabilized net operating income into an indication of
capital value.
================================================================================
-26-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
METHODOLOGY
In the Sales Comparison Approach, we estimated value by comparing this
property 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 basic steps of this approach are:
1. research recent, relevant property sales and current offerings
throughout the competitive area;
2. select and analyze properties that are similar to the property
appraised, considering changes in economic conditions that may have
occurred between the sale date and the date of value, and other
physical, functional, or locational factors;
3. identify sales that include favorable financing and calculate the cash
equivalent price;
4. reduce the sale prices to a common unit of comparison such as price
per square foot of net rentable area, effective gross income
multiplier, and overall capitalization rate;
5. make appropriate comparative adjustments to the prices of the
comparable properties to relate them to the property being appraised;
and
6. interpret the adjusted sales data and draw a logical value conclusion.
The most widely-used and market-oriented unit of comparison for properties
such as the subject is the sales price per net rentable square foot. All
comparable sales were analyzed on this basis. We present on the following page a
summary of the improved properties that we compared with the subject property,
and a map showing their locations. Detail sheets describing these sales can be
found in the Addenda.
================================================================================
-27-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
[GRAPHICAL REPRESENTATION OF COMPARABLE
SALES MAP OF SUBJECT AREA]
================================================================================
<PAGE>
SALES COMPARISON APPROACH
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================================
OFFICE BUILDING SALES SUMMARY
====================================================================================================================================
Number Net Land Cash Sale Expense Overall
Sale Sale Year of Rentable Area Percent Equivalent Price Per Ratio Capitalization
No. Name/Location Date Built Stories Area (SF) (Acres) Occupied Sale Price SF (NRA) (EGI) Rate
====================================================================================================================================
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I-1 Capitol Place Jan-93 1976 13 151,440 0.48 96% $26,675,000 $176.14 27% 10.60%
915 L Street
Sacramento, CA
I-2 Christofer Centre Nov-95 1985 5 72,900 1.25 70% $6,500,000 $89.16 N/A N/A
1000 G Street
Sacramento, CA
I-3 Sacramento Corporate
Center May-96 1983 6 177,991 2.27 96% $23,200,000 $130.34 33% 11.12%
501 J Street
Sacramento, CA
I-4 900 8th Street Nov-96 1959 3 68,819 1.18 0% $7,300,000 $106.08 N/A N/A
Sacramento, CA
I-5 925 L Street Listing 1973 13 165,919 0.35 84% $26,000,000 $156.70 36% 9.48%
Sacramento, CA Adjusted for TI & Capital Costs: $26,900,000 $162.13 9.17%
====================================================================================================================================
</TABLE>
-28-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
ANALYSIS OF SALES PRICE PER SQUARE FOOT
The five comparables summarized on the previous page reflect the most
relevant transactions in the downtown area. Although three of the sales
represent Class A office buildings, these properties were considered competitive
with the subject on an investment basis. Thus, we included them in our analysis.
The following is a discussion of the comparables and adjustments made to each.
Comparable I-1 is the sale of the Capitol Place office building located at
915 L Street. This 13-story, Class A-building was originally constructed in
1976, and contains a total building area of 151,440 square feet of rentable
area. The building sold in January, 1993, for a total price of $26,675,000. The
terms of sale were all cash to the seller. It was leased to stabilized occupancy
as of the date of sale. The major tenant in the structure was the State of
California which leased 76,000 square feet. This lease was at $1.90 per square
foot, fully serviced and had another ten years remaining on the term. The
remaining space was leased to 26 tenants at an average monthly rental rate of
$2.20 per square foot fully serviced. The sale price equated to a unit price of
$176.14 per rentable square foot.
This property is located across the street from the State Capital and
adjacent to the high-rise downtown parking garage building. A downward
adjustment for location is required for comparison to the subject property. The
overall quality and condition of the improvements are considered superior to the
subject property and require downward adjustments.
The market for office properties in Sacramento declined after this sale
occurred but has recently shown signs of improvement. Overall, an upward
adjustment for market conditions is warranted, as investors are more optimistic
toward the Sacramento office market now than they were when this sale occured.
This building was leased to stabilized occupancy with approximately half
the space leased on a long-term basis to the State of California. The stability
of the income flow for this property is reflected in the higher price paid for
the property. A downward adjustment is warranted for the superior economic
characteristics of this comparable. Due to the superior location, condition, and
quality as well as the strength of this comparable's tenancy and economic
characteristics, this comparable required significant downward adjustment.
Comparable I-2 is the sale of the Cristofer Building at 1000 G Street,
approximately four blocks northwest of the subject property. This transaction
involved the REO sale of a 5-story Class B office building and a 3-story parking
garage. The improvements were built in 1985 and were in average condition at the
time of sale. The office building contains 72,900 square feet of net rentable
area and the parking garage has 222 parking spaces. The transaction closed in
November 1995, and the sale price was $6,500,000. The terms of sale were all
cash to the seller. The price equated to a unit price of $89.16 per square foot
of rentable area.
An upward adjustment is warranted for the condition of this sale as it was
an REO transaction. The office leasing market has improved since this sale
closed, thus an upward adjustment for date of sale was made. The property is
located in close proximity to the County Courthouse which is considered a
superior office location relative to the subject. Thus, a downward adjustment
was made for location. The physical characteristics of the improvements
================================================================================
-29-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
were rated superior to the subject property, requiring a downward adjustment.
The economic characteristics of this building, with a 30% vacancy factor, are
considered similar to the subject property. Finally, the number of parking
spaces at this property is superior to the subject's and a downward adjustment
is necessary. Overall, a downward adjustment is warranted and we would expect
the subject to achieve a price per square foot lower than that indicated by this
comparable.
Comparable I-3 is the May 1996 sale of the Sacramento Corporate Center, a
6-story, Class A- office building located at 501 J Street in downtown. This
property sold for $23,200,000 or $130.34 per square foot. The terms of sale were
all cash to the seller. The improvements contain a total rentable area of
177,991 square feet and were built in 1983. The property also has 520 parking
spaces. At the time of sale the property was leased to stabilized occupancy and
nearly 63% of the building was leased to various State agencies.
No adjustment is required for financing, conditions of sale or market
conditions. The location of this sale, however, is rated superior to the subject
property's, requiring a downward adjustment. The quality and condition of this
comparable are also superior to the subject's, warranting additional downward
adjustments. Downward adjustments were also warranted for the superior economic
characteristics of this comparable and its greater number of parking spaces.
Overall, a downward adjustment was made to the comparable.
Comparable I-4 is the November, 1996, sale of 900 8th Street, a 68,819
square foot Class B building in downtown with 70 parking spaces. This
three-story building was vacant at the time of sale and was purchased by the
County of Sacramento for conversion to a new police headquarters. The
improvements were originally constructed in 1959 as a bank branch. The buyer
paid $7,300,000 which equates to a unit value of $106.08 per square foot of
building area. The terms were all cash to the seller.
No adjustment is necessary for financing, conditions of sale or market
conditions. This property is considered similar to the subject in terms of
locational factors. This sale reflects demand in the downtown market for large
blocks of contiguous space, which the subject does not currently have warranting
a downward adjustment. Although this comparable was vacant at the time of sale
no adjustment for occupancy is considered necessary due to the motivations of
this buyer and the special purpose of the building. This comparable was inferior
to the subject at the time of sale, in terms of physical characteristics,
warranting an upward adjustment. A downward adjustment is warranted for the
higher parking ratio at this building. Overall, a downward adjustment was made
to the comparable.
Comparable I-5 is 925 L Street, a 13-story, Class A-building located
across the street from the State Capital and adjacent to the high-rise downtown
parking garage. The property is currently listed for sale at $26,000,000 or
$156.70 per square foot of rentable area. The building is currently 84.15%
occupied and the listing broker estimates stabilized occupancy will be achieved
within 6 months. The building recently underwent a $1.5 million renovation and
is wire-linked to all the departments in the State Capitol Building. The asking
price reflects an overall rate of 9.48% based on a 92% occupancy level. The
listing broker reported that approximately $900,000 in capital and tenant
improvements would be required in the first year
================================================================================
-30-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
of the holding period. The resulting cost to the buyer is $26,900,000 which
equates to an overall rate of 9.17% after accounting for these added costs.
This comparable requires a downward adjustment for condition of sale in
order to reflect its listing status. No adjustment is necessary for financing or
market conditions. A downward adjustment is warranted for this comparable's
superior location. Also requiring downward adjustment are the superior physical
and economice characteristics of this property. Overall, this comparable
requires a significant downward adjustment for comparison to the subject
property.
The following table summarizes the overall comparability of the sales to
the subject property.
================================================================================
IMPROVED SALES COMPARABLES
================================================================================
Sale Indicated
Sale Rentable Price Occupancy at Overall
No. Property Name Area (SF) Per SF Time of Sale Adjustment
================================================================================
I-1 Capitol Place 151,440 $176.14 96% Downward
I-2 Christofer Centre 72,900 $ 89.16 70% Downward
I-3 Sacramento Corp. Center 177,991 $130.34 96% Downward
I-4 900 8th Street 68,819 $106.08 0% Downward
I-5 925 L Street 165,919 $156.70 84% Downward
================================================================================
A degree of subjectivity is involved in these adjustments as insufficient
market data were available to perform a paired sales analysis. However, the
adjustments do illustrate our thought processes in comparing one transaction
with another.
SUMMARY AND CONCLUSION
Before adjustment, the comparables range from $89.16 to $176.14 on a price
per square foot basis. Most consideration is given to Comparable No. 2 with
secondary consideration given to Comparable No. 4. Comparable Nos. 1, 3 and 5
are Class A-buildings and are given least consideration. The preceding analysis
determined that the subject would achieve a price per unit lower than that
indicated by Comparable No. 2 and well below that indicated by Comparable No. 4.
These sales represent the low end of the value range; which is considered
appropriate for the subject property, given the fact that other three
comparables were Class A-buildings. Overall, we would expect the subject to
realize a unit price ranging between $85 and $90 per square foot. The resulting
value indications for the subject property, after rounding, are presented in the
following table.
================================================================================
Low High
================================================================================
Value Indicated on Basis of Price Per Square Foot $6,050,000 $6,410,000
================================================================================
There has been limited sales activity of buildings directly comparable to
the subject property. This weakens the reliability of this approach and the data
available is not considered
================================================================================
-31-
<PAGE>
SALES COMPARISON APPROACH
================================================================================
adequate to derive a single value point for the subject property. Investors in
this market are not relying on the Sales Comparison Approach as a basis for
purchase decisions. Rather, they are analyzing buildings based on existing
tenancy and income. Therefore, we have relied upon this approach to provide a
test of reasonableness for the Income Approach.
================================================================================
-32-
<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 cash flow 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, the direct capitalization method is appropriate here as it
is the method utilized most often by investors in properties such as the
subject.
OCCUPANCY STATUS
Based on the rent roll provide by the property manager, this was the
property's occupancy status on the date of appraisal:
===============================================================
| Square Feet
|----------------------------------------------
Type Space | Occupied | Vacant | Percent Vacant
================|===============|============|=================
Office | 54,298 | 16,928 | 23.8%
===============================================================
A copy of the rent roll is provided in the addenda. Current lease rates at
the subject property range from $1.22 to $1.60 per square foot per month, fully
serviced. The average rental rate is $1.27 per square foot per month.
The majority of the subject's vacant space (11,216 sf ) is located on the
sixth floor. This floor was operated by the property management company as
executive suites. However, it is now being marketed as traditional office space
with an asking rate of $1.35 per square foot. The sixth floor has a large
reception area with hardwood floors and numerous private offices, both along the
perimeter of the floor and in the interior space.
ESTIMATING POTENTIAL GROSS INCOME
Office suites in the subject's competitive market are typically leased on a
full service gross basis, with the rental rate based on a per square foot per
month charge. Landlords are responsible for all operating expenses in the base
year while tenants pay for the increase in operating expenses in subsequent
years. In order to estimate potential gross income we analyzed the subject's
current contract rent and the asking rental rates at competitive buildings. Most
of the subject's leases were signed over four years ago and are not considered
reflective of current market conditions.
================================================================================
-33-
<PAGE>
INCOME APPROACH
================================================================================
We have estimated market rental rates by examining recent leases in this
building and by investigating recent rental rates in competitive buildings. The
table on the following page summarizes the competitive buildings.
================================================================================
-34-
<PAGE>
INCOME APPROACH
================================================================================
[GRAPHICAL REPRESENTATION OF COMPARABLE
RENTALS MAP OF SUBJECT AREA]
================================================================================
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Office Building Rent Comparables Summary
====================================================================================================================================
Tenant Improvement Cost
Quoted Rental Rate Per Square Foot
No. Of Net Per Square Foot Lease Expense =========================
Rent Year Blt. Floors Rentable Percent =================== Term Stop First Second
No. Name/Location Eff.age Load Area (SF) Leased Low High (Years) (SF) Generation Generation
---- ------------- --------- ------- ---------- ------- -------- -------- -------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Executive Place 1983 3 37,500 49% $1.35 $1.35 3-5 years Base Year $25 on shell $5 to $10
777 12th Street 1983 10%
Sacramento
R~2 1201 J Street 1957 3 35,000 41% $1.25 $1.30 3-5 years Base Year N/A $5 to $10
Sacramento 1980 10%
R-3 11121 Street Unk. 3 24,900 86% $1.25 $1.35 3-5 years Base Year N/A $5 to $10
Sacramento 1985 10%
R-4 1527 I Street 1982 3 12,000 95% $1.35 $1.35 3-5 years Base Year N/A $5 to $10
Sacramento 1982 12%
R-5 Trust Building Unk. 4 30,000 36% $1.00 $1.35 3-5 years Base Year N/A $5 to $10
1020 12th Street 1980 12%
====================================================================================================================================
</TABLE>
-35-
<PAGE>
INCOME APPROACH
================================================================================
ANALYSIS OF MARKET COMPARISONS AND ESTIMATION OF MARKET RENT FOR THIS BUILDING
Comparable No. 1 is the Executive Place building at 777 12th Street,
located two blocks north of the subject property. The building consists of a
three-story building with two levels of office space over ground level parking.
The improvements were built in 1983 by the same developer that built the subject
property.
Currently, there is a full floor available at this building with 19,000
square feet of rentable area. The previous tenant improvements for this space
were not marketable so the landlord took the space back to shell condition. The
space being marketed at $1.35 per square foot per month, fully serviced and the
landlord will build the space out with up to $25 per square foot in tenant
improvements. Normal tenant improvement allowances in this market range from $5
to $10 per square foot on improved second generation space.
This comparable is considered for its similar locational and physical
characteristics. Although the landlord is offering above market TI's, it is only
to bring the building up to current market standards and no adjustment is
considered necessary. Overall, we would expect the subject to achieve a rental
rate slightly lower than the asking rate for this building.
Comparable No. 2 is 1201 J Street, a three-story office building with two
full floors available. The asking rent ranges from $1.25 to $1.30 per square
foot per month. The building was originally constructed in 1957 but due to
renovation has an effective age of 17 years. The locational characteristics of
this comparable are similar to the subject's but the physical charateristics of
this comparable are rated inferior to the subject's, warranting an upward
adjustment to the indicated rental rate. The landlord is offering minimal free
rent and a tenant improvement allowance of $5 to $10 per square foot.
This comparable is considered a good indicator of market rent for the
subject property due to its similar locational characteristics. A downward
adjustment is necessary to account for the free rent offered at this building.
This is offset by the subject's superior physical characteristics. Overall, we
would expect the subject to achieve a rental rate similar to the asking rate for
this building.
Comparable No. 3 is 1112 I Street, a three-story office building with
24,900 square feet of rentable area. This comparable is similar to the subject
in regards to locational and physical characteristics. Currently, 3,500 square
feet of space is available at this building on a sublease with less than two
years remaining on the term. The asking rent is $1.25 per square foot per month.
The listing broker reported that 6,000 square feet of space was recently
leased at this building. The starting lease rate was $1.35 per square foot per
month, fully serviced. The term was five years with annual increases of $0.10
per square foot. The landlord did not provide a tenant improvement allowance as
the space had good quality tenant improvements that were in good condition.
Reportedly, there was no free rent included in this lease.
This comparable is considered for its recent leasing activity and similar
locational and physical characteristics.. The sublease space requires an upward
adjustment for comparison with the subject due to the limited term available.
The recent lease at this building is
================================================================================
-36-
<PAGE>
INCOME APPROACH
================================================================================
considered a strong indicator of market rent for the subject. No tenant
improvement allowance was provided by the landlord but the existing improvements
were of good quality and were in good condition; therefore, no adjustment is
considered necessary. Overall, we would expect the subject to achieve a rental
rate similar to the recently negotiated lease at this building.
Comparable No. 4 is 1527 I Street, a three-story office building with
12,000 square feet of rentable area. Currently, there is 570 square feet of
space available at this building, with an asking rent of $1.35 per square foot
per month, fully serviced. The landlord is offering tenant improvement
concessions of up to $10 per square foot on this space. The building was
constructed in 1982 and has locational characteristics similar to the subject's.
The physical characteristics of this building are rated slightly inferior to the
subject's, warranting an upward adjustment to the indicated rental rate.
This comparable is considered as an indication of market rent for smaller
spaces in the competitive market. Overall, we would expect the subject to
achieve a rental rate slightly lower than the asking rent from this comparable.
Comparable No. 5 is the Trust Building, which is located at 1020 12th
Street, one block west of the subject. This is an older four-story building with
approximately 30,000 square feet of rentable area. There is currently 19,302
square feet of space available at this building, with asking rents ranging from
$1.00 to $1.35 per square foot per month, fully serviced. The landlord is
offering free rent of up to three months on a five year lease and tenant
improvement allowances of up to $10 per square foot.
This comparable is considered inferior to the subject in terms of age and
condition, warranting an upward adjustment to the indicated rental rate. The
locational characteristics of this comparable are considered similar to the
subject's. Overall, we would expect the subject to achieve a rental rate at the
high end of the range of asking rates for this building.
RECENT LEASING ACTIVITY AT THIS BUILDING
The most recent lease at the subject property was executed in March 1,
1997. The tenant, Integrated Communication Systems, leased 1,103 square feet on
the seventh floor. The terms included one months free rent and partial rent for
the first three months of the lease. The net effective lease rate was $1.27 per
square foot per month over the 38 month term . The landlord provided a tenant
improvement allowance of $5.00 per square foot.
This lease is considered the best indicator of the subject's market rent,
although it should be noted that this suite is on the upper floor and lower
floors would most likely achieve a lower rental rate.
================================================================================
-37-
<PAGE>
INCOME APPROACH
================================================================================
CONCLUSION
The subject's recent leasing activity is supported by the comparable
properties. The subject's average contract rent is $1.27 per square foot which
is considered generally reflective of market rent. Therefore, we have utilized
the subject's contract rent in our analysis. The concluded market rent for the
subject's vacant space is presented in the following table.
================================================================================
TYPE SPACE Market Rent
================================================================================
Office $1.25/sf/month
================================================================================
PARKING INCOME
The subject property has 23 parking spaces which are managed by an
operating company. The historical income from this source has varied from
$12,588 in 1995 to $21,920 in 1996. The 1997 budget projects gross income from
parking operations at $12,600. We have projected annual parking income of
$24,480 based on the annualized year to date information provided by the
building manager.
OTHER INCOME
The subject property receives other income from reimbursements of operating
expense escalations, common area maintenance, and miscellaneous services
provided to the tenants. Based on the year to date income from these sources, we
have estimated other income at $28,242.
POTENTIAL GROSS INCOME
Based on the preceding analysis, the subject's gross potential income is
calculated in the following table:
=========================================================================
Revenue Source Potential Income
=========================================================================
Contract Rent $868,010
Vacant Space: 16,928 sf at $1.25/sf/month $253,920
Parking Income $24,480
Other Income $28,242
- - -------------------------------------------------------------------------
POTENTIAL GROSS INCOME $1,174,652
=========================================================================
VACANCY AND COLLECTION LOSS
Both the investor and the appraiser are primarily interested in the cash
revenue that an income property is likely to produce annually over a specified
period time rather than what it could produce if it were always 100 percent
occupied and all the tenants were actually paying their rent in full and on
time. It is normally a prudent practice to expect some income loss, either in
the form of actual vacancy or in the form of turnover, non-payment, or slow
payment of rent.
-38-
<PAGE>
INCOME APPROACH
================================================================================
We have projected a 4.0 percent vacancy factor for the subject property.
This is based on a 60 percent renewal probability and 6 months downtime for
space that is vacated. Additionally, a collection loss factor of 1.0 percent is
being projected for all tenants.
The subject is currently operating at a 76.2% occupancy level. This is not
reflective of the buildings stabilized occupancy level. The costs associated
with bringing the property to stabilized occupancy have been considered in our
analysis.
OPERATING EXPENSES
We estimated the property's annual operating expenses after reviewing its
historical performance and reviewing the operating statements of similar
buildings with which we are familiar. We analyzed each item of expense and
estimated amounts a typical informed investor would consider normal. We also
examined industry norms as reported in the Building Owners and Managers
Experience Exchange Report.
A two-year operating history for the property, a 1997 budget, and our
operating expense estimate for the property are presented in the table on the
following page.
================================================================================
-39-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Operating Income and Expense Analysis
====================================================================================================================================
Cushman & Wakefield
Actual 1995 Actual 1996 Budget 1997 1997 Projections
----------------------------------------------------------------------------------------------
Actual Actual
Amount Per SF Amount Per SF Amount Per SF Amount Per SF
---------- ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE FROM OPERATIONS
Rental Income $1,123,983 $37.21 $1,125,954 $37.28 $1,118,383 $37.03 $1,121,930 $15.75
Other Income $31,190 $0.44 $19,460 $0.27 $28,463 $0.40 $28,242 $0.40
Parking Income $12,588 $0.18 $21,920 $0.31 $12,600 $0.18 $24,480 $0.34
---------- ------ ---------- ------ ---------- ------ ---------- ------
Total Income $1,167,761 $16.40 $1,167,334 $16.39 $1,159,446 $16.28 $1,174,652 $16.49
Vacancy and Collection Loss $335,335 $4.71 $292,060 $4.10 $194,310 $2.73 $58,733 $0.82
---------- ------ ---------- ------ ---------- ------ ---------- ------
Effective Gross Income $832,426 $11.69 $875,274 $12.29 $965,136 $13.55 $1,115,919 $15.67
OPERATING EXPENSES
Management Fees $28,503 $0.40 $29,873 $0.42 $31,320 $0.44 $27,898 $0.39
Insurance $11,370 $0.16 $16,281 $0.23 $11,950 $0.17 $17,807 $0.25
Taxes, Licenses & Fees $86,797 $1.22 $77,437 $1.09 $90,863 $1.28 $68,000 $0.95
Security, Life Safety $20,796 $0.29 $6,449 $0.09 $7,003 $0.10 $7,000 $0.10
Repairs & Maintenance $25,481 $0.36 $29,204 $0.41 $22,791 $0.32 $24,929 $0.35
Cleaning $45,527 $0.64 $40,087 $0.56 $45,577 $0.64 $45,577 $0.64
Utilities $95,079 $1.33 $95,968 $1.35 $97,872 $1.37 $97,872 $1.37
Administrative $74,752 $1.05 $52,880 $0.74 $60,688 $0.85 $61,000 $0.86
Landscape $4,312 $0.06 $3,047 $0.04 $3,996 $0.06 $4,000 $0.06
Parking $14,443 $0.20 $32,343 $0.45 $11,870 $0.17 $12,000 $0.17
--------- ----- -------- ----- -------- ----- -------- -----
Total Operating Expenses $407,060 $5.72 $383,569 $5.39 $383,930 $5.39 $366,082 $5.14
NET OPERATING INCOME $425,366 $5.97 $491,705 $6.90 $581,206 $8.16 $749,837 $10.53
-------- ----- -------- ----- -------- ----- -------- ------
====================================================================================================================================
</TABLE>
-40-
<PAGE>
INCOME APPROACH
================================================================================
ANALYSIS OF OPERATING EXPENSES
We analyzed each item of expense and estimated a level of expense we
believe a typical investor in a property like this would consider reasonable. We
made our estimates on a calendar year basis.
MANAGEMENT
Typical professional management fees in the local market range from 2.0 to
3.5 percent of effective gross income, based on data provided by property
management companies active in this market. The 1997 budget estimates a
management fee for the subject of 3.2 percent of effective gross income. Given
the subject's age, condition and tenancy, a management fee of 2.5% is considered
more reasonable and has been utilized in our analysis.
INSURANCE
The subject's budgeted expense for insurance is $0.17 per square foot which
is lower than typical market costs. We have utilized an insurance expense of
$0.25 per square foot based on expense data from other properties in this
market.
REAL ESTATE TAXES
This expense is calculated by applying the subject's tax rate of 1.0204% to
the value conclusion from the Income Approach.
SECURITY AND LIFE SAFETY
The life safety systems were renovated in 1995 at a cost of $20,796 or
$0.30 per square foot of rentable area. The stabilized expense for this category
has been projected at $7,000 based on the budgeted expense and the 1996 expense.
REPAIRS & MAINTENANCE
Repairs and Maintenance typically includes all payroll and payroll related
items of staff employed as an operating engineers, maintenance personnel or
chief engineers and/or the contract service costs for elevators, HVAC,
electrical, plumbing, structural and roof, life/safety systems, and other repair
and maintenance expenses. Expenses include all supplies and/or materials. The
historical expense data ranges between $0.36 psf and $0.42 psf but the 1997
budget estimates $0.32 psf in Repairs and Maintenance expenses. Due to the age
and condition of the improvements, we have given the 1997 budget most
consideration in this analysis and have concluded at a Repairs & Maintenance
expense of $0.35 psf for the first year of the holding period.
CLEANING
This expense typically includes all payroll and payroll related items
relative to cleaning and/or the expenses of janitorial contractors, including
window cleaning, trash removal, and supplies. The 1997 budget estimates cleaning
expenses at $0.65 psf, a slight increase over the 1996 cleaning expense of $0.57
psf but in line with the 1995 expense of $0.65 psf. We have estimated stabilized
cleaning expenses of $0.65 psf which equates to a total annual expense of
$45,577.
================================================================================
-41-
<PAGE>
INCOME APPROACH
================================================================================
UTILITIES
Utilities include electricity, natural gas, water, sewer, and trash
removal. The subject's historical utility expenses are relatively stable,
ranging from $1.33 psf in 1995 to $1.35 psf in 1996. The 1997 budget estimates
utility expenses of $1.37 psf which is considered reasonable and has been relied
upon in our analysis. We have estimated utility expenses at $97,872 annually or
$1.37 psf.
OFFICE AND ADMINISTRATIVE
Administrative expenses typically include all payroll and payroll related
items for all directly-employed administrative personnel such as building
managers, secretaries, and bookkeepers. Leasing personnel are not included nor
are the salaries or fees for off-site management firm personnel and services.
Administrative expenses include legal costs pertaining to the operation of the
building, such as labor disputes and contract agreements, but excluding legal
costs associated with leasing, general litigation, and/or nonbuilding-related
items; accounting, excluding income tax, which is not provided by off-site
management such as data processing or audit costs associated with tenant expense
pass-through; building office expense including rent at market (if reflected
under income), telephone, supplies, furniture, temporary help, etc.
The subject's 1997 budget is again given most consideration, as
administrative expenses decreased significantly between 1995 and 1996, from
$1.05 psf to $0.74 psf. We have estimated office and administrative expenses of
$61,000 or $0.86 psf.
LANDSCAPING
The subject has limited landscaping and this expense has remained
relatively stable. Therefore, we have relied upon the budget in estimating a
landscaping expense of $4,000 annually.
PARKING
The subject's parking expense of $12,000 is based on the current contract
with the parking operator.
NON-RECOVERABLE EXPENSES
TENANT IMPROVEMENT ALLOWANCES
Tenant improvement allowances at the competitive properties ranged from $5
to $10 per square foot in most cases. The subject is currently marketing space
with a tenant improvement allowance of $5 to $10 psf. In our estimate of market
rent, we concluded that a tenant improvement allowance of $5.00 psf would be
necessary to attract tenants. However, the vacant space on the sixth floor,
which is built out for executive suites, requires modification to a more open
layout in order to be functional for a traditional office user. Many of the
interior office spaces will have to be removed. The expenses associated with
modifying this floor will be higher than typical because the floor has a fixed
ceiling system. Based on the property
================================================================================
-42-
<PAGE>
INCOME APPROACH
================================================================================
manager's cost estimates, we have utilized a tenant improvement allowance of $12
per square foot for this space.
LEASING COMMISSIONS
In the Sacramento market leasing commissions are typically 5.0% of the
total lease value.
RESERVES FOR REPLACEMENT
Given the age and condition of the subject property, a replacement reserve
of $0.15 per square foot is considered reasonable. However, the capitalization
rates from the comparable sales were derived before replacement reserves.
Therefore, to remain consistent, we have analyzed the subject's net operating
income before deducting replacement reserves.
================================================================================
-43-
<PAGE>
INCOME APPROACH
================================================================================
INCOME AND EXPENSE SUMMARY
Here we present our estimate of stabilized income and expenses.
================================================================================
Stabilized Income and Expenses
================================================================================
REVENUE FROM OPERATIONS
Rental Income $1,121,930
Operating Expense Recovery $28,242
Parking Income $24,480
----------
Total Income $1,174,652
Vacancy and Collection Loss $58,733
----------
Effective Gross Income $1,115,919
Operating Expenses
Management Fees $27,898
Insurance $17,807
Real Estate Taxes $68,000
Security $7,000
Repairs and Maintenance $24,929
Cleaning $45,577
Utilities $97,872
Administrative $61,000
Landscape $4,000
Parking $12,000
----------
Total Operating Expenses $366,082
NET OPERATING INCOME $749,837
================================================================================
DIRECT CAPITALIZATION
In the direct capitalization method, we estimated market value by dividing
stabilized net operating income by an overall rate derived from our analyses of
market sales and computed by dividing the net operating income from a sold
property by its sale price. The overall capitalization rates derived from the
improved property sales are shown below.
================================================================================
-44-
<PAGE>
INCOME APPROACH
================================================================================
Summary of Capitalization Rates
================================================================================
Sale Capitalization
No. Rate
----- --------------
I-1 10.60%
I-3 9.38%
I-5 11.12%
Stabilized Capitalization Rate Selected 10.5%
================================================================================
The comparable sales result in capitalization rates that range from 9.48 to
11.12 percent. The low end of the range is represented by the current listing
price of 925 L Street. This property was determined to be superior to the
subject and we would expect the subject to achieve a higher overall rate than
that indicated by this comparable. Comparable No. 3 represents the high end of
the range at 11.12% and we would expect the subject to achieve a lower
capitalization rate than that indicated by this sale due to improved market
conditions. Comparable No. 1 represents the middle of the range at 10.60%. This
comparable is significantly superior to the subject, warranting an upward
adjustment to the indicated rate. This upward adjustment is offset by the
improved market conditions that currently exist. Therefore, based on the
comparable sales, we have concluded at an overall rate of 10.5% for the subject
property.
We also surveyed market participants in order to support our concluded
capitalization rate. Based on our discussions with investors and brokers active
in the Sacramento region, an overall rate between 10.5 and 10.8 percent would be
necessary to attract capital to a property such as the subject. Given the
subject's physical characteristics and tenant roster, it is considered
reasonable to conclude at the low end of this range or at 10.5 percent. This
rate has been applied to the subject's net operating income based on stabilized
occupancy. The costs associated with bringing the property to stabilized
occupancy are then deducted from the capitalized value.
COST OF ACHIEVING STABILIZED OCCUPANCY
The subject is currently 76.2% occupied with 16,928 square feet of vacant
space. In order to reach stabilized occupancy of 95% the subject will need to
lease-up 13,367 square feet. The costs associated with bringing the property to
stabilized occupancy include rent loss during lease-up, tenant improvements and
leasing commissions.
The majority of the subject's vacant space (11,216 square feet) is located
on the sixth floor. The leasing agent for the subject property reported that two
tenants are currently interested in the sixth floor space and are reportedly are
preparing letters of intent. Based on this information, we have estimated a six
month lease-up period for the sixth floor. This time frame gives consideration
to negotiating time and the time necessary to perform tenant improvements. It is
reasonable to conclude that during this six month time frame, the subject will
lease another 2,151 square feet to reach a 95% occupancy level.
================================================================================
-45-
<PAGE>
INCOME APPROACH
================================================================================
The market rent for the subject's vacant space has been estimated at $1.25
per square foot per month. Rent loss during lease-up is estimated at $100,253
and is calculated as follows: ($1.25 x 13,367 square feet x six months).
The market rent is based on a tenant improvement of $12.00 psf for the
sixth floor and $5.00 psf for all other vacant space. Thus, total tenant
improvement costs are estimated at $145,347 and is calculated as follows:
(11,216 square feet x $12 + 2,151 square feet x $5).
As stated previously, leasing commisions in the Sacramento office market
are calculated at 5.0% of the total lease value. We have estimated leasing
commissions at $50,126 based on a 5 year term and market rent of $1.25 per
square foot per month ($1.25 x 13,367 sf x 60 months x 5.0%).
The total costs of bringing the building to stabilized occupancy are
estimated at $295,726.
CAPITAL IMPROVEMENT COSTS
The subject's operating budget identifies three significant capital
improvement projects scheduled for 1997. These include ADA upgrades of the
restrooms ($79,200), installation of a new security entrance system ($21,249)
and replacement of the building's roof (76,450). These capital costs have been
deducted from the projected stabilized value.
ANALYSIS AND CONCLUSION
Based on the preceding analysis, the indicated value for the subject
property is $6,665,095 which we have rounded to $6,670,000 as our value
conclusion from the Income Approach. The calculations are presented in the
following table.
================================================================================
Direct Capitalization
================================================================================
Net Operating Income at Stabilized Occupancy $749,837
Divided by Overall Capitalization Rate 10.5%
Indicated Stabilized Value $7,141,304
Less: Rent Loss ($100,253)
Tenant Improvement Costs ($145,347)
Leasing Commissions ($50,126)
Capital Costs ($180,483)
Indicated Value As Is: $6,665,095
- - --------------------------------------------------------------------------------
Rounded to: $6,670,000
================================================================================
-46-
<PAGE>
RECONCILIATION AND FINAL VALUE ESTIMATE
===============================================================================
The two approaches indicated the following values:
Sales Comparison Approach $6,050,000 to $6,410,000
Income Approach $6,670,000
In this appraisal we considered the Cost Approach, the Sales Comparison
Approach and the Income Approach. The Cost Approach was considered but not
utilized in this appraisal due to the substantial level of economic obsolescence
associated with the current market conditions and a lack of comparable land
sales. Also limiting the reliability of the Cost Approach is the subjectiveness
of estimating the subject's physical depreciation. Finally, investors in Class B
buildings such as the subject are not utilizing the Cost Approach in their
purchase decisions. Rather, market participants are basing valuations on
existing income and testing the reasonableness of these conclusions based on
comparative sales. Therefore, we utilized the Sales Comparison Approach and the
Income Approach in this appraisal.
Sales activity of buildings directly comparable to the subject property was
limited. This weakened the reliability of the Sales Comparison Approach as the
data available was not considered adequate to derive a single value point for
the subject property.
Investors in this market are not relying on the Sales Comparison Approach
as a basis for purchase decisions. Rather, they are analyzing buildings based on
existing tenancy and income. Therefore, the Sales Comparison Approach was relied
upon to provide a test of reasonableness for the Income Approach.
The Income Approach was the final technique used in our analysis. This
approach reflects the actions of the most likely buyer and was given strong
consideration in our final value conclusion. Given the subject's existing lease
structure, we analyzed the property's income potential based on market rents.
The present value of the above market rents were added to the capitalized value
indication based on market rent.
MARKET VALUE CONCLUSION
Based on our complete appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the Market Value
for the subject property, subject to the assumptions, limiting conditions,
certifications, and definitions, as of May 21, 1997 was:
SIX MILLION SIX HUNDRED SEVENTY THOUSAND DOLLARS
$ 6,670,000
================================================================================
-47-
<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.
This appraisal is 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.
================================================================================
-48-
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
================================================================================
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 other governmental consents have been or can
be obtained and renewed for any use on which the value estimate 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 has not reviewed lease documents and 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 the 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.
================================================================================
-49-
<PAGE>
CERTIFICATION OF APPRAISAL
================================================================================
1. We certify that, to the best of our knowledge and belief:
2. John C. Vaughan inspected the property, and Kenneth E. Matlin, Manager,
Valuation Advisory Services, has reviewed and approved the report and but
did not inspect the property.
3. The statements of fact contained in this report are true and correct.
4. 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.
5. 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.
6. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event. The appraisal assignment was not based on
a requested minimum valuation, a specific valuation or the approval of a
loan.
7. No one provided significant professional assistance to the persons signing
this report.
8. Our analyses, opinions, and conclusions were developed, and this report has
been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice of the Appraisal Foundation and the Code of Professional
Ethics and the Standards of Professional Appraisal 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, Kenneth E. Matlin has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ JOHN C. VAUGHAN
---------------------------------------------
John C. Vaughan
State Certified Appraiser No. AG002680
/s/ KENNETH E. MATLIN, MAI
---------------------------------------------
Kenneth E. Matlin, MAI
State Certified Appraiser No. AG002022
================================================================================
-50-
<PAGE>
ADDENDA
================================================================================
Subject Rent Roll
Comparable Sale Data Sheets
Comparable Sale Photographs
Comparable Rental Photographs
Qualifications
================================================================================
-51-
<PAGE>
<TABLE>
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E. PSHIP Page: 9
Time: 9:31 Rent Roll for May /97 Total Building Square Ft: 71,226
Oper: CARLA PARK PLAZA Type of Building: Rentable
- - ------------------------------------------------------------------------------------------------------------------------------------
Suite Rentable Prorata Tenant Name Lease Lease Occupancy Lease
Number Sq Ft % Start End Date Type
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0100-02 1,764 2.4766 FRESH & QUICK DELI CAFE 08/17/95 04/30/01 11/15/95 L
INS EXP Aug 14/96
0150-02 950 1.3338 GEORGE SNOBAR, 11/01/94 01/31/00 11/01/94 L
AN INDIVIDUAL
INS EXP Oct 14/95
0200-01 4,400 6.1775 THE AMERICAN INSTITUTE OF 12/01/85 08/31/98 02/01/85 R
ARCHITECTS
INS EXP Feb 24/94
0250-01 2,139 3.0031 Vacant
0260-01 2,569 3.6068 Vacant
0270-02 2,094 2.9399 CA STATES ASCS-USDA 10/01/95 01/31/99 10/01/95 L
0300-01 6,082 8.5390 CALIFORNIA STATE ASCS OFFICE 01/01/88 01/31/99 01/01/88 L
Lease Types: L - Lease M - Month to Month S - Sublet R - Renewal H - Holdover
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E. PSHIP Page: 9
Time: 9:31 Rent Roll for May /97 Total Building Square Ft: 71,226
Oper: CARLA PARK PLAZA Type of Building: Rentable
- - ------------------------------------------------------------------------------------------------------------------------------------
Monthly Annual Rent Increases
Suite Monthly Charges Charges Charges and Concessions
Number Type Start End Amount PSF PSF Date Type Amount
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0100-02 RENT 11/15/95-11/30/98 2,475.00 1.40 16.84 11/15/95 C 2475.00
CAM 12/01/96-11/30/97 577.50 0.33 3.93 12/01/98 C 2706.00
12/01/95 C (2475.00)
12/01/96 C (2475.00)
---------------------------------
3,052.50 1.73 20.77
0150-02 RENT 11/01/64-10/31/97 1,356.80 1.43 17.14 11/01/94 C 1272.00
11/01/95 C 1314.40
11/01/96 C 1356.80
11/01/97 C 1399.20
11/01/98 C 1441.60
11/01/94 C (1272.00)
12/01/95 C (1314.40)
12/01/96 C (1356.80)
---------------------------------
1,356.80 1.43 17.14
0200-01 RENT 03/01/96-08/31/98 6,248.00 1.42 17.04 02/01/85 C 5940.00
02/01/90 C 6065.55
04/01/90 C 6876.29
02/01/93 C 7220.10
09/01/93 C 6072.00
03/01/96 C 6248.00
---------------------------------
6,248.00 1.42 17.04
0250-01
0260-01
0270-02 10/01/95 C 2618.00
02/01/96 C 2805.00
0300-01 RENT 02/01/97-01/31/99 24,003.33 1.50 17.96 01/01/88 C 12655.06
01/01/91 C 6588.40
01/01/92 C 6588.40
02/01/93 C 7602.00
02/01/94 C 7602.00
02/01/95 C 7602.00
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E. PSHIP Page: 9
Time: 9:31 Rent Roll for May /97 Total Building Square Ft: 71,226
Oper: CARLA PARK PLAZA Type of Building: Rentable
- - ------------------------------------------------------------------------------------------------------------------------------------
Options
Suite Security And
Number Deposit Comments
- - ---------------------------------------------------------
<S> <C> <C>
0100-02 (2475.00) OPTREN STE 100 1,764 SF 8/31/00
ROFO STE 150 848 SF
LOC STE 100 1,764SF 11/1/95
0150-02 (1500.00)
0200-01 (5940.00) OPT EXTND - 2-3 YR OPTIONS.
EXERBY - 6 MOS. PRIOR TO EXP.
ROFR - UNIT 250.
0250-01
0260-01
0270-02
0300-01
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E. PSHIP Page: 10
Time: 9:31 Rent Roll for May /97 Total Building Square Ft: 71,226
Oper: CARLA PARK PLAZA Type of Building: Rentable
- - ----------------------------------------------------------------------------------------------------------
Suite Rentable Prorata Tenant Name Lease Lease Occupancy Lease
Number Sq Ft % Start End Date Type
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA STATE ASCS OFFICE continued,
INS EXP Jan 01/88
0320-01 1,781 2.5005 GREG LEE, AN INDIVIDUAL DBS 08/01/87 09/30/97 10/02/87 L
G K L CORPORATE SEARCH
INS EXP Oct 20/93
0370-02 3,348 4.7005 CALIF COUNCIL OF CIVIL 07/20/91 01/31/02 07/20/91 L
ENGINEERS
INS EXP Aug 27/96
0400-01 2,337 3.2811 COMMISSION OF THE STATUS OF 07/01/87 08/31/01 07/01/87 L
WOMEN/STATE OF CA-GEN. SVCS.
Lease Types: L - Lease M - Month to Month S - Sublet R - Renewal H - Holdover
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
Monthly Annual Rent Increases
Suite Monthly Charges Charges Charges and Concessions
Number Type Start End Amount PSF PSF Date Type Amount
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
02/01.96 C 8145.00
02/01/97 C 24003.33
--------------------------------
24,003.33 1.50 17.96
0320-01 RENT 10/01/96-09/30/97 2849.47 1.60 19.20 08/01/87 C 2231.00
ESCLT 01/01/97-12/31/97 187.00 0.10 1.26 10/01/88 C 2328.00
10/01/89 C 2425.00
10/01/90 C 2522.00
10/01/91 C 2619.00
10/01/92 C 2619.00
10/01/93 C 2735.40
10/01/94 C 2851.80
07/01/95 C 618.12
08/01/95 C 2617.95
10/01/95 C 2760.42
10/01/96 C 2849.47
10/01/92 C (2619.00)
08/01/87 C (2231.00)
--------------------------------
3,036.47 1.70 20.46
0370-02 RENT 03/01/96-02/28/98 5022.00 1.50 18.00 03/01/01 C 5692.00
ESCLT 01/01/97-12/31/97 76.69 0.02 0.27 07/20/91 C 5356.80
01/01/92 C 5356.80
01/01/93 C 5524.20
01/01/94 C 5691.60
01/01/95 C 5859.00
01/01/96 C 6026.40
03/01/96 C 5022.00
03/01/98 C 5524.00
07/20/91 C (5356.80)
01/01/97 C (5022.00)
--------------------------------
5,098.00 1.52 18.27
0400-01 RENT 09/01/96-08/31/97 2921.80 1.25 15.00 09/01/00 C 2921.80
07/01/87 C 3281.30
06/01/89 C 3639.26
07/01/92 C 3639.26
<CAPTION>
- - -----------------------------------------------------------
Options
Suite Security And
Number Deposit Comments
- - -----------------------------------------------------------
<S> <C> <C>
0320-01 (2619.00) HOR - 125%
OPTREN - 1-5 YR., EXER BY 10/1/97
0370-02 (2678.40) OPTREN - EXERBY 7/31/01
0400-01 T.I. CAP - $10,000.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E. PSHIP Page: 11
Time: 9:31 Rent Roll for May /97 Total Building Square Ft: 71,226
Oper: CARLA PARK PLAZA Type of Building: Rentable
- - ------------------------------------------------------------------------------------------------------------
Suite Rentable Prorata Tenant Name Lease Lease Occupancy Lease
Number Sq Ft % Start End Date Type
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMISSION ON THE STATUS OF continued,
0410-00 1,004 1.4096 Vacant
0420-02 2,374 3.3331 CALIFORNIA STATE ASCS OFFICE 12/15/92 01/31/99 12/15/92 L
0450-01 5,600 7.8623 CALIFORNIA STATE ASCS OFFICE 01/01/88 01/31/99 01/01/88 L
0500-01 12,337 17.3209 POSTSECONDARY EDUCATION 06/25/92 08/31/00 06/25/92 L
ST OF CA-DEPT OF GNL SVC-OREDS
Lease Types: L - Lease M - Month to Month S - Sublet R - Renewal H - Holdover
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
Monthly Annual Rent Increases
Suite Monthly Charges Charges Charges and Concessions
Number Type Start End Amount PSF PSF Date Type Amount
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/01/93 C 3639.26
10/01/93 C 3639.26
10/01/95 C 3639.26
09/01/96 C 2921.80
09/01/97 C 2921.80
09/01/98 C 2921.80
09/01/99 C 2921.80
10/01/93 C (3639.26)
07/01/94 C (3639.26)
--------------------------------
2,921.80 1.25 15.00
0410-00
0420-02 12/15/92 C 2968.00
02/01/94 C 2968.00
02/01/95 C 2968.00
02/01/96 C 3180.00
0450-01 01/01/88 C 6066.66
02/01/93 C 7000.00
02/01/94 C 7000.00
02/01/95 C 7000.00
02/01/96 C 7500.00
0500-01 RENT 09/01/96-08/31/97 15,041.60 1.22 14.63 07/01/92 C 15975.43
09/01/92 C 15975.43
07/01/93 C 16159.04
07/01/94 C 16828.81
07/01/95 C 17025.32
06/01/96 C 843.83
07/01/96 C 15895.43
09/01/96 C 15041.60
09/01/97 C 15041.60
09/01/98 C 15041.60
09/01/99 C 15041.60
07/01/92 C (15975.43)
--------------------------------
15,041.60 1.22 14.63
Lease Types: L - Lease M - Month to Month S - Sublet R - Renewal H - Holdover
<CAPTION>
- - ------------------------------------------------------------
Options
Suite Security And
Number Deposit Comments
- - ------------------------------------------------------------
<S> <C> <C>
0410-00
0420-02
0450-01
0500-01
Lease Types: L - Lease M - Month to Month S - Sublet R - Renewal H - Holdover
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date: 05/07/97 PRUDENTIAL-BACHE/EQUITEC R.E. PSHIP Page: 12
Time: 9:31 Rent Roll for May /97 Total Building Square Ft: 71,226
Oper: CARLA PARK PLAZA Type of Building: Rentable
- - -----------------------------------------------------------------------------------------------------------
Suite Rentable Prorata Tenant Name Lease Lease Occupancy Lease
Number Sq Ft % Start End Date Type
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0600-01 11,216 15.7471 Vacant
0700-01 5,692 7.9915 ALLNET COMMUNICATION SERVICES 04/01/83 07/31/98 04/01/83 L
INS EXP Dec 19/94
0710-01 3,615 5.0754 ALLNET COMMUNICATION SERVICES 04/01/83 07/31/98 04/01/83 L
INS EXP Dec 19/94
0760-01 821 1.1527 CALIF STATE ASCS OFFICE 01/01/91 01/31/99 02/01/99 L
INS EXP Dec 19/94
0770-04 1,103 1.5486 INTEGRATED COMMUNICATION SYSTEM 03/01/97 05/31/00 03/01/97 L
INS EXP Mar 01/97
====== ========
Prorata 100.0000
Occupied 54,298
Vacant 16,928
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
Monthly Annual Rent Increases
Suite Monthly Charges Charges Charges and Concessions
Number Type Start End Amount PSF PSF Date Type Amount
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0600-01
0700-01 RENT 05/01/93-07/31/98 6,716.56 1.18 14.16 04/01/83 C 8538.00
ESCLT 01/01/97-12/31/97 950.04 0.17 2.00 06/01/87 C 9542.07
04/01/89 C 10307.34
04/01/91 C 11125.75
04/01/92 C 11125.75
04/01/93 C 16688.63
05/01/93 C 6716.56
05/01/93 C (6716.56)
05/01/94 C (6716.56)
05/01/95 C (6716.56)
--------------------------------
7,666.60 1.35 16.16
0710-01 RENT 05/01/93-07/31/98 4,265.70 1.18 14.16 04/01/83 C 4699.50
ESCLT 01/01/97-12/31/97 562.23 0.16 1.87 05/01/89 C 5000.64
05/01/91 C 5397.69
05/01/93 C 4265.70
05/01/93 C (4265.70)
05/01/94 C (4265.70)
05/01/95 C (4265.70)
--------------------------------
4,827.93 1.34 16.03
0760-01 01/01/91 C 1500.00
01/01/92 C 1600.00
02/01/93 C 1036.00
02/01/94 C 1036.00
02/01/95 C 1036.00
02/01/96 C 1110.00
0770-04 RENT 03/01/97-05/01/97 345.00 0.31 3.75 03/01/97 C 345.00
06/01/97 C 1433.90
06/01/98 C 1489.05
06/01/99 C 1544.20
06/01/97 C (1433.90)
--------------------------------
345.00 0.31 3.75
=================================
Prorata RENT 71,245.26 1.27 15.26
Occupied ESCLT 1,775.96 0.11 1.35
Vacant CAM 577.50 0.33 3.93
<CAPTION>
- - -----------------------------------------------------------
Options
Suite Security And
Number Deposit Comments
- - -----------------------------------------------------------
<S> <C> <C>
0600-01
0700-01 (8538.00) RTT - 5/1/96.
EXERBY - 2/1/96.
0710-01 RTT - 5/1/96.
EXERBY - 2/1/96.
0760-01
0770-04 (1433.90) OPTREN - STE.37/1103 S.F./ 10/31/99
==========
Prorata (25,184.30)
Occupied
Vacant
</TABLE>
<PAGE>
OFFICE BUILDING SALE
================================================================================
LOCATION DATA
Property Name: Capitol Place
Location: 915 L Street
City: Sacramento
County: Sacramento
State/Zip: California
Assessor's Parcel No(s): 006-0102-017,019
Atlas Reference: N/A
PHYSICAL DATA
Type: CBD
Land Area: 0.4800 Acres
Gross Building Area: N/A
Net Rentable Area: 151,440 SF
Usable Building Area: N/A
Year Built: 1976
# of Stories: 13
Parking: 1.5/1,000
Condition: Good
Exterior Walls: Glass Panels
Amenities: Parking garage
Class: A
SALE DATA
Transaction Type: Sale
Date of Transaction: 01/93
Marketing Time: 6 months
Grantor: The Capitol Place Co.
Grantee: Capitol Place, Inc.
Document No.: 09021598 Rec. Date:09/02/93
Sale Price: $26,675,000
Financing: Cash to Seller
Cash Equivalent Price: $26,675,000
Required Capital Cost: $0
Adjusted Sale Price: $26,675,000
Verification: Bill Robbins
FINANCIAL DATA
Assumptions & Forecast: Buyer
Occupancy at Sale: 96%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
---------- ------
Potential Gross Income: $4,038,413 $26.67
Vacancy and Credit Loss: $201,921 $1.33
Effective Gross Income: $3,836,492 $25.33
Expenses: $1,014,648 $6.70
Net Operating Income: $2,821,844 $18.63
CAPITOL PLACE
<PAGE>
OFFICE BUILDING SALE 1
================================================================================
ANALYSIS
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 10.58 %
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): 6.95
Operating Expense Ratio (OER): 26.45 %
Price Per Square Foot: $176.14
COMMENTS
The State of California leased 76,000 sf at sale at a monthly rental rate
of $1.90/sf, fully serviced. Ten years remained on the lease at sale. The
remaining space was leased to 26 tenants at an average monthly rental rate
of $2.20/sf, fully-serviced.
CAPITOL PLACE
<PAGE>
================================================================================
[PHOTO]
================================================================================
Sales Comparable 1
<PAGE>
OFFICE BUILDING SALE 2
================================================================================
LOCATION DATA
Property Name: Christofer Centre
Location: 1000 G Street
City: Sacramento
County: Sacramento
State/Zip: California 95814
Assessor's Parcel No(s): N/A
Atlas Reference: 297-D13
PHYSICAL DATA
Type: CBD
Land Area: 1.2489 Acres
Gross Building Area: 72,900 SF
Net Rentable Area: 72,900 SF
Usable Building Area: N/A
Year Built: 1985
# of Stores: 5
Parking: 222
Condition: Avg to Good
Exterior Walls: Concrete
Amenities: N/A
Class: B
SALE DATA
Transaction Type: Sale
Date of Transaction: 11/95
Marketing Time: 4 months
Grantor: Realty Advisors
Grantee: Aetna Casualty
Document No.: 11290366 Rec. Date: 11/29/95
Sale Price: $6,500,000
Financing: Cash to Seller
Cash Equivalent Price: $6,500,000
Required Capital Cost: $0
Adjusted Sale Price: $6,500,000
Verification: Doug Barnett
FINANCIAL DATA
Assumptions & Forecast: N/A
Occupancy at Sale: 70%
Existing or Pro Forma Income: Pro Forma
TOTAL P.S.F.
------ ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: N/A N/A
CHRISTOFER CENTRE
<PAGE>
OFFICE BUILDING SALE 2
================================================================================
ANALYSIS
Value lndicators: Price Per S.F.
Overall Capitalization Rate (OAR): N/A %
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $89.16
COMMENTS
CHRISTOFER CENTRE
<PAGE>
================================================================================
[PHOTO]
================================================================================
Sales Comparable 2
<PAGE>
OFFICE BUILDING SALE 3
================================================================================
LOCATION DATA
Property Name: SACRAMENTO CORPORATE CENTER
Location: 501 J Street
City: Sacramento
County: Sacramento
State/Zip: California
Assessor's Parcel No(s): 006-0026-018
Atlas Reference: N/A
PHYSICAL DATA
Type: CBD
Land Area 2.2700 Acres
Gross Building Area: N/A
Net Rentable Area: 177,991 SF
Usable Building Area: N/A
Year Built: 1983
# of Stories: 6
Parking: 2.9/1,000
Condition: Average
Exterior Walls: Glass Panels
Amenities: Covered Parking
Class: B
SALE DATA
Transaction Type: Sale
Date of Transaction: 05/96
Marketing Time: 3 months
Grantor: Fifth/I Associates (Sares Regis Group)
Grantee: Sacramento Corporate Center (JS Karlton)
Document No.: 05221322 Rec. Date:05/22/96
Sale Price: $23,200,000
Financing: Cash to Seller
Cash Equivalent Price: $23,200,000
Required Capital Cost: $0
Adjusted Sale Price: $23,200,000
Verification: Dan Sheldon, CB Commercial
FINANCIAL DATA
Assumption & Forecast: Buyer
Occupancy at Sale: 96%
Existing or Pro Forma Income: Existing
TOTAL P.S.F.
---------- ------
Potential Gross Income: $4,073,280 $22.88
Vacancy and Credit Loss: $203,664 $1.14
Effective Gross Income: $3,869,616 $21.74
Expenses: $1,288,897 $7.24
Net Operating Income: $2,580,719 $14.50
SACRAMENTO
<PAGE>
OFFICE BUILDING SALE 3
================================================================================
ANALYSIS
Value Indicators: Direct Cap
Overall Capitalization Rate (OAR): 11-12%
Projected IRR: N/A%
Effective Gross Multiplier (EGIM): 6.00
Operating Expense Ratio (OER): 33.31 %
Price Per Square Foot: $130.34
COMMENTS
Various State of California agencies leased approximately 111,300 Sf of
the building at sale. The building was leased to 13 tenants at monthly
rental rates ranging from $1.51 to $2.85/sf, fully-serviced. Most leases
were between $1.65 and $1.85/sf. Reportedly, the State of California
leases do not include firm terms.
SACRAMENTO
<PAGE>
================================================================================
[PHOTO]
================================================================================
Sales Comparable 3
<PAGE>
OFFICE BUILDING SALE 4
================================================================================
LOCATION DATA
Property Name: 900 8th Street
Location: 900 8th Street
City: Sacramento
County: Sacramento
State/zip: California 95814
Assessor's Parcel No(s): N/A
Atlas Reference: 297-C/3
PHYSICAL DATA
Type: Single Tenant
Land Area: 1.1800 Acres
Gross Building Area: 68,819 SF
Net Rentable Area: 68,819 SF
Usable Building Area: N/A
Year Built: 1959
# of Stories: 3
Parking: 70
Condition: Average
Exterior Walls: Concrete
Amenities: N/A
Class: C
SALE DATA
Transaction Type: Sale
Date of Transaction: 11/96
Marketing Time: 1 months
Grantor: Bank of America
Grantee: County of Sacramento
Document No.: 11040984 Rec. Date:11/04/96
Sale Price: $7,300,000
Financing: Cash to Seller
Cash Equivalent Price: $7,300,000
Required Capital Cost: $0
Adjusted Sale Price: $7,300,000
Verification: Mark Hefner
FINANCIAL DATA
Assumptions & Forecast: N/A
Occupancy at Sale: N/A
Existing or Pro Forma Income: N/A
TOTAL P.S.F.
----- ------
Potential Gross Income: N/A N/A
Vacancy and Credit Loss: N/A N/A
Effective Gross Income: N/A N/A
Expenses: N/A N/A
Net Operating Income: N/A N/A
900 8TH STREET
<PAGE>
OFFICE BUILDING SALE 4
================================================================================
ANALYSIS
Value Indicators: Price Per S.F.
Overall Capitalization Rate (OAR): N/A %
Projected IRR: N/A %
Effective Gross Multiplier (EGIM): N/A
Operating Expense Ratio (OER): N/A %
Price Per Square Foot: $106.08
COMMENTS
900 8TH STREET
<PAGE>
================================================================================
[PHOTO]
================================================================================
Sales Comparable 4
<PAGE>
OFFICE BUILDING SALE 5
================================================================================
LOCATION DATA
Property Name: 925 L Street
Location: 925 L Street
City: Sacramento
County: Sacramento
State/Zip: California
Assessor's Parcel No(s): 006-0102-007
Atlas Reference: N/A
PHYSICAL DATA
Type: CBD
Land Area: 0.3453 Acres
Gross Building Area: 180,347 SF
Net Rentable Area: 165,919 SF
Usable Building Area: N/A
Year Built: 1973
# of Stories: 13
Parking: N/A
Condition: Avg to Good
Exterior Walls: Concrete
Amenities: N/A
Class: A
SALE DATA
Transaction Type: Listing
Date of Transaction:
Marketing Time: 6 months
Grantor: N/A
Grantee: N/A
Document No.: N/A
Sale Price: $26,000,000
Financing:
Cash Equivalent Price: $26,000,000
Required Capital Cost: $900,000
Adjusted Sale Price: $26,900,000
Verification: Larry Lea
FINANCIAL DATA
Assumptions & Forecast: Seller
Occupancy at Sale: N/A
Existing or Pro Forma Income: N/A
TOTAL P.S.F.
---------- ------
Potential Gross Income: $4,395,496 $26.49
Vacancy and Credit Loss: $351,640 $2.12
Effective Gross Income: $4,043,856 $24.37
Expenses: $1,587,202 $9.57
Net Operating Income: $2,456,654 $14.81
925 L STREET
<PAGE>
OFFICE BUILDING SALE 5
================================================================================
ANALYSIS
Value Indicators: Direct Cap and DCF
Overall Capitalization Rate (OAR): 9.13 %
Projected IRR: 0.12 %
Effective Gross Multiplier (EGIM): 6.65
Operating Expense Ratio (OER): 39.25 %
Price Per Square Foot: $162.13
COMMENTS
925 L STREET
<PAGE>
================================================================================
[PHOTO]
================================================================================
Sales Comparable 5
<PAGE>
================================================================================
[PHOTO]
================================================================================
Rent Comparable 1
<PAGE>
================================================================================
[PHOTO]
================================================================================
Rent Comparable 2
<PAGE>
================================================================================
[PHOTO]
================================================================================
Rent Comparable 3
<PAGE>
================================================================================
[PHOTO]
================================================================================
Rent Comparable 4
<PAGE>
================================================================================
[PHOTO]
================================================================================
Rent Comparable 5
<PAGE>
QUALIFICATIONS OF APPRAISER
================================================================================
KENNETH E. MATLIN, MAI
ASSOCIATION MEMBERSHIP
Member Appraisal Institute (MA No. 8397) Senior Residential Appraiser
Senior Member, American Society of Real Estate Appraisers - Past
President of San Jose Chapter
Brokers License - State of California
Certified - General, Certificate Number AG002022
Kenneth E. Matlin has completed the requirements of the continuing
education programs of the Appraisal Institute and the American Society of
Appraisers
REAL ESTATE EXPERIENCE
Director and Manager, Cushman & Wakefield Valuation Advisory Services, San
Jose and San Francisco Divisions. San Jose and San Francisco Divisions are
responsible for the appraisal and consulting function of Cushman & Wakefield
of California, Inc., a national full service real estate organization.
Regional Chief Appraiser, California First Bank, San Jose, California,
between 1974 and 1983.
EDUCATION
California State University of San Diego, California
Bachelor of Science Degree - Major: Real Estate, Minor: Political Science
(1973)
American Institute of Real Estate Appraisers:
No. 1-Al - Real Estate Appraisal Principles (6-86)
No. 1-A2 - Basic Valuation Procedures (3-87)
No. 1-BA - Capitalization Theory & Techniques, Part A (9-87)
No. 1-BB - Capitalization Theory & Techniques, Part B (9-87)
No. 2-1 - Case Studies (3-87)
No. 2-2 - Valuation Analysis and Reporting Writing (10-86)
No. 2-3 - Standard of Professional Practice (6-86)
No. 410 - USPAP
No. 420 - Standards of Professional Practice (11-93)
No. 510 - Advanced Capitalization Theory (7-93)
================================================================================
<PAGE>
QUALIFICATION OF APPRAISER
================================================================================
KENNETH E. MATLIN, MAI
Society of Real Estate Appraisers:
No. 101 - Introduction to Appraising Real Property (8-76)
No. 201 - Principles of Income Property Appraising (6-75)
No. 202 - Case Problems (6-83)
No. R-2 - Single Family Report Exam (2-77)
LITIGATION EXPERIENCE
Qualified as expert witness Santa Clara County Superior Court
Qualified as expert witness Alameda County Superior Court
Qualified as expert witness Federal Bankruptcy Court
================================================================================
<PAGE>
QUALIFICATIONS OF APPRAISER
================================================================================
JOHN C. VAUGHAN
PROFESSIONAL AFFILIATION AND LICENSE
Associate Member of Appraisal Institute
State of California Certified General Real Estate Appraiser (ID
#AG002680)
REAL ESTATE EXPERIENCE
More than nine years of Real Estate Appraisal and Consulting
experience throughout California.
1996-Present Cushman & Wakefield, Inc. San Francisco, CA
1991-1996 CB Commercial Real Estate Group, Inc. San Francisco, CA
1991 Bank of California San Francisco, CA
1986-1991 Security Pacific National Bank Los Angeles, Orange
County, and San
Francisco, CA
EDUCATION
Bachelor of Science, Specialization Managerial Economics
University of California, Davis
Appraisal Institute Courses:
Advanced Applications (1995)
Capitalization Theory and Techniques - Parts A & B (1991-1992)
Standards of Professional practice, Parts A & B (1990-1993)
Appraisal Principles (1993)
Basic Valuation (1993)
Residential Valuation (1987)
================================================================================
CREDIT AGREEMENT
(Revolver)
AMONG
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP,
AS BORROWER,
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION,
and
IMPERIAL BANK, A CALIFORNIA CORPORATION,
TOGETHER WITH THOSE ASSIGNEES
BECOMING PARTIES HERETO PURSUANT
TO SECTION 12.20, AS LENDERS,
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION,
AS AGENT
Dated as of July 11, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms.......................................... 1
1.02 Computation of Time Periods.................................... 23
1.03 Terms.......................................................... 23
ARTICLE II
LOANS
2.01 Loan Advances and Repayment; Letters of Credit ................ 24
2.02 Authorization to Obtain Loans.................................. 30
2.03 Lenders' Accounting............................................ 30
2.04 Interest on the Loans.......................................... 31
2.05 Fees........................................................... 37
2.06 Payments....................................................... 38
2.07 Increased Capital.............................................. 39
2.08 Notice of Increased Costs...................................... 39
ARTICLE III
BORROWING BASE PROPERTIES
3.01 Acceptance of Borrowing Base Properties........................ 40
3.02 Release of Borrowing Base Properties........................... 42
3.03 Borrowing Base Determinations.................................. 43
3.04 Covenants Relating to Borrowing Base Properties................ 44
ARTICLE IV
CONDITIONS TO LOANS
4.01 Conditions to Initial Disbursement of Loans.................... 47
4.02 Conditions Precedent to All Loans.............................. 51
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Representations and Warranties as to Borrower, Etc............. 52
5.02 Representations and Warranties as to the REIT.................. 58
i
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
ARTICLE VI
REPORTING COVENANTS
6.01 Financial Statements and Other Financial and
Operating Information.......................................... 62
6.02 Environmental Notices.......................................... 68
6.03 Confidentiality................................................ 69
ARTICLE VII
AFFIRMATIVE COVENANTS
7.01 With Respect to Borrower....................................... 70
7.02 With Respect to the REIT....................................... 72
ARTICLE VIII
NEGATIVE COVENANTS
8.01 With Respect to all Parties.................................... 74
8.02 Amendment of Constituent Documents............................. 75
8.03 Disposal of Guarantor Subpartnership Interests................. 76
8.04 Margin Regulations............................................. 76
8.05 Minimum Ownership Interest of Robert Batinovich................ 76
8.06 Management..................................................... 76
8.07 Organization of Borrower, Etc.................................. 76
8.08 REIT Board of Directors........................................ 77
8.09 With Respect to the REIT....................................... 77
ARTICLE IX
FINANCIAL COVENANTS
9.01 Minimum Net Worth.............................................. 77
9.02 Total Liabilities to Gross Asset Value Ratio................... 78
9.03 EBITDA to Interest Expense Ratio............................... 78
9.04 EBITDA to Debt Service and Capital Expenditures
Ratio.......................................................... 78
9.05 Distributions.................................................. 78
9.06 Restrictions on Certain Investments............................ 78
9.07 Floating Rate Debt............................................. 79
9.08 Calculation.................................................... 79
ARTICLE X
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
10.01 Events of Default.............................................. 79
10.02 Rights and Remedies............................................ 83
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
10.03 Rescission..................................................... 85
ARTICLE XI
AGENCY PROVISIONS
11.01 Appointment.................................................... 85
11.02 Nature of Duties............................................... 86
11.03 Loan Disbursements............................................. 86
11.04 Distribution and Apportionment of Payments..................... 87
11.05 Rights, Exculpation, Etc....................................... 89
11.06 Reliance....................................................... 90
11.07 Indemnification................................................ 90
11.08 Agent Individually............................................. 90
11.09 Successor Agent; Resignation of Agent; Removal of
Agent......................................................... 91
11.10 Consent and Approvals.......................................... 91
11.11 Agency Provisions Relating to Collateral....................... 93
11.12 Lender Actions Against Collateral.............................. 96
11.13 Ratable Sharing................................................ 96
11.14 Delivery of Documents.......................................... 97
11.15 Notice of Events of Default.................................... 97
ARTICLE XII
MISCELLANEOUS
12.01 Expenses....................................................... 97
12.02 Indemnity...................................................... 98
12.03 Change in Accounting Principles................................ 99
12.04 Amendments and Waivers......................................... 99
12.05 Independence of Covenants......................................101
12.06 Notices........................................................101
12.07 Survival of Warranties, Indemnities and
Agreements....................................................102
12.08 Failure or Indulgence Not Waiver; Remedies
Cumulative....................................................102
12.09 Marshalling; Recourse to Security; Payments Set
Aside.........................................................102
12.10 Severability...................................................102
12.11 Headings.......................................................102
12.12 Governing Law; Waiver..........................................103
12.13 Limitation of Liability........................................103
12.14 Successors and Assigns.........................................103
12.15 Consent to Jurisdiction and Service of Process;
Waiver of Jury Trial..........................................103
12.16 Counterparts; Effectiveness; Inconsistencies...................104
12.17 Performance of Obligations.....................................104
12.18 Construction...................................................105
12.19 Entire Agreement...............................................105
iii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
12.20 Assignments and Participations.................................105
iv
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibits:
A - Form of Assignment and Assumption
B - Form of Borrowing Base Certificate
C - Closing Checklist
D - Form of Compliance Certificate
E - Form of Loan Notes
F - Form of Notice of Borrowing
G - Form of Fixed Rate Notice
H - Form of Solvency Certificate
Schedules:
1 - List of Borrowing Base Properties
2 - Normalized Capital Expenditures
3 - List of Major BBP Leases on Closing Date
5.01(c) - Ownership of Borrower, each Guarantor
Subpartnership, the Associated Companies and the
borrowers under the Assigned Mortgages
5.01(u) - Environmental Matters
5.01(v) - Contractual Obligations Not Terminable in 30 Days
5.01(z) - Management Agreements
5.02(e) - Benefit Plans
5.02(q) - Robert Batinovich Ownership
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of July 11, 1996 (as amended,
supplemented or modified from time to time, the "Agreement") and is among
GLENBOROUGH PROPERTIES, L.P., a California limited partnership ("Borrower"),
each of the Lenders, as hereinafter defined, and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Wells Fargo"), in its capacity as agent acting in the manner
described in Article XI and as a Lender.
RECITALS
WHEREAS, Borrower has previously entered into a $10,000,000
revolving credit facility (the "Imperial Bank Facility") with Imperial Bank
secured by a variety of Borrower's properties;
WHEREAS, Borrower desires to increase the amount of revolving credit
available to it and has determined to replace the Imperial Bank Facility with
the revolving credit facility contemplated by this Agreement; and
WHEREAS, various properties which secured the Imperial Bank Facility will
secure the revolving credit facility contemplated by this Agreement and Imperial
Bank is one of the Lenders under the revolving credit facility contemplated by
this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. The following terms used in this
Agreement shall have the following meanings (such meanings to be applicable,
except to the extent otherwise indicated in a definition of a particular term,
both to the singular and the plural forms of the terms defined):
"Accommodation Obligations", as applied to any Person, means any
Indebtedness or other contractual obligation or liability, contingent or
otherwise, of another Person in respect of which that Person is liable,
including, without limitation, any such Indebtedness, obligation or liability
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, (including, in respect of Borrower, each
Investment Partnership), Contractual Obligations (contingent or otherwise)
arising through any agreement to purchase, repurchase or otherwise acquire such
Indebtedness, obligation or liability or any security therefor, or to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital
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contributions or otherwise), or to maintain solvency, assets, level of income,
or other financial condition, or to make payment other than for value received.
"Accountants" means Arthur Andersen LLP, any other "big six"
accounting firm or another firm of certified public accountants of national
standing selected by Borrower and acceptable to Agent.
"Acquisition Price" means the aggregate purchase price (or
Borrower's Share thereof, as applicable) for an asset, including bona fide
purchase money financing provided by the seller and all prior Indebtedness
encumbering such asset at the time of acquisition.
"Adjusted Net Worth" means, at any time, stockholders' equity as
shown on the Financial Statements prepared in accordance with GAAP, plus
minority interests in Borrower, plus cumulative net additions to depreciation
and amortization reflected in statements of operation after March 31, 1996,
minus intangible assets.
"Affiliates" as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means (a) the possession, directly or
indirectly, of the power to vote ten percent (10%) or more of the Securities
having voting power for the election of directors of such Person or otherwise to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting Securities or by contract or otherwise,
or (b) the ownership of a general partnership interest or a limited partnership
interest representing ten percent (10%) or more of the outstanding limited
partnership interests of such Person.
"Agent" means Wells Fargo in its capacity as agent for the Lenders
under this Agreement, and shall include any successor Agent appointed pursuant
hereto and shall be deemed to refer to Wells Fargo in its individual capacity as
a Lender where the context so requires.
"Appraisal" means a written appraisal prepared by an independent MAI
appraiser acceptable to Agent and subject to Agent's customary independent
appraisal requirements and prepared in compliance with all applicable regulatory
requirements, including FIRREA.
"Appraised Value" means, as to any Borrowing Base Property, the fair
market value of such Borrowing Base Property as reflected in the then most
recent Appraisal of such Borrowing Base Property as the same may have been
adjusted by Agent based
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upon its internal review of such Appraisal, which review shall be conducted
prior to approval of such Appraisal by Lenders and in any event within thirty
(30) days after receipt by Agent of such Appraisal.
"Assigned Mortgage" means the promissory note, deed of trust or
mortgage, loan agreement, policy of title insurance and all other documents,
instruments or undertakings, evidencing, securing or otherwise executed and
delivered by any Person in connection with said promissory note, all as more
particularly set forth in the Assignment of Mortgages.
"Assignment of Mortgages" means the Assignment of Mortgages and all
related documents or instruments executed by Borrower in favor of Agent in
respect of the Assigned Mortgages.
"Assignment and Assumption" means an Assignment and Assumption in
the form of Exhibit A hereto (with blanks appropriately filled in) delivered
to Agent in connection with each assignment of a Lender's interest under this
Agreement pursuant to Section 12.20.
"Associated Companies" means Glenborough Corporation, a California
corporation, Glenborough Inland Realty Corporation, a California corporation,
and Glenborough Hotel Group, a Nevada corporation.
"Base Rate" means, on any day, the higher of (a) the base rate of
interest per annum established from time to time by Agent at its principal
office in San Francisco, California, and designated as its prime rate as in
effect on such day plus one- half percent (0.5%) and (b) the Federal Funds Rate
in effect on such day plus one percent (1.0%) per annum.
"Base Rate Loans" means those Loans bearing interest at the
Base Rate.
"BBP" when used herein refers to a Borrowing Base Property.
"BBP Lease" means a tenant lease of a Borrowing Base Property.
"Benefit Plan" means any employee pension benefit plan as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) in respect of which a
Person or an ERISA Affiliate is, or within the immediately preceding five (5)
years was, an "employer" as defined in Section 3(5) of ERISA.
"Borrower" means Glenborough Properties, L.P., together with, in the
case of each representation (unless the context herein otherwise specifically
refers solely to Glenborough Properties, L.P.) and covenant (including all
financial covenants) in this Agreement, all Subsidiaries.
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"Borrower's Share" means Borrower's percentage ownership interest in
the Unconsolidated Entity in question.
"Borrowing" means a borrowing under the Facility.
"Borrowing Base" means the sum of the Borrowing Base Values of the
Borrowing Base Properties; provided, however, that no Borrowing Base credit will
be given for the Borrowing Base Value of any Borrowing Base Property (other than
University Club Tower), to the extent such Borrowing Base Value exceeds
twenty-five percent (25%) of the Borrowing Base.
"Borrowing Base Certificate" means a report in the form of
Exhibit B.
"Borrowing Base Fee" has the meaning given to such term in Section
2.05(c).
"Borrowing Base Properties" means the real properties and Assigned
Mortgages listed on Schedule 1, as such Schedule 1 may be amended from time to
time to reflect the addition and deletion of Borrowing Base Properties pursuant
to Article III. In the case of each Assigned Mortgage, unless otherwise noted
each reference herein to "Borrowing Base Property" shall include the underlying
real property encumbered by the Assigned Mortgage.
"Borrowing Base Property Statements" has the meaning given to such
term in Section 6.01(a).
"Borrowing Base Value" means, at any time as to any Borrowing Base
Property other than an Assigned Mortgage, the lower of:
(a) either (i) fifty-five percent (55%) of the Appraised
Value of such Borrowing Base Property in the case of hotel
properties, (ii) sixty percent (60%) of the Appraised Value of such
Borrowing Base Property in the case of retail, industrial and office
properties, or (iii) sixty-five percent (65%) of the Appraised
Value of such Borrowing Base Property in the case of multifamily
residential properties, minus, in each case, the then unpaid
principal amount of all senior liens approved by Lenders in their
sole discretion pursuant to Section 3.1, and any assessments or
similar obligations imposed upon such Borrowing Base Property
(provided that there shall be no deduction for assessments or
similar obligations if and to the extent the amount thereof has been
appropriately deducted in the determination of Appraised Value); and
(b) An amount equal to seventy-four percent (74%) (being
the quotient of 1.00 divided by 1.35) of the Net Operating Income
(less Capital Expenditures) of such Borrowing Base Property for the
four most recently ended Fiscal Quarters (subject to adjustment as
provided in the
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definition of Net Operating Income) preceding the date of
determination, divided by the constant annual percentage (expressed
as a decimal) which would then be applicable to a loan bearing
interest during the term thereof at a fixed rate equal to two and
one-half percent (2.50%) in excess of the greater of six and
one-half percent (6.50%) or the then prevailing yield (as published
in The Wall Street Journal) for on the run (i.e., the most recently
auctioned) 10-year United States Treasury Notes and amortizing in
equal annual payments of principal and interest over a period of
twenty-five (25) years, provided that if the regular quarterly
auction of 10-year United States Treasury Notes is changed so that
such auctions are less frequent or discontinued, then the aforesaid
rate will be the yield for United States Treasury obligations having
a constant maturity of 10 years as published in the Federal Reserve
Statistical Release H.15 (519) Selected Interest Rates or successor
publication.
With respect to each Assigned Mortgage, "Borrowing Base Value" means the lowest
of (i) the outstanding principal balance of the promissory note included within
such Assigned Mortgage, (ii) the adjusted value at which each such promissory
note is carried on Borrower's Financial Statements, and (iii) the Borrowing Base
Value of the real property securing such promissory note, as determined in
accordance with subparagraphs (a) and (b) above.
"Business Day" means (a) with respect to any Borrowing, payment or
rate determination of LIBOR Loans, a day, other than a Saturday or Sunday, on
which Agent is open for business in San Francisco and on which dealings in
Dollars are carried on in the London interbank market, and (b) for all other
purposes any day excluding Saturday, Sunday and any day which is a legal holiday
under the laws of the State of California, or is a day on which banking
institutions located in California are required or authorized by law or other
governmental action to close.
"Capital Expenditures" means, as applied to any Person for any
period, a sum determined for all properties of such Person based upon the
normalized annual capital expenditures, by property type, as set forth on
Schedule 2 attached hereto (prorated if the relative period is shorter or longer
than one year). For any property type not described on Schedule 2, Agent shall
determine a reasonable estimate of normalized recurring capital expenditures for
such property type. Schedule 2 shall be subject to adjustment from time to time
at Agent's reasonable discretion.
"Capital Leases", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
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"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by an
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year after the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within ninety (90) days after the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from any two of Standard & Poor's Corporation,
Moody's Investors Services, Inc., Duff and Phelps, or Fitch Investors (or, if at
any time no two of the foregoing shall be rating such obligations, then from
such other nationally recognized rating services as may be acceptable to Agent)
and not listed for possible down-grade in Credit Watch published by Standard &
Poor's Corporation; (c) commercial paper, other than commercial paper issued by
Borrower or any of its Affiliates, maturing no more than ninety (90) days after
the date of creation thereof and, at the time of acquisition, having a rating of
at least A-1 or P-1 from either Standard & Poor's Corporation or Moody's
Investor's Service, Inc. (or, if at any time neither Standard & Poor's
Corporation nor Moody's Investor's Service, Inc. shall be rating such
obligations, then the highest rating from such other nationally recognized
rating services as may be acceptable to Agent); and (d) domestic and Eurodollar
certificates of deposit or time deposits or bankers' acceptances maturing within
ninety (90) days after the date of acquisition thereof, overnight securities
repurchase agreements, or reverse repurchase agreements secured by any of the
foregoing types of securities or debt instruments issued, in each case, by (i)
any commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia or Canada having combined capital
and surplus of not less than Two Hundred Fifty Million Dollars ($250,000,000) or
(ii) any Lender.
"Closing Checklist" means the Closing Checklist attached hereto as
Exhibit C, as the same may be amended by the parties.
"Closing Date" means the date on which the funds for the initial
Loan under this Agreement are disbursed by Lenders into Chicago Title Insurance
Company's escrow account (Escrow Number 6157000-X47) at Bank of America, 1850
Gateway Boulevard, Concord, California, Account Number 12351-50737.
"Collateral" means all Property and interests in Property now owned
or hereafter acquired by Borrower or any Guarantor Subpartnership in or upon
which a security interest, pledge, lien or mortgage is granted or of which a
collateral assignment is made under this Agreement, the Mortgage Documents or
any other Loan Document.
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"Commission" means the Securities and Exchange Commission.
"Commitment" means, with respect to any Lender, such Lender's Pro
Rata Share of the Facility, which amount shall not exceed the principal amount
set out under such Lender's name under the heading "Loan Commitment" on the
signature pages attached to this Agreement or as set forth on an Assignment and
Assumption executed by such Lender, as assignee.
"Compliance Certificate" means a certificate in the form of Exhibit
D hereto delivered to Agent by Borrower pursuant to Section 6.01(d) or other
provision of this Agreement and covering Borrower's compliance with the
financial covenants contained in Sections 8.05 and 8.06 and Article IX.
"Contaminant" means any pollutant (as that term is defined in 42
U.S.C. 9601(33)) or toxic pollutant (as that term is defined in 33 U.S.C.
1362(13)), hazardous substance (as that term is defined in 42 U.S.C. 9601(14)),
hazardous chemical (as that term is defined by 29 CFR Section 1910.1200(c)),
toxic substance, hazardous waste (as that term is defined in 42 U.S.C. 6903(5)),
radioactive material, special waste, petroleum (including crude oil or any
petroleum-derived substance, waste, or breakdown or decomposition product
thereof), any constituent of any such substance or waste, including, but not
limited to, polychlorinated biphenyls and asbestos, or any other substance or
waste deleterious to the environment the release, disposal or remediation of
which is now or at any time becomes subject to regulation under any
Environmental Law.
"Contractual Obligation," as applied to any Person, means any
provision of any Securities issued by that Person or any indenture, mortgage,
deed of trust, lease, contract, undertaking, document or instrument to which
that Person is a party or by which it or any of its properties is bound, or to
which it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting such Person or any of its properties).
"Court Order" means any judgment, writ, injunction, decree, rule or
regulation of any court or Governmental Authority binding upon or applicable the
Person in question.
"Debt Service" means, for any period, Interest Expense for such
period plus scheduled principal amortization (i.e., excluding any balloon or
bullet payment due at maturity) for such period on all Indebtedness of Borrower
and Borrower's Share of all Indebtedness of each Other Investment Entity.
"Defaulting Lender" means any Lender which fails or refuses to
perform its obligations under this Agreement within the time period specified
for performance of such obligation or, if no time frame is specified, if such
failure or refusal
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continues for a period of five (5) Business Days after notice from Agent.
"DOL" means the United States Department of Labor and any successor
department or agency.
"Dollars" and "$" means the lawful money of the United States
of America.
"EBITDA" means, for any Person and at any time, for the most
recently ended Fiscal Quarter, (i) the sum of the following, as determined in
accordance with GAAP (A) Net Income (excluding Net Income or related items
attributable to any unconsolidated Person), (B) depreciation and amortization
expense and other non-cash items deducted in determining such Net Income, (C)
interest expense, (D) Taxes and (E) an amount equal to such Person's prorata
share (based upon ownership interest) of the EBITDA of each unconsolidated
Person for the most recently ended Fiscal Quarter; minus (ii) in the case of
Borrower, that portion of Net Income attributable to an investment interest in
the Associated Companies, except to the extent of preferred dividends received
by Borrower from the Associated Companies during such period; and (iii) minus
gains (and plus losses) from extraordinary items or asset sales or write-ups or
forgiveness of indebtedness.
"Environmental Laws" has the meaning set forth in Section 5.01(u).
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws, or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA Affiliate" means any (a) corporation which is, becomes, or is
deemed to be a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Internal Revenue Code) as a Person, (b)
partnership, trade or business (whether or not incorporated) which is, becomes
or is deemed to be under common control (within the meaning of Section 414(c) of
the Internal Revenue Code) with such Person, (c) is, becomes or is deemed to be
a member of the same "affiliated service group" (as defined in Section 414(m) of
the Internal Revenue Code) as such Person, or (d) any other organization or
arrangement described in Section 414(o) of the Internal Revenue Code which is,
becomes or is deemed to be required to be aggregated pursuant to regulations
issued under Section 414(o) of the Internal Revenue Code with such Person
pursuant to Section 414(o) of the Internal Revenue Code.
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"Event of Default" means any of the occurrences set forth in Article
X after the expiration of any applicable grace period expressly provided
therein.
"Extension Fee" has the meaning given to such term in
Section 2.01(d).
"Facility" means the loan facility of Fifty Million Dollars
($50,000,000) described in Section 2.01(a).
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal Funds brokers of recognized
standing selected by Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any governmental authority succeeding to its functions.
"Financial Statements" has the meaning given to such term in Section
6.01(b).
"FIRREA" means the Financial Institutions Recovery, Reform and
Enforcement Act of 1989, as amended from time to time.
"Fiscal Quarter" means each three-month period ending on March 31,
June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrower which shall be the
twelve (12) month period ending on the last day of December in each year.
"Fixed Rate Notice" means, with respect to a Libor Loan pursuant to
Section 2.01(b), a notice substantially in the form of Exhibit G.
"Fixed Rate Price Adjustment" has the meaning given to such term in
Section 2.04(h)(iii).
"Floating Rate Debt" means any outstanding Indebtedness of Borrower
which bears interest at a rate which is subject to periodic adjustment (either
automatically by reference to a fluctuating base or market rate of interest or
at the option of the lender) at any time prior to the earlier of (a) the then
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effective Maturity Date and (b) the maturity date or termination date of such
Indebtedness. In determining Floating Rate Debt, the effects of any Interest
Rate Contracts held by the obligor under such Indebtedness shall be considered
on a basis consistent with the foregoing.
"Funding Date" means, with respect to any Loan made after the
Closing Date, the date of the funding of such Loan.
"Funds from Operations" means, for any period, Borrower's Net Income
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization of real estate assets, and after adjustments for
Unconsolidated Entities. (Adjustments for Unconsolidated Entities shall be
calculated to reflect funds from operations on the same basis.)
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be in general use by significant segments
of the accounting profession, which are applicable to the circumstances as of
the date of determination.
"GF III" means Glenborough Fund III, L.P., a Georgia limited
partnership.
"Governmental Authority" means any nation or government, any
federal, state, local, municipal or other political subdivision thereof or any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Gross Asset Value" means, as of the date of determination, the sum
(without duplication of any item) of (i) an amount equal to (A) Borrower EBITDA
for the most recently ended Fiscal Quarter (excluding Net Income or related
items attributable to any Unconsolidated Entity or any asset referred to in
clause (ii) through (iv) below), times (B) four (4), divided by (C) 0.11; (ii)
in the case of Borrower, the Acquisition Price paid by Borrower for any Property
acquired during the most recently ended Fiscal Quarter; (iii) cash and Cash
Equivalents owned by Borrower as of the most recently ended Fiscal Quarter (but
excluding any tenant deposits); (iv) with respect to each Investment Mortgage
held by Borrower, the lesser of the book value thereof or an amount equal to
ninety percent (90%) of (A) net operating income (less Capital Expenditures)
(determined on a basis consistent with the definition of "Net Operating Income"
in this Agreement) for the most recently ended Fiscal Quarter attributable to
the Property securing such mortgage receivable, times (B) four (4), divided by
(C) 0.11; (v) an amount equal to the Borrower's Share of (A) the EBITDA of each
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Unconsolidated Entity (other than the Associated Companies) for the most
recently ended Fiscal Quarter (excluding EBITDA attributable to any Property not
owned by any such Unconsolidated Entity for the entire most recently ended
Fiscal Quarter), times (B) four (4), divided by (C) 0.11; (vi) the Borrower's
Share of the Acquisition Price paid for any Property acquired by an
Unconsolidated Entity during the most recently ended Fiscal Quarter; and (vii)
an amount equal to (A) preferred dividends received by Borrower from the
Associated Companies during the most recently ended Fiscal Quarter, times (B)
four (4), divided by (C) 0.20.
"Guarantor Subpartnership" means UCT Associates and each other
limited partnership whose sole general partner is either the REIT or a qualified
real estate investment trust subsidiary wholly-owned by the REIT and whose sole
limited partner is Borrower, provided that (i) the applicable partnership
agreement shall have been approved by Agent, and (ii) each Guarantor
Subpartnership shall have executed and delivered a Guaranty and Mortgage
Documents encumbering one or more Borrowing Base Properties.
"Guaranty" means each guaranty of payment and performance executed
by the REIT or a Guarantor Subpartnership in favor of Agent and the Lenders.
"Indebtedness", as applied to any Person (and without duplication),
means (a) all indebtedness, obligations or other liabilities of such Person for
borrowed money, whether or not subordinated and whether with or without recourse
beyond any collateral security, (b) all indebtedness, obligations or other
liabilities of such Person evidenced by Securities or other similar instruments,
(c) all reimbursement obligations and other liabilities of such Person with
respect to letters of credit or banker's acceptances issued for such Person's
account, (d) all obligations of such Person to pay the deferred purchase price
of Property or services, (e) all obligations in respect of both operating and
Capital Leases of such Person, (f) all Accommodation Obligations of such Person,
(g) all indebtedness, obligations or other liabilities of such Person or others
secured by a Lien on any asset of such Person, whether or not such indebtedness,
obligations or liabilities are assumed by, or are a personal liability of, such
Person (including, without limitation, the principal amount of any assessment or
similar indebtedness encumbering any property), (h) all indebtedness,
obligations or other liabilities (other than interest expense liability) in
respect of Interest Rate Contracts and foreign currency exchange agreements, (i)
ERISA obligations currently due and payable, and (j) without duplication or
limitation, all liabilities and other obligations included in the financial
statements (or notes thereto) of such Person as prepared in accordance with
GAAP.
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"Interest Expense" means, for any period, the sum of (without
redundancy) (i) total interest expense, whether paid, accrued or capitalized
(including the interest component of Capital Leases and capitalized interest
covered by an interest reserve established under a loan facility) in respect of
Indebtedness of Borrower, including, without limitation, all commissions,
discounts and other fees and charges owed with respect to letters of credit, net
costs under Interest Rate Contracts, and fees payable to Lenders pursuant to
Section 2.01(d) and Section 2.05, (ii) Borrower's Share of total interest
expense, whether paid, accrued or capitalized (including the interest component
of Capital Leases and capitalized interest covered by an interest reserve
established under a loan facility) in respect of Indebtedness of Other
Investment Entities (other than the Associated Companies), and (iii) any other
accrued, paid or capitalized interest incurred on any obligation for which
Borrower is wholly or partially liable under repayment, interest carry or
performance guarantees, or other relevant liabilities.
"Interest Period" means, relative to any LIBOR Loans comprising part
of the same Borrowing, the period beginning on (and including) the date on which
such LIBOR Loans are made as, or converted into, LIBOR Loans, and ending on (but
excluding) the day which numerically corresponds to such date thirty (30), sixty
(60), ninety (90) or one hundred eighty (180) days thereafter, in each case as
Borrower may select in its relevant Notice of Borrowing pursuant to Section
2.01(b); provided, however, that:
(a) if such Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall end on the next following
Business Day; and
(b) no Interest Period may end later than the then applicable
Maturity Date.
"Interest Rate Contracts" means, collectively, interest rate swap,
collar, cap or similar agreements providing interest rate protection (including
any reserve or cost adjustments), in form and substance acceptable to Agent.
"Interim Period" means the period commencing on April 1, 1996 and
ending on the Closing Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time hereafter, and any successor statute.
"Investment Mortgages" mean mortgages securing indebtedness directly
or indirectly owned by Borrower, including certificates of interest in real
estate mortgage investment conduits.
"Investment Partnership" means any general or limited
partnership (or joint venture) in which Borrower has a general
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partnership interest, whose financial results are not consolidated under GAAP in
the Financial Statements.
"IRS" means the Internal Revenue Service and any Person
succeeding to the functions thereof.
"Land" means unimproved real estate, including future phases of a
partially completed project, owned or leased by Borrower for the purpose of
future development of improvements. For purposes of the foregoing definition,
"unimproved" shall mean Land on which the construction of building improvements
has not commenced or has been discontinued for a continuous period longer than
sixty (60) days prior to completion.
"Lender Taxes" has the meaning given to such term in
Section 2.04(g).
"Lenders" means Wells Fargo and any other bank, finance company,
insurance or other financial institution which is or becomes a party to this
Agreement by execution of a counterpart signature page hereto or an Assignment
and Assumption, as assignee. At all times that there are no Lenders other than
Wells Fargo, the terms "Lender" and "Lenders" means Wells Fargo in its
individual capacity. With respect to matters requiring the consent to or
approval of all Lenders at any given time, all then existing Defaulting Lenders
will be disregarded and excluded, and, for voting purposes only, "all Lenders"
shall be deemed to mean "all Lenders other than Defaulting Lenders".
"Letter of Credit Documents" has the meaning given to such term in
Section 2.01(e)(ii).
"Letter of Credit Obligations" mean, collectively, (a) all
reimbursement and other obligations of Borrower in respect of Letters of Credit,
and (b) all amounts advanced by Lenders in respect of draws paid by Wells Fargo
under Letters of Credit.
"Letters of Credit" mean the standby letters of credit issued from
time to time by Wells Fargo, for the account of Borrower, pursuant to Section
2.01(e), as the same may be drawn on, advanced, replaced or modified from time
to time.
"Liabilities and Costs" means all claims, judgments, liabilities,
obligations, responsibilities, losses, damages (including lost profits),
punitive or treble damages, costs, disbursements and expenses (including,
without limitation, reasonable attorneys', experts' and consulting fees and
costs of investigation and feasibility studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future.
"LIBOR" means, relative to any Interest Period for any LIBOR Loan
included in any Borrowing, the per annum rate (reserve adjusted as hereinbelow
provided) of interest quoted by Agent,
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rounded upwards, if necessary, to the nearest one-sixteenth of one percent
(0.0625%) at which Dollar deposits in immediately available funds are offered by
Agent to leading banks in the Eurodollar interbank market at approximately 9:00
A.M. San Francisco time two (2) Business Days prior to the beginning of such
Interest Period, for delivery on the first day of such Interest Period for a
period approximately equal to such Interest Period and in an amount equal or
comparable to the LIBOR Loan to which such Interest Period relates. The
foregoing rate of interest shall be reserve adjusted by dividing LIBOR by a one
(1.00) minus the LIBOR Reserve Percentage, with such quotient to be rounded
upward to the nearest whole multiple of one-hundredth of one percent (0.01%).
All references in this Agreement or other Loan Documents to LIBOR include the
aforesaid reserve adjustment.
"LIBOR Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to LIBOR.
"LIBOR Office" means, relative to any Lender, the office of such
Lender designated as such on the counterpart signature pages hereto or such
other office of a Lender as designated from time to time by notice from such
Lender to Agent, whether or not outside the United States, which shall be making
or maintaining LIBOR Loans of such Lender.
"LIBOR Reserve Percentage" means, relative to any Interest Period
for LIBOR Loans made by any Lender, the reserve percentage (expressed as a
decimal) equal to the actual aggregate reserve requirements (including all
basic, emergency, supplemental, marginal and other reserves and taking into
account any transactional adjustments or other scheduled changes in reserve
requirements) announced within Agent as the reserve percentage applicable to
Agent as specified under regulations issued from time to time by the Federal
Reserve Board. The LIBOR Reserve Percentage shall be based on Regulation D of
the Federal Reserve Board or other regulations from time to time in effect
concerning reserves for "Eurocurrency Liabilities" from related institutions as
though Agent were in a net borrowing position.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance (including, but
not limited to, easements, rights-of-way, zoning restrictions and the like),
lien (statutory or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including without
limitation any conditional sale or other title retention agreement, the interest
of a lessor under a Capital Lease, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement or document having similar effect (other than a financing statement
filed by a "true" lessor pursuant to 9408 of the Uniform Commercial Code) naming
the owner of the asset to
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which such Lien relates as debtor, under the Uniform Commercial Code or other
comparable law of any jurisdiction.
"Loan Account" has the meaning given to such term in
Section 2.03.
"Loan Availability" means the lesser of (a) the Borrowing Base and
(b) the amount of the Facility from time to time.
"Loan Documents" means this Agreement, the Loan Notes, the Mortgage
Documents, the Guaranties, the Letter of Credit Documents and all other
agreements, instruments and documents (together with amendments and supplements
thereto and replacements thereof) now or hereafter executed by the REIT,
Borrower or any Guarantor Subpartnership, which evidence, guaranty or secure the
Obligations.
"Loan Notes" means the promissory notes evidencing the Loans in the
aggregate original principal amount of Fifty Million Dollars ($50,000,000)
executed by Borrower in favor of Lenders, as they may be amended, supplemented,
replaced or modified from time to time. The initial Loan Notes and any
replacements thereof shall be substantially in the form of Exhibit E.
"Loans" means the loans made pursuant to the Facility.
"Major Agreements" means, at any time, (a) each Major BBP Lease, (b)
each cross-easement, restrictions or similar agreement encumbering or affecting
a Borrowing Base Property and any adjoining property, (c) each management or
leasing agreement with respect to a Borrowing Base Property, (d) each ground
lease affecting a Borrowing Base Property, and (e) any other agreement,
contract, indenture or other document or instrument material to the operation,
management and/or maintenance of a Borrowing Base Property or to the security
afforded thereby.
"Major BBP Lease" means (a) any BBP Lease shown on Schedule 3, and
(b) any BBP Lease with respect to ten thousand (10,000) or more square feet of
the net rentable space of any Borrowing Base Property.
"March 31, 1996 Financials" has the meaning given to such term in
Section 5.01(g).
"Material Adverse Effect" means, with respect to a Person, a
material adverse effect upon the condition (financial or otherwise), operations,
performance or properties of such Person. The phrase "has a Material Adverse
Effect" or "will result in a Material Adverse Effect" or words substantially
similar thereto shall in all cases be intended to mean "has resulted, or will or
could reasonably be anticipated to result, in a Material Adverse Effect", and
the phrase "has no (or does not have a) Material Adverse Effect" or "will not
result in a
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Material Adverse Effect" or words substantially similar thereto shall in all
cases be intended to mean "does not or will not or could not reasonably be
anticipated to result in a Material Adverse Effect".
"Maturity Date" has the meaning given to such term in
Section 2.01(d).
"Minimum Net Worth" means the sum of (i) Fifty Million Two Hundred
Ninety Thousand Dollars ($50,290,000) and (ii) ninety percent (90%) of Net
Offering Proceeds following the Closing Date.
"Mortgage Documents" means each Assignment of Mortgage, Mortgage,
security agreement and other document executed by Borrower or a Guarantor
Subpartnership and evidencing or creating Agent's Liens against a Borrowing Base
Property, and all related appurtenances, fixtures or other property rights or
interests, as security for the Obligations, as each of the foregoing may be
amended, supplemented or modified from time to time.
"Mortgages" means the mortgages, deeds of trust or trust deeds with
assignments of leases and rents, security agreements and fixture filings
encumbering the Borrowing Base Properties executed by Borrower or a Guarantor
Subpartnership in favor of Agent.
"Multiemployer Plan" means an employee benefit plan defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by a Person or an ERISA Affiliate.
"Net Income" means, for any Person and any period, the net earnings
(or loss), after Taxes and minority interests, calculated for such period on a
consolidated basis in conformity with GAAP. Notwithstanding the foregoing, in
determining "Net Income" for REIT, minority interests in Borrower shall be added
back.
"Net Offering Proceeds" means (a) all cash proceeds received by the
REIT as a result of the sale of common, preferred or other classes of stock in
the REIT (if and only to the extent reflected in stockholders' equity on the
consolidated balance sheet of the REIT prepared in accordance with GAAP) less
customary costs and discounts of issuance paid by the REIT, all of which
proceeds shall have been concurrently contributed by the REIT to Borrower as
additional capital, plus (b) all cash and the fair market value of the net
equity of all properties contributed to Borrower by one or more Persons in
exchange for limited partnership interests in Borrower.
"Net Operating Income" means, with respect to a Borrowing Base
Property, the net operating income of such Property determined in accordance
with GAAP, except that, for
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purposes of determining Net Operating Income, (a) income shall be calculated on
a stabilized basis and shall not include security or other deposits, late fees,
lease termination or other similar charges, delinquent rent recoveries, unless
previously reflected in reserves, or any other items of a non-recurring nature,
(b) such income shall be subject to adjustment, on a basis consistent with the
determination of the Appraised Value for such Borrowing Base Property, in
respect of management or similar fees, vacancy factor, anticipated property tax
reassessment or other appropriate items, and (c) to the extent any Borrowing
Base Property is not owned by Borrower or the Guarantor Subpartnership for the
entire four most recently ended Fiscal Quarters preceding the date of
determination, then the Net Operating Income for such Borrowing Base Property
shall be subject to such adjustment as Agent determines to be appropriate.
Notwithstanding the limitations in clause (a) above, Net Operating Income may
include collected lease termination charges (amortized monthly over the
remaining term of the lease) and delinquent rent recoveries so long as (1) any
such charge or recovery does not relate to a date earlier than twelve (12)
months prior to the end of the period for which Net Operating Income is
determined and (2) no such recovery shall be made for any month during or after
which the space to which such charge or recovery relates has been re-leased to
another Person and such Person has an obligation to pay rent for such month(s).
"Non Pro Rata Loan" means a Loan with respect to which fewer than
all Lenders have funded their respective Pro Rata Shares of such Loans and the
failure of the non-funding Lender or Lenders to fund its or their respective Pro
Rata Shares of such Loan constitutes a breach of this Agreement.
"Non-Disturbance Agreement" has the meaning given to such term in
Section 3.04(c).
"Notice of Borrowing" means, with respect to a proposed Borrowing
pursuant to Section 2.01(b), a notice substantially in the form of Exhibit F.
"Obligations" means, from time to time, all Indebtedness of Borrower
owing to Agent, any Lender or any Person entitled to indemnification pursuant to
Section 12.02, or any of their respective successors, transferees or assigns, of
every type and description, whether or not evidenced by any note, guaranty or
other instrument, arising under or in connection with this Agreement or any
other Loan Document, whether or not for the payment of money, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising and however acquired. The
term includes, without limitation, all interest, charges, expenses, fees,
reasonable attorneys' fees and disbursements, reasonable fees and disbursements
of expert witnesses and other consultants, and any other sum now or hereinafter
chargeable to Borrower under or in connection with this Agreement or any other
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Loan Document. (Notwithstanding the foregoing definition of "Obligations",
Borrower's obligations under any environmental indemnity agreement constituting
a Loan Document, or any environmental representation, warranty, covenant,
indemnity or similar provision in this Agreement or any other Loan Document,
shall be secured by the Collateral only to the extent, if any, specifically
provided in the Mortgage Documents.)
"Officer's Certificate" means a certificate signed by a specified
officer of a Person certifying as to the matters set forth therein.
"Other Investment Entity" means each corporation (including the
Associated Companies), limited partnership in which Borrower has a limited
partnership interest only, joint stock company, limited liability company,
business trust or other organization of any type or kind in respect of whose
debts and other obligations Borrower has no personal liability (beyond its
investment therein) and whose financial results are not consolidated under GAAP
in the Financial Statements.
"Partnership Interest Security Agreements" means the Partnership
Interest Security Agreements executed by Borrower and GRT Corporation, a Georgia
corporation ("GRT Corp.") in favor of Agent and the Lenders pertaining to
Borrower's and GRT Corp's collective pledge of (i) their respective limited
partnership and general partnership ownership interests in UCT Associates (as
set forth on Schedule 5.01(c)) to Agent and Lenders as security for the Loans
and all of the Obligations related thereto and (ii) their respective limited
partnership and general partnership ownership interests in GF III (as set forth
on Schedule 5.01(c)) to Agent and Lenders as security for the term loan of Six
Million One Hundred Twenty Thousand Dollars ($6,120,000) provided pursuant to
the Credit Agreement (Term Loan) by and among Glenborough Properties, L.P., a
California limited partnership, as Borrower, Wells Fargo Bank, National
Association, in its capacity as Agent and Lender, and various other Lenders
party thereto, dated as of July 11, 1996, and all of the Obligations related
thereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"Permit" means any permit, approval, authorization, license,
variance or permission required from a Governmental Authority under an
applicable Requirement of Law.
"Permitted Liens" mean:
(a) Liens (other than Environmental Liens and any Lien imposed under
ERISA) for taxes, assessments or charges of any Governmental Authority or
claims not yet due;
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(b) Liens (other than any Lien imposed under ERISA) incurred or
deposits made in the ordinary course of business (including without
limitation surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids, leases, contracts
(other than for the repayment of Indebtedness), statutory obligations;
(c) any laws, ordinances, easements, rights of way, restrictions,
exemptions, reservations, conditions, limitations, covenants or other
matters described as exceptions on Schedule B of the title insurance
policies described in Section 4.01(d)(ii) which are delivered to and
accepted by Agent in satisfaction of the applicable condition to the first
Loan disbursement;
(d) Liens imposed by laws, such as mechanics' liens and other
similar liens arising in the ordinary course of business which secure
payment of obligations not more than thirty (30) days past due; and
(e) any other laws, ordinances, easements, rights of way,
restrictions, exemptions, reservations, conditions, limitations, covenants
or other matters described as exceptions on Schedule B of the title
insurance policies described in Section 3.01 pertaining to proposed
additional Borrowing Base Properties or any other Liens which are
unanimously accepted by Lenders.
"Person" means any natural person, employee, corporation, limited
partnership, general partnership, joint stock company, limited liability
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, or
any other non-governmental entity, or any Governmental Authority.
"Plan" means an employee benefit plan defined in Section 3(3) of
ERISA (other than a Multiemployer Plan) in respect of which Borrower or an ERISA
Affiliate, as applicable, is an "employer" as defined in Section 3(5) of ERISA.
"Post-Foreclosure Plan" has the meaning given to such term in
Section 11.11(e).
"Price Adjustment Date" has the meaning given to such term in
Section 2.04(h)(iii).
"Pro Rata Share" means, with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Commitment and the denominator of which shall be the aggregate amount
of all of the Lenders' Commitments.
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"Proceedings" means, collectively, all actions, suits and
proceedings before, and investigations commenced or threatened by or before, any
court or Governmental Authority with respect to a Person.
"Property" means, as to any Person, any real or personal property,
building, facility, structure, equipment or unit, or other asset owned and
operated by such Person in the ordinary course of its business.
"Property Release" has the meaning given to such term
in Section 3.02.
"Protective Advance" means all sums expended as determined by Agent
to be necessary to: (a) protect the priority, validity and enforceability of the
Liens on, and security interests in, any Collateral and the instruments
evidencing or securing the Obligations, or (b) prevent the value of any
Collateral from being materially diminished (assuming the lack of such a payment
within the necessary time frame could potentially cause such Collateral to lose
value), or (c) protect any of the Collateral from being materially damaged,
impaired, mismanaged or taken, including, without limitation, any amounts
expended in accordance with Section 12.01 or post-foreclosure ownership,
maintenance, operation or marketing of any Borrowing Base Property.
"Regulations G, T, U and X" mean such Regulations of the Federal
Reserve Board as in effect from time to time.
"REIT" means Glenborough Realty Trust Incorporated, a Maryland
corporation.
"Release" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property, including the
movement of Contaminants through or in the air, soil, surface water, groundwater
or property.
"Remedial Action" means any action required by applicable
Environmental Laws to (a) clean up, remove, treat or in any other way address
Contaminants in the indoor or outdoor environment; (b) prevent the Release or
threat of Release or minimize the further Release of Contaminants so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (c) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"Reportable Event" means any of the events described in Section
4043(b) of ERISA, other than an event for which the thirty (30) day notice
requirement is waived by regulations.
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"Requirements of Law" mean, as to any Person, the charter and
by-laws, partnership agreement or other organizational or governing documents of
such Person, and any law, rule or regulation, Permit, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject, including without limitation, the Securities
Act, the Securities Exchange Act, Regulations G, T, U and X, FIRREA and any
certificate of occupancy, zoning ordinance, building, environmental or land use
requirement or Permit or occupational safety or health law, rule or regulation.
"Requisite Lenders" mean, collectively, Lenders whose Pro Rata
Shares, in the aggregate, are at least sixty-six and two-thirds percent
(66-2/3%), provided that, (i) in determining such percentage at any given time,
all then existing Defaulting Lenders will be disregarded and excluded and the
Pro Rata Shares of Lenders shall be redetermined, for voting purposes only, to
exclude the Pro Rata Shares of such Defaulting Lenders, and (ii) notwithstanding
the foregoing, at all times when two or more Lenders are party to this
Agreement, the term Requisite Lenders shall in no event mean less than two
Lenders.
"Secretary's Certificate" has the meaning given to such term in
Section 4.01(e).
"Securities" means any stock, shares, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities", or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing, but shall not include any evidence of the Obligations, provided that
Securities shall not include Cash Equivalents, Investment Mortgages or equity
investments in Unconsolidated Entities.
"Securities Act" means the Securities Act of 1933, as amended to the
date hereof and from time to time hereafter, and any successor statute.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended to the date hereof and from time to time hereafter, and any successor
statute.
"Senior Loans" has the meaning given to such term in Section
11.04(b).
"Solvency Certificate" means a certificate in the form of Exhibit H.
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"Solvent" means, as to any Person at the time of determination, that
such Person (a) owns property the value of which (both at fair valuation and at
present fair saleable value) is greater than the amount required to pay all of
such Person's liabilities (including contingent liabilities and debts); (b) is
able to pay all of its debts as such debts mature; and (c) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
"Subsidiary" means each Person in which Borrower has an ownership
interest, whose financial results are consolidated under GAAP in the Financial
Statements. Each Guarantor Subpartnership shall be a "Subsidiary".
"Taxes" means all federal, state and local net income taxes.
"Term Loan" has the meaning given to such term in Section 2.01(d).
"Termination Event" means (a) any Reportable Event, (b) the
withdrawal of a Person, or an ERISA Affiliate from a Benefit Plan during a plan
year in which it was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA, (c) the occurrence of an obligation arising under Section 4041 of
ERISA of a Person or an ERISA Affiliate to provide affected parties with a
written notice of an intent to terminate a Benefit Plan in a distress
termination described in Section 4041(c) of ERISA, (d) the institution by the
PBGC of proceedings to terminate any Benefit Plan under Section 4042 of ERISA,
(e) any event or condition which constitutes grounds under Section 4042 of ERISA
for the appointment of a trustee to administer a Benefit Plan, (f) the partial
or complete withdrawal of such Person or any ERISA Affiliate from a
Multiemployer Plan, or (g) the adoption of an amendment by any Person or any
ERISA Affiliate to terminate any Benefit Plan.
"Total Liabilities" means the sum of (i) all Indebtedness of
Borrower, and (ii) Borrower's Share of the Indebtedness of each Other Investment
Entity (other than the Associated Companies).
"Unconsolidated Entity" means each Investment Partnership and Other
Investment Entity.
"Uniform Commercial Code" means the Uniform Commercial Code as in
effect on the date hereof in the State of California, provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of any security interest in any Collateral or the availability of
any remedy hereunder is governed by the Uniform Commercial Code as in effect on
or after the date hereof in any other jurisdiction, "Uniform Commercial Code"
means the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions
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hereof relating to such perfection or effect of perfection or non-perfection or
availability of such remedy.
"Unmatured Event of Default" means an event which, with the giving
of notice or the lapse of time, or both, would constitute an Event of Default.
"Unused Facility Fee" has the meaning given to such term in
Section 2.05(a).
"UCT Associates" means UCT Associates, a California limited
partnership.
1.02 Computation of Time Periods. In this Agreement, in the computation
of periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each mean "to
and including". Periods of days referred to in this Agreement shall be counted
in calendar days unless Business Days are expressly prescribed.
1.03 Terms.
(a) Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(b) Any time the phrase "to the best of Borrower's knowledge" or a
phrase similar thereto is used herein, it means: "to the actual knowledge of the
then executive or senior officers of Borrower and the REIT, after reasonable
inquiry of those agents, employees or contractors of the REIT or Borrower who
could reasonably be anticipated to have knowledge with respect to the subject
matter or circumstances in question and after review of those documents or
instruments which could reasonably be anticipated to be relevant to the subject
matter or circumstances in question."
(c) In each case where the consent or approval of Agent, all Lenders
and/or Requisite Lenders is required, or their non-obligatory action is
requested by Borrower, such consent, approval or action shall be in the sole and
absolute discretion of Agent and, as applicable, each Lender, unless otherwise
specifically indicated.
(d) Any time the word "or" is used herein, unless the context
otherwise clearly requires, it has the inclusive meaning represented by the
phrase "and/or". The words "hereof", "herein", "hereby", "hereunder" and similar
terms refer to this Agreement as a whole and not to any particular provision of
this Agreement. Article, section, subsection, clause, exhibit and schedule
references are to this Agreement unless otherwise specified. Any reference in
this Agreement to this Agreement or to any other Loan Document includes any and
all amendments,
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modifications, supplements, renewals or restatements thereto or thereof, as
applicable.
(e) Any time the defined term "Borrower", or any other defined term
incorporating the defined term "Borrower" within its definition, is used in
Article IX, it has the inclusive meaning of "REIT, Borrower and any other
Affiliate of REIT or Borrower which is consolidated within REIT's Financial
Statements".
ARTICLE II
LOANS
2.01 Loan Advances and Repayment; Letters of Credit.
(a) Loan Availability.
(i) Subject to the terms and conditions set forth in this
Agreement, Lenders hereby agree to make Loans to Borrower from time to
time during the period from the Closing Date to the Business Day next
preceding the Maturity Date (but in no event later than the conversion of
the Facility to the Term Loan in accordance with subparagraph (d) below),
in an aggregate amount which shall not exceed Loan Availability. All Loans
under this Agreement shall be made by Lenders simultaneously and
proportionately to their respective Pro Rata Shares, it being understood
that no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make a Loan hereunder and that the Commitment of
any Lender shall not be increased or decreased as a result of the failure
by any other Lender to perform its obligation to make a Loan. Loans may be
voluntarily prepaid pursuant to Section 2.06(a) and, subject to the
provisions of this Agreement, any amounts so prepaid may be reborrowed
under this Section 2.01(a)(i). The principal balance of the Loans shall be
payable in full on the Maturity Date. The Loans will be evidenced by the
Loan Notes.
(ii) If at any time the outstanding principal balance of the
Loans exceeds the Borrowing Base as a result of a reduction in any
Borrowing Base Value, Borrower shall submit to Agent, not later than
thirty (30) days following written notice from Agent to Borrower (a copy
of which shall be sent promptly by Agent to each Lender) of the existence
of such excess borrowing condition, a written plan pursuant to which
Borrower shall cause such excess borrowing condition to be eliminated not
later than sixty (60) days following such notice, through one or both of
the following means: Borrower shall (A) pay to Agent such amounts and/or
(B) mortgage to Agent such additional Borrowing Base Property(-ies) as
Lenders may accept under Section 3.01 as are necessary so that the
outstanding principal balance of
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the Loans does not exceed the Borrowing Base. Failure by Borrower to have
complied with the foregoing in a timely manner shall constitute an Event
of Default without further notice or grace period hereunder. No further
Borrowings, or release of any Borrowing Base Property, shall be permitted
so long as such excess borrowing condition shall continue to exist.
Nothing in this subparagraph (ii) shall excuse Borrower's compliance with
all terms, conditions, covenants and other obligations imposed upon it
under the Loan Documents during the period of such excess borrowing, nor
in any manner condition or impair Agent's or Lenders' rights thereunder in
respect of any such breach thereof by Borrower.
(b) Notice of Borrowing.
(i) Whenever Borrower desires to borrow under this Section
2.01, but in no event more than three (3) times during any one (1)
calendar month, Borrower shall give Agent, at Wells Fargo Real Estate
Group Disbursement Center, 2120 East Park Place, Suite 100, El Segundo,
California 90245, with a copy to: Wells Fargo Bank, Real Estate Capital
Markets, 555 Montgomery Street, Seventeenth Floor, San Francisco,
California 94111, Attention: Sean Flannery, or such other address(es) as
Agent shall designate, an original or facsimile Notice of Borrowing no
later than 9:00 A.M. (San Francisco time), not less than three (3) nor
more than five (5) Business Days prior to the proposed Funding Date of
each Loan. Each Notice of Borrowing shall specify (A) the Funding Date
(which shall be a Business Day) in respect of the Loan, (B) the amount of
the proposed Loan, provided that the aggregate amount of such proposed
Loan shall equal One Million Dollars ($1,000,000) or integral multiples of
Fifty Thousand Dollars ($50,000) in excess thereof, (C) whether the Loan
to be made thereunder will be a Base Rate Loan or a LIBOR Loan and, if a
LIBOR Loan, the Interest Period, (D) to which account of Borrower the
funds are to be directed, and (E) the proposed use of such Loan. Any
Notice of Borrowing pursuant to this Section 2.01(b) shall be irrevocable.
(ii) Borrower may elect (A) to convert LIBOR Loans or any
portion thereof into Base Rate Loans, (B) to convert Base Rate Loans or
any portion thereof to LIBOR Loans, or (C) to continue any LIBOR Loans or
any portion thereof for an additional Interest Period, provided, however,
that the aggregate amount of the Loans being converted into or continued
as LIBOR Loans shall, in the aggregate, equal One Million Dollars
($1,000,000) or an integral multiple of Fifty Thousand Dollars ($50,000)
in excess thereof. The applicable Interest Period for the continuation of
any LIBOR Loan
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shall commence on the day on which the next preceding Interest Period
expires. The conversion of a LIBOR Loan to a Base Rate Loan shall only
occur on the last Business Day of the Interest Period relating to such
LIBOR Loan; such conversion shall occur automatically in the absence of an
election under Clause (C) above. Each election under Clause (B) or Clause
(C) above shall be made by Borrower giving Agent an original or facsimile
Notice of Borrowing no later than 9:00 A.M. (San Francisco time), not less
than three (3) nor more than five (5) Business Days prior to the date of a
conversion to or continuation of a LIBOR Loan, specifying, in each case
(1) the amount of the conversion or continuation, (2) the Interest Period
therefor, and (3) the date of the conversion or continuation (which date
shall be a Business Day).
(iii) Upon receipt of a Notice of Borrowing in proper form
requesting LIBOR Loans under subparagraph (i) or (ii) above, Agent shall
determine the LIBOR applicable to the Interest Period for such LIBOR
Loans, and shall, two (2) Business Days prior to the beginning of such
Interest Period, give (by facsimile) a Fixed Rate Notice in respect
thereof to Borrower and Lenders; provided, however, that failure to give
such notice to Borrower shall not affect the validity of such rate. Each
determination by Agent of the LIBOR shall be conclusive and binding upon
the parties hereto in the absence of manifest error.
(c) Making of Loans. Subject to Section 11.03 or as otherwise
provided herein, on the Closing Date, Agent shall deposit by wire transfer of
immediately available funds the net proceeds of the initial Loan to Chicago
Title Insurance Company's escrow account (Escrow Number 5157000-X47) at Bank of
America, 1850 Gateway Boulevard, Concord, California, Account Number
12351-50737, to be released to or for the account of Borrower in accordance with
Agent's and Borrower's escrow instructions with respect thereto. Agent shall
deposit by wire transfer of immediately available funds the proceeds of
subsequent Loans on the applicable Funding Date either (i) into an escrow
account to be released to or for the account of Borrower in accordance with
Agent's and Borrower's escrow instructions with respect thereto, or (ii) if
acceptable to Agent, to such other account specified in Borrower's Notice of
Borrowing. All Loans made hereunder shall bear interest from the date of
Lenders' initial deposit into the applicable escrow account or other specified
bank account.
(d) Term. The outstanding balance of the Loans shall be payable in
full on the earliest to occur of (i) the second anniversary of the Closing Date,
(ii) the acceleration of the Loans pursuant to Section 10.02(a), or (iii)
Borrower's written notice to Agent (pursuant to Section 2.06(a)) of Borrower's
election to prepay all accrued Obligations and terminate all
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Commitments (said earliest date referred to herein as the "Maturity Date");
provided, however, that Borrower shall have the right to request an extension of
the date referred to in clause (i) above for one (1) year, effective on the
second anniversary of the Closing Date and on each successive anniversary of the
Closing Date, as follows: (A) Borrower shall give Agent written notice of
Borrower's request for an extension of the Maturity Date (a copy of which notice
shall be sent promptly by Agent to each other Lender) not earlier than one
hundred eighty (180 days), nor later than one hundred fifty (150) days, prior to
the applicable anniversary of the Closing Date, and (B) Borrower's request for
an extension must be unanimously approved by all Lenders in their sole
discretion. Agent shall notify Borrower in writing, not later than ninety (90)
days prior to the subject anniversary of the Closing Date, as to whether or not
such request for extension has been approved by Lenders; any such approval shall
be deemed conditioned upon there existing no Unmatured Event of Default or Event
of Default on the Maturity Date in effect prior to any such extension being
approved. Not later than the commencement of the extension year, Borrower shall
pay to Agent (for the benefit of all Lenders, subject to Section 11.04(b)) in
the manner provided in Section 2.06(b) a non-refundable extension fee (the
"Extension Fee") in an amount equal to three-eighths percent (0.375%) of the
amount of the Facility. If Borrower's request to extend the Maturity Date is not
approved, or if Borrower shall have determined not to request an extension of
the Facility on a revolving credit basis, then in either case, not later than
the subject anniversary date of the Closing Date, Borrower may elect to convert
the Facility into a three-year amortizing term loan ("Term Loan"). If Borrower
so elects, then (1) effective upon such anniversary date of the Closing Date
(the "Term Loan Conversion Date"), the Facility shall cease to revolve and (2)
the entire outstanding principal balance of the Facility as of such anniversary
date (the "Beginning Term Loan Balance") shall be fully amortized as described
below over the three (3) years following the Term Loan Conversion Date (subject
to earlier termination pursuant to clause (ii) or (iii) above), with the first
payment due ninety (90) days after the Term Loan Conversion Date and the
succeeding eleven principal payments due quarterly thereafter until the
Beginning Term Loan Balance has been repaid in full. Each quarterly principal
payment during the first year of the Term Loan shall equal twelve and one-half
percent (12.5%) of the Beginning Term Loan Balance; each quarterly principal
payment during the second year of the Term Loan shall equal ten percent (10.0%)
of the Beginning Term Loan Balance; and each quarterly principal payment during
the third year of the Term Loan shall equal two and one-half percent (2.5%) of
the Beginning Term Loan Balance. Not later than the Term Loan Conversion Date
and the first and second anniversary thereof, Borrower shall pay to Agent (for
the benefit of Lenders, subject to Section 11.04(b)) in the manner provided in
Section 2.06(b) a non-refundable extension fee equal to three-eighths percent
(0.375%) of the principal balance of the Term Loan outstanding on the date such
payment is due.
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(e) Letters of Credit.
(i) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time through the day that is
ninety (90) days prior to the Maturity Date, Agent shall cause Wells Fargo
to issue such Letters of Credit for the account of Borrower as Borrower
may request; provided that (A) upon issuance of such Letters of Credit,
the sum of the aggregate outstanding principal amount of all Loans plus
the aggregate face amount of all outstanding Letters of Credit shall not
exceed Loan Availability; (B) the aggregate face amount of all outstanding
Letters of Credit shall not exceed One Million Dollars ($1,000,000); and
(C) unless all Lenders otherwise consent in writing, the term of any
Letter of Credit (including any automatic extension or renewal clause)
shall not extend beyond the date thirty (30) days preceding the Maturity
Date. All references herein to "the outstanding principal balance of the
Loans" or similar references shall be deemed to include, for all purposes,
the aggregate undrawn face amount of all outstanding Letters of Credit;
unless the context otherwise requires, each reference herein to "Loan" or
"Borrowing" shall include the issuance of a Letter of Credit, the payment
of any draw thereunder by Wells Fargo and/or advances by Lenders to
reimburse Wells Fargo, as appropriate.
(ii) Borrower shall deliver to Agent and Wells Fargo a duly
executed request for Letter of Credit not later than 9:00 A.M. (San
Francisco time), at least five (5) Business Days prior to the date upon
which the requested Letter of Credit is to be issued. Borrower shall
further execute and/or deliver to Agent and Wells Fargo such additional
instruments and documents as Agent and/or Wells Fargo may require, in
conformity with the then standard practices of Wells Fargo's letter of
credit department, in connection with the issuance of such Letter of
Credit (collectively, the "Letter of Credit Documents").
(iii) Agent shall, if it approves of the content of the
request for a Letter of Credit, and subject to the conditions set forth in
Section 4.02, cause the issuance of the Letter of Credit on or before 5:00
P.M. (San Francisco time), on or before the day five (5) Business Days
following receipt of the documents last due pursuant to subsection (ii)
above. Upon issuance of a Letter of Credit, Agent shall promptly provide a
copy thereof to each Lender and shall notify Lenders promptly of all
payments, reimbursements, expirations, negotiations, transfers and other
activity with respect to outstanding Letters of Credit.
(iv) Upon the issuance of a Letter of Credit, each Lender
shall be deemed to have purchased a pro rata issuer
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participation therein from Wells Fargo in an amount equal to such Lender's
Pro Rata Share of the face amount of the Letter of Credit.
(v) If and to the extent that any amounts are drawn under any
Letter of Credit, the amount so drawn shall be considered a Loan for all
purposes hereunder as of the date of such draw. Promptly after payment by
Wells Fargo of any amount drawn under a Letter of Credit, Agent shall,
without notice to or the consent of Borrower, direct Lenders to advance to
Agent their Pro Rata Share of the amount so drawn, whether or not there
then exists an Unmatured Event of Default or Event of Default, and whether
or not any other condition precedent to the making of such Loan under
Section 4.02 shall be satisfied. The proceeds of such advances shall be
applied by Agent to reimburse Wells Fargo for the payment made by it under
the Letter of Credit. Such Loan by Lenders pursuant to this Section
2.01(e)(v) shall be deemed to be a Base Rate Loan.
(vi) Upon the occurrence of the Maturity Date prior to the
expiration of all Letters of Credit, Borrower shall immediately provide to
Agent a standby letter of credit issued by a bank satisfactory to Agent,
in form and substance satisfactory to Agent, in favor of Agent in a face
amount equal to outstanding Letters of Credit on that date, or shall
immediately make other provisions satisfactory to Agent for the full
collateralization, by cash or cash equivalent, of all such outstanding
Letters of Credit. Upon the failure of Borrower to comply with the
foregoing requirements, such portion of the face amount of all outstanding
Letters of Credit as to which Borrower has failed to comply shall be
deemed to be immediately due and payable.
(vii) The issuance of any supplement, modification, amendment,
renewal or extension to or of any Letter of Credit shall be treated in all
respects the same as the issuance of a new Letter of Credit.
(viii) Borrower assumes all risks as to the acts or omissions
of any beneficiary or transferee of any Letter of Credit with respect to
its use of such Letter of Credit. Neither Wells Fargo, Agent, any Lender
nor any of their respective officers or directors shall be liable or
responsible for, nor shall Borrower's obligations hereunder in respect of
any Letter of Credit be impaired as a result of:
(A) any lack of validity or enforceability of any Letter
of Credit or any Letter of Credit Documents;
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(B) the use that may be made of any Letter of Credit or
any acts or omissions of any beneficiary or transferee in connection
therewith;
(C) any statement or any other document presented under
a Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(D) the existence of any claim, set-off, defense or
other right that Borrower may have at any time against any beneficiary or
any transferee of a Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), Wells Fargo or any
other Person, whether in connection with the transactions contemplated by
the Letter of Credit Documents or any unrelated transaction;
(E) payment by Wells Fargo against presentation of
documents that do not comply with the terms of a Letter of Credit,
including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or
(F) any other circumstance whatsoever in making or
failing to make payment under any Letter of Credit.
In furtherance and not in limitation of the foregoing, Wells Fargo may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
2.02 Authorization to Obtain Loans. Borrower shall provide Agent with
documentation satisfactory to Agent indicating the names of those employees of
Borrower authorized by Borrower to sign Notices of Borrowing, and Agent and
Lenders shall be entitled to rely on such documentation until notified in
writing by Borrower of any change(s) of the persons so authorized. Agent shall
be entitled to act on the instructions of anyone identifying himself or herself
as one of the Persons authorized to execute a Notice of Borrowing, and Borrower
shall be bound thereby in the same manner as if such Person were actually so
authorized. Borrower agrees to indemnify, defend and hold Lenders and Agent
harmless from and against any and all Liabilities and Costs which may arise or
be created by the acceptance of instructions in any Notice of Borrowing, unless
caused by the gross negligence or willful misconduct of the Person to be
indemnified.
2.03 Lenders' Accounting. Agent shall maintain a loan account (the "Loan
Account") on its books in which shall be recorded (a) the names and addresses
and the Commitments of Lenders, and principal amount of Loans owing to each
Lender from
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time to time, and (b) all advances and repayments of principal and payments of
accrued interest under the Loans, as well as payments of the Unused Facility
Fee, as provided in this Agreement. All entries in the Loan Account shall be
made in accordance with Agent's customary accounting practices as in effect from
time to time. Monthly or at such other interval as is customary with Agent's
practice, Agent will render a statement of the Loan Account to Borrower and will
deliver a copy thereof to each Lender. Each such statement shall be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein (absent manifest error), unless Borrower, within thirty (30)
days after the date such statement is mailed or otherwise delivered to Borrower,
delivers to Agent written notice of any objections which Borrower may have to
any such statement, or within ten (10) days after discovery by Borrower of an
error with respect to which Borrower had no knowledge and which could not have
been determined after reasonable inquiry during said 30-day period. In that
event, only those items expressly objected to in such notice shall be deemed to
be disputed by Borrower. In the event that any such objection cannot be settled
by Agent and Borrower within thirty (30) days after Agent receives notice
thereof from Borrower, Agent shall notify all Lenders of such objection.
Notwithstanding the foregoing, Agent's entries in the Loan Account evidencing
Loans and other financial accommodations made from time to time shall be final,
binding and conclusive upon Borrower (absent manifest error) as to the existence
and amount of the Obligations recorded in the Loan Account.
2.04 Interest on the Loans.
(a) Base Rate Loans. Subject to Section 2.04(d), all Base Rate Loans
shall bear interest on the daily unpaid principal amount thereof from the date
made until paid in full at a fluctuating rate per annum equal to the Base Rate.
Except as to Letters of Credit, Base Rate Loans shall be made in minimum amounts
of One Million Dollars ($1,000,000) or an integral multiple of Fifty Thousand
Dollars ($50,000) in excess thereof.
(b) LIBOR Loans. Subject to Sections 2.04(d) and 2.04(h), all LIBOR
Loans shall bear interest on the unpaid principal amount thereof during the
Interest Period applicable thereto at a rate per annum equal to the sum of LIBOR
for such Interest Period plus two and three-eighths percent (2.375%). LIBOR
Loans shall be in tranches of One Million Dollars ($1,000,000) or Fifty Thousand
Dollar ($50,000) increments in excess thereof. No more than four (4) LIBOR Loan
tranches shall be outstanding at any one time. Notwithstanding anything to the
contrary contained herein and subject to the Default Interest provisions
contained in Section 2.04(d), if an Event of Default occurs and as a result
thereof the Commitments are terminated, all LIBOR Loans will convert to Base
Rate Loans upon the expiration of the applicable Interest Periods therefor or
the date all Loans become due, whichever occurs first.
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(c) Interest Payments. Subject to Section 2.04(d), interest accrued
on all Loans shall be payable by Borrower, in the manner provided in Section
2.06(b), in arrears on the first Business Day of the first calendar month
following the Closing Date, the first Business Day of each succeeding calendar
month thereafter, and on the Maturity Date.
(d) Default Interest. Notwithstanding the rates of interest
specified in Sections 2.04(a) and 2.04(b) and the payment dates specified in
Section 2.04(c), effective immediately upon the occurrence and during the
continuance of any Event of Default, the principal balance of all Loans then
outstanding and, to the extent permitted by applicable law, any interest
payments on the Loans not paid when due shall bear interest payable upon demand
at a rate which is five percent (5%) per annum in excess of the rate(s) of
interest otherwise payable from time to time under this Agreement. All other
amounts due Agent or Lenders (whether directly or for reimbursement) under this
Agreement or any of the other Loan Documents if not paid when due, or if no time
period is expressed, if not paid within ten (10) days after demand, shall bear
interest from and after demand at the rate set forth in this Section 2.04(d).
(e) Late Fee. Borrower acknowledges that late payment to Agent will
cause Agent and Lenders to incur costs not contemplated by this Agreement. Such
costs include, without limitation, processing and accounting charges. Therefore,
if Borrower fails timely to pay any sum due and payable hereunder through the
Maturity Date (other than (i) payment of the entire outstanding balance of the
Loans on the Maturity Date, or (ii) any quarterly principal payments due after
conversion of the Facility to a Term Loan, to which this subsection regarding
late fees shall not apply), unless waived by Agent or Requisite Lenders pursuant
to Section 11.11(a), a late charge of four cents ($.04) for each dollar of any
such principal payment, interest or other charge due hereon and which is not
paid within fifteen (15) days after such payment is due, shall be charged by
Agent (for the benefit of Lenders) and paid by Borrower for the purpose of
defraying the expense incident to handling such delinquent payment. Borrower and
Agent agree that this late charge represents a reasonable sum considering all of
the circumstances existing on the date hereof and represents a fair and
reasonable estimate of the costs that Agent and Lenders will incur by reason of
late payment. Borrower and Agent further agree that proof of actual damages
would be costly and inconvenient. Acceptance of any late charge shall not
constitute a waiver of the default with respect to the overdue installment, and
shall not prevent Agent from exercising any of the other rights available
hereunder or any other Loan Document. Such late charge shall be paid without
prejudice to any other rights of Agent.
(f) Computation of Interest. Interest shall be computed on the basis
of the actual number of days elapsed in the period during which interest or fees
accrue and a year of three
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hundred sixty (360) days. In computing interest on any Loan, the date of the
making of the Loan shall be included and the date of payment shall be excluded;
provided, however, that if a Loan is repaid on the same day on which it is made,
one (1) day's interest shall be paid on that Loan. Notwithstanding any provision
in this Section 2.04, interest in respect of any Loan shall not exceed the
maximum rate permitted by applicable law.
(g) Changes; Legal Restrictions. In the event that after the Closing
Date (i) the adoption of or any change in any law, treaty, rule, regulation,
guideline or determination of a court or Governmental Authority or any change in
the interpretation or application thereof by a court or Governmental Authority,
or (ii) compliance by Agent or any Lender with any request or directive made or
issued after the Closing Date (whether or not having the force of law and
whether or not the failure to comply therewith would be unlawful) from any
central bank or other Governmental Authority or quasi-governmental authority:
(A) subjects Agent or any Lender to any tax, duty or other charge
of any kind with respect to the Facility, this Agreement or any of the
other Loan Documents, including the Mortgages, or the Loans or changes the
basis of taxation of payments to Agent or such Lender of principal, fees,
interest or any other amount payable hereunder, except for net income,
gross receipts, gross profits or franchise taxes imposed by any
jurisdiction and not specifically based upon loan transactions (all such
non-excepted taxes, duties and other charges being hereinafter referred to
as "Lender Taxes");
(B) imposes, modifies or holds applicable, in the determination
of Agent or any Lender, any reserve, special deposit, compulsory loan, FDIC
insurance, capital allocation or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds
by, Agent or such Lender or any applicable lending office (except to the
extent that the reserve and FDIC insurance requirements are reflected in
the "Base Rate" or in determining LIBOR); or
(C) imposes on Agent or any Lender any other condition materially
more burdensome in nature, extent or consequence than those in existence as
of the Closing Date,
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing, maintaining or participating in the Loans or to
reduce any amount receivable
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thereunder; then, in any such case, Borrower shall promptly pay to Agent or such
Lender, as applicable, upon demand, such amount or amounts (based upon a
reasonable allocation thereof by Agent or such Lender to the financing
transactions contemplated by this Agreement and affected by this Section
2.04(g)) as may be necessary to compensate Agent or such Lender for any such
additional cost incurred or reduced amounts received; provided, however, that
(i) neither Agent nor any Lender may claim under this Section 2.04(g) any such
additional amount attributable to any period preceding the date that is ninety
(90) days prior to the date of its demand, (ii) before making any such demand,
Agent, and each Lender, agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
lending office as its lending office for purposes of the Loans and its
Commitment, if (1) the making of such a designation would avoid the need for, or
reduce the amount of, such demand and (2) would not, in the reasonable judgment
of Agent or such Lender, as the case may be, be otherwise disadvantageous to it,
and (iii) if the payment of such compensation may not be legally made whether by
modification of the applicable interest rate or otherwise, then Lenders shall
have no further obligation to make Loans that cause Agent or any Lender to incur
such increased cost, and all affected Loans shall become immediately due and
payable by Borrower. Agent or such Lender shall deliver to Borrower and in the
case of a delivery by Lender, such Lender shall also deliver to Agent, a written
statement of the claimed additional costs incurred or reduced amounts received
and the basis therefor as soon as reasonably practicable after such Lender
obtains knowledge thereof. If Agent or any Lender subsequently recovers any
amount of Lender Taxes previously paid by Borrower pursuant to this Section
2.04(g), whether before or after termination of this Agreement, then, upon
receipt of good funds with respect to such recovery, Agent or such Lender will
refund such amount to Borrower if no Event of Default or Unmatured Event of
Default then exists or, if an Event of Default or Unmatured Event of Default
then exists, such amount will be credited to the Obligations in the manner
determined by Agent or such Lender.
(h) Certain Provisions Regarding LIBOR Loans.
(i) LIBOR Lending Unlawful. If any Lender shall determine (which
determination shall, upon notice thereof to Borrower and Agent, be
conclusive and binding on the parties hereto) that the introduction of or
any change in or in the interpretation of any law makes it unlawful, or any
central bank or other Governmental Authority asserts that it is unlawful,
for such Lender to make or maintain any Loan as a LIBOR Loan, (A) the
obligations of such Lenders to make or maintain any Loans as LIBOR Loans
shall, upon such determination, forthwith be suspended until such Lender
shall notify Agent that the circumstances causing such suspension no longer
exist, and (B) if required by such
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law or assertion, the LIBOR Loans of such Lender shall automatically
convert into Base Rate Loans.
(ii) Deposits Unavailable. If Agent shall have determined in good
faith that adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBOR Loans, then, upon notice from Agent to
Borrower the obligations of all Lenders to make or maintain Loans as LIBOR
Loans shall forthwith be suspended until Agent shall notify Borrower that
the circumstances causing such suspension no longer exist. Agent will give
such notice when it determines, in good faith, that such circumstances no
longer exist; provided, however, that Agent shall not have any liability to
any Person with respect to any delay in giving such notice.
(iii) Fixed Rate Price Adjustment. Borrower acknowledges that
prepayment or acceleration of a LIBOR Loan during an Interest Period shall
result in Lenders incurring additional costs, expenses and/or liabilities
and that it is extremely difficult and impractical to ascertain the extent
of such costs, expenses and/or liabilities. (For all purposes of this
subparagraph (iii), any Loan not being made as a LIBOR Loan in accordance
with the Notice of Borrowing therefor, as a result of Borrower's
cancellation thereof, shall be treated as if such LIBOR Loan had been
prepaid.) Therefore, on the date a LIBOR Loan is prepaid or the date all
sums payable hereunder become due and payable, by acceleration or otherwise
("Price Adjustment Date"), Borrower will pay to Agent, for the account of
each Lender, (in addition to all other sums then owing), an amount ("Fixed
Rate Price Adjustment") equal to the then present value of (A) the amount
of interest that would have accrued on the LIBOR Loan for the remainder of
the Interest Period at the rate applicable to such LIBOR Loan, less (B) the
amount of interest that would accrue on the same LIBOR Loan for the same
period if LIBOR were set on the Price Adjustment Date. The present value
shall be calculated by using as a discount rate LIBOR quoted on the Price
Adjustment Date.
By initialling this provision where indicated below, Borrower waives
any right Borrower may have under California Civil Code Section
2954.10 to repay any LIBOR Loans, in whole or in part, without payment
of the Fixed Rate Price Adjustment upon acceleration of the maturity
date of such Loans, and Borrower further confirms that Lenders'
agreement to make LIBOR Loans at the interest rates and on the other
terms set forth herein constitutes
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adequate and valuable consideration, given individual weight by
Borrower, for this waiver and agreement.
BORROWER'S INITIALS: [initialed: AB]
Upon the written notice to Borrower from Agent, Borrower shall immediately
pay to Agent, for the account of Lenders, the Fixed Rate Price Adjustment
as calculated by Agent. Such written notice (which shall include
calculations in reasonable detail) shall, in the absence of manifest error,
be conclusive and binding on the parties hereto.
(iv) Borrower understands, agrees and acknowledges the following: (A)
no Lender has any obligation to purchase, sell and/or match funds in
connection with the use of LIBOR as a basis for calculating the rate of
interest on a LIBOR Loan or a Fixed Rate Price Adjustment; (B) LIBOR is
used merely as a reference in determining such rate and/or Fixed Rate Price
Adjustment; and (C) Borrower has accepted LIBOR as a reasonable and fair
basis for calculating such rate and a Fixed Rate Price Adjustment. Borrower
further agrees to pay the Fixed Rate Price Adjustment and Lender Taxes, if
any, whether or not a Lender elects to purchase, sell and/or match funds.
(i) Withholding Tax Exemption. At least five (5) Business Days prior
to the first day on which interest or fees are payable hereunder for the account
of any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to Agent and
Borrower two (2) duly completed copies of United States Internal Revenue Service
Form 1001 or Form 4224, certifying in either case that such Lender is entitled
to receive payments under this Agreement without deduction or withholding of any
United States federal income taxes. Each Lender which so delivers a Form 1001 or
Form 4224 further undertakes to deliver to Agent and Borrower two (2) additional
copies of such form (or any applicable successor form) on or before the date
that such form expires (currently, three (3) successive calendar years for Form
1001 and one (1) calendar year for Form 4224) or becomes obsolete or after the
occurrence of any event requiring a change in the most recent forms so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by Agent or Borrower, in each case certifying that such
Lender is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, unless an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with
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respect to it and such Lender advises Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
taxes. If any Lender cannot deliver such form, then Borrower may withhold from
such payments such amounts as are required by the Internal Revenue Code.
2.05 Fees.
(a) Unused Facility Fee. From and after the Closing Date and until the
Obligations are paid in full and this Agreement is terminated or, if sooner, the
date the Commitments terminate (but in no event later than the conversion of the
Facility to the Term Loan in accordance with Section 2.01(d) above), and subject
to Section 11.04(b), Borrower shall pay to Agent, for the account of each
Lender, a fee (the "Unused Facility Fee") accruing at the rate of one-quarter
percent (0.25%) per annum upon an amount equal to (i) the amount of the Facility
minus (ii) the average daily principal balance of all Loans (including, without
limitation, the aggregate undrawn face amount of all outstanding Letters of
Credit) as determined for each Fiscal Quarter. The Unused Facility Fee shall be
payable, in the manner provided in Section 2.06(b), in arrears on the first
Business Day in each Fiscal Quarter, beginning with the first Fiscal Quarter
after the Closing Date, and ending on the date of payment in full of all
Obligations to Lenders or all Obligations to a Lender pursuant to Section
2.01(d) or, if sooner, the date the Commitments terminate (but in no event later
than the conversion of the Facility to the Term Loan in accordance with
subparagraph 2.01(d) above), with the Unused Facility Fee to be prorated to the
date of such final payment.
(b) Agency Fees. Borrower shall pay Agent such fees as are provided for
in the agency fee agreement between Agent and Borrower, as in existence from
time to time.
(c) Borrowing Base Fee. From and after the Closing Date and until the
Obligations are paid in full and this Agreement is terminated or, if sooner, the
date the Commitments terminate, and subject to Section 11.04(b), Borrower shall
pay to Agent, for the account of each Lender, a fee (the "Borrowing Base Fee")
each time any additional or substitution property is accepted by Lenders as
Borrowing Base Property in accordance with Section 3.01. The Borrowing Base Fee
shall equal the product of (i) the additional or substitution property's
Borrowing Base Value (excluding, however, any Borrowing Base Value for which
Borrower receives no Borrowing Base credit because such Borrowing Base Value
(other than with respect to University Club Tower) exceeds twenty-five percent
(25%) of the Borrowing Base) times (ii) one-quarter percent (0.25%). The
Borrowing Base Fee shall be payable in the manner provided in Section 2.06(b).
(d) Letter of Credit Fees. As additional consideration for the
issuance of Letters of Credit pursuant to
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Section 2.01(e), Borrower agrees to pay to Agent, for the account of each
Lender, a Letter of Credit fee equal to two and three- eighths percent (2.375%)
per annum of the face amount of the Letters of Credit (but in no event less than
$2,500 in respect of any Letter of Credit), payable upon issuance. In addition,
Borrower shall pay directly to Wells Fargo for its sole account all processing,
administrative, transfer, amendment and similar fees normally charged by Wells
Fargo in connection with the issuance of standby letters of credit.
(e) Payment of Fees. The fees described in Sections 2.01(d) and
4.01(o) and this Section 2.05 represent compensation for services rendered and
to be rendered separate and apart from the lending of money or the provision of
credit and do not constitute compensation for the use, detention or forbearance
of money, and the obligation of Borrower to pay the fees described herein shall
be in addition to, and not in lieu of, the obligation of Borrower to pay
interest, other fees and expenses otherwise described in this Agreement. All
fees shall be payable when due in immediately available funds and shall be
non-refundable when paid. If Borrower fails to make any payment of fees or
expenses specified or referred to in this Agreement due to Agent or Lenders,
including without limitation those referred to in this Section 2.05, in Section
12.01, or otherwise under this Agreement or any separate fee agreement between
Borrower and Agent or any Lender relating to this Agreement, when due, the
amount due shall bear interest until paid at the Base Rate and, after ten (10)
days at the rate specified in Section 2.04(d) (but not to exceed the maximum
rate permitted by applicable law), and shall constitute part of the Obligations,
secured by all of the Collateral. The Unused Facility Fee and all Letter of
Credit fees shall be calculated on the basis of the actual number of days
elapsed in a three hundred sixty (360) day year.
2.06 Payments.
(a) Voluntary Prepayments. Borrower may, upon not less than three
(3) Business Days prior written notice to Agent not later than 11:00 A.M. (San
Francisco time) on the date given, at any time and from time to time (including,
without limitation, from and after the Term Loan Conversion Date), prepay any
Loans in whole or in part. Any notice of prepayment given to Agent under this
Section 2.06(a) shall specify the date of prepayment and the aggregate principal
amount of the prepayment. In the event of a prepayment of LIBOR Loans, Borrower
shall concurrently pay any Fixed Rate Price Adjustment payable in respect
thereof. Agent shall provide to each Lender a confirming copy of such notice on
the same Business Day such notice is received.
(b) Manner and Time of Payment. All payments of principal, interest
and fees hereunder payable to Agent or the Lenders shall be made without
condition or reservation of right and free of set-off or counterclaim, in
Dollars and by wire transfer (pursuant to Agent's written wire transfer
instructions)
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of immediately available funds, to Agent, for the account of each Lender, not
later than 11:00 A.M. (San Francisco time) on the date due; and funds received
by Agent after that time and date shall be deemed to have been paid on the next
succeeding Business Day.
(c) Payments on Non-Business Days. Whenever any payment to be made
by Borrower hereunder shall be stated to be due on a day which is not a Business
Day, payments shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder and of any of the fees specified in Section 2.05, as the case
may be.
2.07 Increased Capital. If either (a) the introduction of or any change in
or in the interpretation of any law or regulation or (b) compliance by Agent or
any Lender with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) made or issued after the
Closing Date affects or would affect the amount of capital required or expected
to be maintained by Agent or such Lender or any corporation controlling Agent or
such Lender, and Agent or such Lender determines that the amount of such capital
is increased by or based upon the existence of Agent's obligations hereunder or
such Lender's Commitment, then, upon demand by Agent or such Lender, Borrower
shall immediately pay to Agent or such Lender, from time to time as specified by
Agent or such Lender, additional amounts sufficient to compensate Agent or such
Lender in the light of such circumstances, to the extent that Agent or such
Lender determines such increase in capital to be allocable to the existence of
Agent's obligations hereunder or such Lender's Commitment; provided, however,
that (i) neither Agent nor any Lender may claim under this Section 2.07 any such
additional amount attributable to any period preceding the date that is ninety
(90) days prior to the date of its demand, and (ii) before making any such
demand, Agent, and each Lender, agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to designate a
different lending office as its lending office for purposes of the Loans and its
Commitment, if (1) the making of such a designation would avoid the need for, or
reduce the amount of, such demand and (2) would not, in the reasonable judgment
of Agent or such Lender, as the case may be, be otherwise disadvantageous to it.
A certificate as to such amounts submitted to Borrower by Agent or such Lender
shall, in the absence of manifest error, be conclusive and binding for all
purposes.
2.08 Notice of Increased Costs. Each Lender agrees that, as promptly as
reasonably practicable after it becomes aware of the occurrence of an event or
the existence of a condition which would cause it to be affected by any of the
events or conditions described in Section 2.04(g) or (h) or Section 2.07, it
will
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notify Borrower, and provide a copy of such notice to Agent, of such event and
the possible effects thereof, provided that the failure to provide such notice
shall not affect Lender's rights to reimbursement provided for herein.
ARTICLE III
BORROWING BASE PROPERTIES
3.01 Acceptance of Borrowing Base Properties. Subject to compliance with
the terms and conditions of Section 4.01 and this Section 3.01, Lenders have
accepted the properties listed on Schedule 1 as of the Closing Date as Borrowing
Base Properties. The acceptance of the Assigned Mortgages as Borrowing Base
Property is conditional, and each Assigned Mortgage shall only remain qualified
as Borrowing Base Property so long as, (i) no default occurs under any of the
loan documents which is not cured within any applicable cure period pertaining
to the Assigned Mortgage which would permit acceleration of such loan,
including, without limitation, failure to make any payments when due, breach of
covenants, representations or warranties, breach of any guarantees pertaining to
such loan, or the bankruptcy or insolvency of the borrower or any guarantor with
respect to such loan, (ii) no dispute occurs involving the nature or
enforceability of the applicable loan obligations, and (iii) no loss of lien
priority occurs with respect to the applicable mortgage, whether due to
attachments, judgments or otherwise. If any single Assigned Mortgage executed by
AFP Partners, a California limited partnership ("AFP"), as mortgagor, shall be
disqualified as a Borrowing Base Property pursuant to the preceding, then all
other Assigned Mortgages executed by AFP, as mortgagor, shall be disqualified as
Borrowing Base Property concurrently therewith. Upon disqualification of any
Assigned Mortgage, the Borrowing Base shall be reduced accordingly and any
outstanding principal balance of the Loans in excess of the Borrowing Base,
after giving effect to such Assigned Mortgage disqualification, shall be
immediately due and payable unless Borrower provides additional or replacement
Borrowing Base Property (acceptable to Agent and Lenders in accordance with this
Section 3.01) concurrently with such Assigned Mortgage disqualification.
If Borrower desires that Lenders accept an additional property as a
Borrowing Base Property, Borrower shall so notify Agent, and Agent shall
promptly notify each other Lender; provided, however, that no additional
Investment Mortgages shall be admitted as Borrowing Base Property. No such
additional property will be evaluated by Lenders as a potential Borrowing Base
Property unless Borrower delivers to Agent the following:
(a) A current operating statement for such property audited or
certified by Borrower as being true and correct in all material respects
and prepared in
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accordance with GAAP and comparative operating statements (in the general
form of Borrowing Base Property Statements) for the current period and for
the previous two (2) Fiscal Years; provided, however, that, if Borrower
shall have owned such property for less than the period to be covered by
such operating statements, then the audit and certification requirements
shall extend only to the period of ownership by Borrower, so long as
Borrower provides operating statements prepared and certified by the former
owner(s) for the remainder of the period required hereunder, if available;
(b) A current rent roll for such property and a three (3) year
operating and occupancy history of such property, if available, in form
satisfactory to Agent, and certified by Borrower to be true and correct;
(c) A copy of Borrower's most recent Owner's Policy of Title Insurance
and a current preliminary report covering such property and showing the
identity of the fee titleholder thereto (and any ground lessee) and all
matters of record, together with copies of all such matters of record;
(d) A survey of such property certified by a surveyor licensed in the
applicable jurisdiction to have been prepared in accordance with the then
effective Minimum Standard Detail Requirements for ALTA/ACSM Land Title
Surveys, including a certification that such property is not located in a
Special Flood Hazard Area as defined by the Federal Insurance
Administration;
(e) A "Phase I" environmental assessment of such property not more
than twelve (12) months old;
(f) Copies of all Major Agreements affecting such property;
(g) Copies of engineering, mechanical, structural or maintenance
studies performed (if not previously performed, such studies as shall be
required by Agent) with respect to such property;
(h) A schedule of all personal property, including intangible personal
property owned by Borrower or the Guarantor Subpartnership, as applicable,
and used in connection with the maintenance or operation of such property;
and
(i) Such other information as may be reasonably requested by Agent in
order to evaluate the potential Borrowing Base Property.
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If, after receipt and review of the foregoing documents and information, Agent
is prepared to proceed with acceptance of such property as a Borrowing Base
Property, Agent will so notify Borrower, and Agent will obtain an Appraisal of
such property in order to determine the Appraised Value thereof. After obtaining
such Appraised Value, Agent will submit the foregoing documents, information and
the Appraised Value to the Lenders for their review. Lenders will provide
written notice to Agent of their acceptance or rejection of such property within
thirty (30) days after receipt of the foregoing documents, information and the
Appraised Value. Such acceptance or rejection shall be in Lenders' sole
discretion. Only upon unanimous acceptance by Lenders of such property
(including, unanimous acceptance by Lenders of any Liens thereon), execution and
delivery of documents and completion of all other closing requirements imposed
by Agent, and such other items or documents as may be appropriate under the
circumstances, including updates of any documents described in this Section
3.01, shall such property shall become a Borrowing Base Property.
3.02 Release of Borrowing Base Properties. Upon repayment and satisfaction
in full of all Obligations and the termination of all Commitments and this
Agreement, Agent will release the Mortgage Documents with respect to each of the
Borrowing Base Properties. From time to time Borrower may request, upon not less
than thirty (30) days' prior written notice to Agent (which shall promptly send
a copy thereof to each other Lender), that a Borrowing Base Property be released
from the Liens created by the Mortgage Documents applicable thereto, which
release ("Property Release") shall be delivered by Agent if all of the following
conditions are satisfied as of the date of such Property Release:
(a) no Unmatured Event of Default or Event of Default has occurred and
is then continuing or will occur after giving effect to such Property
Release and the reduction in the Borrowing Base by reason of the release of
such Borrowing Base Property;
(b) the Maturity Date has not occurred;
(c) Borrower shall have delivered to Agent a Borrowing Base
Certificate reflecting the Borrowing Base after giving effect to such
Property Release;
(d) Agent shall have determined that the outstanding principal balance
of the Loans will not exceed the Borrowing Base after giving effect to such
Property Release and any prepayment to be made and/or the acceptance of any
property as additional or replacement Borrowing Base Property to be given
concurrently with such Property Release;
(e) the title insurance policy or policies issued in favor of Agent
shall, at the request of Agent, be
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endorsed to reflect such release of Collateral, and Borrower shall pay all
costs and expenses incurred by or for the account of Agent in connection
with such Property Release;
(f) Agent shall have determined that no single Borrowing Base Property
(other than University Club Tower) will comprise more than twenty-five
percent (25%) of the then Borrowing Base after giving effect to such
Property Release and any prepayment to be made and/or the acceptance of any
property as additional or replacement Borrowing Base Property to be given
concurrently with such Property Release, or Lenders provide their unanimous
consent to such release after notice that such Collateral concentration
limit will be exceeded as a result of such release; and
(g) Agent shall have determined that the Assigned Mortgages will
comprise no more than forty percent (40%) of the then Borrowing Base after
giving effect to such Property Release and any prepayment to be made and/or
the acceptance of any property as additional or replacement Borrowing Base
Property to be given concurrently with such Property Release.
Notwithstanding the preceding, no single Assigned Mortgage executed
by AFP, as mortgagor, shall be released unless all other Assigned Mortgages
executed by AFP, as mortgagor, are released in accordance with this Agreement
concurrently therewith.
3.03 Borrowing Base Determinations.
(a) Appraisals. The Appraised Value of a Borrowing Base Property or
Properties shall be determined or redetermined, as applicable, under each of the
following circumstances:
(i) Upon initial acceptance of a property as a Borrowing Base
Property Agent will determine the Appraised Value thereof;
(ii) From time to time a Borrowing Base Property may be
reappraised, at Borrower's reasonable request, upon notice by Borrower to
Agent to reappraise a Borrowing Base Property, in which event Agent shall
cause an Appraisal thereof to be made;
(iii) The Agent shall have the right to have the Appraised
Value of each Borrowing Base Property redetermined at least every two
years after inclusion in the Borrowing Base and more frequently as
provided below; and
(iv) At any time and from time to time, upon five (5) Business
Days' prior written notice to
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Borrower, Agent may (and shall at the direction of Requisite Lenders)
redetermine the Appraised Value of a Borrowing Base Property or Properties
in any of the following circumstances:
(A) if a material adverse change occurs, as determined
by Agent in its discretion, with respect to a Borrowing Base Property,
including, without limitation, a material deterioration in the Net
Operating Income of a Borrowing Base Property (including the actual or
anticipated loss without replacement of a Major BBP Lease), or a major
casualty, condemnation, contamination or violation of any Requirements
of Law; or
(B) if necessary in order to comply with Requirements of
Law applicable to any Lender.
Any Appraised Value so determined or redetermined shall be submitted by Agent to
Lenders for approval by Lenders. Agent shall notify Borrower of any approved
change in Appraised Value.
(b) Borrowing Base Value. Borrowing Base Values will be adjusted
downward as of the end of a Fiscal Quarter if application of the formula
described in clause (b) of the definition of Borrowing Base Value justifies such
adjustment. In the event the Borrowing Base Value of any Borrowing Base Property
is increased, such increase shall not become effective until Borrower delivers
to Agent an endorsement, if necessary, to Agent's title insurance policy
increasing the amount thereof as related to such Borrowing Base Property to not
less than one hundred percent (100%) of the adjusted Borrowing Base Value.
(c) Borrowing Base Determination. The Borrowing Base will be
recalculated at the end of each Fiscal Quarter.
3.04 Covenants Relating to Borrowing Base Properties.
(a) Insurance, Casualty. Borrower shall maintain or cause to be
maintained insurance covering the Borrowing Base Properties in such amounts and
covering such risks as is required pursuant to the Mortgage Documents or
otherwise as required from time to time by Agent.
(b) BBP Leases; Major Agreements. Unless otherwise consented to by
Agent in writing, all BBP Leases entered into after the date of this Agreement
shall (i) be to third parties (except any BBP Leases approved by Agent to
Glenborough Hotel Group) under market terms, (ii) provide for uses of such
Borrowing Base Property that are consistent with first-class management thereof,
and (iii) contain provisions regarding insurance, waiver of claims, damage and
destruction, condemnation, notice to mortgagee and subordination and
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attornment and other material matters in substantial conformity with the
standard form(s) of space lease utilized by Borrower for each Borrowing Base
Property, all of which standard forms (including revisions thereto) shall be
submitted by Borrower to Agent for approval in writing. Borrower shall only
enter into a Major BBP Lease after the date of this Agreement if (i) Borrower
has received Agent's prior written approval of the terms thereof, or (ii) Agent
has not notified Borrower of its disapproval of such proposed BBP Lease within
thirty (30) days after Agent's receipt of such proposed Major BBP Lease and a
transmittal letter requesting that Agent review such proposed BBP Lease and
approve or disapprove such proposed Major BBP Lease within thirty (30) days
after receipt thereof in accordance with this Section 3.04(b). Upon request by
Agent, Borrower shall provide to Agent an executed copy of each BBP Lease,
including all amendments, estoppel certificates and related documentation. In
addition, promptly following the execution of any Major Agreement (or the
termination or material modification thereof), Borrower shall provide a copy
thereof to Agent, and Agent shall promptly provide a copy thereof to each other
Lender. Upon the execution of any Major Agreement (or the termination or
material modification thereof) not approved in writing by Agent prior to such
execution, Agent may (and shall at the direction of Requisite Lenders)
redetermine the Appraised Value for the subject Borrowing Base Property; such
reappraisal right shall be in addition to the rights to reappraise set forth in
Section 3.03(a)(iv).
(c) Non-Disturbance Agreements. Borrower or, as applicable, the
Guarantor Subpartnership, shall obtain, prior to Closing, from all tenants under
those Major BBP Leases heretofore specified by Agent an estoppel, subordination,
acknowledgement of lease assignment, non-Disturbance and/or attornment agreement
in a form approved by Agent (each, as well as the estoppel certificates referred
to below, a "Non-Disturbance Agreement"). In addition, Borrower or, as
applicable, the Guarantor Subpartnership, shall use its best efforts to obtain
prior to Closing, or as soon thereafter as possible, from certain additional
tenants heretofore specified by Agent an estoppel certificate in a form approved
by Agent. If any Non-Disturbance Agreement asserts a material claim or setoff
right by the tenant, is materially inconsistent with the rent roll for such
Borrowing Base Property, or is delivered in a form materially different from the
Non-Disturbance Agreement, then, in any such circumstance, Agent shall have the
right to establish an appropriate reserve against Loan Availability until Agent
determines that the circumstance leading to such reserve as aforesaid has been
favorably resolved. Borrower or, as applicable, a Guarantor Subpartnership,
shall obtain, from each tenant under a Major BBP Lease entered into after the
Closing Date, a Non-Disturbance Agreement in a form approved by Agent as a part
of the approval of such Major BBP Lease. Notwithstanding the preceding, Agent
and Lenders agree that with respect to Hovpark, Borrower shall only be obligated
to obtain such Non-
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Disturbance Agreements and estoppel certificates as Borrower is entitled to
obtain as lender under the Assigned Mortgage with respect to Hovpark; provided,
however, that Borrower shall nevertheless make its best efforts to obtain such
Non-Disturbance Agreements and estoppel certificates prior to Closing, or as
soon as possible thereafter.
(d) Management Agreements. From and after the Closing Date, neither
Borrower nor any Guarantor Subpartnership shall enter into, or thereafter amend
in any material manner or terminate, a management agreement with respect to any
Borrowing Base Property, except upon thirty (30) days' prior written notice to
and approval by Agent. Borrower shall timely provide to Agent a copy of any
proposed management agreement, and Agent shall promptly provide a copy thereof
to each other Lender. Any proposed management agreement submitted to Agent for
approval and not disapproved by Agent within thirty (30) days after receipt
thereof, shall be deemed to be approved by Agent. Without limiting in any way
Agent's approval rights with respect thereto, each proposed management agreement
shall include an absolute right of Borrower or the Guarantor Subpartnership to
terminate same upon thirty (30) days' notice to the property manager and shall
provide for management fees, reimbursements or other payments to the property
manager at levels not in excess of applicable market levels.
(e) Major Construction. If Borrower or any Guarantor Subpartnership
intends to engage in (or permit any obligor under an Assigned Mortgage to engage
in) any construction, remodeling or demolition project or series of related
projects with respect to a Borrowing Base Property, the aggregate cost of which
will exceed One Million Dollars ($1,000,000), Borrower shall first notify Agent,
and such construction project shall be subject to Agent's approval, which
approval shall not be unreasonably withheld. Any proposed construction project
submitted to Agent for approval and not disapproved by Agent within thirty (30)
days after receipt thereof, shall be deemed to be approved by Agent.
(f) Property Taxes. Not later than sixty (60) days following payment of
real property taxes or assessments applicable to a Borrowing Base Property,
Borrower shall provide to Agent written evidence (including canceled checks) of
the payment thereof. Upon any breach of the foregoing covenant, and in addition
to any other right or remedy set forth in this Agreement, Agent may require that
Borrower obtain, at its expense, a tax service agreement covering any or all
Borrowing Base Properties.
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ARTICLE IV
CONDITIONS TO LOANS
4.01 Conditions to Initial Disbursement of Loans. The obligation of Lenders
to make the initial disbursement of the Loans shall be subject to satisfaction
of each of the following conditions precedent on or before the Closing Date:
(a) Borrower Loan Documents. Borrower shall have executed and
delivered to Agent each of the following, in form and substance acceptable to
Agent and each other Lender:
(i) this Agreement;
(ii) the Loan Notes;
(iii) all Uniform Commercial Code financing statements as shall be
requested by Lenders;
(iv) all applicable Mortgage Documents;
(v) an environmental indemnification; and
(vi) all other documents to be executed by or on behalf of Borrower
as listed on the Closing Checklist.
(b) Guarantor Subpartnership Loan Documents. Each Guarantor
Subpartnership shall have executed and delivered to Agent each of the following,
in form and substance acceptable to Agent and each other Lender:
(i) a Guaranty;
(ii) all applicable Mortgage Documents;
(iii) all Uniform Commercial Code financing statements as shall be
requested by Lenders;
(iv) an environmental indemnification; and
(v) all other documents to be executed by or on behalf of each
Guarantor Subpartnership as listed on the Closing Checklist.
(c) REIT Loan Documents. The REIT shall have executed and delivered to
Agent each of the following, in form and substance acceptable to Agent and each
other Lender:
(i) a Guaranty;
(ii) an environmental indemnification; and
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(iii) all other documents to be executed by or on behalf of the REIT
as listed on the Closing Checklist.
(d) Borrowing Base Property Documents. Agent shall have received the
following documents with respect to each Borrowing Base Property in form and
substance acceptable to Agent and each other Lender:
(i) an Appraisal;
(ii) American Land Title Association extended coverage Lender's
policies of title insurance or a commitments to issue such policies, from
a title company acceptable to Agent, each in the amount of the Facility
(or other amount approved by Agent), insuring the respective Mortgage or
Assigned Mortgage as a first mortgage subject only to Permitted Liens,
with endorsements and otherwise in form and substance acceptable to Agent
and Agent's counsel;
(iii) if required to obtain acceptable title insurance, a survey in
the form described in Section 3.01(d), certified to Agent;
(iv) such opinions of Borrower's local counsel pertaining to such
Borrowing Base Property as Agent shall require, in form and substance
satisfactory to Agent and Agent's counsel;
(v) Non-Disturbance Agreements pursuant to Section 3.04(c);
(vi) a rent roll, in form satisfactory to Agent, certified by
Borrower to be true, correct and complete in all material respects;
(vii) an environmental audit for each Borrowing Base Property,
conducted by an environmental engineering firm acceptable to Lenders, and
satisfactory evidence that Borrower, each Guarantor Subpartnership and all
Borrowing Base Properties are in compliance in all material respects with
all Environmental Laws, the violation of which could have a Material
Adverse Effect on Borrower, any Guarantor Subpartnership, any Borrowing
Base Property or the REIT; and
(viii) such other documents with respect to each Borrowing Base
Property as are listed on the Closing Checklist or as Agent shall
otherwise reasonably require.
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(e) Corporate and Partnership Documents. Agent shall have received the
corporate and partnership documents with respect to Borrower, the REIT and each
Guarantor Subpartnership (and corporate general partner thereof) as listed on
the Closing Checklist, including a certificate of each such entity's Secretary
or an officer comparable thereto (a "Secretary's Certificate") with respect to
authorization, incumbency and all organizational documents.
(f) Borrowing Base and Compliance Certificates. Borrower shall have
delivered to Agent a Borrowing Base Certificate evidencing sufficient Loan
Availability to support the Loans being requested and a Compliance Certificate.
(g) Notice of Borrowing. Borrower shall have delivered to Agent a
Notice of Borrowing and, if applicable, Agent shall have delivered to Borrower a
Fixed Rate Notice, in each case in compliance with Section 2.01(b).
(h) Performance. Borrower, the REIT and each Guarantor Subpartnership
shall have performed in all material respects all agreements and covenants
required by Agent to be performed by them on or before the Closing Date.
(i) Solvency. Each of the REIT, Borrower and each Guarantor
Subpartnership shall be Solvent and shall have delivered to Agent a Solvency
Certificate to that effect.
(j) Material Adverse Changes. No change, as determined by Agent and
Lenders, shall have occurred, during the Interim Period, which has a Material
Adverse Effect on Borrower, any Guarantor Subpartnership, any Borrowing Base
Property, the REIT or the operating performance of any Borrowing Base Property.
(k) Litigation Proceedings. There shall not have been instituted or
threatened, during the Interim Period, any litigation or proceeding in any court
or Governmental Authority affecting or threatening to affect Borrower, any
Guarantor Subpartnership, any Borrowing Base Property or the REIT which has a
Material Adverse Effect, as reasonably determined by Agent.
(l) Perfection of Liens. All Mortgages and financing statements shall
have been recorded or filed, as applicable, and Agent shall have a valid,
perfected first priority lien on all of the Borrowing Base Properties and other
Collateral.
(m) Indefeasible Title. Borrower and the Guarantor Subpartnerships, as
applicable, shall have good, indefeasible and merchantable title to the
Collateral, free and clear of all Liens other than Permitted Liens.
(n) No Event of Default; Satisfaction of Financial Covenants. On the
Closing Date and after giving effect to the initial disbursements of the Loans,
no Event of Default or
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Unmatured Event of Default shall exist and all of the financial covenants
contained in Sections 8.05 and 8.06 and Article IX shall be satisfied.
(o) Fees. Agent shall have received for the account of Lenders all fees
then due, including any fees payable in accordance with Section 12.16, and
Borrower shall have performed all of its other obligations as set forth in the
Loan Documents to make payments to Agent on or before the Closing Date and all
expenses of Agent or Lenders incurred prior to such Closing Date (excluding
Lenders' direct legal expenses) shall have been paid by Borrower.
(p) Opinion of Counsel. Agent shall have received, on behalf of Agent
and Lenders, favorable opinions of counsel (which may, as to certain matters, be
rendered by in-house counsel) for Borrower, each Guarantor Subpartnership and
the REIT dated as of the Closing Date, in form and substance satisfactory to
Agent, Lenders and their respective counsel.
(q) Consents and Approvals. All material licenses, permits, consents,
regulatory approvals and corporate action necessary to enter into the financing
transactions contemplated by this Agreement shall have been obtained by
Borrower, each Guarantor Subpartnership and the REIT.
(r) Insurance. Agent shall have received evidence that Borrower and
each Guarantor Subpartnership have property, casualty and liability insurance
satisfactory to Agent, and loss payable endorsements in form and substance
satisfactory to Agent naming Agent as loss payee with respect to property and
casualty insurance shall have been executed and delivered to Agent, together
with such certificates of insurance and binders as are requested by Agent naming
Agent and Lenders as additional insureds with respect to liability insurance,
all in substantial compliance with the provisions of Section 3.04(a).
(s) Leases. Agent shall have completed its review of the Major BBP
Leases and basic lease forms in use in relevant Borrowing Base Properties and
shall be satisfied therewith.
(t) Due Diligence. Agent shall have obtained and completed its review
of Appraisals of the Borrowing Base Properties and determination of Appraised
Values therefor and its review of the other Collateral, and Lenders shall have
completed such due diligence investigations as they deem necessary, and such
review and investigations shall provide Lenders with results and information
which, in each Lender's determination, are satisfactory to permit such Lender to
enter into this Agreement and fund the Loans.
(u) Representations and Warranties. All representations and
warranties contained in this Agreement and
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the other Loan Documents shall be true and correct in all material respects.
(v) Interest Rate Contracts. Borrower shall have obtained appropriate
Interest Rate Contracts, if then required by Section 9.07, and copies of such
Interest Rate Contracts shall have been provided to Agent.
(w) REIT Financial Statements. Agent shall have received audited REIT
Financial Statements, dated December 31, 1995 and unaudited REIT Financial
Statements, dated March 31, 1996 (including the consolidating financial
statements of each of the Associated Companies).
4.02 Conditions Precedent to All Loans. The obligation of each Lender to
make any Loan requested to be made by it, on any date, is subject to
satisfaction of the following conditions precedent as of such date:
(a) Documents. With respect to a request for a Loan, Agent shall have
received, on or before the Funding Date and in accordance with the provisions of
Section 2.01(b), an original and duly executed Notice of Borrowing.
(b) Additional Matters. As of the Funding Date for any Loan and after
giving effect to the Loans being requested:
(i) Representations and Warranties. All of the representations and
warranties contained in this Agreement and in any other Loan Document
(other than representations and warranties which expressly speak only as
of a different date and other than for changes permitted or contemplated
by this Agreement) shall be true and correct in all material respects on
and as of such Funding Date, as though made on and as of such date;
(ii) No Default. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing or would result from the making of
the requested Loan, and all of the financial covenants contained in
Sections 8.05 and 8.06 and Article IX shall be satisfied; and
(iii) No Material Adverse Change. No change shall have occurred
which shall have a Material Adverse Effect on Borrower, any Guarantor
Subpartnership, any Borrowing Base Property or the REIT or the operating
performance of any Borrowing Base Property, as determined by Agent.
Each submission by Borrower to Agent of a Notice of Borrowing with respect to a
Loan and the acceptance by Borrower of the proceeds of each such Loan made
hereunder shall constitute a
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representation and warranty by Borrower as of the Funding Date in respect of
such Loan that all the conditions contained in this Section 4.02(b) have been
satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Representations and Warranties as to Borrower, Etc.. In order to
induce Lenders to make the Loans, Borrower hereby represents and warrants to
Lenders as follows:
(a) Organization; Partnership Powers. Borrower (i) is a limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation, (ii) is duly qualified to do business as a
foreign limited partnership and in good standing under the laws of each
jurisdiction in which it owns or leases real property or in which the nature of
its business requires it to be so qualified, except for those jurisdictions
where failure to so qualify and be in good standing would not have a Material
Adverse Effect on Borrower, and (iii) has all requisite partnership power and
authority to own, operate and encumber its property and assets and to conduct
its business as presently conducted and as proposed to be conducted in
connection with and following the consummation of the Loans contemplated by the
Loan Documents.
(b) Authority. Borrower has the requisite partnership power and
authority to execute, deliver and perform each of the Loan Documents to which it
is or will be a party. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly approved
by the general partner of Borrower, and no other partnership proceedings or
authorizations on the part of Borrower or its general or limited partners are
necessary to consummate such transactions. Each of the Loan Documents to which
Borrower is a party has been duly executed and delivered by Borrower and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other laws
affecting creditors' rights generally.
(c) Ownership of Borrower, each Guarantor Subpartnership, the
Associated Companies and Borrowers under Assigned Mortgages. Schedule 5.01(c)
sets forth the owners of Borrower, each Guarantor Subpartnership, the Associated
Companies and the borrowers under the Assigned Mortgages (other than Hovpark)
and the owners' respective ownership percentages therein, and there are no other
ownership interests outstanding. Except as set forth or referred to in the
partnership agreement, articles of incorporation or bylaws, as applicable, of
Borrower, each Guarantor Subpartnership and the Associated Companies, no
ownership interest (or any securities, instruments, warrants, option or purchase
rights, conversion or exchange rights, calls,
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commitments or claims of any character convertible into or exercisable for any
ownership interest) of any such Person is subject to issuance under any
security, instrument, warrant, option or purchase rights, conversion or exchange
rights, call, commitment or claim of any right, title or interest therein or
thereto. All of the ownership interests in Borrower, each Guarantor
Subpartnership and the Associated Companies have been issued in compliance with
all applicable Requirements of Law.
(d) No Conflict. The execution, delivery and performance by Borrower
of the Loan Documents to which it is or will be a party, and each of the
transactions contemplated thereby, do not and will not (i) conflict with or
violate Borrower's limited partnership agreement or certificate of limited
partnership or other organizational documents, as the case may be, or (ii)
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law, Contractual
Obligation or Court Order of or binding upon Borrower, or (iii) require
termination of any Contractual Obligation, or (iv) result in or require the
creation or imposition of any Lien whatsoever upon any of the properties or
assets of Borrower (other than Liens in favor of Agent arising pursuant to the
Loan Documents or Permitted Liens).
(e) Consents and Authorizations. Borrower has obtained all consents
and authorizations required pursuant to its Contractual Obligations with any
other Person, and shall have obtained all consents and authorizations of, and
effected all notices to and filings with, any Governmental Authority, as may be
necessary to allow Borrower to lawfully execute, deliver and perform its
obligations under the Loan Documents to which Borrower is a party.
(f) Governmental Regulation. Neither Borrower, the REIT nor any
Guarantor Subpartnership is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
the Investment Company Act of 1940 or any other federal or state statute or
regulation such that its ability to incur indebtedness is limited or its ability
to consummate the transactions contemplated by the Loan Documents is materially
impaired.
(g) Prior Financials. The March 31, 1996 Consolidated Balance Sheet,
Statement of Operations and Statement of Cash Flows of the REIT contained in the
REIT's Form 10Q (the "March 31, 1996 Financials") delivered to Agent prior to
the date hereof were prepared in accordance with GAAP and fairly present the
assets, liabilities and financial condition of the REIT on a consolidated basis,
at such date and the results of its operations and its cash flows, on a
consolidated basis, for the period then ended.
(h) Financial Statements; Projections and Forecasts. Each of the
Financial Statements to be delivered to Agent
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pursuant to Sections 6.01(b) and (c), (i) has been, or will be, as applicable,
prepared in accordance with the books and records of the REIT on a consolidated
basis, and (ii) either fairly present, or will fairly present, as applicable,
the financial condition of the REIT on a consolidated basis, at the dates
thereof (and, if applicable, subject to normal year-end adjustments) and the
results of its operations and cash flows, on a consolidated basis, for the
period then ended. Each of the projections delivered to Agent prior to the date
hereof and the financial plans and projections to be delivered to Agent pursuant
to Section 6.01(e), (A) has been, or will be, as applicable, prepared by the
REIT in light of the past business and performance of the REIT on a consolidated
basis and (B) represent, or will represent, as of the date thereof, the
reasonable good faith estimates of the REIT's financial personnel.
(i) Prior Operating Statements. Each of the operating statements
pertaining to each of the Borrowing Base Properties delivered to Agent prior to
the date hereof was prepared in accordance with GAAP in effect on the date such
operating statement of each Borrowing Base Property was prepared and fairly
presents the results of operations of such Borrowing Base Property for the
period then ended.
(j) Borrowing Base Property Statements and Projections. Each of the
Borrowing Base Property Statements to be delivered to Agent pursuant to Section
6.01(a) (i) has been or will be, as applicable, prepared in accordance with the
books and records of the applicable Borrowing Base Property, and (ii) fairly
presents or will fairly present, as applicable, the results of operations of
such Borrowing Base Property for the period then ended. Each of the projections,
financial plans and budgets delivered to Agent prior to the date hereof and the
projections and budgets to be delivered to Agent pursuant to Sections 6.01(e)
and 6.01(g) (A) has been, or will be, as applicable, prepared for each Borrowing
Base Property in light of the past business and performance of such Borrowing
Base Property and (B) represents or will represent, as of the date thereof, the
reasonable good faith estimates of the REIT's financial personnel.
(k) Litigation; Adverse Effects.
(i) There is no action, suit, proceeding, governmental investigation
or arbitration, at law or in equity, or before or by any Governmental
Authority, pending or, to the best of Borrower's knowledge, threatened
against Borrower or any Property of Borrower (including any Borrowing Base
Property), which if adversely determined would (A) result in a Material
Adverse Effect on Borrower or any Borrowing Base Property, (B) materially
and adversely affect the ability of any party to any of the Loan Documents
to perform its obligations thereunder, or (C) materially
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and adversely affect the ability of Borrower to perform its obligations
contemplated in the Loan Documents.
(ii) Borrower is not (A) in violation of any applicable law, which
violation has a Material Adverse Effect on Borrower or any Borrowing Base
Property, or (B) subject to or in default with respect to any Court Order
which has a Material Adverse Effect on Borrower or any Borrowing Base
Property. There are no material Proceedings pending or, to the best of
Borrower's knowledge, threatened against Borrower or any Borrowing Base
Property, which, if adversely decided, would have a Material Adverse
Effect on Borrower or any Borrowing Base Property.
(l) No Material Adverse Change. Since March 31, 1996, there has
occurred no event which has a Material Adverse Effect on Borrower, and no
material adverse change in Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or the transactions contemplated
thereby.
(m) Payment of Taxes. All tax returns and reports to be filed by
Borrower have been timely filed, and all taxes, assessments, fees and other
governmental charges shown on such returns or otherwise payable by Borrower have
been paid when due and payable (other than real property taxes, which may be
paid prior to delinquency so long as no penalty or interest shall attach
thereto), except such taxes, if any, as are reserved against in accordance with
GAAP and are being contested in good faith by appropriate proceedings or such
taxes, the failure to make payment of which when due and payable will not have,
in the aggregate, a Material Adverse Effect on Borrower. Borrower has no
knowledge of any proposed tax assessment against Borrower that will have a
Material Adverse Effect on Borrower, which is not being actively contested in
good faith by Borrower.
(n) Material Adverse Agreements. Borrower is not a party to or subject
to any Contractual Obligation or other restriction contained in its limited
partnership agreement, certificate of limited partnership or similar governing
documents which has a Material Adverse Effect on Borrower.
(o) Performance. Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any Contractual Obligation applicable to it, and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute a default under such Contractual Obligation in each case, except
where the consequences, direct or indirect, of such default or defaults, if any,
will not have a Material Adverse Effect on Borrower.
(p) Federal Reserve Regulations. No part of the proceeds of the Loan
hereunder will be used to purchase or carry
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any "margin security" as defined in Regulation G or for the purpose of reducing
or retiring any indebtedness which was originally incurred to purchase or carry
any margin security or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of said Regulation G. Neither
Borrower, the REIT nor any Guarantor Subpartnership is engaged primarily in the
business of extending credit for the purpose of purchasing or carrying out any
"margin stock" as defined in Regulation U. No part of the proceeds of the Loan
hereunder will be used for any purpose that violates, or which is inconsistent
with, the provisions of Regulation X or any other regulation of the Federal
Reserve Board.
(q) Disclosure. The representations and warranties of Borrower
contained in the Loan Documents and all certificates, financial statements and
other documents delivered to Agent in connection therewith, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Borrower has given to
Agent true, correct and complete copies of all BBP Leases, organizational
documents, Financial Statements, Borrowing Base Property Statements, and all
other documents and instruments referred to in the Loan Documents as having been
delivered to Agent. Borrower has not intentionally withheld any material fact
from Agent in regard to any matter raised in the Loan Documents. Notwithstanding
the foregoing, with respect to projections of Borrower's future performance such
representations and warranties are made in good faith and to the best judgment
of Borrower.
(r) Requirements of Law. Borrower, the REIT and each Guarantor
Subpartnership are in compliance with all Requirements of Law (including without
limitation the Securities Act and the Securities Exchange Act, and the
applicable rules and regulations thereunder, state securities law and "Blue Sky"
laws) applicable to it and its respective businesses, in each case, where the
failure to so comply will have a Material Adverse Effect on any such Person. The
REIT has made all filings with and obtained all consents of the Commission
required under the Securities Act and the Securities Exchange Act in connection
with the execution, delivery and performance by the REIT of the Loan Documents.
(t) Patents, Trademarks, Permits, Etc. Borrower, the REIT and each
Guarantor Subpartnership own, are licensed or otherwise have the lawful right to
use, or have all permits and other governmental approvals, patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or necessary
for the conduct of each such Person's business as currently conducted, the
absence of which would have a Material Adverse Effect upon such Person. The use
of such permits and other governmental approvals, patents, trademarks, trade
names, copyrights, technology, know-how and processes by each such Person does
not infringe on the rights of any Person, subject to
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such claims and infringements as do not, in the aggregate, give rise to any
liability on the part of any such Person which would have a Material Adverse
Effect on any such Person.
(u) Environmental Matters. Except as set forth on Schedule 5.01(u), to
the best of Borrower's knowledge, (i) the operations of Borrower, the REIT and
each Guarantor Subpartnership comply in all material respects with all
applicable local, state and federal environmental, health and safety
Requirements of Law ("Environmental Laws"); (ii) none of Borrower's or any
Guarantor Subpartnership's present Property or operations are subject to any
Remedial Action or other Liabilities and Costs arising from the Release or
threatened Release of a Contaminant into the environment in violation of any
Environmental Laws, which Remedial Action or other Liabilities and Costs would
have a Material Adverse Effect on any such Person; (iii) neither Borrower, the
REIT nor any Guarantor Subpartnership has filed any notice under applicable
Environmental Laws reporting a Release of a Contaminant into the environment in
violation of any Environmental Laws, except as the same may have been heretofore
remedied; (iv) there is not now on or in the Property of Borrower or any
Guarantor Subpartnership (except in compliance in all material respects with all
applicable Environmental Laws): (A) any underground storage tanks, (B) any
asbestos-containing material, or (C) any poly-chlorinated biphenyls (PCB's)
used in hydraulic oils, electrical transformers or other equipment owned by such
Person; and (v) neither Borrower, the REIT nor any Guarantor Subpartnership has
received any notice or claim to the effect that it is or may be liable to any
Person as a result of the Release or threatened Release of a Contaminant into
the environment.
(v) Major Agreements; BBP Leases. With respect to each Borrowing Base
Property, Agent has received true, complete and correct copies of each Major
Agreement. All such Major Agreements are in full force and effect and have not
been and will not be modified or terminated (except for modifications which
comply with the requirements of clauses (i) through (iii) of Section 3.04(b) and
terminations by reason of a material default), and no default or event of
default (or event or occurrence which upon with the passage of time or the
giving of notice, or both, will constitute a default or event of default) exists
or will exist under such Major Agreements as a result of the consummation of the
transactions contemplated by the Loan Documents. Agent has received the form BBP
Lease used for each Borrowing Base Property, and the BBP Leases for each
Borrowing Base Property, taken as a whole, do not and will not vary materially
from the requirements of clauses (i) through (iii) of Section 3.04(b). All BBP
Leases contain provisions pursuant to which the tenant thereunder agrees to
attorn to a mortgagee in the event of a foreclosure, subject only to customary
conditions. Except as reflected on the most current rent rolls delivered to
Agent, all BBP Leases are in full force and effect and no default or event or
default (or event or occurrence which upon with the
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passage of time or the giving of notice, or both, will constitute a default or
event of default) exists or will exist thereunder as a result of the
consummation of the transactions contemplated by the Loan Documents. Except as
set forth on Schedule 5.01(v), other than BBP Leases and Permitted Liens there
are no Contractual Obligations relating to the maintenance, occupancy, use or
operation of any of the Borrowing Base Properties which are not terminable by
Borrower or a mortgagee-in-possession upon thirty (30) days or less notice.
(w) Solvency. Borrower is and will be Solvent after giving effect to
the disbursements of the Loans and the payment and accrual of all fees then
payable.
(x) Title to Assets; No Liens. Borrower has good, indefeasible and
merchantable title to all Properties owned or leased by it, including, without
limitation, any Borrowing Base Properties owned or leased by Borrower, and all
of the Collateral is free and clear of all Liens, except Permitted Liens.
(y) Use of Proceeds. Borrower's use of the proceeds of the Loans are,
and will continue to be, legal and proper uses (and to the extent necessary,
duly authorized by Borrower's partners) and such uses are consistent with all
applicable laws and statutes and Section 7.01(j).
(z) Management Agreements. Except as disclosed on Schedule 5.01(z),
Borrower is not a party or subject to any management or leasing agreement with
respect to any of the fee properties included within the Borrowing Base
Properties and has delivered to Agent true, correct and complete copies of any
management or leasing agreements with respect to the real properties encumbered
by the Assigned Mortgages.
5.02 Representations and Warranties as to the REIT. In order to induce
Lenders to make the Loans, Borrower hereby represents and warrants to Lenders as
follows:
(a) Organization; Corporate Powers. The REIT (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland, (ii) is duly qualified to do business as a foreign corporation and in
good standing under the laws of each jurisdiction in which it owns or leases
real property or in which the nature of its business requires it to be so
qualified, except for those jurisdictions where failure to so qualify and be in
good standing will not have a Material Adverse Effect on the REIT, and (iii) has
all requisite corporate power and authority to own, operate and encumber its
property and assets and to conduct its business as presently conducted and as
proposed to be conducted in connection with and following the consummation of
the transactions contemplated by the Loan Documents.
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(b) Authority. The REIT has the requisite corporate power and
authority to execute, deliver and perform each of the Loan Documents to which it
is or will be a party. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly approved
by the Board of Directors of the REIT, and no other corporate proceedings on the
part of the REIT are necessary to consummate such transactions. Each of the Loan
Documents to which the REIT is a party has been duly executed and delivered by
Borrower and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights generally.
(c) No Conflict. The execution, delivery and performance by the REIT
of the Loan Documents to which it is party, and each of the transactions
contemplated thereby, do not and will not (i) conflict with or violate its
articles of incorporation, by-laws or other organizational documents, (ii)
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law, Contractual
Obligation or Court Order of the REIT, (iii) require termination of any
Contractual Obligation, (iv) result in or require the creation or imposition of
any Lien whatsoever upon any of the properties or assets of the REIT (other than
Liens in favor of Agent arising pursuant to the Loan Documents), or (v) require
any approval of the stockholders of the REIT.
(d) Consents and Authorizations. The REIT has obtained all consents
and authorizations required pursuant to its Contractual Obligations with any
other Person, and shall have obtained all consents and authorizations of, and
effected all notices to and filings with, any Governmental Authority, as may be
necessary to allow the REIT to lawfully execute, deliver and perform its
obligations under the Loan Documents to which the REIT is a party.
(e) Capitalization. All of the capital stock of the REIT has been
issued in compliance with all applicable Requirements of Law.
(f) Litigation; Adverse Effects.
(i) There is no action, suit, proceeding, governmental investigation
or arbitration, at law or in equity, or before or by any Governmental
Authority, pending or, to best of Borrower's knowledge, threatened against
the REIT or any Property of the REIT, which will (A) result in a Material
Adverse Effect on the REIT, (B) materially and adversely affect the
ability of any party to any of the Loan Documents to perform its
obligations thereunder, or (C) materially and adversely affect the ability
of the REIT to perform its obligations as contemplated in the Loan
Documents.
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(ii) The REIT is not (A) in violation of any applicable law, which
violation has a Material Adverse Effect on the REIT, or (B) subject to or
in default with respect to any Court Order which has a Material Adverse
Effect on the REIT. There are no Proceedings pending or, to the best of
Borrower's knowledge, threatened against the REIT, which, if adversely
decided, would have a Material Adverse Effect on the REIT, Borrower or any
Borrowing Base Property.
(g) No Material Adverse Change. Since March 31, 1996, there has
occurred no event which has a Material Adverse Effect on the REIT, and no
material adverse change in the REIT's ability to perform its obligations under
the Loan Documents to which it is a party or the transactions contemplated
thereby.
(h) Payment of Taxes. All tax returns and reports to be filed by the
REIT have been timely filed, and all taxes, assessments, fees and other
governmental charges shown on such returns have been paid when due and payable,
except such taxes, if any, as are reserved against in accordance with GAAP and
are being contested in good faith by appropriate proceedings or such taxes, the
failure to make payment of which when due and payable would not have, in the
aggregate, a Material Adverse Effect on the REIT. The REIT has no knowledge of
any proposed tax assessment against the REIT that would have a Material Adverse
Effect on the REIT, which is not being actively contested in good faith by the
REIT.
(i) Material Adverse Agreements. The REIT is not a party to or subject
to any Contractual Obligation or other restriction contained in its charter,
by-laws or similar governing documents which has a Material Adverse Effect on
the REIT or the ability of the REIT to perform its obligations under the Loan
Documents to which it is a party.
(j) Performance. The REIT is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any Contractual Obligation applicable to it, and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute a default under such Contractual Obligation in each case, except
where the consequences, direct or indirect, of such default or defaults, if any,
would not have a Material Adverse Effect on the REIT.
(k) Disclosure. The representations and warranties of the REIT
contained in the Loan Documents, and all certificates, financial statements and
other documents delivered to Agent in connection therewith, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The REIT has not
intentionally withheld any material fact from
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Agent in regard to any matter raised in the Loan Documents. Notwithstanding the
foregoing, with respect to projections of the REIT's future performance such
representations and warranties are made in good faith and to the best judgment
of the management of the REIT.
(l) ERISA. Neither the REIT nor any ERISA Affiliate thereof
(including, for all purposes under this Section 5.02(l), Borrower and each
Guarantor Partnership) has in the past five (5) years maintained or contributed
to or currently maintains or contributes to any Benefit Plan other than the
Benefit Plans identified on Schedule 5.02(l). No Investment Partnership has or
is likely to incur any liability with respect to any Benefit Plan maintained or
contributed to by such Investment Partnership or its ERISA Affiliates, which
would have a Material Adverse Effect on Borrower. Neither the REIT nor any ERISA
Affiliate thereof has during the past five (5) years maintained or contributed
to or currently maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA which provides benefits to retirees
other than benefits required to be provided under Section 4980B of the Internal
Revenue Code and Sections 601 through 608 of ERISA (or any successor provisions
thereto). Neither the REIT nor any ERISA Affiliate thereof is now contributing
nor has it ever contributed to or been obligated to contribute to any
Multiemployer Plan, no employees or former employees of the REIT, or such ERISA
Affiliate have been covered by any Multiemployer Plan in respect of their
employment by the REIT, and no ERISA Affiliate of the REIT has or is likely to
incur any withdrawal liability with respect to any Multiemployer Plan which
would have a Material Adverse Effect on the REIT.
(m) Solvency. The REIT is and will be Solvent, in each case after
giving effect to the disbursement of the Loans, and the payment and accrual of
all fees then payable.
(n) Status as a REIT. The REIT (i) is a real estate investment trust
as defined in Section 856 of the Internal Revenue Code (or any successor
provision thereto), (ii) has not revoked its election to be a real estate
investment trust, (iii) has not engaged in any "prohibited transactions" as
defined in Section 856(b)(6)(iii) of the Internal Revenue Code (or any successor
provision thereto), and (iv) for its current "tax year" (as defined in the
Internal Revenue Code) is and for all prior tax years subsequent to its election
to be a real estate investment trust has been entitled to a dividends paid
deduction which meets the requirements of Section 857 of the Internal Revenue
Code.
(o) Ownership. The REIT does not own or have any direct interest in
any other Person, other than its ownership of (i) one hundred percent (100%) of
the common shares of (A) GRT Industrial Corporation, a Delaware corporation, (B)
GRT Financial Corporation, a Delaware corporation and (C) GRT Corporation, a
Georgia corporation, (ii) one hundred percent (100%) of the non-
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voting preferred shares of the Associated Companies, and (iii) the general
partnership interest and Eighty-Five and 37/100 Percent (85.37%) of the limited
partnership interests in Borrower.
(p) NYSE Listing. The common stock of the REIT is and will continue to
be listed for trading and traded on the New York Stock Exchange.
(q) Executive Officer Ownership. Schedule 5.02(q) sets forth the
direct and indirect ownership interests of Robert Batinovich in Borrower and the
REIT, indicating the actual names of such owners, the actual ownership interests
of each such owner in Borrower and the REIT and the percentage ownership
interests of each such owner in Borrower and the REIT in the aggregate.
ARTICLE VI
REPORTING COVENANTS
Borrower covenants and agrees that, on and after the date hereof, until
payment in full of all of the Obligations, the expiration of the Commitments and
termination of this Agreement:
6.01 Financial Statements and Other Financial and Operating Information.
Borrower shall maintain or cause to be maintained a system of accounting
established and administered in accordance with sound business practices and
consistent with past practice to permit preparation of quarterly and annual
financial statements in conformity with GAAP, and each of the financial
statements described below shall be prepared on a consolidated basis for the
REIT from such system and records. Borrower shall deliver or cause to be
delivered to Agent (with copies sufficient for each Lender):
(a) Borrowing Base Property Statements and Operating Results. As soon
as practicable, and in any event within twenty (20) days after the end of the
each Fiscal Quarter, quarterly operating statements, in a form approved by
Agent, which operating statements shall include actual quarterly and
year-to-date net operating income and net cash flow results, rent rolls (on
Borrower's detailed form of rent roll), cash flow projections, lease status
reports and occupancy summaries in the form customarily generated by Borrower
for each Borrowing Base Property dated as of the last day of such Fiscal Quarter
(the " Quarterly Borrowing Base Property Statements"), in form and substance
satisfactory to Agent, certified by the REIT's chief financial officer or chief
accounting officer. In addition, as soon as practicable, and in any event within
twenty (20) days after the end of the fourth Fiscal Quarter, a year-end
operating statement, in a form approved by Agent, which operating statement
shall include actual year-to-date net operating income and net cash flow results
for each Borrowing Base Property dated as of
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the last day of such Fiscal Quarter (collectively with the Quarterly Borrowing
Base Property Statements, the "Borrowing Base Property Statements").
(b) Quarterly Financial Statements Certified by CFO. As soon as
practicable, and in any event within forty-five (45) days after the end of each
Fiscal Quarter, consolidated and consolidating balance sheets, statements of
operations and statements of cash flow for the REIT ("Financial Statements"),
which may, in the case of the first three Fiscal Quarters, be in the form
provided to the Commission on the REIT's Form 10Q, and certified by the REIT's
chief financial officer or chief accounting officer. In addition, as soon as
practicable, and in any event within forty-five (45) days after the end of each
Fiscal Quarter, balance sheets, statements of operations and statements of cash
flow for each of the Associated Companies and any Affiliate of Borrower from
time to time specified by Agent.
(c) Annual Financial Statements. Within ninety (90) days after the
close of each Fiscal Year, annual Financial Statements of the REIT, on a
consolidated and consolidating basis (in the form provided to the Commission on
the REIT's Form 10K), audited and certified without qualification by the
Accountants and accompanied by a statement that, in the course of their audit
(conducted in accordance with generally accepted auditing standards), the
Accountants obtained no knowledge that an Event of Default or Unmatured Event of
Default occurred. In addition, as soon as practicable, and in any event within
ninety (90) days after the end of each Fiscal Year, year-end balance sheets and
annual statements of operations and statements of cash flow for each of the
Associated Companies. To the extent Agent desires additional details or
supporting information with respect to Investment Partnerships, the Associated
Companies or individual Properties which are not Borrowing Base Properties not
contained in the REIT's Form 10K, Borrower shall provide Agent with such details
or supporting information as Agent requests which is reasonably available to
Borrower. Without limiting the foregoing, at Agent's request, within ninety (90)
days after the end of each Fiscal Year, Borrower shall provide to Agent
operating statements and a schedule setting forth the percentage of leasable
area leased to tenants in occupancy, with footnotes indicating which leases are
in default in rent payments by more than forty-five (45) days (other than
technical, nonmaterial disputes concerning percentage rentals due) any other
material provisions in respect to which landlord has issued a notice of default,
for each Property which is not a Borrowing Base Property.
(d) Officer's Certificate of Borrower. (i) Together with each delivery
of any Borrowing Base Property Statement or Financial Statement pursuant to
clauses (a), (b) and (c) above, an Officer's Certificate of the REIT, stating
that the executive officer who is the signatory thereto (which officer shall be
the chief executive officer, the chief operating officer, the chief
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financial officer or the chief accounting officer of the REIT) has reviewed, or
caused under his supervision to be reviewed, the terms of this Agreement and the
other principal Loan Documents, and has made, or caused to be made under his
supervision, a review in reasonable detail of the transactions and condition of
Borrower, the REIT and each Guarantor Subpartnership, during the accounting
period covered by such Borrowing Base Property Statements or Financial
Statements, and that such review has not disclosed the existence during or at
the end of such accounting period, and that the signers do not have knowledge of
the existence as of the date of the Officer's Certificate, of any condition or
event which constitutes an Event of Default or Unmatured Event of Default, or,
if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action has been taken, is being taken and
is proposed to be taken with respect thereto; and (ii) together with each
delivery pursuant to clauses (a), (b) and (c) above, a Compliance Certificate
demonstrating in reasonable detail (which detail shall include actual
calculation and supporting information) compliance during and at the end of such
accounting periods with the financial covenants contained in Sections 8.05 and
8.06 and Article IX.
(e) Cash Flow Projections. Not later than fifteen (15) days prior to
the beginning of each Fiscal Year, projections of Borrower, on a consolidated
basis, detailing expected sources and uses of cash for the next Fiscal Year.
Borrower shall also provide such additional supporting details as Agent may
reasonably request, and with respect to Hovpark, to the extent available to
Borrower.
(f) Borrowing Base Certificate. As soon as practicable, and in any
event within twenty (20) days after the end of each Fiscal Quarter (and more
often if so requested by Agent), a Borrowing Base Certificate, certified as
being true and correct by the REIT's chief executive officer, chief operating
officer, chief financial officer or chief accounting officer. Each Borrowing
Base Certificate shall set forth Borrowing Base calculations since the date of
the last prior Borrowing Base Certificate, and shall reflect any material
adverse changes in the Net Operating Income or other condition of a Borrowing
Base Property of which such officer has knowledge and which is not reflected in
the most recent Borrowing Base Property Statement.
(g) Budgets For Borrowing Base Properties. Not later than fifteen (15)
days prior to the beginning of each Fiscal Year, annual operating budgets for
each Borrowing Base Property for the immediately following Fiscal Year, prepared
on an annual basis, in a form approved by Agent, together with all supporting
details reasonably requested by Agent, and certified by the chief executive
officer, chief operating officer, chief financial officer or chief accounting
officer of the REIT as being based upon the REIT's reasonable good faith
estimates, upon information and assumptions at the time. Notwithstanding the
preceding, with
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respect to Hovpark, Borrower shall only be obligated to provide such operating
budget information as is available to Borrower.
(h) Knowledge of Event of Default. Promptly upon Borrower obtaining
knowledge (i) of any condition or event which constitutes an Event of Default or
Unmatured Event of Default, or becoming aware that any Lender has given notice
or taken any other action with respect to a claimed Event of Default or
Unmatured Event of Default or (ii) of any condition or event which has a
Material Adverse Effect on Borrower, any Guarantor Subpartnership, the REIT or
any Borrowing Base Property, an Officer's Certificate specifying the nature and
period of existence of any such condition or event, or specifying the notice
given or action taken by such Lender and the nature of such claimed Event of
Default, Unmatured Event of Default, event or condition, and what action
Borrower, the Guarantor Subpartnership and/or the REIT has taken, is taking and
proposes to take with respect thereto.
(i) Litigation, Arbitration or Government Investigation. Promptly upon
Borrower, any Guarantor Subpartnership or the REIT obtaining knowledge of (i)
the institution of, or threat of, any material action, suit, proceeding,
governmental investigation or arbitration against or affecting Borrower, any
Guarantor Subpartnership, the REIT or any Borrowing Base Property not previously
disclosed in writing by Borrower to Agent pursuant to this Section 6.01(i),
including any eminent domain or other condemnation proceedings affecting any
Borrowing Base Property, or (ii) any material development in any action, suit,
proceeding, governmental investigation or arbitration already disclosed, which,
in either case, has a Material Adverse Effect on Borrower, any Guarantor
Subpartnership, the REIT or any Borrowing Base Property, a notice thereof to
Agent and such other information as may be reasonably available to it to enable
Agent, Lenders and their counsel to evaluate such matters.
(j) ERISA Termination Event. As soon as possible, and in any event
within thirty (30) days after Borrower, any Guarantor Subpartnership or the REIT
knows that a Termination Event has occurred, a written statement of the chief
financial officer of the REIT describing such Termination Event and the action,
if any, which Borrower, any Guarantor Subpartnership, the REIT or any ERISA
Affiliate of any of them has taken, is taking or proposes to take, with respect
thereto, and, when known, any action taken or threatened by the IRS, the DOL or
the PBGC with respect thereto.
(k) Prohibited ERISA Transaction. As soon as possible, and in any
event within thirty (30) days, after Borrower, any Guarantor Subpartnership, the
REIT or any ERISA Affiliate of any of them knows that a prohibited transaction
(defined in Section 406 of ERISA and Section 4975 of the Internal
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Revenue Code) has occurred, a statement of the chief financial officer of the
REIT describing such transaction.
(l) Benefit Plan Annual Report. Within thirty (30) days after the
filing thereof with the DOL, the IRS or the PBGC, copies of each annual report,
including Schedule B thereto, filed with respect to each Benefit Plan of
Borrower, any Guarantor Subpartnership, the REIT or any ERISA Affiliate of any
of them.
(m) Benefit Plan Funding Waiver Request. Within thirty (30) days after
the filing thereof with the IRS, a copy of each funding waiver request filed
with respect to any Benefit Plan of Borrower, any Guarantor Subpartnership, the
REIT or any ERISA Affiliate of any of them and all communications received by
Borrower, any Guarantor Subpartnership, the REIT or any ERISA Affiliate of any
of them with respect to such request.
(n) Establishment of Benefit Plan and Increase in Contributions to the
Benefit Plan. Not less than ten (10) days prior to the effective date thereof, a
notice to Agent of the establishment of a Benefit Plan (or the incurrence of any
obligation to contribute to a Multiemployer Plan) by Borrower, any Guarantor
Subpartnership, the REIT or any ERISA Affiliate of any of them. Within thirty
(30) days after the first to occur of an amendment of any then existing Benefit
Plan of Borrower, any Guarantor Subpartnership, the REIT or any ERISA Affiliate
of any of them which will result in an increase in the benefits under such
Benefit Plan or a notification of any such increase, or the establishment of any
new Benefit Plan by Borrower, any Guarantor Subpartnership, the REIT or any
ERISA Affiliate of any of them or the commencement of contributions to any
Benefit Plan to which Borrower, any Guarantor Subpartnership, the REIT or any
ERISA Affiliate of any of them was not previously contributing, a copy of said
amendment, notification or Benefit Plan.
(o) Qualification of ERISA Plan. Promptly upon, and in any event
within thirty (30) days after, receipt by Borrower, any Guarantor
Subpartnership, the REIT or any ERISA Affiliate of any of them of an unfavorable
determination letter from the IRS regarding the qualification of a Plan under
Section 401(a) of the Internal Revenue Code, a copy of said determination
letter, if such disqualification would have a Material Adverse Effect on
Borrower, any Guarantor Subpartnership or the REIT.
(p) Multiemployer Plan Withdrawal Liability. Promptly upon, and in any
event within thirty (30) days after receipt by Borrower, any Guarantor
Subpartnership, the REIT or any ERISA Affiliate of any of them of a notice from
a Multiemployer Plan regarding the imposition of withdrawal liability, a copy of
said notice.
(q) Failure to Make Section 412 Payment. Promptly upon, and in any
event within thirty (30) days after, Borrower, any Guarantor Subpartnership, the
REIT or any ERISA Affiliate of
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any of them fails to make a required installment under subsection (m) of Section
412 of the Internal Revenue Code or any other payment required under Section 412
of the Internal Revenue Code on or before the due date for such installment or
payment, a notification of such failure, if such failure could result in either
the imposition of a Lien under said Section 412 or otherwise have or could
reasonably be anticipated to have a Material Adverse Effect on Borrower, any
Guarantor Subpartnership or the REIT.
(r) Failure of the REIT to Qualify as Real Estate Investment Trust.
Promptly upon, and in any event within forty-eight (48) hours after Borrower
first has actual knowledge of (i) the REIT failing to continue to qualify as a
real estate investment trust as defined in Section 856 of the Internal Revenue
Code (or any successor provision thereof), (ii) any act by the REIT causing its
election to be taxed as a real estate investment trust to be terminated, (iii)
any act causing the REIT to be subject to the taxes imposed by Section 857(b)(6)
of the Internal Revenue Code (or any successor provision thereto), or (iv) the
REIT failing to be entitled to a dividends paid deduction which meets the
requirements of Section 857 of the Internal Revenue Code, a notice of any such
occurrence or circumstance.
(s) Asset Acquisitions and Dispositions, Indebtedness, Merger, Etc.
Without limiting Article VIII or any other restriction in the Loan Documents,
concurrent with notice to Borrower's priority mailing list and in all events not
later than any public disclosure, prior written notice of any material
investments (other than in Cash Equivalents), material acquisitions, asset
purchases, dispositions, disposals, divestitures or similar transactions
involving Property, the raising of additional equity or the incurring or
repayment of material Indebtedness, or any material merger, by or with Borrower,
any Guarantor Subpartnership or the REIT, and, promptly upon consummation of
such transaction, a Compliance Certificate demonstrating in reasonable detail
(which detail shall include actual calculations) compliance, after giving effect
to such proposed transaction(s), with the covenants contained in Sections 8.05
and 8.06 and Article IX. For purposes of this Section 6.01(s), any investment,
acquisition, asset purchase, disposition, disposal, divestiture, merger or
similar transaction shall be considered "material" if it involves assets
exceeding thirty-five percent (35%) of the Borrower's assets (as existing prior
to giving effect to such transaction).
(t) Other Information. Such other information, reports, contracts,
schedules, lists, documents, agreements and instruments in the possession of the
REIT, Borrower or a Guarantor Subpartnership with respect to (i) the Collateral,
(ii) any material change in the REIT's investment, finance or operating
policies, or (iii) Borrower's, any Guarantor Subpartnership's or the REIT's
business, condition (financial or
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otherwise), operations, performance, properties or prospects as Agent may from
time to time reasonably request, including, without limitation, annual
information with respect to cash flow projections, budgets, operating statements
(current year and immediately preceding year), rent rolls, lease expiration
reports, leasing status reports, note payable summaries, bullet note summaries,
equity funding requirements, contingent liability summaries, line of credit
summaries, line of credit collateral summaries, wrap note or note receivable
summaries, schedules of outstanding letters of credit, summaries of cash and
Cash Equivalents, projections of leasing fees and overhead budgets. Provided
that Agent gives Borrower reasonable prior notice and an opportunity to
participate, Borrower hereby authorizes Agent to communicate with the
Accountants and authorizes the Accountants to disclose to Agent any and all
financial statements and other information of any kind, including copies of any
management letter or the substance of any oral information, that such
accountants may have with respect to the Collateral or Borrower's, any Guarantor
Subpartnership's or the REIT's condition (financial or otherwise), operations,
properties, performance and prospects. Concurrently therewith, Agent will notify
Borrower of any such communication. At Agent's request, Borrower shall deliver a
letter addressed to the Accountants instructing them to disclose such
information in compliance with this Section 6.01(t).
(u) Press Releases; SEC Filings and Financial Statements. Telephonic
or telecopy notice to Agent concurrent with or prior to issuance of any material
press release concerning the REIT or Borrower and, as soon as practicable after
filing with the Commission, all reports and notices, proxy statements,
registration statements and prospectuses of the REIT. All materials sent or made
available generally by the REIT to the holders of its publicly-held Securities
or to a trustee under any indenture or filed with the Commission, including all
periodic reports required to be filed with the Commission, will be delivered to
Agent as soon as available.
(v) Accountant Reports. Copies of all reports prepared by the
Accountants and submitted to Borrower or the REIT in connection with each
annual, interim or special audit or review of the financial statements or
practices of Borrower or the REIT, including the comment letter submitted by the
Accountants in connection with their annual audit.
6.02 Environmental Notices. Borrower shall notify Agent, in writing, as
soon as practicable, and in any event within ten (10) days after Borrower's, any
Guarantor Subpartnership's or the REIT's learning thereof, of any: (a) written
notice or claim to the effect that Borrower, any Guarantor Subpartnership or the
REIT is or may be liable to any Person as a result of any material Release or
threatened Release of any Contaminant into the environment; (b) written notice
that Borrower, any Guarantor Subpartnership or the REIT is subject to
investigation by any
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Governmental Authority evaluating whether any Remedial Action is needed to
respond to the Release or threatened Release of any Contaminant into the
environment; (c) written notice that any Property is subject to an Environmental
Lien; (d) written notice of violation to Borrower, any Guarantor Subpartnership
or the REIT or awareness of a condition which might reasonably result in a
notice of violation of any Environmental Laws by Borrower, any Guarantor
Subpartnership or the REIT; (e) commencement or written threat of any judicial
or administrative proceeding alleging a violation of any Environmental Laws; (f)
written notice from a Governmental Authority of any changes to any existing
Environmental Laws that will have a Material Adverse Effect on the operations of
Borrower, any Guarantor Subpartnership or the REIT; or (g) any proposed
acquisition of stock, assets, real estate or leasing of property, or any other
action by Borrower that, to the best of Borrower's knowledge, could subject
Borrower, any Guarantor Subpartnership or the REIT to environmental, health or
safety Liabilities and Costs that will have a Material Adverse Effect on
Borrower, any Guarantor Subpartnership or the REIT. With regard to the matters
referred to in Clauses (a) through (e) above, the same shall apply in respect of
each Borrowing Base Property and, in the case of other Property of Borrower, any
Guarantor Subpartnership or the REIT, only if the matter will have a Material
Adverse Effect on Borrower, any Guarantor Subpartnership or the REIT.
6.03 Confidentiality. Confidential information obtained by Agent or
Lenders pursuant to this Agreement or in connection with the Facility shall not
be disseminated by Agent or Lenders and shall not be disclosed to third parties
except to regulators, taxing authorities and other governmental agencies having
jurisdiction over Agent or such Lender or otherwise in response to Requirements
of Law, to their respective auditors and legal counsel and in connection with
regulatory, administrative and judicial proceedings as necessary or relevant
including enforcement proceedings relating to the Loan Documents, and to any
prospective assignee of or participant in a Lender's interest under this
Agreement or any prospective purchaser of the assets or a controlling interest
in any Lender, provided that such prospective assignee, participant or purchaser
first agrees to be bound by the provisions of this Section 6.03. In connection
with disclosures of confidential information to any non-governmental
third-party, the Lender(s) from whom the same has been requested shall, to the
extent feasible and permitted, give prior notice of such request to Borrower;
however, neither Agent nor any such Lender shall incur any liability to Borrower
for failure to do so. For purposes hereof, "confidential information" shall mean
all nonpublic information obtained by Agent or Lenders, unless and until such
information becomes publicly known, other than as a result of unauthorized
disclosure by Agent or Lenders of such information.
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ARTICLE VII
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, on and after the date hereof, until
payment in full of all of the Obligations, the expiration of the Commitments and
termination of this Agreement:
7.01 With Respect to Borrower:
(a) Existence. Borrower shall at all times maintain its existence as a
limited partnership and preserve and keep in full force and effect its rights
and franchises unless the failure to maintain such rights and franchises does
not have a Material Adverse Effect on Borrower.
(b) Qualification, Name. Borrower shall qualify and remain qualified
to do business in each jurisdiction in which the nature of its business requires
it to be so qualified except for those jurisdictions where failure to so qualify
does not have a Material Adverse Effect on Borrower. Borrower will transact
business solely in its own name or in the name of a Guarantor Subpartnership.
(c) Compliance with Laws, Etc. Borrower shall (i) comply with all
Requirements of Law, and all restrictive covenants affecting Borrower or the
properties, performance, prospects, assets or operations of Borrower, and (ii)
obtain as needed all Permits necessary for its operations and maintain such in
good standing, except in each of the foregoing cases where the failure to do so
will not have a Material Adverse Effect on Borrower.
(d) Payment of Taxes and Claims. Borrower shall pay (i) all taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income or
property before any penalty or interest accrues thereon, the failure to make
payment of which will have a Material Adverse Effect on Borrower, and (ii) all
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums, material in the aggregate to Borrower, which have become due
and payable and which by law have or may become a Lien other than a judgment
lien upon any of Borrower's properties or assets, prior to the time when any
penalty or fine shall be incurred with respect thereto. Notwithstanding the
foregoing, Borrower may contest by appropriate legal proceedings conducted in
good faith and with due diligence, the amount, validity or application, in whole
or in part, of any taxes, assessments, other governmental charges or claims
described above, provided that Borrower shall provide such security as may be
required by Agent to insure ultimate payment of the same and to prevent any sale
or forfeiture of any of the Collateral (or any portion thereof or interest
therein), or any other of Borrower's Property (or any portion thereof or
interest
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therein), provided, however, that the provisions of this Section 7.01(d) shall
not be construed to permit Borrower to contest the payment of any Obligations or
any other sums payable by Borrower to Agent or Lenders hereunder or under any
other Loan Document. Notwithstanding any of the foregoing, Borrower shall
indemnify, defend and save Agent and Lenders harmless from and against any
liability, cost or expense of any kind that may be imposed on Agent or Lenders
in connection with any such contest and any loss resulting therefrom.
(e) Maintenance of Properties; Insurance. Borrower shall maintain in
good repair, working order and condition, excepting ordinary wear and tear, all
of its Property and will make or cause to be made all appropriate repairs,
renewals and replacements thereof. Borrower shall maintain commercially
reasonable and appropriate amounts of fire and extended coverage and liability
insurance.
(f) Inspection of Property; Books and Records; Discussions. Borrower
shall permit, and shall cause the REIT and each Guarantor Subpartnership to
permit, any authorized representative(s) designated by any Lender to visit and
inspect any of its properties, including all Borrowing Base Properties, to
inspect financial and accounting records and leases, and to make copies and take
extracts therefrom, all at such times during normal business hours and as often
as any Lender may reasonably request. In connection therewith, Borrower shall
pay all expenses of the types described in Section 12.01. Borrower will keep
proper books of record and account in which entries, in conformity with GAAP and
as otherwise required by this Agreement and applicable Requirements of Law,
shall be made of all dealings and transactions in relation to its businesses and
activities and as otherwise required under Section 6.01.
(g) Maintenance of Permits, Etc. Borrower will maintain in full force
and effect all Permits, franchises, patents, trademarks, trade names,
copyrights, authorizations or other rights necessary for the operation of its
business, except where the failure to obtain any of the foregoing would not have
a Material Adverse Effect on Borrower; and notify Agent in writing, promptly
after learning thereof, of the suspension, cancellation, revocation or
discontinuance of or of any pending or threatened action or proceeding seeking
to suspend, cancel, revoke or discontinue any material Permit, patent,
trademark, trade name, copyright, governmental approval, franchise authorization
or right.
(h) Required Interest Rate Contracts. To the extent necessary to
ensure compliance with the provisions of Section 9.07, Borrower shall maintain
one or more Interest Rate Contracts on terms reasonably acceptable to Agent and
with any Lender (or other counterparties determined by Borrower and acceptable
to Agent). Borrower shall determine to its own satisfaction whether such
Interest Rate Contracts are sufficient to provide protection
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and to meet its needs, and (notwithstanding any approval, or failure to approve,
by Agent) neither Agent nor any Lender shall have any obligation or
accountability with respect thereto or any obligation to propose, quote or enter
into any Interest Rate Contract.
(i) Conduct of Business. Except for investments expressly permitted
pursuant to Section 9.06 and investments in cash and Cash Equivalents, Borrower
shall engage only in the business of acquiring, developing, owning and operating
income-producing properties within the continental United States and any
business activities and investments of Borrower incidental thereto.
(j) Use of Proceeds. Borrower shall use the proceeds of the Loans only
for pre-developments costs, development costs, acquisitions, working capital,
equity investments, repayment of Indebtedness, including required interest
and/or principal payments thereon and for any other general corporate purposes.
(k) AFP Assigned Mortgages. On or prior to June 15, 1997, Borrower
shall have delivered a written notice to Agent in accordance with Section 3.02
requesting a Property Release with respect to the three Assigned Mortgages
executed by AFP, as mortgagor, and within thirty (30) days of such notice,
Borrower shall have satisfied all conditions listed in Section 3.02 prerequisite
to Agent's delivery of a Property Release with respect to the three Assigned
Mortgages executed by AFP, as mortgagor.
7.02 With Respect to the REIT:
(a) Corporate Existence. The REIT shall at all times maintain its
corporate existence and preserve and keep in full force and effect its rights
and franchises unless the failure to maintain such rights and franchises will
not have a Material Adverse Effect on the REIT.
(b) Qualification, Name. The REIT shall qualify and remain qualified
to do business in each jurisdiction in which the nature of its business requires
it to be so qualified except for those jurisdictions where failure to so qualify
does not have a Material Adverse Effect on the REIT. The REIT will transact
business solely in its own name.
(c) Securities Law Compliance. The REIT shall comply in all material
respects with all rules and regulations of the Commission and file all reports
required by the Commission relating to the REIT's publicly-held Securities.
(d) Continued Status as a REIT; Prohibited Transactions. The REIT (i)
will continue to be a real estate investment trust as defined in Section 856 of
the Internal Revenue Code (or any successor provision thereto), (ii) will not
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revoke its election to be a real estate investment trust, (iii) will not engage
in any "prohibited transactions" as defined in Section 856(b)(6)(iii) of the
Internal Revenue Code (or any successor provision thereto), and (iv) will
continue to be entitled to a dividend paid deduction meeting the requirements of
Section 857 of the Internal Revenue Code.
(e) NYSE Listed Company. The common stock of the REIT shall at all
times be listed for trading and be traded on the New York Stock Exchange.
(f) Compliance with Laws, Etc. The REIT shall (i) comply with all
Requirements of Law and restrictive covenants affecting the REIT and (ii) obtain
as needed all Permits necessary for its operations and maintain such in good
standing, except in each of the foregoing cases where the failure to do so will
not have a Material Adverse Effect on the REIT.
(g) Payment of Taxes and Claims. The REIT shall pay (i) all taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income or
property before any penalty or interest accrues thereon, the failure to make
payment of which will have a Material Adverse Effect on the REIT, and (ii) all
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums, material in the aggregate to the REIT, which have become due
and payable and which by law have or may become a Lien other than a judgment
lien upon any of the REIT's properties or assets, prior to the time when any
penalty or fine shall be incurred with respect thereto. Notwithstanding the
foregoing, REIT may contest by appropriate legal proceedings conducted in good
faith and with due diligence, the amount, validity or application, in whole or
in part, of any taxes, assessments, other governmental charges or claims
described above, provided that REIT shall provide such security as may be
required by Agent to insure ultimate payment of the same and to prevent any sale
or forfeiture of any of the Collateral (or any portion thereof or interest
therein), or any other of REIT's Property (or any portion thereof or interest
therein), provided, however, that the provisions of this Section 7.02(g) shall
not be construed to permit REIT to contest the payment of any Obligations or any
other sums payable by REIT to Agent or Lenders hereunder or under any other Loan
Document. Notwithstanding any of the foregoing, REIT shall indemnify, defend and
save Agent and Lenders harmless from and against any liability, cost or expense
of any kind that may be imposed on Agent or Lenders in connection with any such
contest and any loss resulting therefrom.
(h) Net Offering Proceeds. Unless otherwise agreed in writing by
Agent, the REIT shall immediately contribute any Net Offering Proceeds to
Borrower.
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ARTICLE VIII
NEGATIVE COVENANTS
Borrower covenants and agrees that, on and after the date hereof, until
payment in full of all of the Obligations, the expiration of the Commitments and
termination of this Agreement:
8.01 With Respect to all Parties: Neither Borrower, the REIT nor any
Guarantor Subpartnership shall:
(a) Liens. Directly or indirectly create, incur, assume or permit to
exist (i) any Lien on or with respect to any Collateral, except (A) Liens
in favor of Agent securing the Obligations and (B) Permitted Liens, or (ii)
any Liens which collectively encumber assets (other than the Collateral)
representing greater than twenty percent (20%) of Borrower's Gross Asset
Value, if the Indebtedness secured by such Lien contains a provision
providing that it may not be repaid for a period of greater than five (5)
years.
(b) Transfers of Collateral. Transfer, directly or indirectly, all or
any interest in any Borrowing Base Property or other Collateral.
(c) Restrictions on Fundamental Changes.
(i) Enter into any merger or consolidation in which the Borrower,
REIT or Guarantor Subpartnership, as applicable, is not the surviving
entity without the unanimous prior written consent of the Lenders or
liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution);
(ii) Change its Fiscal Year; or
(iii) Engage in any line of business other than as expressly
permitted under Section 7.01(i).
(d) ERISA. Permit any ERISA Affiliates to, do any of the following to
the extent that such act or failure to act would result in the aggregate,
after taking into account any other such acts or failure to act, in a
Material Adverse Effect on Borrower or the REIT:
(i) Engage, or knowingly permit an ERISA Affiliate to engage, in
any prohibited transaction described in Section 406 of the ERISA or
Section 4975 of the Internal Revenue Code which is not exempt under
Section 407 or 408 of ERISA or Section 4975(d) of the Internal Revenue
Code for which a class exemption is not available or a private
exemption has not been previously obtained from the DOL;
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(ii) Permit to exist any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal
Revenue Code), whether or not waived;
(iii) Fail, or permit an ERISA Affiliate to fail, to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Plan if such failure could result in
the imposition of a Lien or otherwise would have a Material Adverse
Effect on Borrower or the REIT;
(iv) Terminate, or permit an ERISA Affiliate to terminate, any
Benefit Plan which would result in any liability of Borrower or an
ERISA Affiliate under Title IV of ERISA or the REIT; or
(v) Fail, or permit any ERISA Affiliate to fail, to pay any
required installment under section (m) of Section 412 of the Internal
Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment
or other payment, if such failure could result in the imposition of a
Lien or otherwise would have a Material Adverse Effect on Borrower or
the REIT.
(e) Restrictions on Guaranties, Loans, etc. Make any loans to, or
enter into any guaranty of, or otherwise become personally liable for, any
obligations of, the Associated Companies, any Person advised or managed
(including as a general partner) by an Associated Company or any Affiliate
of any of the foregoing, which collectively exceed One Million Dollars
($1,000,000).
(f) Restrictions on Property Management. Enter into, or permit any
Borrower under an Assigned Mortgage to enter into, any property management,
leasing or similar agreement with respect to any Borrowing Base Property
except on arms'-length terms and subject to a right to terminate at will
upon not more than 30 days' notice, and as approved by Agent. Any such
proposed agreement shall be deemed approved by Agent for purposes of this
subsection if (i) approved by Agent in writing, or (ii) submitted to Agent
for approval and not disapproved by Agent within thirty (30) days after
receipt thereof.
8.02 Amendment of Constituent Documents. Neither Borrower nor any Guarantor
Subpartnership shall amend its partnership agreement or certificate of limited
partnership (including, without limitation, as to the admission of any new
partner, directly or indirectly). The REIT shall not amend its articles of
incorporation or by-laws without the prior written consent of Requisite Lenders,
except (i) to increase authorized capital or to authorize preferred stock, (ii)
as required by applicable law
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or applicable tax requirements or (iii) as prudent to maintain
qualification as a REIT.
8.03 Disposal of Guarantor Subpartnership Interests. Neither Borrower nor
the REIT will directly or indirectly convey, sell, transfer, assign, pledge or
otherwise encumber or dispose of any of its partnership interests in any
Guarantor Subpartnership at any time when Agent has a Lien on Property owned by
such Guarantor Subpartnership other than pursuant to the Partnership Interest
Security Agreements.
8.04 Margin Regulations. No portion of the proceeds of any Loans shall be
used in any manner which might cause the extension of credit or the application
of such proceeds to violate Regulation G, U or X or any other regulation of the
Federal Reserve Board or to violate the Securities Exchange Act or the
Securities Act, in each case as in effect on the applicable Funding Date.
8.05 Minimum Ownership Interest of Robert Batinovich. Robert Batinovich
shall at all times retain ownership of no less than seventy-five percent (75%)
of the total common shares of REIT and partnership units of Borrower
beneficially owned by Robert Batinovich, directly or indirectly, as of the
Closing Date as set forth on Schedule 5.02(g).
8.06 Management. Robert Batinovich shall not cease to be active on a full
time, continuous basis in the senior management of Borrower and the REIT
pursuant to a written employment contract having a termination date no earlier
than the Maturity Date, as it may be extended pursuant to Section 2.01(d);
provided that, if due to death or incapacity, Robert Batinovich is unable to act
in such capacity, Borrower shall have up to one hundred twenty (120) days to
obtain the approval of Requisite Lenders to additional executive(s), such that
the remaining and new management executives, as a group, have substantial and
sufficient knowledge, experience and capabilities in the management of a
publicly-held company engaged in the operation of a multi-asset real estate
business of the type engaged in by Borrower. In the event Borrower shall fail to
obtain approval of Requisite Lenders as aforesaid within said 120-day period,
then Borrower shall, at the election and upon the demand of Requisite Lenders
pay in full all Obligations under the Loan Documents not later than thirty (30)
days after the end of such 120-day period, whereupon this Agreement and all
Commitments hereunder shall be terminated. No further Borrowings shall be
permitted until Borrower shall have obtained approval of Requisite Lenders under
this Section 8.06.
8.07 Organization of Borrower, Etc. Borrower shall remain a California
limited partnership with the REIT as its sole general partner. At no time shall
Borrower be taxed as an association under the Internal Revenue Code.
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8.08 REIT Board of Directors. At least sixty percent (60%) of the
membership of the REIT's board of directors shall remain outside directors who
shall have no material affiliation with the REIT or any of its Affiliates other
than such board position.
8.09 With Respect to the REIT:
(a) The REIT shall not own any material assets or engage in any line
of business other than the ownership of the common shares, preferred shares
and partnership interests described in Section 5.02(o).
(b) The REIT shall not directly or indirectly create, incur, assume or
otherwise become or remain directly or indirectly liable with respect to,
any Indebtedness, except the Obligations and other Indebtedness of
Borrower.
(c) The REIT shall not directly or indirectly create, incur, assume or
permit to exist any Lien on or with respect to any of its Property or
assets except Liens in favor of Agent securing the Obligations.
(d) The REIT shall at no time (i) cease to be a listed company on the
New York Stock Exchange, or (ii) cease to be a qualified real estate
investment trust in the manner referred to in Section 5.02(n).
(e) The REIT will not directly or indirectly convey, sell, transfer,
assign, pledge or otherwise encumber or dispose of any of its partnership
interests in Borrower or any of its other interests in commons shares and
preferred shares described in Section 5.02(o) held as of the Closing Date,
except to secure the Obligations.
(f) The REIT will not become a guarantor of, or otherwise become
personally liable for, any obligation of the Associated Companies or any
subsidiaries thereof or make any loans to the Associated Companies or any
subsidiaries thereof, which collectively exceed One Million Dollars
($1,000,000).
ARTICLE IX
FINANCIAL COVENANTS
Borrower covenants and agrees that, on and after the date of this
Agreement and until payment in full of all the Obligations, the expiration of
all Commitments and the termination of this Agreement:
9.01 Minimum Net Worth. Borrower will maintain an Adjusted Net Worth
of not less than the Minimum Net Worth.
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9.02 Total Liabilities to Gross Asset Value Ratio. The ratio of Total
Liabilities to Gross Asset Value shall not exceed 0.50:1.
9.03 EBITDA to Interest Expense Ratio. The ratio of Borrower's EBITDA to
Interest Expense shall not be less than 2.50:1.
9.04 EBITDA to Debt Service and Capital Expenditures Ratio. The ratio of
Borrower's EBITDA to the sum of Debt Service and Borrower's Capital Expenditures
shall not be less than 2.25:1.
9.05 Distributions.
(a) Subject to subsection (b) below, aggregate distributions to
shareholders of the REIT and all limited partners of Borrower shall not
exceed ninety percent (90%) of Funds From Operations for any four (4)
consecutive Fiscal Quarters. For purposes of this Section 9.05, the term
"distributions" shall mean and include all dividends and other
distributions to, and the repurchase of stock or limited partnership
interests from, the holder of any equity interests in Borrower or the REIT
(other than the redemption of limited partnership interests in Borrower in
exchange for REIT stock).
(b) Aggregate distributions during the continuance of any Event of
Default shall not exceed the lesser of (i) the aggregate amount permitted
to be made during the continuance thereof under subsection (a) above, and
(ii) the minimum amount that the REIT must distribute to its shareholders
in order to avoid federal tax liability and to remain qualified as a real
estate investment trust as defined in Section 856 of the Internal Revenue
Code (or any successor provision thereto).
9.06 Restrictions on Certain Investments. Borrower may make the
following investments only so long as (a) the aggregate amount of all such
investments does not exceed, at any time, twenty-five percent (25%) of
Gross Asset Value, and (b) the aggregate amount of each enumerated category
of investment does not exceed the specified percentage of Gross Asset
Value, in each case as of the date made:
Maximum Percentage
of Gross Asset
Restricted Investments Value
---------------------- ------------------
Land: 5%
Securities: 5%
Investment Mortgages: 15%
Holdings in Unconsolidated Entities: 10%
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For purposes of calculating compliance with the foregoing, (i) the amount of
each investment in (A) Land, Securities or Investment Mortgages will be deemed
to be the lesser of the original Acquisition Price thereof or the amount at
which such asset is carried on Borrower's books, and (B) Holdings in
Unconsolidated Entities will be deemed to be an amount equal to (1) the
Borrower's Share of the EBITDA of each Unconsolidated Entity (other than the
Associated Companies) for the most recently ended Fiscal Quarter (excluding
EBITDA attributable to any Property not owned by any such Unconsolidated Entity
for the entire most recently ended Fiscal Quarter), times four (4), divided by
0.11; plus (2) the Borrower's Share of the Acquisition Price paid for any
Property acquired by an Unconsolidated Entity during the most recently ended
Fiscal Quarter; (ii) in the case of each investment in Land, Investment
Mortgages and Unconsolidated Entities, the nature of the underlying real
property asset and the conduct of business in respect thereof shall in all
respects comply with the limitations set forth in Section 7.01(i); (iii) the
amount of Borrower's investment in the Associated Companies as of the Closing
Date shall not be subject to the above limitation on investments in
Unconsolidated Entities, and shall not be included in such calculation; and (iv)
any Land that is planned for development within twelve months from the date of
acquisition by Borrower shall not be subject to the above limitation on
investments in Land, and shall not be included in such calculation, provided
that such exclusion shall cease to apply in the event that such Land remains
unimproved at the end of such 12-month period.
9.07 Floating Rate Debt. Borrower shall at no time incur or maintain
aggregate Floating Rate Debt in excess of Fifty-Six Million One Hundred Twenty
Thousand Dollars ($56,120,000).
9.08 Calculation. Each of the foregoing ratios and financial requirements
shall be calculated as of the last day of each Fiscal Quarter, but shall be
satisfied at all times. For purposes of determining compliance with Sections
9.03 and 9.04, the period covered thereby shall be the most recently ended
Fiscal Quarter preceding the date on which the coverage calculation is
determined.
ARTICLE X
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
10.01 Events of Default. Each of the following occurrences shall constitute
an Event of Default under this Agreement:
(a) Failure to Make Payments When Due. Borrower shall fail to pay
(i) any amount due on the Maturity Date, (ii) any principal when due, or (iii)
any interest on any Loan, or any fee or other amount payable under any Loan
Documents, within five (5) days after the same becomes due.
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(b) Distributions. Borrower or the REIT shall breach any covenant
set forth in Section 7.02(d) or 9.05.
(c) Breach of Financial Covenants. Borrower shall fail to satisfy
any financial covenant set forth in Article IX (other than the requirement in
Section 9.05) and such failure shall continue for thirty (30) days.
(d) Other Defaults. Borrower, the REIT or any Guarantor
Subpartnership shall fail duly and punctually to perform or observe any
agreement, covenant or obligation binding on Borrower, the REIT or any Guarantor
Subpartnership under this Agreement or under any of the other Loan Documents
(other than as described in any other provision of this Section 10.01), and with
respect to agreements, covenants or obligations for which no time period for
performance is otherwise provided, such failure shall continue for fifteen (15)
days after Borrower, the REIT or any Guarantor Subpartnership knew of such
failure (or such lesser period of time as is mandated by applicable Requirements
of Law); provided, however, if such failure is not capable of cure within such
fifteen (15) day period, then if Borrower promptly undertakes action to cure
such failure and thereafter diligently prosecutes such cure to completion within
forty-five (45) days after Borrower, the REIT or any Guarantor Subpartnership
knew of such failure, then Borrower shall not be in default hereunder.
(e) Breach of Representation or Warranty. Any representation or
warranty made or deemed made by Borrower, the REIT or any Guarantor
Subpartnership to Agent or any Lender herein or in any of the other Loan
Documents or in any statement, certificate or financial statements at any time
given by Borrower pursuant to any of the Loan Documents shall be false or
misleading in any material respect on the date as of which made.
(f) Default as to Other Indebtedness. (i) Borrower, the REIT, any
Guarantor Subpartnership, Subsidiary or Investment Partnership shall have
defaulted (beyond any applicable grace period) under (A) the Credit Agreement
(Term Loan) by and among Glenborough Properties, L.P., a California limited
partnership, as Borrower, Wells Fargo Bank, National Association, in its
capacity as Agent and Lender, and various other Lenders party thereto, dated as
of July 11, 1996, providing for a term loan of Six Million One Hundred Twenty
Thousand Dollars ($6,120,000), as the same may be amended from time to time, or
any of the loan documents relating thereto, or (B) any other Indebtedness of
such party other than the Obligations if the aggregate amount of such other
Indebtedness is One Million Dollars ($1,000,000) or more; or (ii) the holder(s)
of any Lien, in any amount, commence foreclosure of such Lien upon any Property
owned by Borrower, the REIT, any Guarantor Subpartnership, Subsidiary or
Investment Partnership having an aggregate value in excess of One Million
Dollars ($1,000,000); provided, however, that the foregoing $1,000,000
limitation shall be increased to Five Million Dollars
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($5,000,000) in the case of non-recourse Indebtedness, so long as such default
under or foreclosure on such non-recourse Indebtedness shall not give rise to an
Event of Default under Section 10.01(n).
(g) Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) An involuntary case shall be commenced against the REIT,
Borrower, any Guarantor Subpartnership, Subsidiary or Investment
Partnership and the petition shall not be dismissed within sixty
(60) days after commencement of the case, or a court having
jurisdiction shall enter a decree or order for relief in respect
of any such Person in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in
effect; or any other similar relief shall be granted under any
applicable federal, state or foreign law; or
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over the REIT, Borrower, any Guarantor Subpartnership,
Subsidiary or Investment Partnership, or over all or a
substantial part of the property of any such Person, shall be
entered; or an interim receiver, trustee or other custodian of
any such Person or of all or a substantial part of the property
of any such Person, shall be appointed or a warrant of
attachment, execution or similar process against any substantial
part of the property of any such Person, shall be issued and any
such event shall not be stayed, vacated, dismissed, bonded or
discharged within sixty (60) days of entry, appointment or
issuance.
(h) Voluntary Bankruptcy; Appointment of Receiver, Etc. The REIT,
Borrower, any Guarantor Subpartnership, Subsidiary, or Investment Partnership
shall have an order for relief entered with respect to it or commence a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or shall consent to the entry of an order for relief
in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking of possession by a receiver, trustee or other custodian for all or a
substantial part of its property; any such Person shall make any assignment for
the benefit of creditors or shall be unable or fail, or admit in writing its
inability, to pay its debts as such debts become due; or the general partner of
Borrower, any Guarantor Subpartnership, Subsidiary or Investment Partnership or
the REIT's Board of Directors (or any committee thereof) adopts any
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resolution or otherwise authorizes any action to approve any of the foregoing.
(i) Judgments and Attachments. (i) Any money judgment (other than a
money judgment covered by insurance but only if the insurer has admitted
liability with respect to such money judgment), writ or warrant of attachment,
or similar process involving in any case an amount in excess of One Million
Dollars ($1,000,000) shall be entered or filed against the REIT, Borrower, any
Guarantor Subpartnership, Subsidiary or Investment Partnership or their
respective assets and shall remain undischarged, unvacated, unbonded or unstayed
for a period of thirty (30) days, or (ii) any judgment or order of any court or
administrative agency awarding material damages shall be entered against any
such Person in any action under the Federal securities laws seeking rescission
of the purchase or sale of, or for damages arising from the purchase or sale of,
any Securities, such judgment or order shall have become final after exhaustion
of all available appellate remedies and, in Agent's judgment, the payment of
such judgment or order would have a Material Adverse Effect on such Person.
(j) Dissolution. Any order, judgment or decree shall be entered
against the REIT, Borrower, any Guarantor Subpartnership, Subsidiary or
Investment Partnership decreeing its involuntary dissolution or split up and
such order shall remain undischarged and unstayed for a period in excess of
thirty (30) days; or the REIT, Borrower or any Guarantor Subpartnership shall
otherwise dissolve or cease to exist.
(k) Loan Documents; Failure of Security or Subordination. Except as
provided in Section 3.02, if for any reason any Loan Document shall cease to be
in full force and effect or any Lien intended to be created thereby shall cease
to be or is not valid or perfected; or any Lien in favor of Agent contemplated
by this Agreement or any Loan Document shall, at any time, be invalidated or
otherwise cease to be in full force and effect; or any such Lien or any
Obligation shall be subordinated or shall not have the priority contemplated by
this Agreement or the Loan Documents for any reason, and, in the case of any of
the foregoing, such condition or event shall continue for fifteen (15) days
after Borrower, the REIT or any Guarantor Subpartnership knew of such condition
or event.
(l) ERISA Liabilities. Any Termination Event occurs which will or is
reasonably likely to subject Borrower, the REIT or any Guarantor Subpartnership
or any ERISA Affiliate of any of them to a liability which Agent reasonably
determines will have a Material Adverse Effect on Borrower, the REIT or any
Guarantor Subpartnership, or the plan administrator of any Benefit Plan applies
for approval under Section 412(d) of the Internal Revenue Code for a waiver of
the minimum funding standards of Section 412(a) of the Internal Revenue Code and
Agent reasonably determines that the business hardship upon which the Section
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412(d) waiver was based will or would reasonably be anticipated to subject
Borrower, the REIT or any Guarantor Subpartnership to a liability which Agent
determines will have a Material Adverse Effect on Borrower, the REIT or any
Guarantor Subpartnership.
(m) Environmental Liabilities. Borrower, the REIT or any Guarantor
Subpartnership becomes subject to any Liabilities and Costs which Agent
reasonably deems to have a Material Adverse Effect on such Person arising out of
or related to (i) the Release or threatened Release at any Property of any
Contaminant into the environment, or any Remedial Action in response thereto, or
(ii) otherwise any violation of any Environmental Laws.
(n) Solvency; Material Adverse Change. Borrower, any Guarantor
Subpartnership or the REIT shall cease to be Solvent, or there shall have
occurred any material adverse change in the business, operations, properties,
assets or condition (financial or otherwise) of Borrower, the REIT or any
Guarantor Subpartnership.
(o) Breach of Guaranty. The REIT shall fail to duly and punctually
perform or observe any agreement, covenant or obligation under its Guaranty, or
any Guarantor Subpartnership shall fail to duly and punctually perform or
observe any agreement, covenant or obligation under its Guaranty or any Mortgage
Document.
An Event of Default shall be deemed "continuing" until cured or
waived in writing in accordance with Section 12.04.
10.02 Rights and Remedies.
(a) Acceleration, Etc.. Upon the occurrence of any Event of Default
described in the foregoing Section 10.01(g) or 10.01(h) with respect to the
REIT, Borrower or any Guarantor Subpartnership, the Commitments shall
automatically and immediately terminate and the unpaid principal amount of and
any and all accrued interest on the Loans shall automatically become immediately
due and payable, with all additional interest from time to time accrued thereon
and without presentment, demand or protest or other requirements of any kind
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate or notice of
acceleration), all of which are hereby expressly waived by Borrower, and the
obligations of Lenders to make any Loans hereunder shall thereupon terminate;
and upon the occurrence and during the continuance of any other Event of
Default, Agent shall, at the request, or may, with the consent of Requisite
Lenders, by written notice to Borrower, (i) declare that the Commitments are
terminated, whereupon the Commitments and the obligation of Lenders to make any
Loan hereunder shall immediately terminate, and/or (ii) declare the unpaid
principal amount of, any and all accrued and unpaid interest on the Loans and
all of the other Obligations to be, and the same shall
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thereupon be, immediately due and payable with all additional interest from time
to time accrued thereon and without presentment, demand, or protest or other
requirements of any kind (including without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and of acceleration), all of which are hereby expressly waived by Borrower.
Without limiting Agent's authority hereunder, on or after the Maturity Date,
Agent shall, at the request, or may, with the consent, of Requisite Lenders
exercise any or all rights and remedies under the Loan Documents or applicable
law, including, without limitation, foreclosure upon all or any part of the
Collateral.
(b) Access to Information. If an Event of Default then exists, Agent
shall have, in addition to and not by way of a limitation of any other rights
and remedies contained in this Agreement or in the other Loan Documents, the
right within forty-eight (48) hours after notice to Borrower to obtain access to
Borrower's, the REIT's and each Guarantor Subpartnership's records (including
computerized information, files and supporting software) relating to the
Borrowing Base Properties and the other Collateral, and its accounting
information relating to the Borrowing Base Properties and the other Collateral,
and to use all of the foregoing and the information contained therein in any
manner Agent deems appropriate which is related to the preservation or
disposition of the Borrowing Base Properties and the other Collateral or to the
collection of the Obligations. Borrower hereby authorizes any accountant or
management agent employed by Borrower or any Guarantor Subpartnership to deliver
such items and information to Agent. Notwithstanding anything to the contrary
contained in the Loan Documents, upon the occurrence of and during the
continuance of an Event of Default, Agent shall be entitled to request and
receive, by or through Borrower or appropriate legal process, any and all
information concerning the REIT, Borrower, any Guarantor Subpartnership or any
property of any of them, which is reasonably available to or obtainable by
Borrower.
(c) Use of Intangibles. To the extent Borrower has the power,
without violating the terms of any agreement existing as of the Closing Date, to
grant such a license, Agent (on behalf of all Lenders) is hereby granted a
license or other right to use, without charge, Borrower's and each Guarantor
Subpartnership's copyrights, rights of use of any name, trade secrets, trade
names, tradestyles, trademarks, service marks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral.
(d) Waiver of Demand. Demand, presentment, protest and notice of
nonpayment are hereby waived by Borrower. Borrower also waives, to the extent
permitted by law, the benefit of all valuation, appraisal and exemption laws.
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(e) Waivers, Amendments and Remedies. No delay or omission of Agent
or Lenders to exercise any right under any Loan Document shall impair such right
or be construed to be a waiver of any Event of Default or an acquiescence
therein, and any single or partial exercise of any such right shall not preclude
other or further exercise thereof or the exercise of any other right, and no
waiver, amendment or other variation of the terms, conditions or provisions of
the Loan Documents whatsoever shall be valid unless in a writing signed by Agent
after obtaining written approval thereof or the signature thereon of those
Lenders required to approve such waiver, amendment or other variation, and then
only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to Agent and Lenders until the Obligations have been paid in
full, the Commitments have expired or terminated and this Agreement has been
terminated.
10.03 Rescission. If at any time after acceleration of the maturity of the
Loans, Borrower shall pay all arrears of interest and all payments on account of
principal of the Loans which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Agreement) and all Events of
Default and Unmatured Events of Default (other than nonpayment of principal of
and accrued interest on the Loans due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 12.04, then by
written notice to Borrower, Requisite Lenders may elect, in their sole
discretion, to rescind and annul the acceleration and its consequences; but such
action shall not affect any subsequent Event of Default or Unmatured Event of
Default or impair any right or remedy consequent thereon. The provisions of the
preceding sentence are intended merely to bind Lenders to a decision which may
be made at the election of Requisite Lenders; they are not intended to benefit
Borrower and do not give Borrower the right to require Lenders to rescind or
annul any acceleration hereunder, even if the conditions set forth herein are
met.
ARTICLE XI
AGENCY PROVISIONS
11.01 Appointment.
(a) Each Lender hereby (i) designates and appoints Wells Fargo as
Agent of such Lender under this Agreement and the Loan Documents, (ii)
authorizes and directs Agent to enter into the Loan Documents other than this
Agreement for the benefit of Lenders, and (iii) authorizes Agent to take such
action on its behalf under the provisions of this Agreement and the Loan
Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably inci-
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dental thereto, subject to the limitations referred to in Sections 11.10(a) and
11.10(b). Agent agrees to act as such on the express conditions contained in
this Article XI.
(b) The provisions of this Article XI are solely for the benefit of
Agent and Lenders, and Borrower shall not have any rights to rely on or enforce
any of the provisions hereof (other than as expressly set forth in Sections
11.03, 11.09 and 12.20, provided, however, that the foregoing shall in no way
limit Borrower's obligations under this Article XI. In performing its functions
and duties under this Agreement, Agent shall act solely as Agent of Lenders and
does not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Borrower or any other Person.
11.02 Nature of Duties. Agent shall not have any duties or responsibilities
except those expressly set forth in this Agreement or in the Loan Documents. The
duties of Agent shall be administrative in nature. Subject to the provisions of
Sections 11.05 and 11.07, Agent shall administer the Loans in the same manner as
it administers its own loans. Promptly following the effectiveness of this
Agreement, Agent shall send to each Lender its originally executed Note and the
executed original, to the extent the same are available in sufficient numbers,
of each other Loan Document other than the Notes in favor of other Lenders and
filed or recorded security document or instruments, with the latter to be held
and retained by Agent for the benefit of all Lenders. Agent shall not have by
reason of this Agreement a fiduciary relationship in respect of any Lender.
Nothing in this Agreement or any of the Loan Documents, expressed or implied, is
intended or shall be construed to impose upon Agent any obligation in respect of
this Agreement or any of the Loan Documents except as expressly set forth herein
or therein. Each Lender shall make its own independent investigation of the
financial condition and affairs of the REIT, Borrower, each Guarantor
Subpartnership and each Borrowing Base Property in connection with the making
and the continuance of the Loans hereunder and shall make its own appraisal of
the creditworthiness of the REIT, Borrower, each Guarantor Subpartnership and
each Borrowing Base Property, and, except as specifically provided herein, Agent
shall not have any duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the Closing Date or at any
time or times thereafter.
11.03 Loan Disbursements.
(a) Not later than the next Business Day following receipt of a
Notice of Borrowing, Agent shall send a copy thereof by facsimile to each other
Lender and shall otherwise notify each Lender of the proposed Borrowing and the
Funding Date. Each Lender shall make available to Agent (or the funding bank or
entity designated by Agent), the amount of such Lender's Pro Rata
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Share of such Borrowing in immediately available funds not later than the times
designated in Section 11.03(b). Unless Agent shall have been notified by any
Lender not later than the close of business (San Francisco time) on the Business
Day immediately preceding the Funding Date in respect of any Borrowing that such
Lender does not intend to make available to Agent such Lender's Pro Rata Share
of such Borrowing, Agent may assume that such Lender shall make such amount
available to Agent. If any Lender does not notify Agent of its intention not to
make available its Pro Rata Share of such Borrowing as described above, but does
not for any reason make available to Agent such Lender's Pro Rata Share of such
Borrowing, such Lender shall pay to Agent forthwith on demand such amount,
together with interest thereon at the Federal Funds Rate. In any case where a
Lender does not for any reason make available to Agent such Lender's Pro Rata
Share of such Borrowing, Agent, in its sole discretion, may, but shall not be
obligated to, fund to Borrower such Lender's Pro Rata Share of such Borrowing.
If Agent funds to Borrower such Lender's Pro Rata Share of such Borrowing and if
such Lender subsequently pays to Agent such corresponding amount, such amount so
paid shall constitute such Lender's Pro Rata Share of such Borrowing. Nothing in
this Section 11.03(a) shall alter the respective rights and obligations of the
parties hereunder in respect of a Defaulting Lender or a Non-Pro Rata Loan.
(b) Requests by Agent for funding by Lenders of Loans will be made
by telecopy. Each Lender shall make the amount of its Loan available to Agent in
Dollars and in immediately available funds, to such bank and account, in El
Segundo, California as Agent may designate, not later than 9:00 A.M. (San
Francisco time) on the Funding Date designated in the Notice of Borrowing with
respect to such Loan, but in no event earlier than two (2) Business Days
following Lender's receipt of the applicable Notice of Borrowing.
(c) Nothing in this Section 11.03 shall be deemed to relieve any
Lender of its obligation hereunder to make its Pro Rata Share of Loans on any
Funding Date, nor shall any Lender be responsible for the failure of any other
Lender to perform its obligations to make any Loan hereunder, and the Commitment
of any Lender shall not be increased or decreased as a result of the failure by
any other Lender to perform its obligation to make a Loan.
11.04 Distribution and Apportionment of Payments.
(a) Subject to Section 11.04(b), payments actually received by Agent
for the account of Lenders shall be paid to them promptly after receipt thereof
by Agent, but in any event within one (1) Business Day, provided that Agent
shall pay to Lenders interest thereon, at the Federal Funds Rate from the
Business Day following receipt of such funds by Agent until such funds are paid
in immediately available funds to Lenders. Subject to Section 11.04(b), all
payments of principal and
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interest in respect of outstanding Loans, all payments of the fees described in
this Agreement, and all payments in respect of any other Obligations shall be
allocated among such other Lenders as are entitled thereto, in proportion to
their respective Pro Rata Shares or otherwise as provided herein. Agent shall
promptly distribute, but in any event within one (1) Business Day, to each
Lender at its primary address set forth on the appropriate signature page hereof
or on the Assignment and Assumption, or at such other address as a Lender may
request in writing, such funds as it may be entitled to receive, provided that
Agent shall in any event not be bound to inquire into or determine the validity,
scope or priority of any interest or entitlement of any Lender and may suspend
all payments and seek appropriate relief (including, without limitation,
instructions from Requisite Lenders or all Lenders, as applicable, or an action
in the nature of interpleader) in the event of any doubt or dispute as to any
apportionment or distribution contemplated hereby. The order of priority herein
is set forth solely to determine the rights and priorities of Lenders as among
themselves and may at any time or from time to time be changed by Lenders as
they may elect, in writing in accordance with Section 12.04, without necessity
of notice to or consent of or approval by Borrower or any other Person. All
payments or other sums received by Agent for the account of Lenders (including,
without limitation, principal and interest payments, the proceeds of any and all
insurance maintained with respect to any of the Collateral, and any and all
condemnation proceeds with respect to any of the Collateral) shall not
constitute property or assets of the Agent and shall be held by Agent, solely in
its capacity as agent for itself and the other Lenders, subject to the Loan
Documents.
(b) Notwithstanding any provision hereof to the contrary, until such
time as a Defaulting Lender has funded its Pro Rata Loan which was previously a
Non Pro Rata Loan, or all other Lenders have received payment in full (whether
by repayment or prepayment) of the principal and interest due in respect of such
Non Pro Rata Loan, all of the Obligations owing to such Defaulting Lender
hereunder shall be subordinated in right of payment, as provided in the
following sentence, to the prior payment in full of all principal, interest and
fees in respect of all Non Pro Rata Loans in which the Defaulting Lender has not
funded its Pro Rata Share (such principal, interest and fees being referred to
as "Senior Loans"). All amounts paid by Borrower and otherwise due to be applied
to the Obligations owing to the Defaulting Lender pursuant to the terms hereof
shall be distributed by Agent to the other Lenders in accordance with their
respective Pro Rata Shares (recalculated for purposes hereof to exclude the
Defaulting Lender's Commitment), until all Senior Loans have been paid in full.
This provision governs only the relationship among Agent, each Defaulting
Lender, and the other Lenders; nothing hereunder shall limit the obligation of
Borrower to repay all Loans in accordance with the terms of this Agreement. The
provisions of this section shall apply and be
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effective regardless of whether an Event of Default occurs and is then
continuing, and notwithstanding (i) any other provision of this Agreement to the
contrary, (ii) any instruction of Borrower as to its desired application of
payments or (iii) the suspension of such Defaulting Lender's right to vote on
matters which are subject to the consent or approval of Requisite Lenders or all
Lenders. No Unused Facility Fee shall accrue in favor of, or be payable to, such
Defaulting Lender from the date of any failure to fund Loans or reimburse Agent
for any Liabilities and Costs as herein provided until such failure has been
cured, and Agent shall be entitled to (A) withhold or setoff, and to apply to
the payment of the defaulted amount and any related interest, any amounts to be
paid to such Defaulting Lender under this Agreement, and (B) bring an action or
suit against such Defaulting Lender in a court of competent jurisdiction to
recover the defaulted amount and any related interest. In addition, the
Defaulting Lender shall indemnify, defend and hold Agent and each of the other
Lenders harmless from and against any and all Liabilities and Costs, plus
interest thereon at the Default Rate, which they may sustain or incur by reason
of or as a direct consequence of the Defaulting Lender's failure or refusal to
abide by its obligations under this Agreement.
11.05 Rights, Exculpation, Etc. Neither Agent, any Affiliate of Agent, nor
any of their respective officers, directors, employees, agents, attorneys or
consultants, shall be liable to any Lender for any action taken or omitted by
them hereunder or under any of the Loan Documents, or in connection herewith or
therewith, except that Agent shall be liable for its gross negligence or willful
misconduct. In the absence of gross negligence or willful misconduct, Agent
shall not be liable for any apportionment or distribution of payments made by it
in good faith pursuant to Section 11.04, and if any such apportionment or
distribution is subsequently determined to have been made in error the sole
recourse of any Person to whom payment was due, but not made, shall be to
recover from the recipients of such payments any payment in excess of the amount
to which they are determined to have been entitled. Agent shall not be
responsible to any Lender for any recitals, statements, representations or
warranties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement, any of the
Mortgage Documents or any of the other Loan Documents, or any of the
transactions contemplated hereby and thereby; or for the financial condition of
the REIT, Borrower, any Guarantor Subpartnership or any of their Affiliates.
Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any of the Loan Documents or the financial condition of the REIT,
Borrower, any Guarantor Subpartnership or any of their Affiliates, or the
existence or possible existence of any Unmatured Event of Default or Event of
Default.
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11.06 Reliance. Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents, telecopies or any telephone
message believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of legal counsel (including counsel for
Borrower), independent public accountant and other experts selected by it.
11.07 Indemnification. To the extent that Agent is not reimbursed and
indemnified by Borrower, Lenders will reimburse, within ten (10) Business Days
after notice from Agent, and indemnify and defend Agent for and against any and
all Liabilities and Costs which may be imposed on, incurred by, or asserted
against it in any way relating to or arising out of this Agreement, the Mortgage
Documents or any of the other Loan Documents or any action taken or omitted by
Agent or under this Agreement, the Mortgage Documents or any of the other Loan
Documents, in proportion to each Lender's Pro Rata Share; provided that no
Lender shall be liable for any portion of such Liabilities and Costs resulting
from Agent's gross negligence or willful misconduct. The obligations of Lenders
under this Section 11.07 shall survive the payment in full of all Obligations
and the termination of this Agreement. In the event that after payment and
distribution of any amount by Agent to Lenders, any Lender or third party,
including Borrower, any creditor of Borrower or a trustee in bankruptcy,
recovers from Agent any amount found to have been wrongfully paid to Agent or
disbursed by Agent to Lenders, then Lenders, in proportion to their respective
Pro Rata Shares, shall reimburse Agent for all such amounts. Notwithstanding the
foregoing, Agent shall not be obligated to advance Liabilities and Costs and may
require the deposit by each Lender of its Pro Rata Share of any material
Liabilities and Costs anticipated by Agent before they are incurred or made
payable.
11.08 Agent Individually. With respect to its Pro Rata Share of the
Commitments hereunder and the Loans made by it, Agent shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms "Lenders", "Requisite Lenders" or any similar terms may
include Agent in its individual capacity as a Lender or one of the Requisite
Lenders, but Requisite Lenders shall not include Agent solely in its capacity as
Agent and need not necessarily include Agent in its capacity as a Lender. Agent
and any Lender and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with Borrower
or any of its Affiliates as if it were not acting as Agent or Lender pursuant
hereto.
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11.09 Successor Agent; Resignation of Agent; Removal of Agent.
(a) Agent may resign from the performance of all its functions and
duties hereunder at any time by giving at least thirty (30) Business Days' prior
written notice to Lenders and Borrower, and shall automatically cease to be
Agent hereunder in the event a petition in bankruptcy shall be filed by or
against Agent or the Federal Deposit Insurance Corporation or any other
Governmental Authority shall assume control of Agent or Agent's interests under
the Facility. Further, Lenders (other than Agent) may unanimously remove Agent
at any time for good cause by giving at least thirty (30) Business Days' prior
written notice to Agent, Borrower and all other Lenders. Such resignation or
removal shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (b) or (c).
(b) Upon any such notice of resignation by or removal of Agent,
Requisite Lenders shall appoint a successor Agent which appointment shall be
subject to Borrower's consent (other than upon the occurrence and during the
continuance of any Event of Default), which shall not be unreasonably withheld
or delayed. Any successor Agent must be a bank (i) the senior debt obligations
of which (or such bank's parent's senior unsecured debt obligations) are rated
not less than Baa-2 by Moody's Investors Services, Inc. or a comparable rating
by a rating agency acceptable to Requisite Lenders and (ii) which has total
assets in excess of Ten Billion Dollars ($10,000,000,000). Such successor Agent
shall separately confirm in writing with Borrower the fee to be paid to such
Agent pursuant to Section 2.05(b).
(c) If a successor Agent shall not have been so appointed within
said thirty (30) Business Day period, the retiring or removed Agent, with the
consent of Borrower (other than upon the occurrence and during the continuance
of any Event of Default)(which may not be unreasonably withheld or delayed),
shall then appoint a successor Agent who shall meet the requirements described
in subsection (b) above and who shall serve as Agent until such time, if any, as
Requisite Lenders, with the consent of Borrower (other than upon the occurrence
and during the continuance of any Event of Default), appoint a successor Agent
as provided above.
11.10 Consent and Approvals.
(a) Each consent, approval, amendment, modification or waiver
specifically enumerated in this Section 11.10(a) shall require the consent of
Requisite Lenders:
(i) Approval of any material amendment of organizational
documents (Section 8.02);
(ii) Approval of certain changes in the executive officer(s)
(Section 8.06);
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(iii) Acceleration following an Event of Default (Section
10.02(a)) or rescission of such acceleration (Section 10.03);
(iv) Approval of the exercise of rights and remedies under
the Loan Documents following an Event of Default (Section
10.02(a));
(v) Approval of certain Protective Advances (Section
11.11(a));
(vi) Approval of a Post-Foreclosure Plan and related matters
(Section 11.11(e));
(vii) Approval of a change in the method of calculation of
any financial covenants, standards or terms as a result a change
in accounting principal (Section 12.03); and
(viii) Except as referred to in subsection (b) below,
approval of any amendment, modification or termination of this
Agreement, or waiver of any provision herein (Section 12.04).
(b) Each consent, approval, amendment, modification or waiver
specifically enumerated in Section 12.04 shall require the consent of all
Lenders.
(c) In addition to the required consents or approvals referred to in
subsection (a) above, Agent may at any time request instructions from Requisite
Lenders with respect to any actions or approvals which, by the terms of this
Agreement or of any of the Loan Documents, Agent is permitted or required to
take or to grant without instructions from any Lenders, and if such instructions
are promptly requested, Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from taking any action or
withholding any approval under any of the Loan Documents until it shall have
received such instructions from Requisite Lenders. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent as
a result of Agent acting or refraining from acting under this Agreement, the
Mortgage Documents or any of the other Loan Documents in accordance with the
instructions of Requisite Lenders or, where applicable, all Lenders. Agent shall
promptly notify each Lender at any time that the Requisite Lenders have
instructed Agent to act or refrain from acting pursuant hereto.
(d) Each Lender agrees that any action taken by Agent at the
direction or with the consent of Requisite Lenders in accordance with the
provisions of this Agreement or any Loan Document, and the exercise by Agent at
the direction or with the consent of Requisite Lenders of the powers set forth
herein or
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therein, together with such other powers as are reasonably incidental thereto,
shall be authorized and binding upon all Lenders, except for actions
specifically requiring the approval of all Lenders. All communications from
Agent to Lenders requesting Lenders' determination, consent, approval or
disapproval (i) shall be given in the form of a written notice to each Lender,
(ii) shall be accompanied by a description of the matter or thing as to which
such determination, approval, consent or disapproval is requested, or shall
advise each Lender where such matter or thing may be inspected, or shall
otherwise describe the matter or issue to be resolved, (iii) shall include, if
reasonably requested by a Lender and to the extent not previously provided to
such Lender, written materials and a summary of all oral information provided to
Agent by Borrower in respect of the matter or issue to be resolved, and (iv)
shall include Agent's recommended course of action or determination in respect
thereof. Each Lender shall reply promptly, but in any event within ten (10)
Business Days (the "Lender Reply Period"). Unless a Lender shall give written
notice to Agent that it objects to the recommendation or determination of Agent
(together with a written explanation of the reasons behind such objection)
within the Lender Reply Period, such Lender shall be deemed to have approved of
or consented to such recommendation or determination. With respect to decisions
requiring the approval of Requisite Lenders or all Lenders, Agent shall submit
its recommendation or determination for approval of or consent to such
recommendation or determination to all Lenders and upon receiving the required
approval or consent shall follow the course of action or determination
recommended to Lenders by Agent or such other course of action recommended by
Requisite Lenders, and each non-responding Lender shall be deemed to have
concurred with such recommended course of action.
11.11 Agency Provisions Relating to Collateral.
(a) Agent is hereby authorized on behalf of all Lenders, without
the necessity of any notice to or further consent from any Lender, from time to
time prior to an Event of Default, to take any action with respect to any
Collateral or Loan Document which may be necessary to perfect and maintain
perfected Agent's Liens upon the Collateral granted pursuant to the Loan
Documents. Agent may make, and shall be reimbursed by Lenders (in accordance
with their Pro Rata Shares), to the extent not reimbursed by Borrower, for,
Protective Advance(s) during any one calendar year with respect to each
Borrowing Base Property up to the sum of (i) amounts expended to pay real estate
taxes, assessments and governmental charges or levies imposed upon such
Borrowing Base Property, (ii) amounts expended to pay insurance premiums for
policies of insurance related to such Borrowing Base Property, and (iii) One
Hundred Thousand Dollars ($100,000). Protective Advances in excess of said sum
during any calendar year for any Borrowing Base Property shall require the
consent of Requisite Lenders. In addition, Agent is hereby authorized on behalf
of all Lenders, without the necessity of any notice to or
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further consent from any Lender, to waive the imposition of the late fees
provided for in Section 2.04(e) up to a maximum of two (2) times per calendar
year, including any extensions.
(b) Lenders hereby irrevocably authorize Agent, at its option and
in its discretion, to release any Lien granted to or held by Agent upon any
Collateral (i) upon termination of the Commitments and repayment and
satisfaction of all Loans, and all other Obligations and the termination of this
Agreement, or (ii) constituting property being released in compliance with
Section 3.02, or (iii) if approved, authorized or ratified in writing by Agent
at the direction of all Lenders. Without in any manner limiting Agent's
authority to act without any specific or further authorization or consent, upon
request by Agent at any time, Requisite Lenders will confirm in writing Agent's
authority to release the Mortgage Documents with respect to any Borrowing Base
Property pursuant to Section 3.02. Agent shall not be required to execute any
document to evidence the release of the Liens granted to Agent for the benefit
of Lenders herein or pursuant hereto upon any Collateral if, in Agent's opinion,
such document would expose Agent to liability or create any obligation or entail
any consequence other than the release of such Liens without recourse or
warranty, and such release shall not in any manner discharge, affect or impair
the Obligations or any Liens upon (or obligations of Borrower in respect of) any
Property which shall continue to constitute part of the Collateral.
(c) Except as provided in this Agreement, Agent shall have no
obligation whatsoever to any Lender or to any other Person to assure that the
Collateral exists or is owned by Borrower or is cared for, protected or insured
or has been encumbered or that the Liens granted to Agent herein or in any of
the other Loan Documents or pursuant hereto or thereto have been properly or
sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority.
(d) Should Agent (i) employ counsel for advice or other
representation (whether or not any suit has been or shall be filed) with respect
to any Collateral or any part thereof, or any of the Loan Documents, or the
attempt to enforce any security interest or Lien on any of the Collateral, or
(ii) commence any proceeding or in any way seek to enforce its rights or
remedies under the Loan Documents, irrespective of whether as a result thereof
Agent shall acquire title to any Collateral, either through foreclosure, deed in
lieu of foreclosure or otherwise, each Lender, upon demand therefor from time to
time, shall contribute its share (based on its Pro Rata Share) of the reasonable
costs and/or expenses of any such advice or other representation, enforcement or
acquisition, including, but not limited to, fees of receivers or trustees, court
costs, title company charges, filing and recording fees, appraisers' fees and
fees and expenses of attorneys to the extent not otherwise reimbursed by
Borrower; provided that Agent shall not be entitled to reimbursement of its
attorneys' fees and expenses incurred in
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connection with the resolution of disputes between Agent and other Lenders
unless Agent shall be the prevailing party in any such dispute. Any loss of
principal and interest resulting from any Event of Default shall be shared by
Lenders in accordance with their respective Pro Rata Shares. It is understood
and agreed that in the event Agent determines it is necessary to engage counsel
for Lenders from and after the occurrence of an Event of Default, said counsel
shall be selected by Agent.
(e) In the event that all or any portion of the Collateral is
acquired by Agent as the result of a foreclosure or the acceptance of a deed or
assignment in lieu of foreclosure, or is retained in satisfaction of all or any
part of Borrower's or any Guarantor Subpartnership's obligations, title to any
such Collateral or any portion thereof shall be held in the name of Agent or a
nominee or subsidiary of Agent, as agent, for the ratable benefit of Agent and
Lenders. Agent shall prepare a recommended course of action for such Collateral
(the "Post-Foreclosure Plan"), which shall be subject to the approval of the
Requisite Lenders. In the event that Requisite Lenders do not approve such
Post-Foreclosure Plan, any Lender shall be permitted to submit an alternative
Post-Foreclosure Plan to Agent, and Agent shall submit any and all such
additional Post-Foreclosure Plans to the Lenders for evaluation and the
approval of Requisite Lenders. In accordance with the approved Post-Foreclosure
Plan, Agent shall manage, operate, repair, administer, complete, construct,
restore or otherwise deal with the Collateral acquired and administer all
transactions relating thereto, including, without limitation, employing a
management agent, leasing agent and other agents, contractors and employees,
including agents of the sale of such Collateral, and the collecting of rents and
other sums from such Collateral and paying the expenses of such Collateral;
actions taken by Agent with respect to the Collateral, which are not provided
for in the approved Post-Foreclosure Plan or reasonably incidental thereto,
shall require the consent of Requisite Lenders by way of supplement to such
Plan. Upon demand therefor from time to time, each Lender will contribute its
share (based on its Pro Rata Share) of all reasonable costs and expenses
incurred by Agent pursuant to the Post-Foreclosure Plan in connection with the
construction, operation, management, maintenance, leasing and sale of such
Collateral. In addition, Agent shall render or cause to be rendered by the
managing agent, to each of the Lenders, monthly, an income and expense statement
for such Collateral, and each of the Lenders shall promptly contribute its Pro
Rata Share of any operating loss for such Collateral, and such other expenses
and operating reserves as Agent shall deem reasonably necessary pursuant to and
in accordance with the Post-Foreclosure Plan. To the extent there is net
operating income from such Collateral, Agent shall, in accordance with the
Post-Foreclosure Plan, determine the amount and timing of distributions to
Lenders. All such distributions shall be made to Lenders in accordance with
their respective Pro Rata Shares. Lenders acknowledge that if title to any
Collateral is obtained
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by Agent or its nominee, such Collateral will not be held as a permanent
investment but will be liquidated as soon as practicable. Agent shall undertake
to sell such Collateral, at such price and upon such terms and conditions as the
Requisite Lenders shall reasonably determine to be most advantageous. Any
purchase money mortgage or deed of trust taken in connection with the
disposition of such Collateral in accordance with the immediately preceding
sentence shall name Agent, as agent for Lenders, as the beneficiary or
mortgagee. In such case, Agent and Lenders shall enter into an agreement with
respect to such purchase money mortgage defining the rights of Lenders in the
same Pro Rata Shares as provided hereunder, which agreement shall be in all
material respects similar to this Article XI insofar as the same is appropriate
or applicable.
11.12 Lender Actions Against Collateral. Each Lender agrees that it will
not take any action, nor institute any actions or proceedings, against Borrower,
the REIT, any Guarantor Subpartnership or any other obligor hereunder, under the
Mortgage Documents or under any other Loan Documents with respect to exercising
claims against or rights in any Collateral without the consent of Requisite
Lenders.
11.13 Ratable Sharing. Subject to Sections 11.03 and 11.04, Lenders agree
among themselves that (i) with respect to all amounts received by them which are
applicable to the payment of the Obligations, equitable adjustment will be made
so that, in effect, all such amounts will be shared among them ratably in
accordance with their Pro Rata Shares, whether received by voluntary payment, by
counterclaim or cross action or by the enforcement of any or all of the
Obligations, or the Collateral, (ii) if any of them shall by voluntary payment
or by the exercise of any right of counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of the Obligations held by it which is
greater than its Pro Rata Share of the payments on account of the Obligations,
the one receiving such excess payment shall purchase, without recourse or
warranty, an undivided interest and participation (which it shall be deemed to
have done simultaneously upon the receipt of such payment) in such Obligations
owed to the others so that all such recoveries with respect to such Obligations
shall be applied ratably in accordance with their Pro Rata Shares; provided,
that if all or part of such excess payment received by the purchasing party is
thereafter recovered from it, those purchases shall be rescinded and the
purchase prices paid for such participations shall be returned to that party to
the extent necessary to adjust for such recovery, but without interest except to
the extent the purchasing party is required to pay interest in connection with
such recovery. Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 11.13 may, to the fullest extent
permitted by law, exercise all its rights of payment with respect to such
participation as fully as if such Lender were the direct creditor of Borrower in
the amount of such participation. No Lender shall exercise any setoff,
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banker's lien or other similar right in respect to any Obligations without the
prior written approval by Agent.
11.14 Delivery of Documents. Agent shall as soon as reasonably practicable
distribute to each Lender at its primary address set forth on the appropriate
counterpart signature page hereof, or at such other address as a Lender may
request in writing, (i) copies of all documents to which such Lender is a party
or of which such Lender is a beneficiary set forth on the Closing Checklist
attached hereto as Exhibit C, (ii) all documents of which Agent receives copies
from Borrower pursuant to Sections 6.01 and 12.06, (iii) all other documents or
information which Agent is required to send to Lenders pursuant to the terms of
this Agreement, (iv) other information or documents received by Agent at the
request of any Lender, and (v) all notices received by Agent pursuant to Section
6.02. In addition, within fifteen (15) Business Days after receipt of a request
in writing from a Lender for written information or documents provided by or
prepared by Borrower, the REIT or any Guarantor Subpartnership or Investment
Partnership, Agent shall deliver such written information or documents to such
requesting Lender if Agent has possession of such written information or
documents in its capacity as Agent or as a Lender.
11.15 Notice of Events of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Unmatured Event of Default or Event
of Default (other than nonpayment of principal of or interest on the Loans)
unless Agent has received notice in writing from a Lender or Borrower referring
to this Agreement or the other Loan Documents, describing such event or
condition and expressly stating that such notice is a notice of an Unmatured
Event of Default or Event of Default. Should Agent receive such notice of the
occurrence of an Unmatured Event of Default or Event of Default, or should Agent
send Borrower a notice of Unmatured Event of Default or Event of Default, Agent
shall promptly give notice thereof to each Lender.
ARTICLE XII
MISCELLANEOUS
12.01 Expenses.
(a) Generally. Borrower agrees upon demand to pay, or reimburse
Agent for, all of Agent's external audit, legal (to the extent incurred
following the Closing Date and not relating to the closing of this Agreement),
appraisal, valuation and investigation expenses and for all other reasonable
out-of-pocket costs and expenses of every type and nature (excluding Lenders'
travel expenses, but including, without limitation, the reasonable fees,
expenses and disbursements of Agent's internal appraisers, environmental
advisors or legal counsel) incurred by Agent at any time (whether prior to, on
or after the date of this
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Agreement) in connection with (i) its own audit and investigation of Borrower
and the Borrowing Base; (ii) the negotiation, preparation and execution of this
Agreement (including, without limitation, the satisfaction or attempted
satisfaction of any of the conditions set forth in Article IV), the Mortgage
Documents and the other Loan Documents and the making of the Loans; (iii) the
review and, if applicable, acceptance of additional Borrowing Base Properties,
including appraisal fees, title charges, recording fees and reasonable
attorneys' fees and costs incurred in connection therewith; (iv) any appraisals
performed pursuant to Section 3.03(a); (v) the creation, perfection or
protection of Agent's Liens on the Collateral (including, without limitation,
any fees and expenses for title and lien searches, local counsel in various
jurisdictions, filing and recording fees and taxes, duplication costs and
corporate search fees); (vi) administration of this Agreement, the other Loan
Documents, the Loans and the Collateral, including, without limitation,
consultation with attorneys in connection therewith and obtaining periodic
Appraisals of the Borrowing Base Properties; and (vii) the protection,
collection or enforcement of any of the Obligations or the Collateral, including
Protective Advances.
(b) After Event of Default. Borrower further agrees to pay, or
reimburse Agent and Lenders, for all reasonable out-of-pocket costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements incurred by Agent or Lenders after the occurrence of an Event of
Default (i) in enforcing any Obligation or in foreclosing against the Collateral
or exercising or enforcing any other right or remedy available by reason of such
Event of Default; (ii) in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement in the nature of a
"work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing,
defending or intervening in any litigation or in filing a petition, complaint,
answer, motion or other pleadings in any legal proceeding relating to Borrower,
the REIT or any Guarantor Subpartnership and related to or arising out of the
transactions contemplated hereby; (iv) in taking any other action in or with
respect to any suit or proceeding (whether in bankruptcy or otherwise); (v) in
protecting, preserving, collecting, leasing, selling, taking possession of, or
liquidating any of the Collateral; or (vi) in attempting to enforce or enforcing
any Lien in any of the Collateral or any other rights under the Mortgage
Documents.
12.02 Indemnity. Borrower further agrees to defend, protect, indemnify and
hold harmless Agent, each and all of the Lenders, each of their respective
Affiliates and participants and each of the respective officers, directors,
employees, agents, attorneys and consultants (including, without limitation,
those retained in connection with the satisfaction or attempted satisfaction of
any of the conditions set forth in Article IV) of each of the foregoing
(collectively called the "Indemnitees") from and against any and all Liabilities
and Costs imposed on,
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incurred by, or asserted against such Indemnitees (whether based on any federal
or state laws or other statutory regulations, including, without limitation,
securities and commercial laws and regulations, under common law or in equity,
and based upon contract or otherwise, including any liability and costs arising
as a result of a "prohibited transaction" under ERISA to the extent arising from
or in connection with the past, present or future operations of the REIT,
Borrower or any Guarantor Subpartnership or their respective predecessors in
interest) in any manner relating to or arising out of this Agreement, the
Mortgage Documents or the other Loan Documents, or any act, event or transaction
related or attendant thereto, the making of and participation in the Loans and
the management of the Loans, or the use or intended use of the proceeds of the
Loans (collectively, the "Indemnified Matters"); provided, however, that
Borrower shall have no obligation to an Indemnitee hereunder with respect to (a)
matters for which such Indemnitee has been compensated pursuant to or for which
an exemption is provided in Section 2.04(g) or any other provision of this
Agreement, and (b) Indemnified Matters to the extent caused by or resulting from
the willful misconduct or gross negligence of that Indemnitee, as determined by
a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
12.03 Change in Accounting Principles. Except as otherwise provided
herein, if any changes in accounting principles from those used in the
preparation of the most recent financial statements delivered to Agent pursuant
to the terms hereof are hereinafter required or permitted by the rules,
regulations, pronouncements and opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) and are adopted by the REIT,
Borrower or any Guarantor Subpartnership with the agreement of its independent
certified public accountants and such changes result in a change in the method
of calculation of any of the financial covenants, standards or terms found
herein, the parties hereto agree to enter into negotiations in order to amend
such provisions so as to equitably reflect such changes with the desired result
that the criteria for evaluating the financial condition of Borrower shall be
the same after such changes as if such changes had not been made; provided,
however, that no change in GAAP that would affect the method of calculation of
any of the financial covenants, standards or terms shall be given effect in such
calculations until such provisions are amended, in a manner satisfactory to
Agent and Requisite Lenders, to so reflect such change in accounting principles.
12.04 Amendments and Waivers. (a) No amendment or modification of any
provision of this Agreement shall be effective
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without the written agreement of Requisite Lenders (after notice to all Lenders)
and Borrower (except for amendments to Section 11.04(a) which do not require the
consent of Borrower), and (b) no termination or waiver of any provision of this
Agreement, or consent to any departure by Borrower therefrom (except as
expressly provided in Section 11.11(a) with respect to waivers of late fees),
shall in any event be effective without the written concurrence of Requisite
Lenders (after notice to all Lenders), which Requisite Lenders shall have the
right to grant or withhold at their sole discretion, except that the following
amendments, modifications or waivers shall require the consent of all Lenders:
(i) increasing the Commitments or Lender's Commitments;
(ii) changing the principal amount or final maturity of the Loans
including pursuant to Section 2.01(d);
(iii) reducing the interest rates applicable to the Loans;
(iv) reducing the rates on which fees payable pursuant hereto are
determined;
(v) forgiving or delaying any amount payable or receivable under
Article II (other than late fees in accordance with Section 11.11(a));
(vi) those consents requiring unanimous approval of Lenders pursuant
to Article III (Borrowing Base Properties), including, without limitation,
approval of each Appraised Value pursuant to Section 3.03(a) and approval
of each new Borrowing Base Property and any Permitted Liens pursuant to
Section 3.01;
(vii) changing the definition of "Requisite Lenders", "Loan
Availability", "Pro Rata Shares" or "Borrowing Base Value";
(viii) changing any provision contained in Section 9.02 or Section
9.04;
(ix) removal of Agent and appointment of a successor pursuant to
Section 11.09;
(x) changing any provision contained in this Section 12.04;
(xi) releasing any obligor under any Loan Document or any
Collateral, unless such release is otherwise required or permitted by the
terms of this Agreement, including Section 11.11(b); or
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(xii) consent to assignment by Borrower of all of its duties and
Obligations hereunder pursuant to Section 12.14.
No amendment, modification, termination or waiver of any provision of Article XI
or any other provision referring to Agent shall be effective without the written
concurrence of Agent, but only if such amendment, modification, termination or
waiver alters the obligations or rights of Agent. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Borrower in any case shall entitle
Borrower to any other further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 12.04 shall be binding on each
assignee, transferee or recipient of Agent's or any Lender's Commitment under
this Agreement or the Loans at the time outstanding.
12.05 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Event of Default or Unmatured Event of Default if such
action is taken or condition exists, and if a particular action or condition is
expressly permitted under any covenant, unless expressly limited to such
covenant, the fact that it would not be permitted under the general provisions
of another covenant shall not constitute an Event of Default or Unmatured Event
of Default if such action is taken or condition exists.
12.06 Notices and Delivery. Unless otherwise specifically provided herein,
any consent, notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telecopied or sent by
courier service or United States mail and shall be deemed to have been given
when delivered in person or by courier service, upon receipt of a telecopy (or
on the next Business Day if such telecopy is received on a non-Business Day or
after 5:00 p.m. on a Business Day) or four (4) Business Days after deposit in
the United States mail (registered or certified, with postage prepaid and
properly addressed). Notices to Agent pursuant to Article II shall not be
effective until received by Agent. For the purposes hereof, the addresses of the
parties hereto (until notice of a change thereof is delivered as provided in
this Section 12.06) shall be as set forth below each party's name on the
signature pages hereof, or, as to each party, at such other address as may be
designated by such party in a written notice to all of the other parties. All
deliveries to be made to Agent for distribution to the Lenders shall be made to
Agent at the addresses specified for notice on the signature page hereto and in
addition, a sufficient number of copies of each such delivery shall be delivered
to Agent for delivery to each Lender at the address specified for deliveries
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on the signature page hereto or such other address as may be designated by Agent
in a written notice.
12.07 Survival of Warranties, Indemnities and Agreements. All agreements,
representations, warranties and indemnities made or given herein shall survive
the execution and delivery of this Agreement and the other Loan Documents and
the making and repayment of the Loans hereunder and such indemnities shall
survive termination hereof.
12.08 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of Agent or any Lender in the exercise of any power, right or
privilege under any of the Loan Documents shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under the Loan Documents are
cumulative to and not exclusive of any rights or remedies otherwise available.
12.09 Marshalling; Recourse to Security; Payments Set Aside. Neither any
Lender nor Agent shall be under any obligation to marshall any assets in favor
of Borrower or any other party or against or in payment of any or all of the
Obligations. Recourse to security shall not be required at any time. To the
extent that Borrower makes a payment or payments to Agent or the Lenders or
Agent or the Lenders enforce their Liens or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligation or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
12.10 Severability. In case any provision in or obligation under this
Agreement or the other Loan Documents shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby, provided,
however, that if the rates of interest or any other amount payable hereunder, or
the collectibility thereof, are declared to be or become invalid, illegal or
unenforceable, Lenders' obligations to make Loans shall not be enforceable.
12.11 Headings. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
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12.12 Governing Law; Waiver. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA. BORROWER EXPRESSLY WAIVES ANY AND ALL BENEFITS OR DEFENSES WHICH
MIGHT OTHERWISE BE AVAILABLE TO BORROWER UNDER CALIFORNIA CODE OF CIVIL
PROCEDURE SECTIONS 580A, 580B, 580D AND 726, OR ANY OF SUCH SECTIONS OR ANY
SIMILAR OR CORRESPONDING "ONE ACTION" OR "ANTI-DEFICIENCY" LAWS OR STATUTES, NOW
OR HEREAFTER IN EFFECT, IN ANY STATE OTHER THAN CALIFORNIA IN WHICH ANY OF THE
COLLATERAL MAY BE LOCATED.
12.13 Limitation of Liability. To the extent permitted by applicable law,
no claim may be made by Borrower, any Lender or any other Person against Agent
or any Lender, or the affiliates, directors, officers, employees, attorneys or
agents of any of them, for any special, indirect, consequential or punitive
damages in respect of any claim for breach of contract or any other theory of
liability arising out of or related to the transactions contemplated by this
Agreement, or any act, omission or event occurring in connection therewith; and
Borrower and each Lender hereby waive, release and agree not to sue upon any
claim for any such damages, whether or not accrued and whether or not known or
suspected to exist in its favor, provided that if a Lender refuses to fund a
Loan and a court of competent jurisdiction finds that such refusal was without
justification and in bad faith, such Lender may be liable to Borrower for
Borrower's reasonable and foreseeable damages resulting from such refusal to
fund.
12.14 Successors and Assigns. This Agreement and the other Loan Documents
shall be binding upon the parties hereto and their respective successors and
assigns and shall inure to the benefit of the parties hereto and the successors
and permitted assigns of Agent and Lenders. The terms and provisions of this
Agreement shall inure to the benefit of any assignee or transferee of the Loans
and the Commitments of Lenders under this Agreement, and in the event of such
transfer or assignment, the rights and privileges herein conferred upon Agent
and Lenders shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. Borrower's rights or
any interest therein hereunder, and Borrower's duties and Obligations hereunder,
shall not be assigned without the consent of all Lenders.
12.15 Consent to Jurisdiction and Service of Process; Waiver of Jury
Trial. EXCEPT WITH RESPECT TO FORECLOSURE PROCEEDINGS AGAINST ANY COLLATERAL
WHICH BY REQUIREMENT OF LAW MUST BE BROUGHT IN THE JURISDICTION WHERE SUCH
COLLATERAL IS LOCATED, ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST BORROWER WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE AND ALL JUDICIAL
PROCEEDINGS BROUGHT BY BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION HAVING SITUS WITHIN THE BOUNDARIES OF THE FEDERAL COURT DISTRICT OF
THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT,
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BORROWER ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY
AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY FROM WHICH NO APPEAL
HAS BEEN TAKEN OR IS AVAILABLE. BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY
THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO ITS NOTICE ADDRESS SPECIFIED ON THE SIGNATURE PAGES HEREOF. BORROWER, AGENT
AND LENDERS IRREVOCABLY WAIVE (A) TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND (B) ANY OBJECTION
(INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION.
12.16 Counterparts; Effectiveness; Inconsistencies. This Agreement and any
amendments, waivers, consents or supplements may be executed in counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such together shall constitute but one and the same instrument. This
Agreement shall become effective when (i) Borrower, the initial Lenders and
Agent have duly executed and delivered signature pages of this Agreement to each
other (delivery by Borrower to Lenders and by any Lender to Borrower and any
other Lender being deemed to have been made by delivery to Agent) and (ii) Agent
has received the upfront agency fee. Agent shall send written confirmation of
the Closing Date to Borrower and each other Lender promptly following the
occurrence thereof. This Agreement and each of the other Loan Documents shall be
construed to the extent reasonable to be consistent one with the other, but to
the extent that the terms and conditions of this Agreement are actually and
directly inconsistent with the terms and conditions of any other Loan Document,
this Agreement shall govern.
12.17 Performance of Obligations. Borrower agrees that Agent may, but
shall have no obligation to, make any payment or perform any act required of
Borrower or any Guarantor Subpartnership under any Loan Document or take any
other action which Agent in its discretion deems necessary or desirable to
protect or preserve the Collateral, including without limitation, any action to
(i) pay or discharge taxes, liens, security interests or other encumbrances
levied or placed on or threatened against any Collateral, and (ii) effect any
repairs or obtain any insurance called for by the terms of any of the Loan
Documents and to pay all or any part of the premiums therefor and the costs
thereof.
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12.18 Construction. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto.
12.19 Entire Agreement. This Agreement, taken together with all of the
other Loan Documents and all certificates and other documents delivered by
Borrower to Agent, embodies the entire agreement and supersede all prior
agreements, written and oral, relating to the subject matter hereof.
12.20 Assignments and Participations.
(a) After first obtaining the approval of Agent and Borrower (other
than upon the occurrence and during the continuance of any Event of Default),
which approval will not be unreasonably withheld, each Lender may assign to one
or more banks or financial institutions, all or a portion of its rights and
obligations under this Agreement (including without limitation all or a portion
of its Commitment and the Loans owing to it) and other Loan Documents; provided,
however, that (i) each such assignment shall be of a constant, and not a
varying, percentage of the assigning Lender's rights and obligations under this
Agreement and other Loan Documents, and the assignment shall cover the same
percentage of such Lender's Commitment and Loans, (ii) the aggregate amount of
the Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Assumption with
respect to such assignment) shall in no event be less than Ten Million Dollars
($10,000,000) and shall be an integral multiple of One Million Dollars
($1,000,000), (iii) after giving effect to such assignment, the aggregate amount
of the Commitment retained by the assigning Lender shall in no event be less
than Five Million Dollars ($5,000,000), (iv) at all times prior to its
resignation or replacement or an Event of Default, Agent's Commitment shall be
equal to or exceed the Commitment of each other Lender, (v) the parties to each
such assignment shall execute and deliver to Agent, for its approval and
acceptance, an Assignment and Assumption, and (vi) Agent shall receive from the
assignor a processing fee of Three Thousand Dollars ($3,000). Without
restricting the right of Borrower or Agent to reasonably object to any bank or
financial institution becoming an assignee of an interest of a Lender hereunder,
each proposed assignee must be an existing Lender or a bank or financial
institution which (A) has (or, in the case of a bank which is a subsidiary, such
bank's parent has) a rating of its senior unsecured debt obligations of not less
than Baa-2 by Moody's Investors Services, Inc. or a comparable rating by a
rating agency acceptable to Agent and (B) has total assets in excess of Ten
Billion Dollars ($10,000,000,000). Unless Agent or Borrower gives written notice
to the assigning Lender that it objects to the proposed assignment (together
with a written explanation of the reasons
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behind such objection) within ten (10) Business Days following receipt of the
assigning Lender's written request for approval of the proposed assignment,
Agent or Borrower, as the case may be, shall be deemed to have approved such
assignment. Upon such execution, delivery, approval and acceptance, and upon the
effective date specified in the applicable Assignment and Assumption, (X) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Assumption, have the rights and obligations of a Lender hereunder, and (Y) the
assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Assumption,
relinquish its rights and be released from its obligations under this Agreement.
(b) By executing and delivering an Assignment and Assumption, the
assigning Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Assumption, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document or any other instrument or document furnished pursuant hereto;
(ii) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the REIT, Borrower or
any Guarantor Subpartnership or the performance or observance by the REIT,
Borrower or any Guarantor Subpartnership of any of their respective obligations
under any Loan Document or any other instrument or document furnished pursuant
hereto; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Article V or delivered pursuant to Article VI to the date of such assignment and
such other Loan Documents and other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Assumption; (iv) such assignee will, independently and without
reliance upon Agent, such assigning Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes Agent to take such action
as Agent on its behalf and to exercise such powers under this Agreement and the
other Loan Documents as are delegated to Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
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(c) Agent shall maintain, at its address referred to on the
counterpart signature pages hereof, a copy of each Assignment and Assumption
delivered to and accepted by it and shall record in the Loan Account the names
and addresses of each Lender and the Commitment of, and principal amount of the
Loans owing to, such Lender from time to time. Borrower, Agent and Lenders may
treat each Person whose name is recorded in the Loan Account as a Lender
hereunder for all purposes of this Agreement.
(d) Upon its receipt of an Assignment and Assumption executed by an
assigning Lender and an assignee, Agent shall, if such Assignment and Assumption
has been properly completed and is in substantially the form of Exhibit A, (i)
accept such Assignment and Assumption, (ii) record the information contained
therein in the Loan Account, and (iii) give prompt notice thereof to Borrower.
Upon request, Borrower will execute and deliver to Agent an appropriate
replacement promissory note or replacement promissory notes in favor of each
assignee (and assignor, if such assignor is retaining a portion of its
Commitment and Loans) reflecting such assignee's (and assignor's) Pro Rata
Share(s) of the Facility. Upon execution and delivery of such replacement
promissory notes the original promissory note or notes evidencing all or a
portion of the Commitments and Loans being assigned shall be canceled and
returned to Borrower.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including without limitation all or a portion of its Commitment
and the Loans owing to it) and other Loan Documents; provided, however, that (i)
such Lender's obligations under this Agreement (including without limitation its
Commitment to Borrower hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) Borrower, Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and with regard to any and all
payments to be made under this Agreement, and (iv) the holder of any such
participation shall not be entitled to voting rights under their participation
agreement except for voting rights with respect to (A) increases in the
Facility; (B) extensions of the Maturity Date; (C) decreases in the interest
rates or fees described in this Agreement; and (D) the release of all or
substantially all of the Collateral, except as specifically authorized in
Sections 3.02 and 11.11. No participant shall be entitled to vote on any matter
until the Lender with which such participant is participating in the Facility
and the Loans confirms such participant's status as a participant hereunder.
(f) Borrower will use reasonable efforts to cooperate with Agent
and Lenders in connection with the assignment of interests under this Agreement
or the sale of participations herein.
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(g) Anything in this Agreement to the contrary notwithstanding, and
without the need to comply with any of the formal or procedural requirements of
this Agreement, including Section 12.20, any Lender may at any time and from
time to time pledge and assign all or any portion of its rights under all or any
of the Loan Documents to a Federal Reserve Bank; provided that no such pledge or
assignment shall release such Lender from its obligations thereunder. To
facilitate any such pledge or assignment, Agent shall, at the request of such
Lender, enter into a letter agreement with the Federal Reserve Bank in
substantially the form of the exhibit to Appendix C to the Federal Reserve Bank
of New York Operating Circular No. 12.
(h) Anything in this Agreement to the contrary notwithstanding, any
Lender may assign all or any portion of its rights and obligations under this
Agreement to another branch or Affiliate of such Lender without first obtaining
the approval of Agent and Borrower, provided that (i) at the time of such
assignment such Lender is not a Defaulting Lender, (ii) such Lender gives Agent
and Borrower at least fifteen (15) days' prior written notice of any such
assignment, (iii) the parties to each such assignment execute and deliver to
Agent an Assignment and Assumption, and (iv) Agent receives from assignor a
processing fee of Three Thousand Dollars ($3,000).
(i) No assignee of any rights and obligations under this Agreement
shall be permitted to subassign such rights and obligations.
(j) No Lender shall be permitted to assign or sell all or any
portion of its rights and obligations under this Agreement to Borrower or any
Affiliate of Borrower.
108
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the
date set forth above.
BORROWER: GLENBOROUGH PROPERTIES, L.P., a
California limited partnership
By: GLENBOROUGH REALTY TRUST
INCORPORATED, a Maryland
corporation, its general
partner
By /s/ ANDREW BATINOVICH
-----------------------------------------
Andrew Batinovich
Its Executive Vice President
and Chief Operating Officer
ADDRESS FOR NOTICE AND DELIVERY:
Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, California 94402
Attn: Robert Batinovich
President
Tel: (415) 343-9300
Fax: (415) 343-9690
109
<PAGE>
AGENT/LENDER: WELLS FARGO BANK, NATIONAL
ASSOCIATION
By /s/ DAVID J. WEBER
---------------------------------------
David J. Weber
Its Senior Vice President
ADDRESS FOR NOTICE AND DELIVERY:
Real Estate Capital Markets Group
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attn: David J. Weber
Senior Vice President
Tel: (415) 396-8200
Fax: (415) 788-9421
Pro Rata Share: 80%
Loan Commitment: $40,000,000
LIBOR OFFICE:
Address: Real Estate Group
Disbursement Center
2120 East Park Place,
Suite 100
El Segundo, CA 90245
Attn: Kim Tawa
Telephone: (310)335-9459
Telecopy: (310)615-1014
110
<PAGE>
OTHER LENDERS: IMPERIAL BANK
By /s/ CHADWICK STEARS
--------------------------------------
Its Vice President
ADDRESS FOR NOTICE AND DELIVERY:
Address: Imperial Bank
226 Airport Parkway
San Jose, California 95110
Attn: Commercial Loans
Telephone: (408) 451-8500
Telecopy: (408) 451-8586
Pro Rata Share: 20%
Loan Commitment: $10,000,000
LIBOR OFFICE:
Address: Imperial Bank
226 Airport Parkway
San Jose, California 95110
Attn: Commercial Loans
Telephone: (408) 451-8500
Telecopy: (408) 451-8586
111
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement ("Amendment") is made and entered
into as of November 1, 1996, by and among Glenborough Properties, L.P., a
California Limited Partnership, ("Borrower") , Wells Fargo Bank, National
Association ("Wells Fargo"), Imperial Bank, a California Corporation ("Imperial
Bank") Fleet National Bank ("Fleet") and each lender which may hereinafter
become a party to the Credit Agreement (collectively, "Lenders") and Wells Fargo
as Agent. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Credit Agreement.
WHEREAS, the Borrower, the Lenders, and the Agent have agreed to amend the
Credit Agreement as set forth herein.
NOW THEREFORE, the parties hereto agree:
ARTICLE I - AMENDMENT TO THE CREDIT AGREEMENT
1.1 DELETION OF SECTION 2.01 (B) (II). Section 2.01(b) (ii) of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"(ii) Borrower may elect (A) to convert LIBOR Loans or any portion thereof
into Base Rate Loans, (B) to convert Base Rate Loans or any portion thereof to
LIBOR Loans, or (C) to continue any LIBOR Loans or any portion thereof for an
additional Interest Period, provided, however, that the aggregate amount of the
Loans being converted into or continued as LIBOR Loans shall, in the aggregate,
equal One Million Dollars ($1,000,000) or an integral multiple of Fifty Thousand
Dollars ($50,000) in excess thereof. The applicable Interest Period for the
continuation of any LIBOR Loan shall commence on the day on which the next
preceding Interest Period expires. The conversion of a LIBOR Loan to a Base Rate
Loan shall only occur on the last Business Day of the Interest Period relating
to such LIBOR Loan. Each such election shall be made by Borrower giving Agent an
original or facsimile Notice of Borrowing no later than 9:00 A.M. (San Francisco
time), not less than three (3) nor more than five (5) Business Days prior to the
date of a conversion to or continuation of a LIBOR Loan, specifying, in each
case (1) the amount of the conversion or continuation, (2) the Interest Period
therefor, and (3) the date of the conversion or continuation (which date shall
be a Business day). Notwithstanding any of the foregoing provisions of this
Section 2.01(b) (ii) to the contrary, if Borrower fails to make an effective
election to continue a LIBOR Loan or to convert a LIBOR Loan to a Base Rate Loan
prior to the third (3rd) Business Day prior to the last scheduled day of the
Interest Period relating to such LIBOR Loan, such LIBOR Loan shall be continued
as the case may be, to a LIBOR Loan with an Interest Period of one (1) month;
provided, however, that if such conversion or continuation shall cause the
number of LIBOR Loan tranches to exceed four (4), such LIBOR Loan shall be
converted to a Base Rate Loan."
1.2 DELETION OF SECTION 2.01 (B) (II). Section 2.01(b) (iii) of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
"In the event of a continuation of a LIBOR Loan under subparagraph (ii)
above or upon receipt of a Notice of Borrowing in proper form requesting LIBOR
Loans under subparagraph (i) or (ii) above, Agent shall determine the LIBOR
applicable to the Interest Period for such LIBOR Loans, and shall, two (2)
Business Days prior to the beginning of such Interest Period, give (by
facsimile) a Fixed Rate Notice in respect thereof to Borrower and Lenders;
provided, however, that failure to give such notice to Borrower shall not affect
the validity of such rate. Each determination by Agent of the LIBOR shall be
conclusive and binding upon the parties hereto in the absence of manifest
error."
<PAGE>
1.3 DELETION OF SECTION 2.06 (A). Section 2.06 (a) of the Credit Agreement is
hereby deleted in its entirety and replaced with the following:
"(a) Voluntary Prepayments. Borrower may, upon not less than one (1)
Business Day prior written notice to Agent not later than 11:00 A.M. (San
Francisco time) on the date given, at any time and from time to time (including,
without limitation, from and after the Term Loan Conversion Date) prepay any
Loans in whole or in part. Any notice of prepayment given to Agent under this
Section 2.06 (a) shall specify the date of prepayment and the aggregate
principal amount of the prepayment. In the event of a prepayment of LIBOR Loans,
Borrower shall concurrently pay any Fixed Rate Price Adjustment payable in
respect thereof. Agent shall provide to each Lender a confirming copy of such
notice on the same Business Day such notice is received."
ARTICLE II- GENERAL PROVISIONS
2.1 ENTIRE AGREEMENT. Upon execution and delivery of this Amendment by all
parties hereto, the Credit shall be modified and amended in accordance with this
Amendment, and all the terms and condition of both shall be read together as
though they constitute one instrument, except that in the case of conflict the
provisions of this Amendment shall prevail.
2.2. FULL FORCE AND EFFECT. The Credit Agreement, as amended hereby, and
each of the Loan Document shall remain in full force and effect.
2.3. BENEFITS OF AMENDMENT. The terms and provisions of this Amendment
shall be binding upon the parties hereto and their respective successors and
assigns and shall inure to the benefit of the parties hereto and the successors
and permitted assigns of Agent and Lenders.
2.4. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Amendment.
2.5. LIMITATION OF AGREEMENT. Except as especially set forth herein, this
Amendment shall not be to waive, amend or modify any term or condition of the
Credit Agreement, each of which is ratified and reaffirmed and which shall
remain in full force and effect, nor to serve as a consent to any matter
prohibited by the terms and conditions thereof.
2.6. GOVERNING LAW: WAIVER. This Amendment shall be governed by, and shall
be construed and enforced in accordance with, the laws of the State of
California.
2.7. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. Borrower hereby represents
and warrants to the Agent and the Lenders that (a) all of Borrower's
representations and warranties contained in the Credit Agreement and the other
Loan Documents are true and correct on and as of the date of Borrower's
execution of this Amendment; (b) no Default or Event of Default has occurred and
is continuing as of such date under any Loan Document; (c) Borrower has the
power and authority to enter into this Amendment and to perform all of its
obligations hereunder; (d) the execution, delivery and performance of this
Amendment by Borrower have been duly authorized by all necessary corporate,
partnership or other action; and (e) the execution and delivery of this
Amendment and performance thereof by or on behalf of Borrower does not and will
not violate the Partnership Agreement of Borrower or the Certificate of
Incorporation, By-laws or other organizational documents of Glenborough Realty
Trust, Incorporated and does not and will not violate or conflict with any law,
order, writ, injunction, or decree of any court, administrative agency or other
governmental authority applicable to Borrower, Glenborough Realty Trust,
Incorporated or their respective Proerties.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed on the date set
forth above.
BORROWER
By: GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: GLENBOROUGH REALTY TRUST, INCORPORATED,
a Maryland corporation, its general partner
By ________________________________________
Name: _________________________________
Title: _________________________________
LENDERS:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By /s/ ANN FRAGEN
---------------------------------------
Name: Ann Fragen
Title: Assistant Vice President
IMPERIAL BANK, A CALIFORNIA CORPORATION
By ________________________________________
Name: _________________________________
Title: _________________________________
FLEET NATIONAL BANK
By: ____________________________________
Name: _____________________________
Title: _____________________________
3
<PAGE>
(SIGNATURE PAGES CONTINUED FROM PREVIOUS PAGE)
AGENT:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ RITA SWAYNE
----------------------------------
Name: Rita Swayne
Title: Sr.Loan Administration Officer
4
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed on the date set
forth above. BORROWER
BORROWER
By: GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: GLENBOROUGH REALTY TRUST, INCORPORATED,
a Maryland corporation, its general partner
By ________________________________________
Name: _________________________________
Title: _________________________________
LENDERS:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By ________________________________________
Name: _________________________________
Title: _________________________________
IMPERIAL BANK, A CALIFORNIA CORPORATION
By /s/ CHADWICK STEARNS
----------------------------------------
Name: Chadwick Stearns
Title: Vice President
FLEET NATIONAL BANK
By: ____________________________________
Name: _____________________________
Title: _____________________________
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed on the date set
forth above. BORROWER
BORROWER
By: GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: GLENBOROUGH REALTY TRUST, INCORPORATED,
a Maryland corporation, its general partner
By /s/ ROBERT BATINOVICH
----------------------------------------
Name: Robert Batinovich
Title: Chairman, President &
Chief Executive Officer
LENDERS:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By ________________________________________
Name: _________________________________
Title: _________________________________
IMPERIAL BANK, A CALIFORNIA CORPORATION
By ________________________________________
Name: _________________________________
Title: _________________________________
FLEET NATIONAL BANK
By: ____________________________________
Name: _____________________________
Title: _____________________________
6
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed on the date set
forth above. BORROWER
BORROWER
By: GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: GLENBOROUGH REALTY TRUST, INCORPORATED,
a Maryland corporation, its general partner
By ________________________________________
Name: _________________________________
Title: _________________________________
LENDERS:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By ________________________________________
Name: _________________________________
Title: _________________________________
IMPERIAL BANK, A CALIFORNIA CORPORATION
By ________________________________________
Name: _________________________________
Title: _________________________________
FLEET NATIONAL BANK
By: /s/ EBEN R. MYRICK
--------------------------------
Name: Eben R. Myrick
Title: Vice President
7
THIS AMENDMENT TO CREDIT AGREEMENT is dated as of April __, 1997 and is
among GLENBOROUGH PROPERTIES, L.P., a California limited partnership
("Borrower"), WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), FLEET
NATIONAL BANK ("Fleet") (Wells Fargo and Fleet, collectively, "Lenders"), and
Wells Fargo, in its capacity as Agent and as a Lender.
RECITALS
WHEREAS, Borrower and Lenders are the parties to that certain Credit
Agreement dated July 11, 1996 (as amended, supplemented or modified from time to
time, the "Agreement"), pursuant to which Borrower entered into a %50,000,000
revolving credit facility with Lenders secured by a variety of Borrower's
properties; pursuant to which Borrower entered into a $50,000,000 revolving
credit facility with Lenders secured by a variety of Borrower's properties;
WHEREAS, Fleet has previously purchased from Wells Fargo a $20,000,000
portion of the Facility pursuant to an Assignment and Assumption Agreement
between Wells Fargo and Fleet;
WHEREAS, Wells Fargo has previously purchased from Imperial Bank a
$10,000,000 portion of the Facility pursuant to an Assignment and Assumption
Agreement between Wells Fargo and Imperial Bank;
WHEREAS, Borrower and Lenders desire to modify the Agreement as provided
herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Modification of LIBOR Loans Rate. Effective as of March 8, 1997,
Section 2.04 (b) of the Agreement is hereby amended and restated as
follows:
(b) LIBOR Loans. Subject to Sections 2.04(d) and 2.04(h), all
LIBOR Loans shall bear interest on the unpaid principal amount thereof
during the Interest Period applicable thereto at a rate per annum
equal to the sum of LIBOR for such Interest Period plus one and
three-quarters percent (1.75%). LIBOR Loans shall be in tranches of
One Million Dollars ($1,000,000) or Fifty Thousand Dollar ($50,000)
increments in excess thereof. No more than four (4) LIBOR Loan
tranches shall be outstanding at any one time. Notwithstanding
anything to the contrary contained herein and subject to the Default
Interest provisions contained in Section 2.04(d), if an Event of
Default occurs and as a result thereof the Commitments are terminated,
all LIBOR Loans will convert to Base Rate Loans upon the expiration of
the applicable Interest Periods therefor or the date all Loans become
due, whichever occurs first.
<PAGE>
2. Definition of Base Rate. Effective as of March 18, 1997, the
definition of "Base Rate" is hereby amended and restated as follows:
"Base Rate" means, on any day, the base rate of interest per
annum established from time to time by Agent at its principal office
in San Francisco, California, and designated as its prime rate as in
effect on such day.
3. No Other Modification. Except as amended herein, the Agreement
shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, this Amendment to Credit Agreement has been duly
executed on the date set forth above.
BORROWER: GLENBOROUGH PROPERTIES, L.P., a
California limited partnership
By: GLENBOROUGH REALTY TRUST INCORPORATED,
a Maryland corporation, its general partner
By /s/ ANDREW BATINOVICH
-----------------------------------
Andrew Batinovich
Its Executive Vice President
and Chief Operating Officer
AGENT/LENDER: WELLS FARGO BANK, NATIONAL ASSOCIATION
By /s/ LEZLIE BEAM
---------------------------------------
Its Vice President
Pro Rata Share: 60%
Loan Commitment: $30,000,000
OTHER LENDER: FLEET NATIONAL BANK
By /s/ EBEN R. MYRICK
---------------------------------------
Its Vice President
Pro Rata Share: 40%
Loan Commitment: $20,000,000
2
